An agreement is regarded as a contract when it is enforceable by law-Explain and illustrate.

Question: An agreement is regarded as a contract when it is enforceable by law-Explain and illustrate.


To treat an agreement as a contract, it must have legal obligation. If it is not enforceable by the law, we cannot call it a contract. There is no legal obligation for moral, religious or social agreements. An agreement to go to watch Cricket match or eat dinner together does not create a duty enforceable by law. There is no intention to create legal relation and these kinds of agreements are of social in nature. Business agreements are created with an intention to create legal obligation with the parties who are entered in to that agreement. Agreement for buying a Car for Rs.275000/- is an agreement with legal obligation and can be enforceable by law. So this kind of agreement can be treated/called as a contract. Breach of contract by either party can be enforced through the court of law provided all the documents of essentials of valid contracts are present.

It is to be noted that all obligations which are enforceable by law are not automatically regarded as a contract. Wrongful acts, braking of a decree of a court, wife and husband relationship are not regarded as a contract. Therefore, only that obligations which are arising out of an agreement, are concerned with the law of contract[1].

To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly[2].

This essay will be discussed in as well as contract and agreement, the parties to a contract which is binding must have intended to enter into legal relations.


The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rent out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the contract as well as the object of the agreement should be lawful.[3]


A contract is an agreement that is enforceable at law. The law of contract is a set of rules governing the relationship, content and validity of an agreement between two or more persons (individuals, companies or other institution) regarding the sale of goods, provision of services or exchange of interests or ownership. While this is a wide definition it does not cover the full ambit of situations in which contract law will apply. The reason for this is due to the vast number of examples in which contracts can arise in everyday life.

Contract law has been more formally defined as a promise or set of promises which the law will enforce. Another definition and a somewhat competing view, is that a contract is an agreement giving rise to obligations which are enforced or recognized by law[4].

  1. A. Characteristics of a Contract

1. There will be a promise or promises.

2. They will be made by “parties to the contract”.

3. They will create an obligation.

4. That obligation will be enforceable at law.

5. Often found in negotiations, rather than a formal document.

  1. B. Offer and acceptance analysis.


+                                  =          AGREEMENT





  1. C. Intention to create legal relation.

“To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly”[5]

Rebuttable presumptions

In social and domestic agreements there is a presumption against legal obligations

n      Balfour v Balfour [1919] 2 KB 571

n      Cohen v Cohen (1929) 42 CLR 91

n      Jones v Padavatton [1969] 1 WLR 328

Balfour v Balfour

“There are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer and acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract, and one of the most usual forms of agreement which does not constitute a contract appear to me to be the arrangements which are made between husband and wife…they are not contracts because the parties did not intend that they should be attended by legal consequences.”[6]

Atkin LJ at 578

  1. D. Offer

“The indication by one person to another of his or her willingness to enter into a contract with that person on certain terms”[7]

Essential features of an offer:

n      The offeror must intend to be bound by the offer

n      Distinguish from request for information or invitation to treat

n      The offer must be communicated to the offeree

n      The offer may be made to one person, a class of persons, or the whole world

n      The offer must contain enough information (certainty) to allow a binding contract to come into existence

  1. E. Intention to be bound.

An offer is not:

  • A request for the supply of information

F     Harvey v Facey [1893] AC 552

  • An invitation to treat

F     Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1QB 401.

F     Gibson v Manchester City Council [1979] 1AllER 972

F     Grainger & Son v Gough [1896] AC 325

Harvey v Facey

“the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at the lowest price.”[8]

Lord Morris at 556

Grainger v Gough

“transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited.”[9]

Lord Herschell at 334

{Carlill v Carbolic Smoke Ball
[1893] 1 QB 256

n      Distinguish offer from invitation to treat by looking at intention of offeror

n      Offer can be made to world at large

n      Unilateral contract – communication of acceptance not required

n      Consideration can equal detriment/effort}[10]

  1. F. { Communication

n      Offer must be communicated to offeree

n      ‘overheard’ offer or unintended communication is not an offer

n      Banks v Williams (1912) 12 SR (NSW) 382}[11]

Offeree may be a particular person or class of persons or the whole world

“It is also said that the contract is made with all the world –that is, with everybody, and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to anyone who, before it is retracted, performs the condition, and although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement.” Bowen LJ at 268, Carlill v Carbolic Smoke Ball[12]

G. All an offer needs is a “yes” to make a contract.


A contract is an agreement that is enforceable at law. A negotiated and usually legally enforceable understanding between two or more legally competent parties.

