Chapter One: Introduction to Commercial Law

Commercial law is a dynamic and exciting branch of legal study that plays a pivotal role in the
functioning of businesses and markets. It is a continually evolving field, adapting to the rapid changes in
commercial practices, technological advancements, and the globalization of trade. While it is flexible to
meet the demands of modern commerce, commercial law also provides certainty and predictability,
which are essential for fostering growth and stability in the business environment.

Defining Commercial Law

Commercial law is notoriously difficult to define comprehensively. Unlike other areas of law, there is no
universally accepted definition for this broad and multifaceted field. However, the essence of
commercial law can be captured by its function: it encompasses the legal rules and principles that
govern business transactions and the relationships between parties engaged in commerce.

According to the Business Dictionary, commercial law refers to the body of legal rules that determine
the rights and duties of parties involved in commerce, particularly addressing disputes arising from
transactions between buyers and sellers. It also deals with issues relating to banking, insurance, and
other commercial activities. In simpler terms, commercial law provides the legal framework within
which businesses operate.

Scope of Commercial Law

The scope of commercial law is extensive, touching on numerous areas of legal practice. The core
subjects typically associated with this branch of law include:

1. Law of Contract: The foundation of most commercial transactions, contract law governs the
formation, performance, and enforcement of agreements between parties.

2. Law of Agency: This area deals with the relationship between agents and principals, including
the rights and obligations arising when one party acts on behalf of another.

3. Sale of Goods: This area regulates contracts for the sale and purchase of goods, focusing on the
rights and duties of buyers and sellers.

4. Banking Law: It governs the operations of banks and financial institutions, including the
relationships between banks and their customers.

5. Insurance Law: This branch addresses agreements for risk management and protection against
losses.

6. Law of Business Organizations (Company Law): It regulates the formation, management, and
dissolution of companies and other business entities.

7. Intellectual Property Law: Protecting the rights of creators over their inventions, trademarks,
and creative works.

8. Taxation Law: Dealing with the legal rules governing the imposition of taxes on individuals and
businesses.

Purpose and Importance of Commercial Law

The primary purpose of commercial law is to provide a legal framework that facilitates trade and
commerce by ensuring fair dealings and protecting the interests of all parties involved. It establishes
guidelines for creating enforceable agreements, resolving disputes, and regulating business practices,
thereby promoting transparency, efficiency, and reliability in commercial activities.

The importance of commercial law cannot be overstated. It:

 Promotes Confidence in Business Transactions: By providing a predictable and structured

environment, commercial law encourages individuals and entities to engage in trade with
confidence.

 Facilitates Economic Growth: A robust commercial legal system supports innovation,

investment, and market expansion.

 Protects Rights and Obligations: It ensures that parties to a transaction understand their rights
and responsibilities, reducing the risk of misunderstandings and disputes.

The Commercial Law Course: Scope and Focus

This course on the Law of Commercial Transactions does not encompass all areas of commercial law but
focuses on key subjects to provide students with a solid foundation in the principles and practices that
underpin commercial activities. The main objective is to enable students to:

1. Understand Core Legal Concepts: Familiarize themselves with essential commercial law
doctrines.

2. Analyze Commercial Transactions: Develop the ability to examine and interpret legal issues
arising from business dealings.

3. Apply Legal Principles in Practice: Gain practical insights into how legal principles are applied in
real-world commercial contexts.

By the end of the course, students will have acquired a comprehensive understanding of the legal
framework that governs commerce and will be better equipped to navigate the complexities of business
law in both domestic and international contexts.

In summary, commercial law serves as the backbone of the global economy, providing the rules that
facilitate trade, investment, and innovation. Understanding its foundational principles and practical
applications is essential for anyone engaged in business or aspiring to a career in law or commerce.

1.2 Historical Development of Commercial Law

The historical development of commercial law traces back to ancient civilizations, where trade and
commerce formed the foundation of economic activities. The evolution of commercial law reflects the
growth and complexity of human trade over millennia.

