Contract law is the body of law that relates to making and enforcing agreements. A contract is an agreement that a party can turn to a court to enforce. Contract law is the area of law that governs making contracts, carrying them out and fashioning a fair remedy when there’s a breach.
Anyone who conducts business uses contract law. Both companies and consumers use contracts when they buy and sell goods, when they license products or activities, for employment agreements, for insurance agreements and more. Contracts make these transactions happen smoothly and without any misunderstandings. They allow parties to conduct their affairs confidently. Contracts help make sure that the parties to a transaction are clear on its terms.
How do you form a contract?
A valid contract has four parts:
First, one party must make an offer. They must state the terms that they want the other party to agree to. If the other side agrees to the terms of the offer, the other side may accept it, and the contract is complete.
Accepting another party’s offer makes a contract complete. The party that accepts the offer must accept it on the same terms as the terms of the original offer. They must make sure that the other side knows they accept it.
If they propose different terms, there’s no contract. Instead, their terms are a counteroffer. It’s then up to the first party to accept the counteroffer or propose another counteroffer.
A valid contract requires each party to give something up. That’s called consideration. For example, in the case of an employment contract, one party agrees to give up money, and the other party agrees to give up labor. A contract is a two-way street with each party giving up something to get something else that they want.
Mutual intent to enter into an agreement
To have a valid contract, both parties must intend to be bound by the contract. If a document says that it’s only a statement of intent, the parties may not have a mutual agreement to enter into a contract. Informal agreements between friends often fall into this category.
Typically a promise or an offer of a reward in exchange for certain behavior creates an enforceable contract with the person who undertakes the activity. For example, if someone offers a reward for information that leads to an arrest for a crime, the person who provides the information can seek enforcement of the reward. On the other hand, an advertisement is not a contract without an additional, personalized invitation from the seller for the buyer to buy the good.
A contract can be implied. For example, a person who seeks medical treatment has an implied contract with the doctor who treats them to pay a reasonable charge for services. Likewise, a person who orders dinner at a restaurant has an implied contract to pay for the meal that they order.
How do the courts interpret a contract?
To interpret a contract, a court looks at the clear language of the contract from the viewpoint of an objective and reasonable person. If the contract isn’t clear, the court may consider outside evidence including outside statements and the behavior of the parties. It’s best to put a contract in writing, and the statute of frauds may even invalidate some contracts.
Choice of law and jurisdiction
When lawyers create contracts and handle contract disputes, they should be aware of choice of law and jurisdiction issues. Choice of law means the state law that the court uses to interpret the contract. Because most contract law is state law, choosing to litigate a contract dispute with the laws of one state over another can completely change the outcome of the case.
Lawyers should carefully consider whether to incorporate a choice of law provision into the contract at the time of drafting. They should also be careful when they choose a jurisdiction to bring a contract dispute. Because the rules vary in each state, these considerations can have a large impact on the outcome of a case.
Breach of contract
When there’s a disagreement about the terms of a contract or when there’s a breach of contract, the parties might involve a court to resolve the dispute. The party seeking damages must prove that a valid contract exists. They must also convince the court that there’s an appropriate remedy.
Remedies available for breach of contract
There are several remedies that a party might ask a court to impose for a breach of contract. The most common is compensatory damages. These are the real, financial losses that a party has because of the breach of contract. If the parties agree in advance about damages if a breach occurs, that’s called liquidated damages. When a breach occurs without any real damages, the aggrieved party can still get a small amount of damages. That’s called nominal damages.
In some cases, a party acts very poorly and inexcusably to breach a contract. When that happens, the court may award extra damages called punitive damages. However, this is rare. It’s also rare for a court to order the parties to perform the contract. That might happen in a case where compensatory damages are inadequate like in a contract of sale for a rare item.
Emerging issues in contract law
Contract law grows and changes just like any other body of law. In recent years, the validity of electronic signatures on a contract has become a relevant and disputed issue in contract law. The practice of contract law includes identifying emerging issues and advocating for changes and extensions of law in order to allow the client to conduct business in a convenient and favorable way.
Who practices contract law?
Lawyers throughout the United States practice contract law. A lawyer might specialize in contract law in private practice, or they might work for a corporation as in-house counsel. Contract lawyers work as solo practitioners, and they work at the largest law firms in the country. They might handle contract law exclusively, or they might handle contracts as part of a diverse practice. Even general practice attorneys who primarily handle unrelated matters are usually called on by a client to look at a contract matter at least a few times in their career.
Lawyers create contracts
To practice contract law, lawyers should know how to draft and evaluate contracts. They should know the state law that applies to contracts. They should be aware of issues like choice of law, jurisdiction for enforcement and mandatory arbitration clauses. Practicing contract law means knowing how to draft a contract that’s enforceable and that also has terms that are acceptable and valuable to the client.
Lawyers handle contract disputes
When a contract dispute arises, lawyers work to help their client resolve the matter and advocate for the best possible result. Sometimes that means writing demand letters and contacting the other party in order to work towards a resolution. In other cases, it means litigating the matter in court. Some contract disputes rely on arbitration and mediation. Lawyers who practice contract law might do some or all of these tasks on behalf of their clients.
Why become a contract lawyer?
In a contract, words have meaning. Each word is important and even critical. For lawyers who like writing and enjoy the details, contract law is a good choice.
When disputes happen, lawyers who enjoy litigation and conflict resolution can help deserving clients navigate these disagreements. Contract lawyers help people and companies conduct business. It’s important work. The work is often ongoing or repeat, so whether you work for yourself, a law firm or as in-house counsel, a focus on contract law is often the cornerstone of a sound career in the law.
Making a business out of doing business
Contract law allows people to conduct business. Contracts are an important, daily and common part of business and economic activity. Lawyers who draft and negotiate contracts help their clients conduct business on good terms.
Lawyers help clients understand the meaning of proposed contract language so that their clients can make the best possible choices. When there are contract disputes, lawyers help their clients resolve these disputes favorably. At each stage, contract lawyers help businesses and individuals perform transactions in a sound and beneficial way.