How do the principles of contract law protect both parties involved?



To protect their interests and confirm their obligations, businesses and individuals enter into legally binding agreements, which are generally referred to as contracts. The laws surrounding contracts are complex, but that’s because they have to cover so many eventualities. Contracts govern how two parties have agreed to do business together, how stock is purchased, and how new employees are hired. For each of these arrangements or transactions, there will be a contract to outline the terms that have been agreed upon. It will also detail the potential legal ramifications for either party if they attempt to break the terms of the agreement.

principles of contract law

Although there is a precedent in law for verbal contracts, in most cases, businesses will use a written agreement because it can be copied, passed to any interested party, and then referenced later, should the need arise. Furthermore, as all the information that makes up the contract is presented in black and white, there is little or no room for ambiguity or interpretation. This makes a written contract easier to enforce, if necessary.

Depending on the size of a business, it may enter into hundreds, if not thousands, of different contracts each year. To handle the negotiation and execution of these and to ensure that their interests are protected, many will turn to legal experts. Professionals with experience in contract law are always in demand, and this can be a great specialization for people with an interest in the legal system. Working graduates who are planning a career in law and want to expand their skills can pursue a course in online learning. Flexible courses such as these give future contract lawyers and attorneys the chance to qualify without compromising their personal or professional lives.

Providers such as Cleveland State University are at the forefront of delivering quality remote learning opportunities for law students at a reasonable price. Its part-time online JD programs combine weekend residencies with a rigorous program of study and offer students the chance to graduate in just over three years.

What types of contract law are there? 

Contract law borrows from common law, and it is often informed by decisions made at a judicial level. Although the basic aspects of contract law are consistent throughout the US, states can interpret the nuances differently and choose to enforce or rescind a contract based on slightly different criteria. However, the key tenets of contract law are outlined in the Restatement (Second) of the Law of Contracts, a treatise completed in 1979.

Furthermore, some states have created statutes that can impact how a contract is interpreted and whether it has to be in writing for courts to intervene. As a result, not every jurisdiction in the US will manage issues related to breaches of a contract in an identical way. The parties who are involved in negotiating an agreement in the initial stages will need to choose a jurisdiction and, therefore, a set of laws that will apply should a dispute arise. This area of contract law is called law provision, and most individuals and companies will choose the jurisdiction of the state in which they live or are headquartered.

Law provision will determine the state and, therefore, the substantive law that governs contractual issues, but procedural concerns, such as where the lawsuit is filed, remain unchanged. Businesses can also add forum selection clauses to contracts to lay out their preference for where a lawsuit is filed and whether it would result in litigation or arbitration. However, historically, not all courts have enforced forum selection clauses, especially if they are seen as going against public policies.

What does contract law cover? 

Contract laws cover how contracts are produced in the initial stages of creating an agreement. They also cover how the terms of the contract will be enforced should something go wrong or should one party feel that the conditions have been breached. Specifically, contract law informs how contracts are written, what information they must contain for a court to consider them a legally binding agreement, and who is entitled to enter into a contract. These laws also set out what the implications will be for a party that breaks the terms of an agreement and what is expected of the people who act as signatories, also known as the parties.

In essence, contract law sets out the rules that relate to when contracts are formed in the eyes of the law, whether they can be enforced, and what can be done when a party claims that there has been a breach. To cover every base, when a contract is written up, it must involve three key principles. These are the offer, the acceptance, and the consideration, or value, involved. Courts will ascertain whether these components are present before considering a document or a contract and taking any enforcement action. Here’s a closer look at each.

The offer 

In this initial stage of the contract negotiation, a party will agree to do something or maybe not do something. This constitutes the offer. It should be written in a way that’s clear and would suggest a binding contract to any reasonable person. The request presents terms from one party to another and will involve a clear declaration of intent. It includes information on who can accept the contract and what will be provided – goods, services, or something else. The terms of the offer will cover what will be provided in return and details of how the exchanges or the single exchange will take place.

The acceptance 

Once the offer is made, the contract must demonstrate that there has been an acceptance, and there are three ways of doing so. It can be achieved through a written statement that confirms that the offeree agrees to abide by the terms of the contract once they enter it. A single action ensures other agreements. This could be as simple as clicking a link on a website, but it should only be done once the deal has been read and understood. Acting constitutes agreeing to the terms as they are set out. Finally, without effort or words, a contract can be accepted through performance. For example, after receiving a delivery, the business uses the goods to manufacture its products. In doing so, it has performed an action that constitutes entering into a contract.

The consideration 

As part of the contract, a value must be presented for consideration. This may be a financial review – a loan or property for delivered goods or services when a business agrees to carry out maintenance works, for example. Money does not have to be involved, and some contracts do not specify the consideration category. Rather, it just involves one party agreeing to provide something of value to the other, and as a result, the review is in place, and the contractual form has been made.

What other matters are taken into account by contract law? 

The offer, the acceptance, and the consideration form the basic principles of contract law. However, even with each of these in place, a document can still be rejected by a court and not seen as legally binding. Along with following the set structure, it needs to observe other requirements. These include the following.

