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Contracts are a very important and effective part of building a relationship as well as in completion of business transactions. There are lots and lots of purpose of a contract and many reasons because of which it is important. It is the main source of building relationship and revenue for an organisation. It also helps to hold the parties to a discussed agreement with the mutual consent of all the parties to the contract. A good negotiation will surely lead to a mutual and successful result. A system for the management of contracts will help the employees in remembering that they need to frame a contract which must be approved by legal party. Once a contract is signed by both the parties, they will feel confident in the outcome because of the effective communication. A contract is said to be a binding agreement which says that one party will provide services and in exchange of that service the other party will make payment. A fast contract process will ensure that the organisation is able to make more income by signing more deals. To automate a process of contract the best way is a contract management platform. A contract is important for building trust with the other party with whom the transaction is being done.


Contract means an agreement which is enforced by law. Contract law is based upon several legal principles of which consensus ad idem is considered most important. This maxim defines that there must be a congregation of minds between the parties, i.e., there must be an agreement amongst them. An agreement consists of reciprocal promises between two parties.[i] In contract both parties are legally bound by the promise made by them, it creates security from both sides. A contract is legally binding exchange of promises or agreements between the parties that the law will enforce. The essential requirements for creating a valid contract are offer, acceptance, lawful consideration, intention to create legal relations, capacity of parties, and meeting of the minds of the parties. Contracts are nothing but forming the bonds of union between. In contracts, two things are concerned. First is concerned about the terms and conditions on which the parties agree, so that the responsibilities of all parties are clear and unambiguous. The second is to enable the resolution of any dissent as to whether the parties failed to live up to the terms agreed.


A contract helps a person to have a better vision and helps to achieve the decided goal or complete the purpose as per the agreement decided. It helps in creating a good relationship with the clients or other party. Related to this, a planning adopted to manage a contract which is legally signed with employees or partners is called as contract management. It consists of the conditions and adjustment of the terms as per the decided contract. By providing the clarity of the things required it gives the high-quality business procedure. By the help of contract, we can achieve our planned goal very easily and it can also be used as a proof if the expectation of any of the party is not fulfilled.

1. An important point of a contract is that it must be approved a lawyer and drafted legally.[ii] The main purpose behind creating a contract is in relation of the recoding of details decided which is being agreed between them by mutual consent. The services given by the third party or the monetary expectation to be met are mentioned in the contract which gives brief knowledge about it.

2. A very common problem faced in a business because of several reasons is misunderstanding. To avoid such problems, drafting of a contract is very important and both the parties to go through the mentioned rules and bound by them. It will have very severe impact on the business as the breach of contract can result into conflicts between the parties which can affect a business.

3. A contract plays a very important role in making the parties secure as it includes the time period and all the decided responsibilities. The lawful responsibility of paying the committed salary on time is of employer and he the responsibility of performing duties as given is with the employee. Any abnormality in the contract will be result into a breach of contract and any of them can take appropriate action against the breach solely. At the time of breach of contract if any party files a case against it then the contract can be taken as legal evidence.

4. NDA which is non-disclosure agreement which is included in it which protects the confidential information. As per this agreement the parties which are in the contract are not allowed to reveal any kind of monetary and business transaction among them and the other (third) person. If any of them will disclose the confidential information then that person will have to suffer as per the rules mentioned in the contract which is enforced legally by the law itself.

5. A written contract is the needed record which states the mutual consent of the information which is mentioned in the agreement made. Written contracts play an important role in protecting the interests of the parties and does not let parties to suffer any economic loss. It put pressure on the involved parties to complete their duties on time. The person who is providing the services may check the points mentioned in the contract to see if the work is progressing as agreed by them. If any issue arises between them then having a written agreement will make the enforcement much easier.

The above-mentioned reasons are for the purpose of keeping the information secure and protect them from dangerous investors. It can also protect employees when employers refuse to follow the contract rules by providing some false commitment which is sufficient for the purpose of misguiding them. As the drafting of a contract agreement is a very time-consuming process so it is always advised that taking help of a law attorney to help you through the process will be a great idea.[iii]

Here are some points which a business should include:

· If you want something to be enforceable then it should surely be included in the contract and one should make sure that it is not left out from the contract.

