Table of Contents

  1. Introduction…………………………………………………………………………………………..1
  2. Definitions……………………………………………………………………………………………..2
  3. Contract vs. Agreement…………………………………………………………………………..3
  4. Essential Ingredients of a contract…………………………………………………………….4
  5. Legal Elements of a contract…………………………………………………………………….5
  6. Voidable contracts or void contract……………………………………………………………8
  7. Conclusion……………………………………………………………………………………………..8
  8. Bibliography……………………………………………………………………………………………11

Business Law

Topic: “An agreement is regarded as a contract when it is enforceable by law”

1. Introduction:

The topic of the assignment is “An agreement is regarded as a contract when it is enforceable by law. Actually there are three essential elements to look for in the formation of a valid contract. The first essential element is Agreement. To determine whether the agreement is established or not, the court will consider whether the parties made a firm offer and the offer accepted by other parties.

As we know the essential element of contract is agreement, if we want to make a contract definitely we need an agreement between parties. And the other thing, which is important, is offer and acceptance. In our social life we always use contracts; it is a part of our everyday life. In our society contracts are a major part of human interaction. Contracts are used in our personal lives, such as in marriage or divorce, buying or selling a car or home; they are also involved in our professional lives, for example, when a corporation hires another company or agency to do work for them.

In most contracts offer and acceptance made oral or in writing. Or they may be implied by the conduct of the parties. In any contract there is two people such as offeror and offeree .the person who make offer is called offeror and the other person whom the offer made is called offeree

Most people in our society are involved in some kind of contractual agreements A contract requires agreement on the terms; consideration (usually but not always money) and an intention by both parties to be legally bound to each perform their respective promises. But an agreement may not be intended to be legally binding on the parties. This is often the case when parties want to formally record their ‘agreement’ even though they may not have concluded all the details of the entire transaction. Commonly

Such agreements may be called “Heads of Agreement” or “Memorandum of Understanding” or “letter of intent”. These latter forms are often put together to indicate good faith and ongoing commitment to each other to pursue the negotiations with a view to entering into an enforceable contract at some later stage. But an agreement ‘to agree’ (at some future point) is not enforceable and the courts have always been reluctant to step into parties’ shoes to try and work out what should have been included, but for some reason, was not.

2. Definitions of contract:

A contract may be defined as an agreement, which legally binds the parties. The underlying theory is that a contract is the outcome of “consenting minds”. Parties are judged by what they have said, written or done.[1]

Anson- A contract is an agreement enforceable at law made between two or more persons by whom rights are acquired by one or more to acts or forbearance on the part of the other or others. [2]

Salmond- Contract is an agreement, creating and defining obligations between the parties.[3]

An agreement enforceable by law is a contract.[4]

Valid Contract:

A valid contract is a contract that the law will enforce and creates legal rights and obligations. A valid contract contains all the three essential elements of information[5]

  • Agreement (Offer & Acceptance)
  • Intention
  • Consideration


Agreement is the first essential element of contract formation. A binding agreement involves a meeting of the minds and a contract may be achieved by the acceptance of an offer

Defining an “Offer”

An offer may be described as a final statement or proposal by one person (offeror) to another person (offeree). The statement of proposal is usually made on certain terms and often follows a process of negotiation

A valid offer

  • Must be communicated by the offeror to the offeree
  • May be made to a particular person , a group of persons, or the entire world
  • Must be clear and univocal
  • Must be distinguished from the mere puffs, a request for further information oran innovation to treat

Defining Acceptance:

An acceptance is an absolute and unqualified assent to all the terms that comprise an offer. A valid acceptance

  • Must be communicated by the offeree
  • Must be in response to an offer
  • Must be made while the offer the offer is still in the force
  • May be express in oral or writing or implied from conduct.

3. Contract vs. Agreement

The essential differences between a contract and an agreement are minor. In essence, a contract’s outline is more formal and more rigidly presented than the terms outlined in an agreement.

A contract is a legally binding agreement reached between two parties, the terms of which the courts have the authority and obligation to enforce. An agreement is a less formal creation of an obligation between the two parties.

