A business enterprise needs to enter into a variety of contracts with a number of entities like vendors, creditors, debtors, etc., as a part of performing its business activities. One must have a sound knowledge about the basics of the US contract law, in order to understand in what way the terms of contract and legal implications arising thereupon, will affect his/her interest.
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The Contract law is governed by:i. Common laws that are laid down by the courts on the basis of analysis and interpretation of prior facts and circumstances.ii. Specific statutes of the state level jurisdictions. For example- the UCC (Uniform Commercial Code) in the US, governing the contracts of sale of goods in their respective states.What is a contract?A contract is an agreement between two or more parties enforceable by law. An agreement may be about performing or abstaining from performing certain activity or a set of activities.A contract has two elements, viz., offer and acceptance. Offer is when one person signifies to another person his willingness to perform or abstain from performing certain activity in order to obtain his assent to such an act or abstinence. Acceptance is when another person signifies his assent thereto.What is a valid contract?A valid contract is the one that possesses all the essential elements that make it enforceable by law. Essentials of a valid contract are discussed below.Essentials of a valid contract1. AgreementFor a contract to be valid, it is necessary that both the parties agree on the subject matter and terms of contract in the same sense. 2. Intention to create legal relationshipBoth the parties must have an intention to enter into a legal relationship. An agreement of purely domestic or social nature is not enforceable in the court. 3. Free and genuine consentThe consent of the parties must be free and genuine and not the one that is obtained by pressurizing them, by coercion or fraud. 4. Competency of the partiesThe parties entering into a contract must be competent to do so. The parties must have attained the age of majority, is of sound mind, and are not prohibited by any other law to enter in to a contract. 5. ConsiderationConsideration is what a party to a contract demands from another party as a price for the promise. There must be an exchange of values between the two parties. For example, Jack wishes to buy Joe’s house for $1, 00,000. Here, the amount of money is the consideration that Joe gets from Jack in the exchange of his house. 6. Lawful objectThe object of the contract must not defeat the provisions of any other law, must not be against public interest and must not be of immoral nature.Written or oral contractsContracts may be oral as well as in writing. However, it is advisable to go for a written contract, especially, when the amount of money involved or value of goods or services is substantial, there is a scope of being defrauded, it is difficult to prove the terms of contract, contracts are difficult to enforce, etc.The Statute of Frauds prevents enforcement of contracts that may be related to sale of land, sale of goods where the value of goods exceeds $500; or the contract may take more than one year to be executed.The basic knowledge of the Contract law is necessary; to be aware of one’s rights and obligations helps protect one from undesirable consequences.