Basic Contract Law: A Primer for Paralegals

Contract Law, Defined

Basic principles of contract law
At its most basic level, a contract is defined simply as an agreement between two or more parties that is legally enforceable. The relationship between the parties is controlled by the laws of the state in which the contract was formed. By entering into the contract, the parties agree to be bound by the provisions of the contract and by the laws of the state. All contracts must meet three key elements in order to be considered legally binding.
The first element is the offer. This is the first step of entering into a contract and establishes the terms of the agreement. For an offer to be considered valid, it must contain definite terms, be communicated to the other party, and be left open until accepted.
The second element of a contract is acceptance. It is not enough for one party to make an offer unless the other party agrees to the terms at hand. Acceptance can occur orally, in writing or by the performance of the contract. In order for acceptance to be valid, the party must accept the exact terms of the offer, without making any changes. If the party alters the terms of the initial offer, then his or her acceptance will not be valid and a counter offer has been created.
The third element of a contract is consideration . Consideration is the benefit of the bargain for the promise made by the other party. In essence, consideration is what each party brings to the table.
Another tenet of contract law is capacity. As a basic requirement for every contract, capacity is the ability of the parties to understand and consent. In some circumstances, parties do not have the legal capacity to enter a contract. Minor-or someone under age eighteen-can typically does not have the capacity to enter into a contract. The exception to this rule is that some states allow minors to enter into a contract for necessities or employment. If a minor enters into a contract that requires him or her to perform an act in the future, they have the right to void the terms of the contract. Psychologically impaired adults do not have the capacity to enter into a contract, because they cannot comprehend the subject matter of the offer. Parties who are intoxicated also lack the capacity to enter into a contract.
If all three elements of a contract are met, the contract must be in writing. The Statute of Frauds requires that certain types of contracts must be in writing to be enforceable. These include contracts to pay a debt, contracts that apply to real estate, contracts longer than one year etc.

Contractual Elements

Contract law is a body of law that governs oral agreements and written contracts, as well as transactions involving leasing services. The laws of contract prohibit individuals from breaking an agreement that has legal force. Contract law uses objective theory to determine the intention of the parties involved. Under this theory, the parties to the contract are responsible for their own actions and are presumed to understand the consequences of their actions. Unlike tort law, contract law does not use subjectivity to interpret the intentions of the parties involved. There are four elements involved in a valid contract: offer, acceptance, consideration, and legal intent. When any of these elements are missing, the court cannot make the parties follow through with the contract.
An offer communicates the willingness of a person to enter an agreement. A proposal must be communicated directly to another party and contain certain terms in order to be considered a legitimate offer. For an offer to be valid, the offeror must include the subject matter of the agreement, how the parties plan to perform the contract, and the amount of compensation offered for the contract. An offer also must have intent. The objective theory of intent means that an offer must show that the person making the offer expected the other party to rely on it. If the offer does not show an intent to be apprised of the situation, it is not a valid offer. Intent can be determined by the communication tools used by the person making the offer. Many people use factors such as email and oral statements made in person or over the phone, such as with sales personnel or contractors.
Acceptance is the indication of an intention to be legally bound by the terms of the contract proposed. A contract can be accepted orally, in writing, or through some form of conduct. A contract cannot be accepted without an offer. Although parties are not legally required to enter into a contract, if they do, they will be held to that commitment. Courts will use the subjective approach of intent when making this determination. The subjective approach of intent considers extrinsic evidence, such as the statements used by the parties when entering into the contract.
Consideration is the agreement between the parties that proves enforceability upon the contract. Consideration is the value that one person may have given up in order to get something in return, and includes money, services, physical possession of goods, or a promise to do something. Legal intent means that the parties to a contract demonstrated the intent to create a contract that involved legally binding responsibilities.