Ancient Trade Practices

In ancient Mesopotamia, Egypt, and Greece, trade was regulated by a set of customary rules and early
legal codes. The Code of Hammurabi, one of the oldest known legal documents from around 1754 BCE,
contained provisions governing trade, contracts, and credit. Similarly, ancient Egypt’s legal system
addressed commercial transactions, including barter and the use of currency.

The Greeks and Romans further developed commercial legal frameworks. The Roman law of obligations
laid the groundwork for many modern principles of contract law. Roman legal concepts, including pacta
sunt servanda (agreements must be kept), formed the basis for contemporary commercial law.

Medieval Commercial Law

During the medieval period, the growth of trade fairs and international commerce in Europe led to the
emergence of the lex mercatoria (law merchant). This body of customary law was created by and for
merchants to govern commercial dealings across borders. The lex mercatoria was characterized by
flexibility, speed, and international applicability, making it highly effective for resolving disputes
between traders.

The law merchant influenced the development of national commercial laws, as many of its principles
were incorporated into the legal systems of European countries. Notably, England’s common law system
adopted commercial rules that later influenced the development of modern commercial law.

Modern Commercial Law

The industrial revolution in the 18th and 19th centuries brought about significant economic changes,
necessitating a more comprehensive and codified system of commercial law. Many countries began
enacting specific commercial codes. For example:

1. France: The French Code de Commerce of 1807 provided a systematic body of commercial rules.

2. Germany: The German Commercial Code of 1861 laid the foundation for modern German
commercial law.

3. United States: The Uniform Commercial Code (UCC), first published in 1952, harmonized
commercial laws across the states.

Globalization and technological advancements in the 20th and 21st centuries have further shaped
commercial law. International agreements, such as the United Nations Convention on Contracts for the
International Sale of Goods (CISG), have established harmonized rules for cross-border trade.

Conclusion

The historical development of commercial law demonstrates its adaptability and responsiveness to the
needs of commerce. From ancient trade practices to modern international frameworks, commercial law
has evolved to support the complexity and globalization of trade. Understanding its historical context
provides valuable insights into its current principles and future directions.

. Sources of Commercial Law

The sources of commercial law are the foundations from which its rules and principles are derived. They
provide the legal basis for regulating commercial transactions and relationships. These sources can be
broadly categorized into statutory sources, judicial precedents, and customary and international
sources.

2.1 Statutory Sources

Statutory sources refer to the body of laws enacted by legislative bodies that govern commercial
transactions. These statutes are codified rules that have legal force. Examples include:

 National Legislation: In many countries, commercial laws are found in specific acts or codes,
such as the Companies Act, Sale of Goods Act, or Banking Act.

 Regulations and Directives: Governments and regulatory bodies issue rules that businesses
must follow in specific industries or areas.

Statutory laws provide clarity and consistency in commercial law by establishing uniform rules that
parties must adhere to.

2.2 Judicial Precedents

Judicial precedents, also known as case law, arise from decisions made by courts in the course of
resolving disputes. In common law systems, past judgments play a critical role in shaping commercial
law. Courts rely on the principle of stare decisis (to stand by things decided), which means that decisions
from higher courts bind lower courts.

Key features of judicial precedents include:

 Interpretation of Statutes: Courts interpret statutory provisions and clarify ambiguities in

commercial law.

 Development of Legal Principles: Judicial decisions establish and refine legal doctrines that
influence future cases.

Judicial precedents enhance commercial law by providing flexibility and adaptability to changing
commercial practices.

2.3 Customary and International Sources

Customary law arises from the long-standing practices and traditions of merchants. The lex mercatoria,
developed during the medieval period, is a prime example of customary commercial law that influenced
modern legal systems.

