Why Are Contracts Important in Business?

Contracts establish the perimeters by which two or more parties agree to perform a certain activity by a specified date. This article highlights why this is important in business.

History

The Statute of Frauds (1666) established in English law that a contract must be in writing to be enforceable in court.

Basic Reasoning

The parties must be competent and legally sane.

The parties must be of the age of majority to be binding on both parties.

The contract must provide for an obligation-an exchange of something that is of value. The action must be offered and accepted.

The contract action(s) must be lawful.

All terms must be included in the contract, including the date of effect.

Contracts Bind the Parties

Contracts are binding on the parties even if they are only verbal. Business owners put their agreements to writing to benefit from court enforcement if necessary.

Filing Suit

Written contracts ensure each party has the ability to sue the other for specific performance. The court may force the parties to do the act(s) promised in the contract.

Know Who You Are Dealing With

Contracts are binding on legal entities such as corporations, partnerships and individuals.
It is important that officers of a company sign contracts to be binding (part of the competency test).

Parties doing business under an assumed name like "Johnny's Candy Shoppe" must identify the person signing the contract. "Doing Business As" filings are generally required and recorded in circuit courts (courts of record) providing legal identification of who is obligated.

References

• Principles of Contract Law; Robert A. Hillman; 2004
• Contracts in a Nutshell; Anthony M. Skrocki; 2006