What Is Contract Law?
As a paralegal working with a variety of clients, it is essential to have a general understanding of contract law. Contract law deals with what makes a contract enforceable—what is required for there to be a valid contract and what happens if there is a breach, or violation, of the agreement. The principles of contract law can seem overwhelming and intimidating, but with some patience, you will see that much of contract law revolves around a few basic concepts which repeat themselves.
The first principle of contract law is that the parties to the contract must have an intention to be bound to the contract. The parties must have the present intent to enter into the contract and be willing to enter into a legally binding and enforceable contract.
The second principle is that the terms of the contract must be sufficiently definite to be enforced. For example, if you were to agree to paint your neighbor’s house "sometime next spring" , a court may find that to be too indefinite to enforce. (A court could not order you and your neighbor to "sometime next spring"!).
The third principle is that consideration must be exchanged. Consideration is something of value given in exchange for something of value. A contract is not binding unless consideration is exchanged. For example, if a person offers to paint your house in exchange for payment, there is consideration. If, on the other hand, a person offers to come over and paint your house, free of charge, there is not consideration.
Lastly, we all know that capacity means to have the mental ability to enter into a contract. People who do not have capacity to contract include minors, intoxicated persons and mentally incompetent persons.
As a paralegal, it is very important to have a general understanding of contract law so you can advise your client on the essential details. For instance, without consideration, a contract is not enforceable. Or, without capacity, a contract is void. In the section of this textbook entitled "The Essentials of Contract Law", we review these basic principles for the paralegal to understand in order to provide the client sound advice.
Essential Contract Terms
The essential elements of a contract are offer, acceptance, consideration, capacity to enter into the contract, mutual assent to the terms, and legal purpose. "In this context, the offeror is the person who makes the offer and the offeree is the person to whom the offer is made." Here an offer is an expression by a person intended to have contractual effects in the future. Restatement (Second) of Contracts § 24.
"Acceptance is the manifestation of assent, either by words or by other conduct, to the terms of an offer is made by the offeree in a manner invited or required by the offer." Restatement (Second) of Contracts § 50. "Consideration is the bargain aspect of a contract." Kirtland v. Fort Dodge State Bank and Trust Co., 4d 1191, 1196-1197. A valid contract does not need to be supported by valuable consideration. A condition on which an offer or other contractual agreement would become effective. An example could be the seller saying "I will sell you my truck, if I get X dollars." If the buyer meets the condition or the buyer does not meet the condition, then the seller does not have to sell the item. "Capacity is one’s legal authority to enter into a contract." Restatement (Second) of Contracts § 12. Required to be mentally competent at time contract is formed. (Restatement (Second) of Contracts § 12). Both parties have agreed to the terms of the contract. See Restatement (Second) of Contracts § 3. The Restatement (Second) of Contracts § 1 states that "a contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law gives rise to a legal obligation."
Types of Contracts
Regardless of the name used to refer to them, the basic types of contracts are as follows: unilateral, bilateral, express, and implied. Unilateral contracts arise when one party promises something to another in return for a specific act or task to be done. A good example of a unilateral contract is commonly found in a reward offer. If a person lost his dog, placed signs up around the neighborhood describing the dog, and offered a $100 reward to the person who found and returned the dog, that would be a unilateral contract.
Bilateral contracts are the most commonly used contracts and are merely the opposite of a unilateral contract. A bilateral contract is one in which both parties make a promise to each other. A good example of a bilateral contract would be when one person sells a house for $100,000 to another person, and each party promises the other party that money will be exchanged for property.
Express contracts are those that express the intention of the parties clearly either orally or in writing. An express contract may be in implied in certain situations, but is often very clearly stated, as in the case of a written sales contract. Implied contracts, on the other hand, may not be stated clearly, such as a minor obtaining a loan without the consent of a parent, but the contract may be implied from the circumstances. An example of an implied contract would be a telephone company sending a person a telephone without the person even asking for it, or the person receiving services from a telephone company that has no written contract with the person.
In some cases, any contract (though an unenforceable contract) can be found even if it is not expressly stated in a contract if necessary to prevent injustice. As with many things in life, without the right documentation regarding a contract, there is almost always a chance of a dispute over the terms of a contract.
More importantly, all of these types of contracts can be included for legal proceedings whether by oral representation or by documentation in order to have the safest environment in which to enforce the contract.
Paralegals and Contracts
Paralegals play a vital role in contract management by helping to create, maintain, and review these agreements. According to the National Association of Legal Assistants (NALA), paralegals perform a variety of important tasks in the area of contract law, such as:
- Drafting contracts
- Managing contract execution
- Implementing and monitoring contracts throughout their lifecycle
- Negotiating changes to contracts, including pricing updates, contract extensions, or other negotiated modifications
- Drafting contract amendments
- Monitoring renewals
- Tracking contract milestones and providing timely alerts
- Identifying opportunities to reduce contract costs
- Closing contracts after successful completion
- Managing contract expirations and non-renewals
- Creating and maintaining a library of sign off forms and contract templates
Because paralegals are often tasked with managing contracts after they have been created, it is critical that they are well-versed in contract law, contract management, and their own roles in the success of contracts. For this reason, the 10th edition of Basic Contract Law for Paralegals provides paralegals with the information they need to understand the life cycle of a contract and the essential terms that must be included in every contract. A thorough knowledge of contract law and the life cycle of a contract also enables paralegals to monitor and protect their companies’ contractual interests. Additionally, the 10th edition includes chapters on consumer transactions and international contracts, allowing paralegals to expand their skill sets and broaden their knowledge to more complex contractual issues. Because paralegals act as a point of contact between clients and the legal team, it is essential that they have the information and understanding necessary to review contracts and convey legal advice to clients in the most efficient manner.