International sources include treaties, conventions, and agreements that harmonize commercial law
across borders. Examples are:

 United Nations Convention on Contracts for the International Sale of Goods (CISG)

 International Chamber of Commerce (ICC) rules, such as the Uniform Customs and Practice for
Documentary Credits (UCP)

Customary and international sources contribute to a globalized framework for commerce, facilitating
cross-border transactions and trade.
The Somaliland commercial law history

The evolution of commercial law in Somaliland reflects its complex history, marked by periods of
colonization, union, and eventual self-declared independence.

Pre-Colonial Era

Before colonial influence, Somaliland's legal landscape was dominated by xeer, a customary law system
administered by clan elders, and Sharia law overseen by Islamic scholars. These systems governed trade
and commerce, ensuring order within and between clans.

Wikipedia

Colonial Period

During British colonial rule (1884–1960), English common law was introduced, coexisting with existing
customary and Islamic laws. The British established formal legal institutions, but local trade continued to
be regulated largely by traditional practices.

Wikipedia

Post-Independence and Union with Somalia

In 1960, Somaliland gained independence and shortly thereafter united with the former Italian
Somaliland to form the Somali Republic. During this union, Italian-based civil laws were extensively
introduced, influencing various legal sectors, including commercial law.

Somaliland Law

Post-1991 Era

Following the collapse of Somalia's central government in 1991, Somaliland declared independence. In
the absence of a formal legal framework, there was a resurgence of customary and Islamic laws to
regulate commerce. Over time, efforts were made to formalize commercial regulations, leading to the
adoption of pre-1969 laws and the development of new legal instruments tailored to Somaliland's
unique context.

Wikipedia

Contemporary Developments

Today, Somaliland's commercial law is a hybrid system incorporating elements of customary law, Sharia,
and modern statutory regulations. This blend aims to provide a stable legal environment conducive to
economic growth and international trade, while respecting traditional practices and religious principles.

Understanding the historical trajectory of Somaliland's commercial law offers insight into its current
legal framework, which balances tradition and modernity to support commerce in the region.

Chapter 2: Contracts in Commercial Transactions

3.1 Nature and Formation of Commercial Contracts

Contracts in commercial transactions are agreements between parties that create mutual legal
obligations. Commercial contracts are fundamental in business as they define the terms of trade,
services, or exchanges between businesses or between businesses and consumers. A commercial
contract must meet certain legal criteria to be enforceable.

Characteristics of Commercial Contracts:

 Legally Binding: A contract is enforceable by law when it creates obligations recognized by legal
standards.

 Intention to Create Legal Relations: Unlike social agreements, commercial contracts presume
parties intend to be legally bound.

Types of Commercial Contracts:

1. Sales Contracts: Agreements for the sale of goods.

2. Service Contracts: Agreements for the provision of services.

3. Leasing Agreements: Contracts involving the lease of property or equipment.

Formation of Commercial Contracts: The process of forming a commercial contract involves several
essential stages:

1. Offer: A clear and unequivocal proposal made by one party (offeror) to another (offeree).

2. Acceptance: The offeree’s unequivocal agreement to the terms of the offer.

3. Consideration: A price or value exchanged between the parties.

4. Intention to Create Legal Relations: The agreement must be intended to create legal
obligations.

5. Capacity: Parties must have the legal ability to contract.

The formation process typically concludes when one party makes an offer, and the other accepts it
under mutually agreed terms. Silence does not usually constitute acceptance unless specifically agreed.

3.2 Essential Elements of Valid Contracts

To be enforceable, a commercial contract must include several key elements:

1. Offer and Acceptance:

 The offer must be clear, definite, and communicated to the other party.

 Acceptance must be unconditional and correspond exactly with the terms of the offer.

2. Consideration:

 Each party must provide something of value, whether monetary, service, or forbearance.

 Consideration must be sufficient but need not be adequate.

3. Capacity to Contract:

 Individuals must be of legal age and sound mind.

 Companies must act within their powers as defined in their constitutional documents.

