The most important subject embraced in the division, "Commercial Law," is that of Contracts, nearly every act common to business being some form or modification of a contract.

A contract is a deliberate agreement between competent persons upon a legal consideration, to do or abstain from doing a particular thing.

Competency And Incompetency

The common rule is that any person of legal age and of a sane mind may enter into a binding contract if he does so voluntarily and freely. Common law and most statute laws fix a person's age at 21, but in a few of the states a female becomes of age at 18 or when married. Of the many conditions of incompetency or disability rendering persons incapable of making binding contracts, the following are the ones generally accepted: (1) Minority; (2) insanity; (3) idiocy; (4) alien belligerency; (5) duress; (6) drunkenness to an extent that the ordinary faculties are not in operation.

The contracts of minors are not absolutely void, but voidable, if they choose, although an infant may bind an adult to a contract. The party making a contract with a minor is bound, if he himself is competent, and cannot rescind it without the minor's consent. It is optional with the infant, only, or his representatives, to avoid the contract. For example, a minor may affirm or rescind a contract made before his majority, within a reasonable time after becoming of age. Even when a contract has been executed, an infant may disaffirm it, as in the case of a sale of an article, he may reclaim it by tendering the purchase price. However, if minors are without parents or guardian, they may be held for all contracts for necessities of life, and some authorities contend that they may be held for all contracts. Necessities of life are generally construed to mean clothing, food, shelter, medical services and an ordinary education as determined by the minor's actual condition.

Proposition And Acceptance

A proposition is a mere offer made to one person by another, and may be either oral or written. An acceptance is an assent to the offer made and completes the bargain. There can be no agreement without a proposition and an acceptance, this being legally known as "a meeting of the minds," an essential to every contract. When a proposition is made orally, in order to be binding the acceptance must be immediate or within such a time as the parties had in contemplation, unless a definite period of time in which to accept or reject is stipulated, but such proposition may be withdrawn before the expiration of the stipulated period if not accepted beforehand. If the acceptance is to be written the proposition is accepted as soon as the letter is placed in the mail or telegram is left with the telegraph company.

Necessary Elements

Every contract must contain the five following essential elements in order to be binding: (1) Parties thereto must be competent to contract; (2) there must be consideration expressed or implied; (3) a certain thing to be done or not to be done must constitute the subject matter; (4) mutual assent must be present; (5) there must exist an agreed period for the performance of the contract.

Classification And Kinds Of Contracts

The majority of contracts are included in the class parol contracts, or those not made under seal, as opposed to specialties, or those contracts, as mortgages, bonds, leases, etc., made under seal. A contract under seal is one that has a seal in connection with the signature, which seal may be a small wafer or scroll, or an imitation thereof, printed or made with the pen. A specialty contract needs no consideration either expressed or implied, as neither party can deny the facts concerning the contract. However, the seal is gradually going out of use, the law not now attaching the same degree of importance to its use as formerly.

There are eight kinds of simple contracts, given and defined as following: Expressed contracts are those positively stating the terms of agreement. Implied contracts are those the terms and conditions of which are not all either oral or written, and which in case of dispute, the law will interpret, basing its decision upon the probable intention of the parties. When the consideration is implied, the law grants what is just and reasonable. Executed contracts are those the stipulations of which have already been complied with. Executory contracts are those which are to be performed at some future date. Oral contracts are those made by means of spoken words in contradistinction to contracts in writing. Written contracts are those the conditions, terms, and other essentials of which are in writing. Joint contracts are those in which all the parties are jointly bound to support the terms and conditions stipulated. Several contracts are those binding each party to the performance of the whole obligation.

Statute Of Frauds

This statute, enacted in England in 1677 and re-enacted in part or in whole with various modifications in all the United States, states that all contracts must be in writing when, having any of the following conditions: (1) For the sale of any interest in lands; (2) leases of land, except in certain cases, for one year or more; (3) if not by their own terms to be performed within one year; (4) if made upon consideration of marriage, except mutual promises to marry; (5) to answer for the debt, default or miscarriage of another; (6) for the sale of goods, chattels or things in action for the sum of $50 or more (amount differs in different states), unless the purchaser receives a part of the thing or pays part of the purchase price, or the sale be by auction.

Besides lawful contracts, or those made in good faith by competent parties which the law will enforce, there are various other contracts not lawful and hence not to be enforced. Unlawful contracts are those in violation of the law where made and are void everywhere. Illegal contracts are those contrary to the acts of government. A contract to obstruct a lawful business would come in this class. Fraudulent contracts are those operating as an injury to or a fraud on a third person. Transfer of property before making an assignment to creditors comes under this head. Im -moral contracts embrace those opposed to the moral welfare of a community, as a contract to commit adultery, or desecrate the Sabbath, etc. The law will not rescind nor enforce an executory contract of this nature.

Interpretation And Construction

In construing contracts, the intention of the parties must govern; words are to be taken in their natural and obvious sense; when the intention is doubtful the context may be resorted to to explain ambiguous terms; the whole of the instrument is to be viewed and compared in all its parts, so that every part of it may be made consistent and effectual. Where the language of an agreement is plain and unequivocal, there is no room for construction, and it must be carried into effect according to its plain meaning. Ambiguities in deeds or other instruments are generally interpreted against the grantor, or contractor.


A person who undertakes to perform a piece of work by special contract, must perform his contract before he is entitled to his pay. If a person is hired for six months, or other definite time, and leaves before the end of it, without reasonable cause, he loses his right to wages for the period he has served. But if he is dismissed without cause he can recover for the whole term- at its expiration. It is no sufficient cause for abandoning one's contract, that he was put upon work not contemplated at the time the contract was made, but if he is prevented by sickness from laboring during the stipulated period, he may recover for his services as much as his services were worth, for the time he labored.

Specific Performance

The law side of the court cannot enforce the specific performance of a contract. It can only allow damages for the failure to perform, or for breach. On the equity side of the court, certain contracts may be enforced specifically. They most commonly relate to the sale of real property.


In general, a contract cannot be rescinded, unless by consent of both parties, except in case of fraud. A party having a right to rescind a contract, must exercise the right within a reasonable time.

Where parties agree to rescind a sale once made and perfected without fraud, the same formalities of delivery, etc., are necessary to revest the property in the original vendor, which were necessary to pass it from him to the vendee. A contract required by law to be in writing cannot be dissolved by verbal agreement.


Each party to a contract is legally bound to perform his part or pay damages to the extent of loss sustained. While it is not possible in exceptional cases for the law to compel a specific performance of a contract, it does require a money payment to the extent of injury incurred, in lieu of non-performance.