Definition Contracts

7/24/2019 Definition Contracts

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CONTRACT is a meeting of minds between two or more persons whereby one binds himself,

with respect to the other, to give something or to render some services.

A contractis ambiguous only when the application of the applicable rules of interpretation to the

instrument leaves it genuinely uncertain which one of the two meanings is the proper meaning.

An ambiguity does not arise simply because the parties advance conflicting interpretations of the

same language; for an ambiguity to exist, both constructions must be reasonable.

Ambiguities are to be construed against the drafter of the contract.

The interpretation of an unambiguous contract is a question of law for the judge or

arbitrator to decide, without any factual evidence.

Contract terms must be gien their plain, ordinary, and generally accepted meaning unless

the instrument shows that the parties used such terms in a technical or different sense.

!n construing a contract, the courts are required to follow elemental rules of grammar for

reasonable application of legal rules of construction.

In contract construction, specific provisions control over general provisions. Written or

typewritten provisions prevail over conflicting printed provisions. An earlier provision in acontract prevails over a later conflicting provision in the same contract.

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Another !secondary rule of construction" is the rule which gives effect to an earlier over a later

provision.#Southland Royalty Co. v. Pan Am. Petroleum Corp., 378 S.W.2d 50, 578 (Te. !"#$%.

!n a contract, aspecific term controls oer a more general one*+$hell v. Austin %ehearsal Comple&, Inc.,'(() W* +-) / ' 0Te&. App.11 Austin '((), no pet.2. The contract in 3uestion appears on

the surface to be ambiguous; however, we believe the apparent ambiguity may be resolved by the

application of a well1settled rule of construction, to wit4 that if general terms appear in a contract,they will be overcome and controlled by specific language dealing with the same sub5ect.#

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CONTRACT".

6ust as language, and the meaning of words, may not be precise, there are no precise legal ruleswhich can be used to determine the meaning of words in a contract*

A contract is an agreement between the parties to the contract. The first and best eidence of

that agreement is, generally, the written agreement or documentthat is intended to containthe terms of the agreement. In some circumstances, evidence of other things may be used to vary,

e&plain or add to the words of the agreement, as they are recorded in the document.


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There are no Acts relating to the interpretation, or principles of interpretation to be applied, to

contracts, as there are for statutes 0theA&t' nterpretat)on A&t'of the Commonwealth and the

$tates2.

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To the e&tent that there is a main, or perhaps an initial, rule or principle for the interpretation of

words in contracts, it is that the words, if they have a plain, ordinary, appropriate meaning, will

be assigned that meaning, unless there is some good reason to depart from this.

It is, however, obvious from the number of disputes which arise as to the meaning of words incontracts, that there are many occasions when there is not an obvious plain, ordinary and

appropriate meaning.

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If the words of a contract are plain and unambiguous, there is no scope for *)nterpretat)on*.Where, however, more than one meaning is possible for a word, interpretation may be necessary

to determine the scope of the meaning of the word.

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7ecause of the scope and vagaries of words and language, it is li8ely that many contract documents will

be far from perfect in e&pressing the intentions and precise meanings of parties.

It is a counsel of perfection to suggest that all contracts should be carefully prepared and considered in

commercial dealings. 9ften contracts will be brought into e&istence 3uic8ly, and without the time for

detailed consideration. :owever, particularly for matters of substance, the wording of contracts should be

given careful and timely consideration and, where appropriate, should, ideally, be drawn by, or withadvice from, lawyers with e&pertise in the area. :owever, as will be seen from the brief comments above,

it may be impossible to guarantee that even a carefully prepared contract document does not contain someambiguity which may re3uire interpretation.

The &ontent o+ th)' art)&le )' )ntended to prov)de a eneral u)de to the 'u-e&t matter. Spe&)al)'t adv)&e

'hould -e 'ouht a-out your 'pe&)+)& &)r&um'tan&e'.