4. Intention to Create Legal Relations:

 Business agreements are presumed to have legal intent.

 Social or domestic agreements generally do not carry this presumption.

5. Legality of Object:

 The contract’s purpose must be legal.

 Contracts involving illegal activities are void.

6. Certainty of Terms:

 The contract must be clear in its terms and obligations.

 Ambiguities may render a contract void or unenforceable.

3.3 Breach of Contract and Remedies

Breach of Contract occurs when one party fails to fulfill their contractual obligations. Breaches may be
categorized as:

1. Minor Breach (Partial Breach):

 Occurs when only part of the contract is not fulfilled.

2. Material Breach:

 A significant failure that undermines the entire contract.

3. Anticipatory Breach:

 Occurs when one party declares their intention not to perform before performance is due.

Remedies for Breach of Contract:

1. Damages:

o Compensatory Damages: Compensation for losses directly related to the breach.

o Consequential Damages: Compensation for additional losses caused by the breach.

2. Specific Performance:

o A court order requiring the breaching party to perform their contractual duties.

3. Rescission:
 o Cancellation of the contract, with both parties released from obligations.

4. Injunction:

o A court order preventing a party from doing something in breach of contract.

3.4 Standard Form Contracts

Standard form contracts are pre-prepared agreements where most terms are set in advance, and the
other party has little to no ability to negotiate. They are commonly used in business transactions to
streamline agreements.

Characteristics of Standard Form Contracts:

 Pre-determined Terms: Drafted by one party, usually in favor of their interests.

 Non-Negotiable: Offered on a "take-it-or-leave-it" basis.

Examples:

1. Insurance policies

2. Employment contracts

3. Online service agreements

Advantages:

 Efficiency in drafting and execution.

 Consistency in terms for repeated transactions.

Disadvantages:

 May lead to unfair terms favoring the drafting party.

 Limited negotiation opportunities.

Legal Protections:

 Many jurisdictions impose regulations to prevent unfair terms in standard form contracts.

 Courts may strike down unfair or unconscionable terms.

Understanding these components of contracts in commercial transactions provides a foundational grasp

for legal professionals and business operators to manage and enforce their agreements effectively.

DESCRIPTION OF CONTRACTS: THEIR BINDING FORCE

A contract is an agreement made between two or more parties. It may also be defined as a promise
made by one and accepted by another; but the words "contract" and "agreement" are broader than
"promise." Generally, a commercial transaction between two parties consists of more than one promise,
each party promising something. However, the idea of a contract is best understood by considering each
promise as a separate contract. For example, when one party agrees to perform certain work and the
other agrees to pay for it, two contracts exist: (1) the agreement that one party shall work, and (2) the
agreement that the other party shall pay. Each party agrees to both promises. In common language,
when all promises are part of the same transaction or embodied in a single document, we refer to it as
one contract.

The importance of contracts is immense. As this book will demonstrate, every kind of business operates
as a system of contracts, with business law largely encompassing contract law. Nearly every act in
mercantile life involves making or fulfilling agreements. For instance, every sale of goods, and every
note, draft, or endorsement is a contract. The actions of a clerk or agent in business are performed
under a contract made with their employer. Similarly, a partner’s activities fulfill the agreement made
when the partnership was formed.

Freedom to Contract. A fundamental principle of our legal system is that everyone is free to make any
contract they choose, except for those prohibited by law. Our government allows everything except
what is expressly forbidden, contrasting with more restrictive systems. To determine whether
something is lawful, we examine the law to see if it is prohibited; if it is not, it is lawful. Contracts
prohibited by law are few, while lawful contracts are numerous and varied.

The Fundamental Rule of Contract Law is that every person must fulfill the agreements they make
unless a new agreement changes or abrogates it. This rule is so crucial that the U.S. Constitution
prohibits states from passing laws that relieve individuals from contractual obligations. Its fairness is
clear—if people could refuse to honor promises, trust in agreements would vanish. Without enforceable
contracts, no one would work for or pay others in advance, as parties could refuse to perform or pay.

