What is Contract Law?

By Teo Spengler - Updated April 17, 2018
Notary signs legal contract. Businessman working in office

Don't think for a minute that only business people working in commerce need to know about contract law. Anyone who gets a credit card, signs up for cell service or gets hitched is knee-deep in the realm of contracts, those oral and written agreements that make the modern world go round. Contract law includes everything about legally enforceable agreements, including how to make them, interpret them, enforce them and break them.

Tip

Contract law is the body of law governing making, enforcing and breaking oral and written agreements.

Contract Law Basics

Not every agreement is a legally enforceable contract. Take, for example, the "deal" expressed in the phrase, "If you marry me, I'll make you happy for the rest of your life." This is obviously not something you can enforce in a court of law. But many agreements are enforceable, and what makes a contract enforceable is a part of contract law.

Contract law also includes the basics on which contracts can be oral and which must be written to be enforceable, how to interpret the language used in contracts, when you can get out of a contract, what constitutes breach of contract and similar subjects.

What Are the Six Elements of a Legally Enforceable Contract?

Some claim that there are only five essential elements of a legally enforceable contract, some say six and some say seven. The fact is, in order to enter into a contract that a court will enforce, you may have to take all of these elements into account. The first three are standard: offer, acceptance and consideration.

An offer is simply a proposal by one party on what it will give to get something it wants. It can be as simple as offering to sell someone your yo-yo for $1, but it can also be quite complex. The acceptance is the other party saying "Yeah, I'll buy your yo-yo" (or nuclear sub). Consideration means that each party gives something and gets something. In this case, one party gives up the yo-yo and gets $1, the other gets the yo-yo and gives up $1. Since both parties have something at stake in the agreement, it is said that there is mutual consideration. Had the first person simply offered to give his friend a yo-yo, there would not have been mutual consideration since the second party was not giving up anything. He would not be able to sue to enforce the contract.

Other elements of a legally enforceable contract include that the contract is entered into voluntarily by all parties, that the parties are competent (adults, of sound mind, not under the influence of drugs) and that all parties understand the terms of the contract and mutually agree to them. Some contracts (like those for the sale of real property) must be in writing to be enforceable, so sometimes that is an essential element as well. So is legality. A contract for an illegal purpose (buying a senator's vote) cannot be enforced.

What is Considered a Breach of Contract?

Breach of contact is when one party refuses to perform one or more of its obligations under the contract without legal justification. The obligation must be a material one for it to be a breach. If one party breaches the contract, the other party can go to court for damages based on the amount of money that party lost by the other party's failure to perform. If you sue on a contract, you can get only contract damages, not extra amounts for pain, suffering or to punish the party who breached the contract.

About the Author

Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Spengler splits her time between the French Basque Country and Northern California.

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