Contracts

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

Exculpatory Contract: rarely used risk management tool - high level of risk as to be uninsurable

An agreement between the aircraft or airport operator and a participant in an aviation operation by which the participant agrees not to sue the operator of the aircraft or airport if the participant is killed  or injured during the operation

Appropriate risk management tool ONLY where:

1. operation is NOT a common carrier operation (eg carrying passengers for hire under 14 CFR Part 135 or 121)

2. activity or relationship is NOT one in which the law requires the operator to carry liability insurance

Federal Aviation Act of 1958 and state law (e.g. Arizona)

3. insurance, although not required by law, is NOT available to the operator

Uses:

- airlifting skydivers

- bungee jumpers

- motion picture "stunt flying"

- Florida passes bill to prevent billionaires like Elon Musk and Jeff Bezos being sued if their mega-rockets kill or injure people

Contract which serves to relieve the operator of legal responsibility for the consequences of her own or her employee's negligence, have been held void as a matter of public policy in NY - most other states courts very closely scrutinize such contracts but enforce them if:

1. there is some equality in bargaining power between the parties, AND

2. subject matter is not an essential of life (eg food, medicine, medical care, shelter, public utilities, public transportation, or communications)

Some states' courts hold that an exculpatory contract does not relieve an operator from liability for acts of gross negligence or willful or wanton misconduct

Assumption of Risk:

Person signing the agreement knows and understands the scope, nature, and extent of the risk involved in the operation (which may include personal injury or even death) and that the person freely and voluntarily chooses to incur that risk (for thrills and or remunerations, as the case may be)

Contract is even more compelling if it provides the person the choice between: 

1. relieving operator from legal and financial responsibility for accidents that may injure that person (including those resulting from ordinary negligence of the operator and employees and others protected by contract) OR

2. paying the operator some additional price to be allowed to participate  in the activity without waiving responsibility for negligence (but still assuming the risk)

Contracts Explained PREZI

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

sarah@sarahnilsson.org

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While the author of this website is an attorney, she is not YOUR attorney, nor are you her client, until you enter into a written agreement with Nilsson Law, PLLC to provide legal services.

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