An agreement usually lacks one or more of the essential elements that are required to be present in order to form a valid contract that will be considered legally enforceable by a court[6] of law.

Contracts outline the terms of the relationship that should be formed between the two parties to the contract. An agreement also outlines the terms of the relationship between the two. However, the difference is that the contract’s outline is far more rigid than that of a contract.

The essential difference between an agreement and a contract is that typically an agreement will only modify a contract that is already in place but does not place an obligation on either one of the parties to provide consideration to the other party, which a contract requires. A contract can involve the exchange of promises between the parties to the contract, while an agreement may simply involve one party accepting the offer from another party.

4. Essential Ingredients of a contract:

As per Contract Act, an agreement enforceable by law is a contract.[7] Hence, we have to understand first what ‘agreement’ is.

Every promise and every set of promises, forming the consideration for each other, is an agreement.[8] A person makes a proposal (offer). When it is accepted by other, it becomes a promise. However, promise cannot be one sided. Only a mutual promise forming consideration for each other is ‘agreement’. For example, A agrees to pay Tk 100 to B and B agrees to give him a book which is priced at Tk 100. This is set of promises which form consideration for each other. However, if A agrees to pay Tk 100 to B, but B does not promise anything, it is not ‘set of promises forming consideration for each other’ and hence not an agreement.

It should be noted that the term ‘agreement’ as defined in Contract Act requires mutual consideration. – – Thus, if A invites B to dinner and B agrees to come, it is not an ‘agreement’ as defined in Contract Act.

Meaning of ‘PROPOSAL: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.[9]– – Thus, a ‘proposal’ can be to do a positive act or abstinence from act (i.e. negative act).[10]

Meaning of ‘Promise’– When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A pro­posal, when accepted, becomes a promise.[11]– – Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is clear from the definition, only person to whom proposal is made can signify his assent. Other person cannot accept a proposal.

Promisor and promisee– The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promise”.[12]

Reciprocal promises – Promises, which form the consideration or part of the consideration for each other is called reciprocal promises.[13]

Consideration for promise – The definition of ‘agreement’ itself states that the mutual promises should form consideration of each other. Thus, ‘consideration’ is essential for an agreement. A promise without consideration is not ‘agreement’ and hence naturally, it is not a ‘contract’.

5. Legal Element of a Contract:

The essential elements necessary to form a binding contract are usually described as:[14]

  • • An Offer
  • • An Acceptance in strict compliance with the terms of the offer
  • • Legal Purpose/Objective
  • • Mutuality of Obligation – also known as the “meeting of the minds”
  • • Consideration
  • • Competent Parties[15]
  • Offer

An offer is a definite promise to be bound on specific terms. It is defined as the manifestation of the “willingness to enter into a bargain so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.” An offer does not have to be made to a particular person. A class of persons or to the world at large may make it.

  • Acceptance

Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation of assent the offer is rejected A material change in a proposed contract constitutes a counteroffer, which must be accepted by the other

  • Legal Purpose

The objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not a binding contract because the purpose for which it exists is not legal.

  • Mutuality of Obligation

This element is also known as the “meeting of the minds”. Mutuality of obligation refers to the parties’ mutual understanding and assent to the expression of their agreement.[16] The parties must agree to the same thing, in the same sense, at the same time. The determination of a meeting of their minds, and thus offer and acceptance, is based on the objective standard of what the parties said and did and not their subjective state of mind. Unexpressed subjective intent is irrelevant. In determining whether mutual assent is present, the court looks to the communications between the parties and to the Acts and circumstances surrounding these communications. The offer must be clear and definite just as there must be a clear and definite acceptance of all terms contained in the offer. Where a meeting of the minds is contested, the determination of the existence of a contract is a question of fact. If the fact finder determines that one party reasonably drew the inference of a promise from the other party’s conduct, that promise will be given effect in law.xiiTo be enforceable, the parties must have agreed on the essential terms of the contract. However, parties may agree upon some contractual terms, understanding them to be an agreement and leave other contract terms to be made later.xiv Full agreement on all contractual terms is the best practice and should be the norm. It is only when an essential term is left open for future negotiation that there is nothing more than an unenforceable agreement to agree. Such an agreement is void as a contract. Any contract or mutual understanding between parties that differs materially from the original offer is open to legal challenge. Should any component of a negotiation tend toward a final result where a contract or agreement differs materially from the offer, that component of the negotiation should cease. If the component in question is critical to the provision of a service or goods, the issuance of another offer that incorporates that component should be considered.