10th Edition Changes to Contract Law
As with all aspects of contract law, there are substantial changes that all paralegals need to be aware of. The legal profession is in constant movement, and the laws affecting contracts are no different. This edition goes through all of those changes in a manner that is easy to understand and follow . All of the following sections have been substantially revised or completely rewritten in the 10th edition:
• Agency Law
• Contract Capacity
• Consideration
• Statute of Frauds
• Assignment and Delegation
• Third-Party Rights
• Breach of Contract
• Remedies
• UCC Sales Law
• Electronic Contracting
• Regulation of Agency and Contracts
• International Contracts
• Selected Social Legislation Affecting Contracts
The inclusion of these updates demonstrates how flexible and adaptable the 10th edition of Understanding Basic Contract Law for Paralegals is. It allows you to be up to date on all the changes, without having to do a lot of outside research or digging. All of the most recent changes are elucidated in detail.
Contract Case Studies in the 10th Edition
What’s great about the 10th edition is that it includes an entire chapter dedicated to case studies in contract law. Students can learn much about contract law by studying case studies and comparing and contrasting how certain issues are treated in adjudicated cases in relation to how they were discussed in class. The chapter discusses:
• Cases analyzing the essential elements of contracts
• Cases discussing contract interpretation
• Cases addressing the fraudulent inducement component
• Cases addressing the discharge of contract
• The Statute of Frauds
• Contracts with minors
• Various legal theories dealing with misrepresentation, or failure to disclose material facts related to the agreement
• Illegal contracts
• Unconscionable contracts
• Contracts that violate public policy
• Contracts that cannot be performed
• Cases involving pre-existing duties
• Valid defenses to enforceability of contracts
• Remedies for breach of contract, including monetary damages and contracts to perform in the future
• Specific performance of a contract
• Equitable remedies dealing with "clean hands," reformation of a contract, and the return of money paid or property surrendered.
By analyzing these cases, the student can contrast the various stages of contract formation, the elements that must be met for an enforceable agreement, and most importantly, how courts handle the various issues and defenses that arise when there is an alleged breach of contract.
Contract Management Issues and Strategies
Effective contract management is an essential part of contract administration. An effective contract management system begins with having a system in place for monitoring and tracking each contract’s status throughout its lifecycle. A paralegal needs to ensure that all lawyers’ and clients’ contract management and administration duties are met. This includes, in part, the following:
· Monitoring and tracking the contracts;
· Coordination with all departments involved in the contract;
· Alerting the lawyers to the contract’s renewal and compliance dates;
· Noting when the contracts have been executed;
· Ensuring timely customer notifications and reporting; and
· Preparing and tracking contract milestones as well as contract reports and status for the lawyer.
An effective contract management system also enables the firm to calculate the risks of executing the contract and how to mitigate those risks. A paralegal must look at risk assessments during the planning stages of the contract drafting process. The risks include, but are not limited to, the loss of revenue, environmental regulations, liability, compliance, subcontractor non-performance, and any other identified litigations. There are six steps to a basic risk assessment: (1) identify risks; (2) assess risks; (3) rank risks in order of importance; (4) consider alternative responses; (5) analyze the alternatives; and (6) evaluate the effectiveness of the responses.
Conclusion and Additional Resources
We have covered a great deal of material in this article on the law of contracts, largely focusing on unique terms and rules that have developed over time. We have also included some of the practical pointers you need to know as a paralegal when working with contracts, such as the importance of proper execution and the exceptions to the statute of frauds. For a broader look at contract law, you may want to refer to the 10th edition of Understanding Basic Contract Law for Paralegals, by Jeffrey Ferriell. The book focuses based on traditional contract principles, but readers can apply its fundamental principles to recent developments in contract law. Beyond the 10th edition of Understanding Basic Contract Law for Paralegals, there are many resources for paralegals looking to expand their knowledge past the textbook. Many state bar associations publish their own handbooks, treatises, and other practice aids. The amount of information provided by these resources and the quality of writing can vary widely, so a perusal of your own state bar’s publications can guide you to the best materials. In addition to statewide or regional publications , many local bar associations publish guides and handbooks. For example, the San Diego Paralegal Association’s Contract Law Handbook would be an excellent resource for California paralegals, and they might well choose to work with such a publication in conjunction with the Understanding Basic Contract Law for Paralegals textbook. Local bar associations may even be willing to provide you with a copy at a discount if you don’t need to take the course to receive continuing education credit. If you have common law issues to research, then you can view the online versions of some older, classic treatises on contract law, such as Corbin on contracts or Farnsworth on contracts. These are slightly more jargon-heavy than Understanding Basic Contract Law for Paralegals, and will expect you to be more familiar with the overall principles and cases they are referencing than in a textbook that is meant to explain the fundamentals. These are just a few suggestions for supplements on contract law, so use your curiosity and do some exploring – you may well find something you enjoy that is uniquely suited to your needs as a paralegal!