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This guide was last updated in ebruary


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CONTRACT 2A"!C"

A contract is an agreement reached between two or more parties which is legally enforceable

when e&ecuted in accordance with specific re3uirements. Contracts should be pro5ect specific

and reflect the agreement between the parties. Contracts are obviously a 8ey part of everybusiness and it is therefore fundamental that all parties to a contract understand the terms

included in a contract and the rights and responsibilities of the parties under that contract.

?very contract should have4

9ffer;

Acceptance;

Consideration 0although note the position in relation to $cotland below2; and

Intention to create legal relations.

@Acceptance@ of an offer occurs when there is an un3ualified acceptance of all the offered terms.

:owever, this is unusual and there will normally be a period of negotiation. ew terms and

conditions introduced through negotiation in effect amount to a series of counter offers to the

original offer, cancelling the terms of the original offer.

Communication of acceptance

A contract offer has only been accepted when the acceptance is brought to the attention of the

offeror. This applies in the case of instantaneous communication, such as by telephone, where the

party giving acceptance will often 8now at once if a communication is unsuccessful so will have

the opportunity of ma8ing a proper communication. The e&ception to this rule is when the

acceptance is posted. The offer is deemed to be accepted when the offeree posts their acceptance.

The now commonplace use of email raises the 3uestion of whether the Bpostal acceptance ruleB

applies to emailed acceptances. Currently there is no statutory law on this point. The contract

could be formed when the email acceptance is read or when the email acceptance is sent. If the

parties to a contract wish to send notices by email then specific provisions should be included

which set out when a notice sent by email is deemed to be received.


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As a general rule, silence does not constitute acceptance.

Consideration

Consideration is the re3uirement of reciprocal obligations on the parties to a contract. 7oth

parties must receive valuable consideration for performance of their side of the contract.

Consideration is not re3uired in $cotland where donation is accepted in the law of contract.

:owever, it is e&tremely unli8ely that a commercial organiation would provide goods or

services for free.

Terms of contract

Contracts can be in writing, made orally, or created through the acting of the parties. or clarity,

most commercial contracts are in writing to maintain a proper record of the agreement. 9ral

contracts create a greater potential for disputes on the terms with the parties having problems

evidencing their position.

Contracts can be formed through a course of dealing between the parties. Again, the terms andconditions may not be clear. Common terms are li8ely to be incorporated in these contracts but if

they are not written down there are still evidential problems.

It is common for contracts to be on a company@s standard terms and conditions. Droblems can

arise when both parties purport to contract on their own standard terms and conditions. Eualified

acceptance of an offer while imposing your own standard terms and conditions are seen as a

counter offer. 9bviously being unaware of which terms and conditions the parties are contractingdoes not provide the desired clarity or certainty of the contract.

There are different tactics for those parties who wish to contract on their own terms and

conditions including incorporating the terms into as many pre1contractual documents as possible


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and ensuring that the terms appear on the last document between the parties before the delivery

of goods.

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In general the following terms should be included in any contract4

'. #arties The names and addresses of all the contracting parties should be clearly stated.

. 0efinitions and !nterpretations If there are any defined terms in the contract this

section should provide specific and clear definitions. or e&ample, a B7usiness FayB means

any day which is not a $aturday or $unday or public holiday in ?ngland or BAssociateB has

the meaning given to it in section +GH of the Insolvency Act '()-. Drovisions dealing with

general matters of interpretation should also be included where applicable, e.g. Bunless the

conte&t otherwise re3uires the singular shall include the plural and vice versa and the words

@day@, @month@ and @year@ shall mean calendar day, calendar month and calendar year.B

G. #ayment #roisions The e&act price to be paid for the goods or services provided and

the date or dates for payment to be made should be clearly set out. It may be relevant to

provide for ad5ustments to the price to be made upon the occurrence of certain events or at

certain intervals 0e.g. where there is a change in any relevant e&change rate or to ta8e into

account inflation2. This section should also note any agreed rate of interest payable on

overdue amounts and the conse3uences for failure to pay.+. A specific description of the goods or sericesthat will be provided under the contract

including the level of service if the contract is for services. This section should also include

who is responsible for supporting and maintaining any products throughout the term of the

contract.