Observation of public policy

The laws of the land override legal agreements, and contracts must conform to US law to be valid. Contracts that go against public policy or involve an illegal act are, inevitably, non-binding and will never hold up in court should one party choose to pursue an action.

The ability of all parties to consent

Every party who signs a contract should be able to give their consent. This is a fundamental aspect of the contractual agreement. To be eligible to provide support, a person must have what lawmakers call the ‘capacity’ to enter a contract. Anyone who is under 18, adults with mental incapacitation, and people who are under the influence of drugs or alcohol when they sign are not considered to have the capacity. Therefore, any contract they become part of will be automatically voided by a court.

The giving of consent by all parties 

For a contract to be valid, each signing party must fully understand what they are entering into and agree to its terms. The signatories can only give their genuine consent to the terms of a contract if they know what the agreement entails in terms of what is expected of them and what they can expect in return. Arrangements designed to misrepresent what is being offered and those that contain mistakes prevent any party from giving their consent in a genuine, legally binding way. This is true whether the errors were placed in the contract by accident or were deliberately added to mislead one of the parties. As a party was misled, the contract will be nullified by a court, as it would consider that the actual terms were not understood and therefore not agreed with.

How does contract law protect the interests of both parties?

Contract laws affect how a court will interpret the agreement that forms part of the initial contract between two parties. It’s in place to protect their interests, so when one side believes that the other has breached one or all of the terms or failed to hold up their side of the deal, they can act. In legal terms, the side that feels wronged is often called the injured party or the plaintiff. They can seek legal help when it comes to rectifying the problem and figuring out how to move forward in the aftermath.

Frequently, if only part of the contract was breached or if the issue is not sizable enough to justify a legal action taking place, the parties go their separate ways, and the contract is nullified. However, suppose the injured party has suffered significant losses or been negatively impacted in another way due to the breach. In that case, they can seek compensation from the other party or attempt to enforce the contract through legal channels.

In the first instance, this will often involve arbitration, as agreeing to a settlement after a period of negotiation is usually less costly for everyone involved, and it can be completed in far less time. If this fails, or if the injured party is intent on pursuing litigation, they can do so, provided that the contract has a resolution clause that allows for such action.

The initial stage in this more advanced process is filing a lawsuit at the local court. Once the court has all the relevant information, it will decide whether the contract can be enforced in the way that the injured party hopes. The court can also make a ruling on whether the contract is valid. Once these two decisions have been made, the court will look at whether the defendant broke the terms of the agreement and if, as part of this process, the plaintiff suffered an injury or loss. Often, incurred losses are financial, and these come about because the plaintiff had expectations that were not met. If the court rules in their favor, several remedies can be applied to protect the injured party. These include the following.


As a way of compensating the plaintiff for their experience and putting them back into a similar position to what they were in before the contract, the court may award damages. These can relate to the expenditure that has been wasted or the loss of expectations. If the contract mentioned liquidated damages, a fixed sum agreed upon may be awarded. If the financial failure is deemed slight or non-existent, nominal damages are awarded to mark the plaintiff’s legal victory.

A permanent or temporary injunction 

Injunctions are granted by courts when the circumstances of a contract breach are exceptional. They come in two forms. A prohibitory request is designed to stop a party from acting in a specific way, while a mandatory request compels a party to do something. Both of these rulings can be made on a permanent or a temporary basis. When parties cannot resolve a dispute that arises from a breach of contract, temporary injunctions can prevent further harm from being caused (or potentially being caused) until the two sides have come to a resolution. In other cases, when there is no hope of a mutual agreement, the injunction stays in place until the court has made a final ruling.

Performance of a contract  

Some contracts have a performance clause. This comes into play when one party has specific terms to fulfill as part of the contract, but they fail to do so. Courts can compel the party to perform that action they agreed to, as per the contract. This could involve building a house, agreeing to a sale, or some other activity that the plaintiff expected. In these cases, compensation might not be the right way forward, as the obligation is more valuable to the plaintiff. This is a popular option for contracts that involve high-value sales, such as land, works of art, and businesses.

Rescission cancels a contract.

Courts can choose to cancel a contract with a rescission ruling. This treats the contract as if it were never agreed upon and cancels any obligations either party had. Therefore, in certain circumstances, it can benefit both parties. Furthermore, any material goods or money that changed hands must be returned. Contracts can be rescinded after a court finds proof that there were errors in the original draft, if it finds evidence of fraud, or if one party lacked the mental capacity to enter into the contract in the first place. Like some other aspects of law, the way courts rule on rescissions varies depending on the state in which they are located. For contracts that involve consumers and financial institutions such as lenders, the rescission can come about as a result of a federal mandate.

Staying on track and avoiding legal issues

Contract interpretation can be a very specific, arduous process, so understanding contract law and getting it right is essential. These laws help both parties to maintain a good working relationship while protecting their interests and establishing trust. Using the services of a legal professional makes good business sense, especially for organizations that make multiple agreements annually. Sound advice can help a company navigate the various aspects of key contract law and any statutes that are in play in their state. Moreover, expert guidance ensures that agreements are not breached inadvertently, as the consequences can be significant. A well-written contract, based on sound contract law, will help a company avoid legal issues and mitigate risk, both internally and externally.

Similar Posts