Kinds of Contracts. Contracts are either written or oral. Written contracts are recorded on paper, while
oral contracts are made verbally. Written contracts are explicit; oral contracts may be express or
implied. An express contract is stated clearly in words, while an implied contract arises from actions or
circumstances.

Implied Contracts. These are common in business. They occur when actions imply agreement, even if no
explicit words, such as "I agree" or "I promise," are spoken. For instance, buying goods from a shop
implies a promise to pay, even if no price is mentioned. Actions can convey agreement just as clearly as
words.

Gratuitous Services Give No Claim to Compensation. There is no implied contract if services were not
requested. Otherwise, anyone could impose unwanted services and demand payment. However,
retaining benefits from gratuitous actions, when refusal is possible, can create an implied contract to
pay.

REQUISITES OF A BINDING CONTRACT

Seven Requisites. A binding contract requires six essential elements, with a seventh applicable in
specific cases. The absence of any of these elements renders a contract unenforceable. The first two
relate to the nature of the contract; the rest concern external factors:
 1. Possibility

2. Legality

3. Proper Parties

4. Assent

5. Consideration

6. Freedom from Fraud

7. Written and Signed Requirement (in certain cases)

Relating to the Nature of the Contract:

2. Possibility. A contract to perform an inherently impossible act is void. Examples include crossing
an ocean in a day. There are three types of impossibility:

1. Impossibility of nature

2. Impossibility due to external circumstances (e.g., transport disrupted by canal freezing)

3. Impossibility from personal disability (e.g., lack of skill)

Only the first type renders a contract void. Parties must foresee external risks and provide for them.
Illness, inability to procure materials, or even death typically do not excuse performance unless personal
skill is integral to the contract.

3. Legality. Contracts involving illegal activities, such as smuggling or usury, are void. Illegal
contracts are few; most commercial contracts are lawful.

Relating to Outside Circumstances:

4. Proper Parties. Contracts made by minors, lunatics, or incompetent persons are void. Such
individuals lack the capacity to contract. This restriction extends to contracts made through
agents.

5. Assent. Mutual assent is essential. A proposition not accepted by both parties is void. Assent
converts an offer into a binding agreement.

6. Consideration. A promise without consideration is unenforceable. Consideration is the value

exchanged between parties. For instance, in a sale, money is consideration for goods, and goods
are consideration for payment.

7. Fraud. A contract induced by fraud or deceit is void. True assent requires freedom and
knowledge of facts.

8. In Writing and Signed. Certain contracts must be written and signed to prevent fraud or serious
mistakes, particularly where large sums or significant obligations are involved.
 9. Performance by One Party. Even if all requisites are met, a contract is not binding if one party
fails to perform their obligations. A party cannot sue on a contract unless they have fulfilled or
offered to fulfill their part.

SUMMARY OF REQUISITES:

I. Relating to its nature:

1. Possibility

2. Legality

II. Relating to external circumstances:

1. Proper parties

2. Assent

3. Consideration

4. No fraud

5. Written and signed (where required)

Chapter: DESCRIPTION OF CONTRACTS: THEIR BINDING FORCE

Introduction to Contracts

A contract is an agreement made between two or more parties that creates legal obligations. It is
generally understood as a promise made by one party and accepted by another; however, the words
"contract" and "agreement" are broader than just a simple promise. While a promise suggests a
personal assurance, a contract refers to a formalized arrangement between parties that is enforceable
by law.

In a typical commercial transaction, a party’s promise to perform an action or refrain from an action is
accompanied by a counter-promise by the other party. Thus, in every business transaction, multiple
promises exist. For example, when one party agrees to perform certain work, and the other party agrees
to pay for it, two distinct promises exist: (1) the promise that one party will work, and (2) the promise
that the other party will pay. Each of these promises, in their own right, is a separate contract. When
combined in a single agreement, the result is one overarching contract.