H. Term of contract The length of the contract should be stated and it should also be

noted whether there are any options to continue the contract. or e&ample, @This agreement

will continue for another year unless otherwise notified to !other party" by G' 6anuary each

year@.

-. Timescale The specific timescale for the pro5ect should be noted including any

deadlines that have to be met. This section should include any pre1agreed payments 0or

li3uidated damages2 payable by the supplier if the deadlines are not met.. (imitation of liability This section caps the liability of either party to the contract. or

e&ample, @either party shall have any liability to the other party for a claim of loss of

profits...@. In an ideal world both parties would be see8ing to have no liability to the other

side. :owever, in a commercial conte&t this is unli8ely to be agreed and so both parties

should try and limit their liability during the negotiation stage to appropriate levels. It is

worth noting that there are statutes in force 0discussed below2 that forbid e&clusion of

liability in certain circumstances.


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). Termination proisions The circumstances under which the parties can terminate the

contract should be stated clearly. The procedure for giving notice to the other party should

be in the contract. or e&ample, @This agreement can be terminated by either party giving to

the other not less than three months written notice...@.

(. Change of Control Furing the course of a contract one party may change the structure

of their company. In these circumstances the other party may wish to terminate the contract,for e&ample if the first party transfers a controlling interest to a competitor of the other

party. The procedure for this situation should be in the contract.

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$pecific types of contracts will re3uire specific terms, which are particular to the relevant type of

contract. ?&amples of specific types of contracts where specific terms are re3uired include

software licenceJdevelopment contracts, facilities management contracts 0$ee4 acilities

management contracts4 '< tips2 and outsourcing contracts 0$ee4 9utsourcing2.

!mplied Terms

Certain terms may be implied into contracts by law, or by usage or custom. The $ale of Koods

Act and the $ale of Koods and $ervices Act contain terms which are implied into all contracts for

the sale of goods and services, primarily for the purpose of consumer protection. The supplier of

goods or services must provide goods of a satisfactory 3uality which are fit for the consumer@s

purpose or perform the services with reasonable s8ill and care.

A more general statute to protect buyers is the =nfair Contract Terms Act. This Act see8s to

prevent parties limiting or e&cluding their liability in contracts. Kenerally, any e&clusion of

liability must be reasonable.

$xecution

Written contracts must be e&ecuted in accordance with specific re3uirements otherwise they will

not be legally enforceable.

$cotland

ollowing a change in the law in '((H in order to e&ecute a deed only a signature is re3uired.

:owever to be formally valid a document should be subscribed by the granter and witnessed by

one other aged person at least '-. It is worth noting that when carrying out any due diligence on

contracts e&ecuted pre1'((H those contracts should have two witnesses before they are legally

enforceable.

?ngland and Wales

If a document containing contractual terms has been signed, in the absence of fraud or

misrepresentation, the signatory is bound by the terms even if he has not read them.
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If a document is unsigned a party is not bound unless he is aware that the document contained

contract terms or the other party had ta8en reasonable steps to bring the terms to his notice.

$tringent tests are applied to electronic contracts.

Firectors who sign on behalf of a company do so in their capacity as the company@s agent.Contracts signed in this way are treated as if they had been made by the company itself and it

will be bound.

Contract management

9nce the contract has been concluded it is important to monitor its performance. 9ften there are

governance mechanisms set out in the contract which govern the relationship between the

parties, and provide forums to monitor performance and deal with change. Internally, each party

should chec8 that the other is fulfilling its obligations and that any timescales and payment plans

in the contract are being adhered to. It is useful to have regular pro5ect meetings to ensure that

everything is going according to plan and to solve any problems as they arise.

Documents

Definition Contracts