Contract Law: A Look at the Basics

A man signs a contract with a pen in a contract law basics case
  • James Notaris

    CPA, ESQ. Legal Editor

  • Steve Longo

    Executive Editor

    In Brief:

  • Contract law deals with legal matters involving contracts between various parties and how they're enforced. 

  • It's needed to create a legal framework to protect individuals and businesses who enter into contracts.

  • Learn more about contract law basics below!

So, what’s the deal with contract law? 

 

Understanding this type of law is key for both individuals and businesses alike, as a written contract holds much more weight than a person’s words in the eyes of the law. A contract is a written agreement that’s intended to be enforceable by law. 

 

A legally-binding contract needs to contain an offer by one party, the acceptance of the offer by another party, the intent of both said parties to fully enter into a legally-binding agreement, and consideration, which is defined as something of value exchanged for the service agreed upon in the contract, usually a sum of money or product. 

 

Contracts contain certain terms and provisions that both parties must fulfill. In addition, the maturity and mental capacity of both parties entering into the contract must be proven before the contract is signed. Lawyers play a key role in contract law, drafting contractual agreements for clients and determining whether the contract has been breached by one party. Lawyers also assist with issues like legal compliance, real estate transactions, intellectual property issues, workplace agreements and employee handbooks, and the like. 

 

Here’s a quick yet detailed look at contract law basics!

What is Contract Law?

Contract law is a type of law that deals with all of the legal matters concerning the enforcement and interpretation of contracts. 

 

A prime example of a contract law case is the Coward v. Motor Insurers’ Bureau case of 1963 in the United Kingdom. Two men, Cole and Coward, had an arrangement in which Cole would ride on the backseat of Coward’s motorbike to work in exchange for money. After both men were killed in a 1963 motor vehicle accident, Coward’s widow made an insurance claim against the Cole estate, which was denied by the insurance company on the grounds that it didn’t cover backseat motorcycle riders. 

 

Despite being rebuffed, Coward’s widow then approached the UK’s Motor Insurance Bureau for damages. However, the Motor Insurance Bureau also denied Coward’s widow any monetary compensation, as the two men only had an informal agreement in place, as opposed to a legally-binding contract.

Two people sign a contract

Why Do We Need Contract Law?

Contract law is very important because it serves as protection for individuals and businesses for all legal agreements. Contract law ensures that all contracts are enforceable, meaning that if the contract is breached by one party, the other party has the power to seek damages in return. Doing so helps to hold both parties in the contract accountable throughout its duration. 

How Do You Make a Contract?

To be legally valid, most contracts need to be in agreement and have something of value exchanged for something else of value, such as services for money. 

 

To actually make a contract, all parties involved should first determine that they need a contract and research the basic requirements of contracts and contract law. They should also make sure that all parties are legally able to participate, something known as capacity. This is usually determined by a person’s age and mental competence. In most cases, only legal adults at least 18 years of age are able to enter into legally-binding contracts, though exceptions to this exist. 

 

After making sure all parties involved want to enter into a contract and have the capacity to participate, they need to take into account consideration, something of any value exchanged for the service agreed on in the contract. Usually, this comes in the form of money exchanged for a particular service. 

 

Next, an arbitration clause should be created to resolve disputes that may arise between the parties involved in the contract. After this is done, the contract should be reviewed very carefully to ensure that it has no errors, omissions, or vague language. Once this is done, both parties can accept it if they still wish to. 

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