· Number of days which the person will have after the delivery to complete the payment and the way it must be paid.

· Under what circumstances the contract can be terminated and how to handle it. Non competent or non-disclosure clause can be included if both the parties choose to do so.

· In case if the payment is not made then the contract should include that what amount of late fee will be applied. It is suggested to investigate the contract for the purpose of making sure that you have covered everything mentioned in the contract if you can afford an attorney. Individuals and firms will not be willing to enter a contract with each other without a legal protection. contracts extend the companies brand and value. Multinational Corporation and large firms generally choose a jurisdiction for the purpose of arbitration where courts hear those cases and decide. For such cases, specialized and arbitration courts take the jurisdiction and decide quickly. Singapore is a popular arbitration centre for most of the Asian firms. Contract will increase operational efficiency and revenue. A contract can be misunderstood easily and can also become very complicated. Therefore, if anyone is struggling with a contract disputes and issues then that person should search for a lawyer to help resolve such issues and can even get help during some related disputes.[iv]


When doing any kind of work, it’s necessary and vital to have a contract. It may seem to be scared for a beginner to delve into the legal documents, but contracts are not that scary. Contracts play a vital part of building relationships . Contracts are important for the following reasons:

1. Contracts offer a written document for the full understanding of the business relations and scope of the work instead of wasting time on e-files like mails. So that no one can claim any misunderstandings later on.

2. They specify exactly what rights are being purchased and what rights are being retained.

3. Contracts are binding and legally enforceable.

4. Contracts protect both clients.

5. Contracts instruct to how to proceed to work.

6. Contracts also involves some matters like when to get paid and what recourses you have if the client goes hard on you.

7. Contracts mitigate the risk.

If deviated, they are the basis for law suits. They are the source to use the power of society and the law to ensure agreement and to mitigate misunderstandings. Do not hesitate about insisting a client works with a contract. It shows professionalism and express that you are serious about that business. If any client who refuses to proceed with contract that one should be treated suspiciously as that’s a warning.

An additional purpose of contracts is—to make the agreement so lengthy, complex, technical, and confusing that it is possible to hide all manner of outs for one party to take advantage of. There are different types of mistakes people make while attempting to form a contract. Law of Contract allows society to create real estate transactions, banking and credit systems, various types of bank transactions and dealings and agreements on employers, insurance, sales, buy and sell, deferred compensation and contingency agreements. So, an effective business law system promotes commerce and economy, which promotes efficiency and increased standards of living, which is good deed for society.

We know that, Contract law makes these agreements "enforceable", which usually means that it gives the party the power to compensate and get liquidate damages caused by the other party due to a breach of contract. A breach of which could lead to penalties if proven before a court in legal jurisdiction. The law of contracts ensures steadiness, honesty and integrity to both sides. The people who breach the contract must suffer the strict legal actions taken against them which will help to reduce the future chances of people not following the stated contract rules. Many contracts are written as per the law governing sections depending on the state in which the contract was enforced and it is the work of law to be active and act over the validity of the contract. Like, The contracts or agreements which are uncertain are void section 29 of Indian contract act.[vi]


I conclude that Contracts have many purposes and thus many different reasons for why they are important. Contracts are important because if one party needs to bring action against the other, the contract will form the basis of that action if any malicious occurs to one of the parties. The courts will look into the contract to find which terms have been breached. If the breach of contract is found then liability and punishment will be awarded. As, contracts are the proof that an agreement exists between two parties and which are legally enforce that agreement.

an active operating system is necessary to run a society smoothly. If there is no value in a promise made by person to another person, the ongoing nature of a society will come to an end. So, if there is no way to enforce a promise or recover damages occurred by believing such promise people will afraid of such promises and the development will be halted.[vii] Law of contract is significant because it gives legal enforceability to a promise. Without contract law modern business would exactly be impossible. Without modern corporations and modern markets, the quality of life we now enjoy would precisely be impossible.


[i] Bolster legal, Contract meaning, Legal Associate at Bolster Legal, [ii] (last visited on January 18, 2021) [iii] (last visited on January 18, 2021) [iv] (last visited on January 18, 2021) [v] Importance of contracts, business of illustrations website, [vi] The Indian Contract Act, 1872, s.29 [vii]Sanjeewa Welgama, does society need contract law,

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