Law of Contract

8.5 The Law of Contract
A contract is a lawful agreement made by two or more persons within the limits of their contractual capacity. The law respects the right of people to agree on almost anything and will enforce these contracts provided that the contracts are not illegal, immoral or impossible to perform. As an entrepreneur, you may have to enter into various contracts in the process of forming or running your business. It is important to know the basics of the law of contract both to protect yourself and your business.

Formalities
Generally, no formalities are required to enter into a contract. Valid contracts can be made orally, in written form or even by conduct. If the intention of the parties is communicated clearly then an oral contract is as valid as a written one. However, written contracts are easier to prove in court than oral contracts.


Essential Elements of a Contract
There are several essential elements for a contract to be valid and enforceable.
These are:
1. The agreement must be lawful. An agreement must not violate statute or common law, otherwise it becomes void.
2. The contracting parties must have the capacity to contract. The person entering the contract must be able to do so. In other words, you cannot enter into a contract with a child or with someone who is mentally ill.
3. The contract must be based on reasonable and serious and intention for it to be binding. For example a verbal agreement to go to lunch does not constitute a contract.
4. Communication must take place between the contracting parties by spoken or written words, even by conduct. The communication must consist of an offer and an acceptance.
5. The contract must not be so vague that the court is unable to interpret what it means. The contract must be clear.
6. It is possible that a contract may not represent a true meeting of the minds and so may be void or rendered void. This means it does not have the reality of consent. This may mean the accepting party was unaware of the full facts or there was misrepresentation.
7. A contract must be physically and legally capable of being performed. A contract is void if it is impossible to perform at the time it was entered into. For example the contract must not be immoral.

This brief introduction to the Law of Contract is useful in helping the entrepreneur as he/she gets into various contracts for the enterprise.

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