The importance of contracts cannot be overstated. In every business operation, contracts form the
backbone of transactions, establishing the terms under which parties will operate. Contract law
encompasses nearly every aspect of business law, including the sale of goods, services, and the
establishment of partnerships and employment relationships. Contracts are fundamental to mercantile
life because nearly every act within it involves agreements. For example, every sale of goods, and every
note, draft, or endorsement constitutes a contract. The duties of a clerk or agent are based on
contracts made with their employers, and similarly, partners operate under the terms of their original
partnership contract.

Freedom to Contract

One of the fundamental principles of our legal system is freedom to contract. This principle asserts that
individuals are free to enter into any contract they choose, so long as it is not prohibited by law. This
freedom reflects the autonomy of individuals to engage in relationships that best suit their personal or
professional needs. The legal system generally allows for any contract unless it directly violates the law.

This is in contrast to more restrictive systems where only certain types of contracts are allowed. In our
legal system, the rule is "everything is permitted unless prohibited", which encourages more flexibility
in making agreements. As a result, individuals are afforded significant freedom to structure their
relationships and business dealings without excessive governmental interference.

However, contracts prohibited by law are very few. For instance, contracts that involve illegal activities
—such as smuggling, money laundering, or fraudulent transactions—are void and unenforceable.
While most commercial contracts are lawful, they must be consistent with the principles of public policy
and statutory law.

The Binding Force of Contracts

The binding nature of contracts is grounded in the principle that individuals must honor the agreements
they make, unless modified or abrogated by mutual consent. This principle is critical to contract law,
ensuring that individuals and businesses can rely on the commitments of others. Without this assurance,
contracts would be meaningless, and there would be little incentive to enter into any formal
agreements. If parties were allowed to breach their contracts without consequences, trust would erode,
making transactions highly uncertain.

For example, the U.S. Constitution specifically prohibits states from enacting laws that relieve
individuals of their contractual obligations. This provision underscores the importance of ensuring that
agreements are respected and enforced. The fairness of this principle is apparent because if people
were free to disregard their promises, the entire framework of business transactions would collapse.
Without enforceable contracts, no one would trust that another party would fulfill their obligations. No
one would be willing to work for or pay others in advance, as parties could simply refuse to perform or
pay.

Kinds of Contracts

Contracts can be broadly categorized into two main types: written contracts and oral contracts.

1. Written Contracts: These are formal agreements that are documented on paper or
electronically, providing clear, unequivocal evidence of the terms and conditions agreed upon by
the parties involved. Written contracts are particularly useful in transactions where the stakes
are high, such as large financial exchanges, real estate transactions, or long-term agreements. By
having a written contract, the parties ensure that all terms are recorded, and there is no
ambiguity regarding the agreed-upon obligations.
 2. Oral Contracts: These are agreements made verbally between parties, without a written record.
While oral contracts are legally binding in many cases, they can be difficult to enforce in court
due to the lack of tangible evidence. As such, proving the existence and terms of an oral
contract may become a matter of dispute, particularly if one party later denies the agreement.
Oral contracts can either be express or implied.

o Express Contracts: These are contracts where the terms are explicitly stated, either in
writing or verbally. The agreement is clearly communicated, leaving no room for doubt
about the intentions of the parties involved. For instance, if Party A promises to deliver
goods to Party B for a certain price, and Party B agrees to pay the price, an express
contract is formed.

o Implied Contracts: These arise from the actions, conduct, or circumstances of the
parties, rather than explicit verbal or written agreement. Implied contracts are common
in everyday transactions. For instance, when a customer buys groceries from a store,
there is an implied contract that the customer will pay for the goods, even though no
explicit agreement was made. The act of purchasing creates an expectation of payment,
and failure to pay would result in legal consequences.

