What is contract law?

Whether it’s a business arrangement or bringing in a new roommate, both parties want an agreement in place to protect them if something goes wrong. They usually turn to contracts — agreements that lay out terms and conditions both parties must meet. If one party fails to hold up their end of the agreement, the other party can take them to court to recoup their losses.

Contract law is the legal area that focuses entirely on drafting and enforcing contracts.

Various types of attorneys will list contract law as a specialty, since contracts are involved in so many different types of transactions. In-house counsel for corporations, business lawyers, real estate lawyers, and other transactional attorneys (as opposed to litigators who primarily engage in court battles) specialize in contract law in one form or another. A real estate lawyer, for instance, specializes in purchase and sale agreements and other contracts related to buying or selling real estate.

In most states, contract law is governed by common law, which is based on court decisions. However, Louisiana relies on civil law, which means contracts are governed by the direct interpretation of laws on the books, not on court decisions that have interpreted provisions in the law.

Overall, contract law is very similar throughout the United States, although some state courts have interpreted various elements of contracts differently. Most states have adopted the Uniform Commercial Code. The primary articles in the UCC that deal with contract law are Article 1, General Provisions, and Article 2, Sales.

Contract law is also governed by the agreement the parties have in place. These agreements may override state law in some cases. For example, the UCC sets a reasonable price default if the parties to a contract don’t specify how much an item will be sold for. However, the price set in the contract overrides the UCC’s price default.

Because most contracts are governed by the law of a particular jurisdiction, they usually include a clause about which jurisdiction that is. For example, a contract between a party in New York and a party in Texas could specify that any disputes will be handled in a Texas court.

The goal of contract law is to put in place a way for parties to resolve disputes and regulate the obligations they’ve entered into as part of their contracts. Most of this is self-regulatory and doesn’t require the courts to intervene when parties meet their obligations.

The courts rarely consider whether the contract is fair; for example, if your friend offers you $5 to create their website, and you do it, the courts only care that you agreed to create the website and performed the duties, not whether that was a fair deal. Only if there’s been an abuse of power, like your friend got you to agree to design the website when you were inebriated, will the courts declare the contract unenforceable.

Every day, people unknowingly enter into contracts because not all contracts are written down and signed. Oral agreements and conduct agreements can be just as valid as written contracts.

For example, when you buy a coffee maker from the store, by taking your money, the manufacturer of the coffee maker and the store are agreeing that you can take the coffee maker home and that the coffee maker will work as intended. This is a very simple conduct contract.

Another example of a potentially enforceable contract is if you verbally offer to pay a friend $200 to paint your living room. The friend completes the task, and because you made a verbal agreement, you’re obligated to pay your friend the $200. However, it’s one party’s word against the other’s, which will make it difficult for your friend to prove that you owe them $200 if they take you to court. This is why many people prefer to get contracts in writing and signed by both parties before commencing work.

Contract law can be difficult to understand, as there are a lot of different doctrines and exceptions that can be applied. However, more often than not, if the terms and conditions are laid out clearly in the contract, and both parties enter into the agreement freely and willingly, the courts will enforce them. Trying to use an obscure provision of contract law to get out of a deal will likely just annoy the court.

But due to the differences between states and the serious nature of some contracts (like for purchases of large ticket items), you should consult a licensed attorney in your jurisdiction before entering into a contract.

For more information, check out our complete guide on how to write a contract.

This article is originally published on Dec 05, 2019, and updated on Jul 01, 2021.

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