  • Certainty of Subject Matter

In general, a contract is legally binding only if its terms are sufficiently defined to enable a court to understand the parties’ obligations. The rules regarding indefiniteness of material terms of a contract are based on the concept that a party cannot accept an offer so as to form a contract unless the terms of that contract are reasonably certain. Thus, the material terms of a contract must be agreed upon before a court can enforce the contract. Each contract should be considered separately to determine its material terms. As a general rule, an agreement simply to enter into negotiations for a contract later also does not create an enforceable contract. Parties may agree on some of the terms of a contract and understand them to be an agreement, and yet leave other portions of the agreement to be made later.  Sometimes terms are omitted from contracts and assuming the omitted term is not an essential term, the courts have implied terms to preserve the enforceability of the contract should a legal challenge arise. A court may uphold an agreement by supplying missing terms.[17]Historically, Texas courts prefer to validate transactions rather than void them, but courts may not create a contract where none exists and they generally may not insert or eliminate essential terms. Whether or not a court will imply or supply missing contract terms will depend on the specific facts of the transaction. An example of terms that have been implied or supplied are time and place of performance.[18]

  • Consideration

Consideration is what each party brings to a contract. It is usually a promise in return for an act or another promise.  Consideration is an essential element of any valid contract. Consideration consists of either a benefit to the provisory or a detriment to the promise. It is a present exchange bargained for in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or incurred by the other party.[19] It is not necessary for a contract to be supported by a monetary consideration.

  • Competent Parties

Parties to a contract must be competent and authorized to enter into a contract.

6. Voidable Contracts and Void Contracts

An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. [20] (a) When consent is obtained by coercion, undue influence, misrepresentation or fraud is voidable at the option of aggrieved party i.e. party whose consent was obtained by coercion/fraud etc. However, other party cannot avoid the contract. (b) When a contract contains reciprocal promises and one party to contract prevents the other from performing his promise, the contract becomes voidable at the option of the party to prevent.[21] Obvious principle is that a person cannot take advantage of his own wrong (c) When time is essence of contract and party fails to perform in time, it is voidable at the option of other party. A person who himself delayed the contract cannot avoid the contract on account of (his own) delay.

Void contract

A contract, which ceases to be enforceable by law, be­comes void when it ceases to be enforceable.[22] Thus, initially a contract cannot be void. The simple reason is that in such a case, it is not a contract at all to begin with. Hence, only a valid contract can become void contract due to some subsequent events. e.g. the person dies or property is destroyed or Government imposes a ban etc. A void agreement is void as initio. It never becomes a contract. It is nullity and cannot create any legal rights.

7. What agreements are contracts?

All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful considera­tion and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. [23]

8. Void agreements

An agreement not enforceable by law is said to be void.[24]that it is not ‘void contract’, as an agreement which is not enforceable by law does not become ‘contract’ at all.

Following are void agreements

  • Both parties under mistake of fact
  • Unlawful object or consideration
  • Agreement without consideration
  • Agreement in restraint of marriage
  • Agreement in restraint of trade
  • Agreement in restraint of legal proceedings
  • Uncertain agreement* Wagering agreement
  • Agreement to do an impossible Act

9. Obligation of person who has received advantage under void agree­ment or contract that becomes void

When an agreement is discovered to be void, or when a con­tract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.

