The Nexus Between Contracts and the Law

If they want to avoid causing problems for themselves, parties to a contract should bear in mind that the law interacts with contracts in various ways:

  • The law determines whether the parties have an enforceable contract, as opposed to an informal, and unenforceable, agreement. (For example, in common-law systems a contract promise has to be supported by consideration or by some alternative, such as reliance.)
  • By law, one or more provisions might be unenforceable. (For example, a court might be unwilling to enforce a governing-law provision if the law in question has no relation to the transaction. And a court might find unenforceable a loan agreement that provides for a particularly high interest rate.)
  • The law might specify that to qualify for a particular status, a contract has to contain one or more specific provisions. (For example, for an offering of securities to qualify for one of the exemptions from registration under the U.S. securities laws, the securities purchase agreement has to include certain statements of fact.)
  • “Default rules” fill in gaps in the contract. (For example, if you don’t include a notices provision, the default rules will determine how a party can give notice and when a notice will be deemed to have been received.)
  • And absent contract provisions on the subject, the law will specify a party’s remedies.

That is all.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

5 thoughts on “The Nexus Between Contracts and the Law”

    • That’s what judges do (whether they’re qualified for it or not), with the help of principles of construction. Methinks it’s too loosey-goosey to be lumped with “the law.”

  1. Ken:

    The law also includes substantive obligations automatically in many kinds of contracts, with the possibility of disclaiming or replacing some of them. Examples:
    – Under the UCC, the warranties of merchantibility and fitness for a particular purpose.
    – At common law, the warranty of habilability and sometimes of quiet use and enjoyment.
    – At common law, the warranty of good-and-workmanlike performance
    – In some misguided jurisdictions, the duty (as opposed to interpretational principle) of good-faith and fair dealing.
    These are not gap fillers, though they are default rules. That is, the contract could be perfectly enforcable and performable without the default rule — there is no “gap” to be filled. instead, the default rule either is an attempt to do substantial justice or is an attempt to induce the more sophisticated party to bargain, perhaps taking into account Coasean bargaining, endowments, and efficiency.



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