Many people and companies 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 is intended to provide a quick guide to some key terms and issues that are relevant to 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 may or may not be done. In general, an acceptance must unambiguously accept the terms and conditions of an offer for a contract to arise. Mutual assent is often referred to as a “meeting of minds”. If the parties did not agree on the same essentials 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 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 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 test rule generally prohibits the introduction of evidence from oral communications that would contradict or supplement the terms of the written agreement. Therefore, oral promise testimony may well be inadmissible in a dispute involving a written contract. However, there are several exceptions and nuances that allow attorneys to strategize to best advance a client’s interests based on the nature of the dispute.

Another question is whether the fraud statute applies. Fraud law generally prohibits enforcing 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 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. Once 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 is enforced with respect to future events. A condition is a future and uncertain 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 contract clause has a large impact on how that clause is interpreted and applied. Therefore, it can be crucial to identify whether a specific contract 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 establishes 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 the substantive law of Oregon 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 laws that may result in the laws of any other jurisdiction that govern this agreement”.

As you can see from the sample language cited above, the conflict of laws principles of state laws must also be considered. This is because the failure to address such principles in the contract could mean that the substantive law of one state (eg, Oregon) ends up ordering 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 primarily performed in Delaware. .

What is a place provision?

A jurisdiction provision of a contract establishes 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 venue may be any state and federal court located in Multnomah County, Oregon, but the applicable law may be from Washington State. In such a case, the Oregon court deciding the dispute will generally apply Oregon rules of procedure but Washington substantive law in adjudicating the dispute.

What are some common defenses to enforcing a contract?

Contract defenses often fall into two categories: contract formation defenses and contract performance defenses. For example, if a valid contract never arose because the offer and acceptance were unclear and there was no intent, 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 liability. All of these terms require specific factual and legal elements to be shown that your lawyer can help you analyze.

If a valid contract arose but there are defenses to its enforcement, then a court or arbitrator might find 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, failure of purpose, non-occurrence of a condition, and inapplicability for reasons of public order. For example, if a party’s obligations under a contract are conditioned 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 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 relating 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 frequently used legal principles that could enable recovery in this area of ​​law. In general, an aggrieved party may obtain restitution on quasi-contractual grounds if a benefit has been awarded, the benefit recipient is aware that the benefit was received, and, under the circumstances, it would be unfair to allow retention 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 would ideally work with a lawyer to avoid many types of disputes that might have been anticipated by carefully negotiating and 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.

The way a party communicates their dissatisfaction with a contractual relationship greatly affects where the chips will fall should the dispute escalate to litigation. An attorney can help you get the most out of your communication with the other party by researching applicable statutes and case law to recommend your best course of action. The lawyer 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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