Although a binding contract can (and often does) result from an agreement, an agreement typically documents the give-and-take of a negotiated settlement and a contract specifies the minimum acceptable standard of performance.[13]


  • Fundamental requirement is that the parties have reached agreement (concluded bargain) occurs when an offer is made and that offer is accepted by the offeree
  • Courts – examine the whole course of dealings between parties – communication and conduct
  • If an objective bystander would consider a concluded bargain to have been reached, the requirement for agreement will have been satisfied

A. Offer

An expression to another of a willingness to be legally bound by the stated terms[14]

Features must be present for offer to be legally effective:

  1. Statement by offeror (A) containing stated terms
  2. Statement made to another person
  3. Offeror indicates a preparedness to be bound

Nature of the offer can vary according to whether the contract being negotiated is bilateral or unilateral.

Offers in Bilateral Contracts:

Most contracts are bilateral contracts.

“Each party undertakes to the other party to do or to refrain from doing something, and in the event of his failure to perform his undertaking, the law provides the other party with a remedy.”[15]

Offer is effective to bind both parties to perform his/her undertaking. A party failing to perform the respective promise will be in breach of contract.

Offers in Unilateral Contracts:

Unilateral contracts arise less frequently

“one party (the promisor) undertakes to do or to refrain from doing something on his part if another party (the promisee) does not himself undertake to do or to refrain from doing that thing.”[16]

  • The consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes acceptance of the offer.
  • Examples: offers of reward; offers for prizes
  • Offeree will never be under an enforceable obligation to perform
  • The obligation on the offeror to perform only arises if the offeree performs the task

B. Communication of an Offer

Acceptance must take place in reliance upon the offer. The offeree must know of the offer.

For an offer to be valid, it must be communicated to the offeree.[17] The communication must be made by the offeror or someone authorised by the offeror. Until the offer is communicated by the offeror to the offeree it will not constitute an offer capable of acceptance.

Offers to world at large

Communication may be by reading the advertisement or by the details being passed onto the offeree by another party.


If the contract is one that involves personal services, and that person dies, the parties could not have intended the option to be exercisable following death[18]

  • Conditional Contract = Enforceable
  • Irrevocable Offer = Unenforceable

C. Acceptance

An agreement is formed once an offer is accepted. [19]

Requirements for a valid acceptance:

  1. The offeree must intend to accept the terms of the offer; and
  2. That intention must be communicated to the offeror.

D. Acceptance Must Correspond to Offer

Acceptance must be unqualified; there must be no attempt to introduce new terms.

Offeree must have knowledge of and act in reliance on the offer.

Where an act is to represent acceptance of an offer, the act must be performed for the purpose of accepting the offer.[20]

A counter offer is not acceptance

The offeree must agree to all terms of the offer.[21]

E. Method of Acceptance

Whether acceptance has occurred depends on whether the offeree has complied with the requirements of the method of acceptance for the particular transaction.

Method of Acceptance Stipulated by Offeror

  • An offeror may stipulate how acceptance should take place.
  • Failure to respond in manner specified may be a bar to contract formation.
  • If offeree accepts in a manner more advantageous to the offeror, acceptance will be valid.[22]

Method of acceptance for benefit of Offeree

If method of acceptance was imposed for benefit of offeree, offeree may waive the benefit and accept in different way.[23]

Prescribed method not only method

Even if a manner of acceptance is prescribed, on a true construction of the terms, this may not be the ONLY method of acceptance that will be effective.

F. Instantaneous Communication

Acceptance must be communicated

Contract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication.[24]

Meaning of ‘Instantaneous Communication’: – telephone; telex messages; facsimile and possibly electronic communication.

G. Postal Acceptance Rule

Where circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.[25]

  • A contract will be formed when the offeree posts the letter, not when the offeror actually receives it.[26]
  • It does not affect the validity of the contract if the letter takes longer than usual to reach the offeror, or is completely lost in the post. The offeror bears this risk.[27]
  • The offeror has the option of displacing the operation of the rule by stipulating that s/he will not be bound until actual receipt of the offeree’s acceptance.