Contract Types

Contracts can be classified in many different ways. For this post, we will look at four different types of contracts. First, we have bilateral and unilateral contracts, which are differentiated based on the number of promises involved. Second, we divide contracts into express and implied, which are differentiated based on how the terms of the contract are expressed. We will discuss each type, and offer examples.
The first classification is a bilateral contract. Bi means two, so a bilateral contract is a contract that contains a promise on both sides. When you all recognized a contract existed because someone said "I give you my car if you give me $1,000," that was a bilateral contract. There was one promise on each side: "You give me $1,000, and I give you my car."
A unilateral contract is a contract where only one party makes a promise. This is what we’re all familiar with. Here’s an example: If anyone finds my cat, Lucky the Cat, and returns him to me, I will reward you $100.
This is a unilateral contract. There is only one promise: "Return my cat, and I will give you $100." There are no promises made by the person who finds the cat.
There’s another category of unilateral contract, called a "reward contract." A reward contract is a unilateral contract offered to the public at large, such as when a pet is lost. The person offering the reward is not legally obligated to pay the reward for a return of the lost item. So if you found Lucky the Cat, and kept him for yourself, you would not be obligated to pay any reward.
The second classification is expressed versus implied. Pretty much every contract has both express and implied terms. But let’s try to differentiate the two.
An express contract is when the terms are stated. An example of expressed terms is a written contract. The terms and conditions are stated right there. You can read the contract, and clearly see that it says "You are promising to buy these 10 widgets for $40" and "I am promising to sell these 10 widgets for $40."
An implied contract is when the terms are implied by the conduct of the party. I have two examples that make this pretty clear. The first example is the copier at work. Before I left my last job, the law firm had a big copier that any lawyer could use. They also had a monthly contract between themselves and the copier company for so many copies. No employee ever sat down and signed a contract saying, "I will use the copier, you will bill us for copies." However, the terms of the contract are easily implied by the job of the copier.
The second example is a little funnier. At work, when you get through half your coffee, you get too busy to care about what mug you’re drinking out of. So you’ll grab any mug from the cupboard. And your co-workers will give you a hard time if you grab a fancy mug. When they tell you, "That’s the partner’s coffee mug. Put it back," that’s an implied term of your employment. You didn’t sit down with the partner and agree "I will never grab your mug and drink from it." But everyone just knows what you can and can’t do, and that’s an implied term of your employment and relationship.
So there you have it: the various ways contracts are classified. I’ll cover other types of contracts in future blog posts. We’ll look at contracts that have to be in writing, agreements that don’t amount to contracts, and contracts that violate the statute of frauds.

Paralegal’s Role

As a paralegal, your role in contract law is integral to the success of the legal team. In contract preparation, you may be tasked with drafting the initial agreement, incorporating terms and conditions as discussed between the attorney and client. Thoroughness is key, as a poorly drafted contract can lead to significant issues down the line.
Paralegals also play a critical role in contract review. After the attorney has drafted the contract, you must examine every aspect of the document, looking for errors and inconsistencies. You will ensure that all necessary clauses are included and that they comply with relevant laws and regulations. You also need to ensure that the contract properly reflects the intent of the parties involved. By doing so, you help prevent misunderstandings and disputes.
Once the contract is agreed upon by all parties, your job continues with contract management. You will maintain a database of contracts, monitoring them for renewal dates and other important provisions. You will also manage the risk associated with these contracts, including setting up proper records and ensuring that all required documentation is in place.
If a dispute over a contract ever arises, your management skills and knowledge can prove invaluable once again. You will research case precedent to help make your case, then draft pleadings, motions and other legal documents as needed.

Common Issues

Existing contractual relationships can sometimes devolve into disputes over obligations, whether those obligations are fulfilled, or the extent to which adequate performance has been undertaken. If the parties cannot agree, the dispute will very often require the intervention of a legal expert in the field. In order for the dispute to be fully understood, or to an extent, resolved, a legal assessment of the contract is required. In this section, we will highlight some of the more common contractual issues, and how they can impact onto obligations arising.
A breach of contract may occur where the contractual performance required outwardly fails to deliver on stated obligations, implicit or explicit in either the terms and conditions associated with the contract, or the letter of agreement. A failure by either party to successfully complete said obligations can therefore adversely affect the other party’s ability to proceed with a project, service or product. A breach of contract event can become a particularly complex issue when there is a misunderstanding, and the alleged breach of obligation has not in fact occurred . This can be seen in many supplier-customer type contracts, and is why outstanding issues are handled by those with adequate legal experience to do so. Misrepresentation is rarely likely to be the basis for a contractual dispute, for the simple reason that a person unwittingly agreeing to or signing a contract does not have the benefit of having read and understood the terms of the agreement. Now, contract enforcement adds an extra layer to the legal process generally; in that, a court may well order specific action or performance upon a party, rather than making awards in the more traditional sense for financial damages by way of compensation. A defendant may be found to be unwilling to undertake the specific actions requested by the contract, whether these be to complete development, product fulfilment or service delivery. When situations such as these arise, and one or both parties are unwilling to tackle further legal action in order to resolve the matter, the contract may have to be simply dissolved, and subsequent losses apportioned based on the legal obligations already taken.

