Meaning of a legally binding contract and its significance in business

Defining a Contract and its Legally Binding Elements

Any agreements enforceable by law are a contract in a sense. However, not all agreements are contract which are not enforceable by law.

The conceptual meaning of a contract can be defined as “the sum of all transaction and interaction that have taken place between two parties both before and after the actual award of a contract." (Saxena, 2008, p. 5) A contract thus consists of an actionable promise. Every such action promises involves two parties consents, and the intention is to create a legal relationship.

Assimilating these notions we can again further imploded upon the fact that a contract is a “set of documents which is governed and restricted by law and clearly establishes the boundaries, extent and intent of the executing parties and their relationship along with the rights and responsibility of the entities involved", assert Saxena, (2008, p.5) a renowed writer and solicitor.

Assimilating this fact, we can reason that business agreement that is legally binding should fulfill the following conditions:

Competent parties

Free consent


Lawful object and lawful consideration

Agreement must not have been declare void

Agreement must be in writings or in the presence of a witnesses or should be registered if provided by law

The abovementioned conditions denote a business agreement and composed some key ingredients that are necessarily required before valid contract can be entered into between consenting parties.

Rules of an Offer and Acceptance

From a business perspective, rules of an offer or an acceptance can be simplified and explained in a sense that the “conventional legal analysis of a contract focuses on three essential elements – first is offer and acceptance, second is consideration and third factor is the intention to enter into a legal relation" says Gillies (2004, p. 143)

Keeping these features in mind, we can assimilate the overall concepts of a rule of an offer and agreement together. However, to be precise, “rules of an offer and acceptance are often acknowledged as one of the two supposed parties to a contract must have offered to enter into a contract on certain terms and conditions, and the second party must have willingly accepted the proposal thereof to make the Rules of Offer and Acceptance legally viable, asserts Gillies, (2004, p. 143)

Requirement for an intention to create Legal Relations

While a contract is being formed direct “intention to create a binding contract should always be there. For a contract to be legally binding an intention on the part of parties concerned also should be present.

The element of a legally enforceable contract is to create a “legally binding agreement under certain terms and conditions as per the applicable laws that gives parties a considerable space and time to reach a conclusion in any matter thereof" states Gillies, (2004, p. 184) which also comes and cover up as a means to create legal relationship and its requirement between parties.

Meaning and Importance of Consideration

Considerations are an important aspect of a contract. Without consideration, there are no substance and essence to the meaning of a contract. The significant factor of a contract to be present in an agreement in all circumstances is a consideration, so that it can be legally enforced and is recognized by law, either be it in UK or elsewhere.

A consideration in simple notion of the term “involves the aspects and act of a party on behalf of the other party, as a means to securing the other party adherence, obedience and direct consent to the contract," (Gillies, 2004, p. 163) in place.

The Importance of legal capacity for a Binding Agreement

For a contract to be legally binding the following essential elements should be present or exists in all instance, says Baker (2007), a veteran solicitor and legal author.

Offer and acceptance as the first consideration

Second aspects is the Intention to create legal relation, as discussed in brief above

Third is the capacity of the parties, that is to say, each party must have a legal capacity to make the contract

Furth is the consideration, followed by a consent that is or must be genuine

Finally, Legality of an object which conclude with the possibilities. ( p. 103)

Thus, to reason on our assessment of a valid and legally enforceable contract, we are of the opinion that factors such as the one listed above must be present in all strata, given that it is very significant as a means to make a contract legally binding, or else the contract will be either legally void, or unenforceable in any given situation and not recognized by laws.


1. Advising Susan who does not intend to work for Ahmed

It is clear that Susan does not intend to work for Ahmed, a doctor. Keeping that in mind the following scenario, and the communication between the two, we can reason and look from a solicitor perspective that Susan decision not to work for Ahmed is reasonable enough, given that Ahmed a doctor have not gave Susan certain consideration through a legally binding contract that is enforceable by law.

It is advisable that Susan in all circumstances should do away with working for Ahmed, although the compensation agreed in verbal was decent enough. Add to it, there is no legal liability that Ahmed can take legal action against Susan in any given circumstances and under common law. There can be reason enough that Ahmed can backtracked in his verbal acceptance, and the situation can turn ugly and brings to fore the case of litigation in case Ahmed does not pay the salary agreed upon due to the missing link of a legal contract, which is not enforceable by law since there are not valid agreement and contract reached upon willingly between the two parties.