H. Who May Accept Offer

  • An offer can only be accepted by the person to whom it is made.[28]
  • An offer can be made to more than one person.[29]
  • Courts have interpreted an advertisement for a reward as an offer that is accepted by the first person to come forward.[30]
  • Test: Construction of terms

I. ‘Subject To’ Agreements

Parties may be ready to sign a contract but not able or not prepared to commit to one or more aspects of the agreement – may decide to enter into agreements ‘subject to’ the happening of a particular event.

J. Subject to Finance

Contracts for sale of land may include a clause stating that the contract is subject to ‘the purchaser receiving approval for finance on satisfactory terms and conditions’.

Satisfactory Finance

A clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly.[31]

Steps to be taken to obtain finance

Finance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval.[32]

K. Subject to Contract

Parties may agree on all relevant terms, yet make their agreement ‘subject to contract’. Often hard to determine whether the parties the parties are contractually bound before the formal contract is entered into:


High Court concluded that the case could fall into one of three categories:[33]

  1. The parties have reached finality in arranging all terms and intend to be immediately bound to perform those terms, but at the same time propose to have the terms restate in a form which will be fuller or more precise but not different in effect.

Effect: BINDING contract formed.[34]

  1. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document.

Effect: BINDING contract formed.[35]

  1. The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract

Effect: NO BINDING contract formed.[36]


The first part of the essay has examined one A contract is an agreement that can be enforceable by law.   An agreement is  an offer and its acceptance.  An agreement which can be enforceable by law must have some essential elements. According to Section 10 “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void” As per the above section, a contract must have the following elements.

1.  Intention to create legal relationship.
2.  Lawful object
3.  Agreement not expressly declared void
4.  Proper offer and it s acceptance
5.  Free Consent
6.  Capacity of parties to contract
7.  Certainty of meaning.
8.  Possibility of performance.
9.  Lawful consideration
10.  Legal formalities

It has further analysed the issue  parties entering into a contract must have an intention to create a legal relationship. If there is no intention to create a legal relationship, that agreement cannot be treated as a valid contract. Generally there is no intention to create a legal relationship in social and domestic agreements. Invitation for lunch does not create a legal relationship. Naturally, the most popular the objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the consideration as well as the object of the agreement should be lawful.[37]


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[2] To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly (Rose and Frank Co v JR Crompton & Bros Ltd).

[3] See


[5] See Atkin LJ in Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293

[6] See book name ’General limits on the use of contract’ Page no 25.

[7] See Carter and Harland, “Contract Law in Australia” 4th edn p28

[8] See book name ’General limits on the use of contract’ Page no 37

[9] See book name ’E- commerce ’ Page no 297.

[10] See

[11] See LLM in International Business Law,


[13] See

[14] See Australian Woollen Mills Pty Ltd v Commonwealth (1954),

[15] See book name ’Sourcebook on obligation and remedies’ Page no 384, Lord Diplock, United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]

[16] See, United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]

[17] See, Cole v Cottingham (1937)

[18] See

[19] See book name Contract law,’ Page no 125

[20] See, Crown v Clarke (1927)

[21]See, Hyde v Wrench (1840)

[22] See Tinn v Hoffman & Co (1873)

[23]See  Manchester Diocesan Council for Education  v Commercial & General Investments Ltd [1970]

[24]See,  Entores L D v Miles Far East Corporation [1955]

[25] See, Lord Hershell, Henthorn v Fraser

[26] See Adams v Lindsell (1818)

[27]See Household Fire and Carriage Insurance Co (Ltd) v Grant (1879)  (p.64-5 txt)

[28] See  Reynolds v Atherton (1921)

[29]See  Carlill v Carbollic Smoke Ball Company [1893]

[30]See  Robinson v M’Ewan (1865)

[31]See  Meehan v Jones

[32]See  Meehan v Jones

[33]See  Masters v Cameron (1954)

[34]See  Branca v Corbarro [1947]

[35] See Niesmann v Collingridge (1921)

[37] See, Henham, Ralph, “Back to the Future on Sentencing: The 1996 White Paper”, (1996) 39 Modern Law Review, 861.