Contract Law Court Cases

Contract law has not been static. Indeed, a large portion of the history of contract law is written in the words of judges describing the importance of the contracts to the course of human history. In the words of Justice Oliver Wendell Holmes, contracts are "a very complicated, thickly populated and somewhat turbulent world."
This turbulent world has been shaped by landmark court cases and precedents that continue to impact contemporary legal practices. For example, courts have long held that a contract is an "exchange of promises" and that contract law acts as a means of enforcing those promises. While this is a true statement about contract law, it does not capture its nuances.
In the landmark case of Walsh v. National Bellas Hess Inc., Justice Robert J. Miller of the Illinois Appellate Court described the history of contract law: "The general rules concerning contracts are that an agreement must be definite and certain, and must be made directly or impliedly. For an agreement to be definite and certain, it must give an individual some way of ensuring that the other individual will perform on the contract. Historically, contracts were entered into under seals and were required to contain consideration. The seal was evidence of a contract had been entered into, while consideration was something that an individual had in order to make the agreement a reality."
The definition of contract law continued to evolve, and in the 1960s, contracts law began to focus more closely on the intention of the parties entering into a contract. As Justice Miller continued, "Contract law shifted because of the limitations of past contract law and as the result of the Uniform Commercial Code. For a contract to be legally binding, there no longer had to be a seal or consideration, only that a contract can be exhibited as an agreement made by individuals where both parties had the intent to enter into a contract. In modern contract law, ‘an agreement is enforceable if it is a manifestation of intent from individuals to enter into a contract.’"
Contemporary contract law is defined by the principle that a contract is an exchange of promises and that a contract is legally enforceable if it is drafted with the intention of creating enforceable obligations. By understanding the manner in which the word of judges and the legal history of contract law has come together to create a modern body of law, paralegals can better understand the foundations upon which modern contract law has been built.

Paralegal Tips for Contract Work

Tips for Paralegals
Review contracts for any errors and omissions, including legal typographical errors in dates, wrong parties, proper spellings, wrong reference numbers in clause numbering, etc. At some point you will be responsible for them. Ascertain that all blanks are filled in, clauses and sections are numbered and the contract is complete. Check for all appropriate exhibits and attachments and make sure they are complete. If the name of the contract is not spelled out on the cover page, be sure to hand write the full name and not the abbreviation! This might seem trivial, but it happens frequently and causes other parties to believe that the signer is not really cognizant of what he/she is signing. It may also cause the signer to leave the sign off of the contract. Make sure your cover page matches any agreement numbering system used by either party. Be sure that all contracts are signed, dated and stamped (if required by your employer.)

Conclusion and Additional Resources

In conclusion, a basic understanding of contract law is essential for paralegals as it forms the foundation not just for work in the private sector, but also in the public sector. It prepares paralegals for the real-world task of preparing contracts, gathering the various parts together and getting the client to understand the contract terms. All these skills are essential, especially in civil litigation , again preparing the paralegal to do the grunt work of law and assist attorneys with their client’s cases. There are a variety of ways to expand your knowledge of contract law. For basics, both the free online courses offered on Coursera or FutureLearn and the Maryland Paralegal Association’s Guide to Contract Law are excellent starting points. For more advanced learners I highly recommend Lawrence Cunningham’s Business Law For Dummies and The Law Of Contracts And The Uniform Commercial Code for a paralegal working in general corporate.