10. Conclusion

This assignment is a comprehensive review that an agreement is regarded as a contract when it is enforceable by law. A contract is a verbal or written agreement, enforceable by law, between two or more parties. Agreement, on the other hand, is a verbal or written contract that is not enforceable by law between two or more parties. We can understand from the above definitions that the two terms is mainly change in terms of law. So if we want to make any contract definitely it must be enforceable by law otherwise it will remain as an agreement.Basically agreements are commonly made over small things. It is mainly built over two parties words, there is no legal obligations. They could just be promises over small things or promises between business and groups but does not need to be legally binding. On the other hand, in terms of contract, it involves important issues where a person’s promise is not sufficient. So we can say that contract is more powerful and important than an agreement.So when two or more parties make an agreement and if the agreement is really important for those companies, they legally enforce the agreement and make that a contract. And usually a contract has written documents.However, when it only involves a personal understanding between persons and each of them inherently trust each other that they will come through with their promise, whether it is written or not, such document is still an agreement, never a contract. Thus, with an agreement, there is never a legal guarantee for a reimbursement. When they are broken, there are no legal repercussions. To help us understand these two terms, these are the examples of a contract: marriage contract, financing contract, project management contract, service contracts and building contracts and a lot more. However, in making an agreement into a contract, it needs to possess these elements. There should be a clear consent between two parties. The limitations should also be specifically written on the contract. Their legal agreement should also be legal, can be attainable and possible, as well as plausible. These are the elements in a contract: lawful consideration, offer and acceptance, certainty, intention to create legal relations, free consent, capacity of parties, lawful object, possibility of performance, not expressly declared void, and there should be writing and registration. So far so we can come into this point that without legal enforcement it is literally impossible to make a contract.


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Monahan, G (2001). Essential Contract Law, 2nd edition, Cavendish publisher, UTS Sydney

Sen & Mitra,.Commercial Law& Industrial Law

ICA,(1872)The Indian Contract ACT,5th edition. City: Publisher.

Wehberg, Servanda(1999),the American journal of internarnationallaw

Rutledge Cavendish, (2006), Contract Law, 5th edition.

Miller,CIMA one year, Business Law,

Furmston, (2007), Law of contract, 5th edition, Oxford University Press

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[1] CIMA, Fundamentals of ethics, corporate governance and business law

[2] Anson, Law of Contract.

[3]Salmond, Jurisprudence.

[4]Section 2(h) of Indian Contract Act 1872

[5] Essential contract law, Valid contract, page 2

[6] A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the law. Walker, David (1980). The Oxford companion to law. Oxford: Oxford University Press. p. 301. ISBN 019866110X.

[7] Indian Contract Act [section 2(h)].

[8] Indian Contract Act [section 2(e)].

[9] Indian Contract Act [section 2(a)]

[10][English Act uses the word ‘offer’, while Indian Contract Act uses the word ‘proposal’. Generally, both words are used inter-changeably. This is not technically correct, as the word ‘offer’ is not used in Contract Act].

[11]Indian Contract Act [section 2(b)].

[12]Indian Contract Act [section 2(c)].

[13] Indian Contract Act [section 2(f)].

[14]Buxani v. Nussbaum, 940 S. W. 2d 350, 352 (Tex App.-San Antonio 1997, no writ); and Hallmark v Hand, 885 S.W.2d 471, 476 (Tex.App.-El Paso 1994, writ denied): McCauley Fine Arts Gallery, Inc. v “X” Partners, 860 S.W.2d 473, 477 (Tex. App. – El Paso, 1993, no writ).

[15]Roark v. Stall worth Oil and Gas Inc., 813 S.W.2d 492,496 (Tex. 1991); and Federal Sign v. Texas Southern University, 951 S.W.2d 401,408 (Tex. 1997) rehearing of cause overruled (Oct 02, 1997).

[16]Weynand v Weynand, 990 S.W.2d 843, 846 (Tex. App.-Dallas 1999, pet. denied).

[17]Texas Oil Co., 917 S.W.2d at 830.

[18]When a contract leaves open the time and place of performance, the law may imply that the time of performance was to be reasonable time. Moore v. Dilworth, 142 Tex. 538, 542 179 S.W.2d 940, 942 (1944).

[19]Solomon V. Greenbelt, 812 S.W.2d 7, 15(Tex.App.-Dallas 1991, no writ).

[20]Indian Contract Act [section 2(i)]

[21] Indian Contract Act (section 53)

[22] Indian Contract Act [section 2(j)]

[23] Indian Contract Act [section 10].

[24] Indian Contract Act [section 2(g)].