Many individuals and businesses enter into contracts without fully understanding the terms. Often neither party is clear on what the contract requires in terms of performance standards, remedies for non-compliance, and whether unwritten terms can supplement the written contract.
This publication is intended to provide a quick guide to some key terms and issues that are relevant in the area of contract law.
What is a contract and how is it formed?
In general, a contract can be defined as a negotiated exchange. The typical process of forming a contract involves an offer, acceptance, mutual assent, and consideration of a promise to do or not to do a particular thing that can be done or omitted. In general, an acceptance must unambiguously agree to the terms and conditions of an offer for a contract to arise. Mutual assent is often called “meeting of minds.” If the parties did not agree to the same essential concepts of a deal, then there was no mutual assent because there was no agreement of minds.
What counts as consideration for a contract?
The consideration consists of a party acquiring: (a) any right, interest, profit or benefit; and / or, (b) any indulgence, detriment, loss or liability. Consideration is a necessary element of a valid contract in part because its absence can help reveal that a party’s promise to do something was actually done free of charge. If a court finds that the contractual promises of one of the parties were made free of charge, then the contract is generally invalid and cannot be enforced according to its terms.
What if someone orally promised something that is not written in the contract?
In such a case, one question is whether the oral promise preceded the written contract. If the oral promise preceded the written contract and the written contract was intended to be the final expression of the agreement, then the probation rule generally prohibits the introduction of oral communication evidence that would contradict or supplement the terms of the written agreement. Therefore, oral promise testimony may well be inadmissible in the case of litigation related to a written contract. However, there are several exceptions and nuances that allow attorneys to devise a strategy to best promote a client’s interests based on the nature of the dispute.
Another question is whether the statute of fraud applies. The fraud law generally prohibits enforcing the following types of contracts if they are not proven by means of a document signed by the party against whom it would be executed: Contracts for the sale of interests in real estate, contracts that by their terms cannot be carried out within one-year, agreements to pay the debt of another, and other types of agreements that are listed under state law. For example, ORS 41.580 codifies the fraud statute under Oregon law. Again, an attorney can help you navigate the various nuances and exceptions that exist regarding the fraud statute.
What are the agreements, conditions, representations and guarantees?
These terms are often confused, but the general definitions are as follows: A covenant is a promise of action or inaction that applies with respect to future events. A condition is a future and uncertain event whose occurrence or non-occurrence can destroy, create or modify the right and obligations of one or more parties to the contract. A representation is a supposed statement of fact related to the past or the present. A warranty is a statement or promise regarding some present or future quality of goods or services. The nature of a contractual clause has a great impact on how that clause is interpreted and applied. Therefore, it can be crucial to identify whether a specific contractual clause is a covenant, condition, representation, guarantee, or some combination thereof.
What is a choice of law provision?
A “choice of law” or “applicable law” provision of a contract sets out the intent of the parties as to which substantive law of the jurisdiction will govern in the event of a dispute. For example, this type of choice of law provision indicates that, in the event of a dispute, the parties want the court or arbitrator to apply substantive Oregon law to determine the rights and obligations of the parties: “This agreement is governed by the laws of the State of Oregon, without giving effect to any principles of conflict of laws that could result in the laws of any other jurisdiction that governs this agreement. “
As you can see from the sample language cited above, the conflict of laws principles of state laws should also be considered. This is because failure to address such principles in the contract could mean that the substantive law of one state (e.g. Oregon) ends up ordering the court or arbitrator to apply the law of another state (e.g. ., Delaware) to finally decide the dispute. For example, under ORS 81.135, a contract that simply states that it is “governed by the laws of the state of Oregon” could end up being decided on the basis of Delaware law whether the contract was for personal services performed primarily in Delaware. .
What is a provision of place?
A jurisdiction provision of a contract sets out the intent of the parties as to where a dispute relating to the contract should be litigated or arbitrated. The place may be different from the choice of law. For example, the appropriate place could be any state and federal court located in Multnomah County, Oregon, but the applicable law could come from the state of Washington. In such a case, the Oregon court that will decide the dispute will generally apply the Oregon procedural rules, but the substantive laws of Washington to adjudicate the dispute.
What are some common defenses to enforcing a contract?
Contract defenses are often divided into two categories: defenses for the formation of the contract and defenses for the performance of the contract. For example, if a valid contract never arose because the offer and acceptance were not clear and there was no mutual agreement, then there is no valid contract to enforce. Other examples of defenses against training include fraud in the performance of a contract, misrepresentation, concealment, error, coercion, undue influence, and lack of responsibility. All of these terms require specific legal and factual elements to be displayed that your attorney can help you analyze.
If a valid contract arose but defenses exist to its enforcement, then a court or arbitrator could conclude that the contract cannot be enforced as written. Some examples of defenses to the performance of a contract are prior material breach and termination of the contract, impossibility, frustration of purpose, non-occurrence of a condition and inapplicability for reasons of public order. For example, if the obligations of one of the parties under a contract are conditioned on an earthquake occurring but no earthquake occurs, then the corresponding obligations should not be enforced. Again, any of these types of defenses require a specific factual and legal analysis before they can be asserted and used successfully.
If a contract is invalid or unenforceable, does that mean there is no legal remedy for a dispute?
Not necessarily. If there is no valid or enforceable contract, then the area of law related to “quasi contracts” or “implicit contracts” could still provide a legal recourse for an aggrieved party. Terms such as promissory estoppel, unfair enrichment, and quantum meruit are frequently used legal principles that could allow recovery in this area of law. In general, an aggrieved party can obtain restitution for quasi-contractual reasons if a benefit has been awarded, the beneficiary of the benefit is aware that the benefit was received, and under the circumstances, it would be unfair to allow the benefit withholding without requiring the recipient to pay for it.
What should you do in a contract dispute?
For a high value contract, ideally you would work with an attorney to avoid many types of disputes that could have been anticipated by negotiating and carefully reviewing the contract prior to execution. If a dispute is brewing (for example, wondering if and how you can get out of the contractual relationship), you should consult with a lawyer as soon as possible.
How a party communicates its dissatisfaction with a contractual relationship greatly affects where the chips will fall should the dispute reach litigation. An attorney can help you make the most of your communication with the other party by researching applicable statutes and case law to recommend your best way forward. The attorney may recommend negotiating with the other party to reach an agreement or may advise you that you have an immediate legal right to terminate the contract without liability for damages.
If you receive notice that the other party is not satisfied with the contractual relationship or has already filed a lawsuit in court, then it is also important to obtain qualified legal representation.
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