A Brief Overview of Contract Law: Key Terms, Common Defenses, and General Recommendations
Many people and businesses enter into contracts without fully understanding the terms. Often, neither party is clear about what the contract requires in terms of performance standards, remedies for breach, and whether unwritten terms can supplement the written contract.
This publication aims 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 contract formation involves an offer, acceptance, mutual assent, and consideration of a promise to do or not to do a particular thing that may or may not be done. 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 a “meeting of minds”. If the parties did not agree to the same essential concepts of a deal, then there was no mutual assent because no agreement of minds occurred.
What counts as consideration for a contract?
The consideration consists of a party acquiring: (a) some right, interest, profit or benefit; and/or, (b) any leniency, 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 given for free. If a court finds that one party’s contractual promises were freely given, then the contract is generally invalid and unenforceable 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 evidence of oral communications that would contradict or supplement the terms of the written agreement. . Therefore, oral promise testimony may well be inadmissible in litigation involving a written contract. However, there are several exceptions and nuances that allow attorneys to strategize to best advance a client’s interests depending on the nature of the dispute.
Another question is whether the fraud statute applies. Fraud law generally prohibits the enforcement of the following types of contracts unless proven by a writing signed by the party against whom it would be enforced: Contracts for the sale of interests in real property, contracts that by their terms cannot be performed within of one year, agreements to pay another year’s debt, and other types of agreements 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 agreements, conditions, representations and warranties?
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 an uncertain future event whose occurrence or non-occurrence may destroy, create or modify the rights and obligations of one or more parties to the contract. A representation is an alleged statement of fact relating 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, warranty, or some combination thereof.
What is a choice of law provision?
A “choice of law” or “governing law” provision of a contract states the parties’ intent 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 conflicts of law that may result in the laws of any other jurisdiction governing this Agreement.”
As you can see from the sample language cited above, the conflict-of-laws principles of state law must also be considered. This is because failure to address such principles in the contract could mean that the substantive law of one state (eg, Oregon) ends up directing the court or arbitrator to apply the law of another state (eg, Oregon). ., 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 if the contract was for personal services that were performed primarily in Delaware. .
What is a place provision?
A jurisdiction provision of a contract states the parties’ intent as to where a dispute related to the contract should be litigated or arbitrated. The place may be different from the choice of law. For example, the appropriate venue may be any state and federal court located in Multnomah County, Oregon, but the applicable law may come from the state of Washington. In such a case, the Oregon court that will decide the dispute will generally apply Oregon procedural rules, but Washington substantive law to adjudicate the dispute.
What are some common defenses to enforcing a contract?
Contractual defenses often fall into two categories: defenses to contract formation and defenses to contract performance. For example, if a valid contract never arose because the offer and acceptance were not clear and there was no agreement of mind, then there is no valid contract to enforce. Other examples of defenses to formation include fraud in the performance of a contract, misrepresentation, concealment, error, duress, undue influence, and lack of responsibility. All of these terms require specific legal and factual elements to be shown that your attorney can help you analyze.
If a valid contract arose but there are defenses to its enforcement, then a court or arbitrator could conclude that the contract is unenforceable as written. Some examples of defenses to the performance of a contract are prior material breach and termination of the contract, impossibility, defeat of purpose, non-occurrence of a condition, and unenforceability for reasons of public order. For example, if a party’s obligations under a contract are conditional on the occurrence of an earthquake but no earthquake occurs, then the corresponding obligations should not be enforced. Again, any of these types of defenses require specific factual and legal analysis before they can be successfully asserted and used.
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 the law related to “quasi contracts” or “implied contracts” could still provide legal recourse for an aggrieved party. Terms such as promissory estoppel, unjust enrichment, and quantum merit are the frequently used legal principles that could allow recovery in this area of law. In general, an aggrieved party may obtain restitution on quasi-contractual grounds if a benefit has been provided, the recipient of the benefit is aware that the benefit was received, and under the circumstances it would be unfair to allow the withholding of the benefit without requiring the recipient to pay for it.
What should you do in a contract dispute?
For a high-value contract, you’d ideally work with an attorney to avoid many types of disputes that might have been anticipated by negotiating and carefully reviewing the contract prior to execution. If a dispute is brewing (for example, if you are wondering if and how you can get out of the contract), you should consult an attorney as soon as possible.
How a party communicates dissatisfaction with a contractual relationship greatly affects where the chips will fall should the dispute escalate to 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 course of action. 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 a notice that the other party is not satisfied with the contractual relationship or has already filed a lawsuit in court, then it is important to obtain qualified legal representation as well.
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