What is an Agreement ?

[ Lord Denning ]

In a shorter term, it could be said that, an Agreement is made by the coincidence of a valid offer and a valid acceptance. In other words, a contractual agreement is said to exist while a valid offer is being followed by a valid acceptance. In order to pinpoint whether a contract is formed or not, we have to observe whether an offer has been made by one party and that offer has been accepted by the other party.Even though, it appears really simple and easy but in reality, it could be much more complicated than it looks .


In the case of, Butler Machine Tool Co vs. Ex-Cell-O Corporation [1979] 1 WLR 401 Lord Denning gave an important suggestion that, ‘the judge should provide a decision of the existence of a contract by examining the evidence not by following the strict principle of offer and acceptance’. Though many judges supported the logic provided by Lord Denning ,however, practically, it became very obvious that the honorable judges like to follow the traditional test of offer and acceptance and apply the test in relevant cases.

Essential elements for a valid contract

In order to be a contract to be valid, three essential elements must be present.Otherwise, it won’t be enforceable by law.


1) There must be an Agreement –

In other words, it is called consensus ad idem. This is completely based on the mutuality between the parties.

2) There must be Consideration-

That means both the parties are bound to exchange something to each other (opposite of gratuitous promise-A promise that is not supported by consideration) – or the quid pro quo or proof that a bargain is in existence.


3) There must be an intention to create a legal relation-

It must be intended by both the parties to be legally bound by the terms and condition of their agreement.(N.B. in case of a simple contract made either in writing or orally or by conduct must be supported by a valid consideration to be valid, because they are not made by deed.(Deed – where a form is expressed to be made by deed, in a formally written form and singed in, which consideration is not necessary.) These are the rules of formation of a contract.