A contract can be defined as a voluntarily and legal relationship between two or more parties. It binds contracting parties in legal relations through the written form of the contract as well as provides rights and responsibilities to each party in against of another. To convert agreement into a contract it must have the four essential ingredients of the valid contract such as offer, acceptance, legal consequences and consideration (Flodgren and Runesson, 2015). The present depicts essential elements of the contract without which on cannot make valid contract. It also represents the impact and effect of different type of contract upon the business aspects or activities. Besides this, it states the nature of liability in negligence and application of tort of negligence in different business situations.
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1.1 Explaining the importance of essential elements of contracts which are required to form a valid contract
In order to form valid contract parties of the contract must fulfill the essential needs of the contract. Offer and acceptance, lawful consideration, capacities of the parties, free consent, lawful object, certainty and possibility of performance are the main elements of the valid contract (Srinivasan, 2014).
For example:- Peter is the bookseller and Ronald is the customer who wants to purchase the books which is shown to Ronald by the bookseller. Peter is 24 years old and Ronald is in the age of 19. Peter offers the books to Ronald with the intention to sell it @ 24£. Once Peter has displayed the book to Ronald thereafter, he gives his acceptance to purchase the book @ 24£.
In the above case contracting parties possess all the attributes of the valid contract. The agreement which is enforceable by law is known as legal contract. Essential elements which are required to form a valid contract are as follows:
Offer and Acceptance: In order to make legal bindings there must be lawful offer and lawful acceptance is required between the two competent parties. The word lawful states that contract must required to satisfy the legal requirements which are mention in the contract in relation with thereto (Faure, 2009). In the above example Peter offeror and Ronald is the offeree. As stated in the example that Perter legally offers the book to Ronald and he give legal acceptance in relation to the purchasing of book. As per the contract act 1857 there is the legal offer and acceptance between the Peter and Ronald.
Intention to create the contract: As per the example it has been analyzed that there is an intention among the parties to the contract. As per the contract act there must be legal relationship and obligation between Perter and Ronald.
Lawful consideration: On the basis of above-cited example it has been assessed that Peter sells its book to Ronald @25£. Peter does not sell it books in king so there by he fulfills the condition of valid contract. In contrary to this, in return of amount Peter give a book to Ronald which shows that both the have lawful considerations.
Capacities of the parties: To make a contract contracting parties must be major, with a sound mind and cannot be disqualification by any law. Above cites case states that Peter and Ronald both the parties possess the capacity to make a valid contract.
Free consent: In the above-mentioned example it can be seen that both the parties to the contract are agree to build a legal relationship without any coercion, fraud, misrepresentation, undue influence or mistake.
Lawful object: In order to make a valid contract there must be a lawful object between the parties which are going to make a contract.
In addition to this, parties require to make written contract because oral contract has no evidence to prove it as a legal contract.
As per the cited example, it has identified that Peter and Ronald meet all the requirements of the valid contract and it is enforceable by law (Ten Essential elements of a valid contract. 2015).
1.2 Impact of various types of contracts
Impact of various types of contracts is a