Although Susan did mentioned the lowest salary that she will accepts, however that does not mean that she is willing and gave her consents. According to contract laws applicable, for any given situations such as that in the case of Susan a legally binding contract should always be in place to derive the significance and essence of Rues of Acceptance and legally binding contract.

2. Advising Omar

In this case concerning Omar, it is advisable that Omar should not have post an offer without the requirement in order. Withdrawing intention to create legal documents is a breach of the contract and can attract legal bonds.

Thus, Omar should reach a conclusion with Tariq in the most amicable way to clarify the intention mutually, and settle misunderstanding out of court.

3. Advising Brown

Case scenario of Brown is one good example of the rules of offer and acceptance. Yet legal capacity for a binding agreement is missing, which makes it void.

Thus, it is advisable that both parties should reach a conclusion thereof in their contract for it to make it enforceable by law. Either ways, both parties also should seek legal advices for any future correspondence so as to avoid any miscalculations and misunderstandings.



Meaning and Significance of a Condition, Warranty, In-Nominate term, and Force Majeure

A condition, warranty, In-nominate and Force majeure have their own defined meaning, which is illustrated and defined as follows:-

Condition: Condition defines certain stipulated terms to lists the circumstances of clauses as recognized by the law. Conditions are an essential term. As we have defined above, the significant nature of a condition is that “parties seeking to disclaim would not have entered into a contract where it is not present in an agreement." (Gillies, 2004, p. 228) Thus, it is reason enough that a condition forms the lists that trace the factor of a contract or its provisions thereof.

Warranty: What defines warranty is the fact that it is totally a concept in legal sections “to make a distinction between conditions for a variety of purposes, says Gillies (2004). After all, warranty simple terms trace the distinction being made either between conditions and warranties in common laws applicable in UK and elsewhere.

In-nominate Term: In-nominate term can be simplified to relate the bracket of contractual term, whose nature was such that in situation of a breach in any one of them could vary in seriousness and have legal liability. And such instance that identifies and entitles itself with applicable contractual law can be understood as an In-nominate term of a contract in essence in UK and in most judicial jurisdiction around the world.

Force Majeure: Under general law and its understanding, Christopher Thomas (2006) defines Force Majeure as a factor that can mean an exceptional event or circumstance, which in any case is beyond a party’s control." (p. 361) Hence, Force Majeure in legal undertanding of the term is very tricky.

The Components that defines ‘exclusion of a liability clause’

To identify with this aspect of the discussion, it should be understood that “law is simple; however, facts that composed it are complex." (Wright, 2004, p. 8) In that essence, the components that define the exclusion of a liability clause can be focused on areas that application of its principle is complex in a sense. The component that defines ‘exclusion of a liability clause’ often takes into account the subject of rules that governs liability in any instance. In addition, liability exclusion or limitation of clauses as such also should be present. When it comes to contract interpretation, most of the time interpretations are lost in translations. Exclusion of liability clause also takes into account rules and procedures surrounding the components of a limitation, its arbitrations and adjudication, which signifies that factors that defines exclusion of liability clause have their own relevance and significances that are derived in a contractual term.

Advising Ameena

According to Unfair Contract Act terms 1977, applicable in UK, a clear distinction is made between all the legal aspects applicable for parties entered into a contract and factor of legal obligations, liability and all in between. Generally, it is applicable for consumers, however, it renders ineffective when subject to reasons alone.

Reflecting the same law to the case scenario of Ameena, we feel that Mighty Production Ltd conditions are validly incorporated into the contract, given that concert ticket procured by Ameena clearly states the conditions. Ameena reasoning alone cannot be taken as a means for filing litigations against Mighty Production Ltd, given that Unfair Contract Terms Acts clearly states the terms applicable for filing litigations against Negligence and likewise cannot be based on reason alone.

However, subject to reasonableness again, it is advisable again that negligence from the part of Mighty Production Ltd can be proven, which means that personal injury caused to Ameena carries legality for negligence from the part of Mighty Production Ltd which is what happened to Ameena who fractured her leg and can be reasonableness enough to counter-point in favor of Ameena.