Contracts

 

Legal Contracts: The Origins

The technical tool for creating legal obligations is a contract, consisting of “an offer and an acceptance” between competent people. Breaches of contract can be remedied by compensation (money) or action otherwise.

Historically, based upon Latin “pacta sunt servanda” translated “agreements must be kept,” can be categorized as “restitution, unjust enrichment, and tort.”

Freedom of contract in “common law systems” such as in the U.K. and U.S. has altered with certain passages (e.g. Civil Rights Act of 1964 restricting private racial discrimination). Contracts may be verbal or written, with the written perhaps more easily enforceable during a dispute.

Elements of a contract include: (1) offer, (2) acceptance, (3) intention to create legal relations, and (4) consideration.

Offer, Acceptance, Intention to Create Legal Relations: A mutual assent, or “meeting of the minds” or “mirror image” whereby all conditions of a contract are accepted without changes, is different when any changes have to be made (hence constituting a “counter-offer” for the latter) – accepted by a “reasonable person’s interpretation.” An unusual, sometimes called “unilateral” form of a contract (e.g. a lost dog being found resulting in a reward) does not imply obligation from the searchers, for example. Some contracts are implicit, in that every action may not be specified but reasonably implied.

Consideration: Something valuable given in return – for example, a product bought in a store exchanged for money (or a washing dishes to pay for a meal). Consideration must be sufficient (e.g. reasonable).

Formation of a contract relies upon the qualifications of being able to enter into a contract by parties (e.g. age), for a lawful purpose, in legal form, with intention to create a legal relationship, and with consent – contrarily, defenses (or “defences”) include mistakes, incapacity, duress, undue influence, fraudulence, and similar concepts.

Interesting concepts introduced through the years include “Invitation to Treat” meaning an offer, e.g. a store offering a sale but not requiring all potential buyers to have adequate quantities present of the desired product (e.g. in 1800s England, “Carbolic smoke ball offer).

Separately, the issue of third parties having any substantial claim to a contract’s terms was normally addressed as a non-issue, but the “duty owed” concept has been more recently implicated – where such parties were either involved in an obligation or receipt.

Performance of the conditions of the contract may be in complete (with execution being noted upon completion of performance, or “partial performance” occurring in some cases.

Contractual Terms

“Boilerplate” provisions may include standard contract provisions, or sometimes referring to end provisions such as “governing law, venue, assignment/delegation, waiver of jury trial, notice, force majeure (act of God, strike, riot, etc.).

Conditions are able to be repudiated with party discharged upon offense, whereas warranties may only allow partial discharge (determined condition vs. warranty per parties’ intent) – with a warranty being a promise.

In 1677, the English “Statute of Frauds” preceded the “UCC or Uniform Commercial Code” in the U.S. for tangible product sales greater than $500, with also contracts required for real estate.

In the U.S., case law has reportedly been confusing regarding warranty vs. representation.

The distinction between “implied” vs. “express” is important in certain cases.

Damages

Different types of damages, when appropriate, include:

  • compensatory damages – include consequential and direct damage;
  • liquidated damages – if included, avoids court calculating compensatory damages; if not, court may do so;
  • nominal damages – small cash amount, where breach may exist but no damages suffered by the plaintiff of significance;
  • punitive damages (or exemplary damages) – non-compensatory damages awarded to plaintiff

“Specific performance” may be a situation where a court remedies a breach in contract by not simply paying in restitution, but enforcing delivery, for example, of an obligated action.

Procedure

Seeking damages can be done via filing of a lawsuit (typically civil rather than criminal), though arbitration offers an alternative (provided it is in the contract).

The histories of each of these components are rooted in many cases and determinations which have resulted from day-to-day issues which arose in the basics of an agreement.  The individual components of a contract can be simplified into specifics, as detailed in the “Legal Contracts of the Present Day” section.

Legal Contracts of the Present Day

Modern-day contracts include software licenses, real estate deeds, professional services, warranties for products, etc. However, a “creation of a contract of today” should utilize certain key concepts, as supported by nolo.com:

  • Written is better than verbal
  • “KISS principle – keep it simple, …”
  • Formulate the contract with decision-maker(s), not others
  • Be accurate
  • Details should be noted, not assumed
  • Money obligations should be specified
  • Termination portions must be specified
  • Dispute resolution methods should be specified
  • State law governance should be specified
  • Confidentiality should be maintained while completing the contract (similar to a non-disclosure agreement, or NDA)

While no contract is likely perfect in its boilerplate set-up, it is important that key components are considered in today’s contract. All considerations may be better off reviewed by experienced attorneys who have dealt specifically in such pertinent subject matter (relevant to the contract), and perhaps in collaboration with industry specialists (even if non-lawyers) familiar with the specific industrial content of the contract.

Legal Contracts of the Future: Trends

Despite all of the components of contracts (and practical advice to follow today), trends of these age-old contracts going into the future have been addressed by futurists such as Karl Schroeder (wired.com), who noted in his novel Lockstep that deals purportedly with “possible science fiction” rather than Star Wars or Star Trek… in his view, entire legal systems (including contract law) will be replaced with artificial intelligence.

The advantage, he claims, is that certain contracts (e.g. those underlying Bitcoin, the internet currency) lie online; these contracts follow rules to the letter without cheating. However, one issue with this process may be that certain contracts may need interpretation, where certain unique cases have not been yet covered.

Hence, like in the situation of a “mistake” where a concept was not foreseen (and hence not programmed into an AI system), it would be indeterminate as to how this would be dealt with.

Nonetheless, with newer tools such as Legal Zoom (legalzoom.com), the interpretation remains a factor – while many “boilerplate standardized contracts” can exist, nonetheless the proper arrangement to suit a specific need must assuredly be covered. In the same analogy as medical practice still requiring doctors for certain key decisions, perhaps the legal profession may still require lawyers for guidance, albeit much of the process may be automated.

After all, contracts, which are often involving human beings and actions, though attributing strict legal terms to these in many cases, may have “a necessarily human element” – even in the future.

(Parts of this article were acquired from numerous sources, including nolo.com, law.cornell.edu, wired.com, Reynolds/Mirth/Richards/Farmer LLP © 2002, and Wikipedia.org, among others)