Elements of a Contract: legally enforceable agreement - promise that the law will enforce
- Offer
- Acceptance
- Consideration: bargaining that leads to an exchange between parties
- Legality: for a lawful purpose
- Capacity: parties must be adults of sound mind
- Consent: without certain kinds of trickery and force
- Writing: some contracts MUST be in writing to be enforceable
Remedies: court will award money or other relief to party injured by breach of contract
Types of contracts:
Bilateral contract: both parties make a promise
Unilateral contract: one party makes a promise that the other party can accept only by doing something
Executory contract: binding agreement in which one or more of the parties has not fulfilled its obligations
Executed contract: agreement in which all parties have fulfilled their obligations
Valid contract: contract that satisfies all the law's requirements
Unenforceable agreement: contract where parties intend to form a valid bargain but a court declares that some rule of law prevents enforcing it
Voidable contract: agreement that, because of some defect, may be terminated by one party, such as a minor, but not by both parties
Void agreement: agreement that neither party may legally enforce
Express contract: agreement with all important terms explicitly stated
Implied contract: where the words and conduct of the parties indicate that they intended an agreement
Promissory Estoppel: doctrine in which a court may enforce a promise made by the defendant even when there is no contract - a plaintiff may use promissory estoppel to enforce the defendant's promise if he can show that:
1. defendant made a promise knowing that plaintiff would likely rely on it
2. plaintiff did rely on promise AND
3. the only way to avoid injustice is to enforce the promise
Quasi-contract: legal fiction in which, to avoid injustice, the court awards damages as if a contract had existed, although one did not - even when there is no contract, a court may use a quasi-contract to compensate a plaintiff who can show that:
1. plaintiff gave some benefit to defendant
2. plaintiff reasonably expected to be paid for the benefit and defendant knew this AND
3. defendant would be unjustly enriched if he did not pay
Quantum meruit: "As much as he deserved" - damages awarded in a quasi-contract case
Federal Aviation Act of 1958 and state law (e.g. Arizona)
Contract Provisions:
Title
Should briefly state the overall purpose of the document
Should be located at the top of the document for easy reference
Preamble (Recitals)
Introductory statement regarding the background of the transaction or the existence of certain facts
Brief statement of what the parties' interests are in entering into the contract
Should be located in the first paragraph or two of agreement
Definitions
List of important terms used throughout the document
Can be located at the beginning of the document, or terms can be defined as they are mentioned in the agreement
Consideration
Benefit that each party receives for entering into the agreement
Consideration is the main element of a contract
Without consideration by both parties, a contract cannot be enforceable
Representations and Warranties
Representation: Present looking - An assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action
Warranty: future/forward looking - a promise of indemnity if the representation is false
The terms "representation" and "warranty" are often used together in contracts
Indemnification
An undertaking by one party (the indemnifying party) to compensate the other party (the indemnified party) for certain costs and expenses, typically stemming from third-party claims (indemnify, and hold harmless)
First-party indemnity
Third-party indemnity
Breach and Cure
Breach occurs when a party who entered a contract fails to perform their promised obligations
Cure provision can prevent a party from immediately canceling or terminating a contract in the event of breach and could allow a party to correct an inadvertent breach of contract
Only material breaches are those you can terminate a contract for, for default
Cure provision may be implied by some state law - satisfies duty to mitigate
Termination
Termination is the ending of a contract - could occur on an agreed-upon date or prior to the contract being fully performed by the parties
It is important for both parties to understand how, when, and why the agreement can be terminated
Terminations that occur prior to the contract being fully performed usually have triggering events - make sure those are laid out as much as possible
Termination for Cause
Opportunity to Cure
Termination for Convenience: No harm/no foul - Enables a party to a contract to bring the contract to an end without the need for any triggering event or other specific reason. Typically includes notice and lead time up until termination.
Force Majeure: May forgive performance if it is disrupted by an unpredictable event
Remedies
Remedies are typically laid out in the event of breach of contract
These can include:
Damages (general, punitive, liquidated)
Specific performance
Injunction
Rescission
Attorneys' fees and costs
Assignment
Ongoing obligation regardless of ownership - transfering contractual obligations
Choice of Law
Governing law clause - allows the parties to choose substantive state law
Amendment and Waiver
If there is an amendment it must be signed by both parties - if there is a change it does not waive the terms of the entire agreement
Litigation/Arbitration
Requires parties to arbitrate first then litigate - or have good faith negotiation prior to litigating
Integration and Severability
Integration - this document is the entire agreement
Severability - if there is a clause that needs to be severed the rest of the contract remains enforceable
Notice
Required method for notice and delivery - who to contact - address - method of delivery
Authority to Sign
That signatories have legally binding authority to the company they represent
What attorneys should advise on:
Legal concepts - leave business decisions to business people
Protecting client and their interests - be conservative in approaches to contracting
When reviewing a contract: identify risks, identify how and where to mitigate the risks, allow client to make the decision on whether to move forward
CONTRACT PLAYBOOKS: A contract playbook lists the terms and conditions of a contract type and provides clear guidance to negotiators for defending these provisions, offering variations of these provisions, or holding fast to the provisions as non-negotiable.
Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. It is conduct that is extreme when compared with ordinary Negligence, which is a mere failure to exercise reasonable care.
Case 16: American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995)
American Airlines v. Wolens - C-SPAN video
Sarah Nilsson, J.D., Ph.D., MAS
602 561 8665
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