3. Gratuitous Services: Sometimes, services are provided without any expectation of payment.
These are known as gratuitous services. Importantly, there is generally no implied contract to
pay for such services unless the recipient of the services accepts and retains the benefits
voluntarily. For example, if one person helps another with a household task without prior
request, no contract is implied. However, if the person receiving the help retains the benefit
without objecting, there may be an implied contract to compensate the person for the services
rendered.

Requisites for a Binding Contract

For a contract to be legally enforceable, certain essential requirements must be met. If any of these
elements are missing, the contract is void and unenforceable. These elements ensure that the contract
reflects the true intentions of the parties and that it complies with public policy and legal principles.

1. Possibility: The subject matter of the contract must be possible to perform. If a contract calls for
the performance of an inherently impossible act, such as crossing an ocean in a single day, it is
void. Impossibility can take several forms:

o Impossibility of nature: The act is physically impossible, such as a contract to fly

without aircraft.

o Impossibility due to external circumstances: The act may be possible, but external
factors (such as a natural disaster or force majeure) make performance impossible (e.g.,
a contract to deliver goods is void if transport routes are blocked due to a flood).

o Impossibility due to personal disability: The act may be possible, but one party may be
unable to perform due to illness, lack of skill, or some other personal disability.
Only the first type, impossibility of nature, renders the contract void. Impossibility due to external
circumstances or personal disability may not excuse the performance, unless the performance is
inherently tied to a specific person’s unique abilities or skills.

2. Legality: A contract that involves illegal activities is void. For example, a contract that facilitates
criminal activities, such as smuggling, usury, or bribery, is unenforceable. While most
commercial contracts are lawful, they must comply with the overarching principles of public
policy and statutory law.

3. Proper Parties: For a contract to be valid, all parties must have the legal capacity to enter into
the agreement. This means that individuals who are minors, mentally incapacitated, or
otherwise legally incompetent cannot form binding contracts. Additionally, in certain cases,
agents acting on behalf of principals must have the authority to bind the principal to a contract.

4. Assent: Mutual assent is a key element in forming a binding contract. Without assent, no
contract exists. Assent occurs when one party offers an agreement and the other party accepts
it, with the terms being clear and understood by both parties. If there is no mutual assent, there
is no contract. This mutual agreement reflects the principle that both parties must freely agree
to the contract's terms.

5. Consideration: A contract is only valid if consideration is present. Consideration is the value

that each party provides in exchange for the other party’s promise. For instance, in a sale of
goods, the goods are the consideration for the money, and vice versa. Consideration ensures
that both parties have a tangible incentive to perform their obligations under the contract.

6. Freedom from Fraud: A contract is voidable if one party enters into it based on fraud,
misrepresentation, or deceit. For assent to be valid, it must be given freely and with knowledge
of the true facts. If one party is deceived, and their consent is manipulated through false
statements or omissions, the contract becomes unenforceable.

7. Written and Signed Requirement: In certain situations, a contract must be in writing and signed
by the parties to be legally valid. This is typically required for contracts involving significant sums
of money, long-term commitments, or transactions related to real property. Written contracts
help to prevent misunderstandings and fraud, ensuring that the terms are clearly documented.

Performance and Enforcement of Contracts

Even when a contract meets all the requisite elements, it is not legally binding until both parties perform
their obligations as agreed. Performance is the key to enforcing a contract. If one party fails to perform,
the other party may seek legal remedies, including damages or specific performance. Without the
performance of obligations, a contract remains unenforced, and the promises made by the parties
become hollow.

Conclusion

In conclusion, contracts play an integral role in the legal and business world. They are the foundation
upon which most commercial transactions are built. Understanding the binding force of contracts and
the essential elements required for their formation is crucial to ensuring that agreements are
enforceable. A contract that meets all necessary requisites—possibility, legality, mutual assent,
consideration, freedom from fraud, and written requirements—is enforceable, providing legal
protection for the parties involved and maintaining trust in commercial relationships.