Contract Law

Contract law involves creating, interpreting, and enforcing legally binding agreements called contracts. By creating mutual obligations between parties to perform or not perform a specific duty, contracts serve two main functions:

• clarifying the terms of the agreement;
• ensuring the legal consequences for not adhering to the terms.

Contracts can be used in many areas of our daily lives, including:

• Lease and mortgage agreements
• Car buying agreement
• Employment contracts
• Insurance agreements
• Sign-up agreements and online purchases
• Promissory notes
• Family law agreements

To be legally enforceable, a contract typically includes the following five elements:

• Offer: A proposal to do or pay something, accompanied by a commitment and communicated to the other party. For example, "I'll sell you this vehicle if you pay me $18,000."
• Acceptance: An acceptance of the offer through a promise or performance. For example, "You've got a deal."
• Mutual consideration: The value received and given. For example, the money given in exchange for the vehicle received.
• Legal parties: The parties involved in the contract have the authority to enter into the contract.
• Legal purpose: The intention to create a legal relationship through a legally enforceable contract.

The law generally recognizes four types of contracts, including:

• Bilateral - Services or goods that are of value to the other party
• Unilateral - Services or goods that the other party requested, usually in an open request
• Implied - Usually not written down or discussed between the parties but arises out of the relationship of the parties or state law
  • "Implied-in-fact" - occurs when parties perform some actions
  • "Implied-in-law" - the obligations of the parties are prescribed by legislative acts
• Express - The parties explicitly agree to be bound by the contract which are usually written down and signed by the parties.

Contracts might be verbal or written. Verbal agreements are more difficult to prove in court. Some written documents might constitute an enforceable contract, including an invoice, letter, or memorandum. The contract might include provisions explaining the consequences of breaching the contract.

If a party breaches a contract, the other party can sue for compensatory damages to recover the value of what was lost. In some cases, the remedy might include forcing specific performance.

The law sometimes limits the enforcement of contracts, including excusing contractual performance.

Artificial Intelligence in Contract Law

Individuals or the lawyers they hire increasingly use generative AI and large language models (LLMs) to generate legal communications and documents. 

AI-powered contract management systems automate routine tasks such as creating thefirst draft of a contract, finding contract templates and sample clauses, extracting data,analyzing its content, andreviewing it for errors and inconsistencies.

AI technology might help execute the final contract by streamlining the validation and security portion of the electronic signature process.

The courts have just begun to decide how the use of AI in contract law will be treated.

Read more about AI for lawyers.

AI Tools for Drafting Contracts

Many AI tools help individuals and business owners draft legal contracts without an attorney. Before the AI revolution, companies likeLegalZoom and Rocket Lawyer sold generic and boilerplate legal forms that could be customized by the user online. Today, AI-native companies have jumped into this arena for the following types of contracts and legal documents: 

• Personal Legal Documents
• Promissory Notes
• Residential Lease Agreements
• Real Estate
• Power of Attorney
• Living Trust
• Healthcare Directive
• Last Will and Testament

• Business Formation and Operations
  • Simple Business Contracts
  • General Warranty Deeds
  • Independent Contractor Agreements
  • Buy-Sell Agreements
  • Corporation formation documents (Bylaws recommended to be consulted with an attorney)
  • Non-Disclosure Agreements (NDAs)

Only an experienced contract law attorney can ensure the contract meets the specific needs of the client. The final review of the contract and any necessary modifications should always be completed by a qualified attorney.

AlthoughAI cannot replace the legal expertise needed to create a contract, it might help with any of the following tasks:

• automating the process of contract drafting, management, collaboration, and review 
• providing summary of contract terms during negotiations
• helping attorneys streamline contract management tasks
• assisting attorneys with creating and editing contracts
• offering pre-designed templates to create contracts or contract provisions

The courts are beginning to see more problems created by using generative AI, large language models (LLMs), and text-based machine learning to draft contracts.