Contracts: characteristics and exercises

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Master “Práctica Legal y Empresas” UCLM 2008 26

III. MAIN TYPES OF LEGAL TEXTS: STRUCTURE AND

VOCABULARY

3.1. Contracts

Under the common law, a promise becomes an enforceable contract

(contrato en firme) when there is an offer by one party, normally called an

offeror that is accepted by the other party (offeree) with the exchange of

legally sufficient consideration (prestación).

For a promise to become an enforceable contract, the parties must also agree

on the essential terms of the contract such as price and subject matter.

Nevertheless, courts will enforce (dar validez) an indefinite contract under

certain circumstances such as when the conduct of the parties, as opposed to

the written instrument (escritura), manifests enough certainty as to the terms

of the agreement.

An enforceable agreement may be manifested in either written or oral words

(an express contract) or by conduct and words (an implied contract). In a

contractual dispute, certain defences (eximentes) to the formation of the

contract may allow a party to escape his / her obligations under the contract.

For example; illegality of the subject matter which can be defined as follows:

when either subject matter or the consideration of a contract is illegal. You can

also allege fraud in the inducement, that is to say, when one party is

intentionally misled (engañada) about the terms of a contract. Duress

(coacción) is another defence you can use to discharge the specific

performance of a contract. The last defence to be applied is the lack of legal

capacity, meaning that you don’t have the ability to enter into a legal contract

because you are not of legal age or you are insane.

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The common clause types which appear in no matter what kind of contract are

the following:

a) Acceleration (adelanto) requires the offeree to pay all or part of a

payable amount sooner than as agreed upon the occurrence of some

event

b) Assignment (cesión): prohibits or permits assignment under certain

conditions

c) Confidentiality (cláusula de confidencialidad): implies treating the

information as private

d) Force majeure (fuerza mayor): tries to protect against failures to

perform contractual obligations caused by unavoidable events beyond

party’s control

e) Consideration (prestación): expresses the cause, motive, price which

induces one party to enter into an agreement

f) Liquidated damages (indeminización por daños y perjuicios

exigible): refers to an amount previously established by the parties as

the total amount of compensation if there is a breach of contract

g) Entire agreement (cláusula de mutuo acuerdo): says that the written

terms of an agreement can’t be varied by prior or oral agreements

h) Severability (cláusula de divisibilidad): provides that in the event that

one or more provisions of the agreement are declared unenforceable,

the balance of the agreement remains in force

i) Termination (cláusula de rescission): establishes when and under

which circumstances the contract may be terminated

j) Payment of costs (pago de las costas): sets out which party is

responsible for payment of costs related to the preparation of the

agreement and ancillary documents (documentos secundarios)

When there has been a breach of contract, the non-breaching party will

often seek remedies available by law. Most remedies involve money

damages. In some cases, a party will be able to obtain punitive or

exemplary damages through the court which are designed to punish the

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breaching party for a conduct which is judged to be particularly

reprehensible such as fraud. This type of damages is normally only awarded

where specifically provided by statute and where a tort in some way

accompanies the breach of contract. Where monetary damages wouldn’t be

an adequate remedy, the court may order specific performance

(cumplimiento del contrato) which involves an order by the court

compelling the breaching party to perform the contract. Finally, there are

other remedies available: for example, if there has been a default

(incumplimiento) by one party, the other party may rescind or cancel the

contract

Main types of contract

Most of the civil cases are probably related to torts, among them we can

include nuisance (molestias) and trespass (intromission o violación de

la propiedad) and breach of contract (incumplimiento de contrato).

Nowadays most of the economic relationships among parties are secured by

contracts. Among the most important types of contract, we can find:

a) Purchase sale contract (contrato de compra-venta): This contract

can be oral or written but some of them such as the purchase-sale of

real property (compraventa de bienes immuebles) must be legalised

by a deed (escritura pública). These contracts are terminated, among

other reasons, by the following:

- the contract has been performed

- by agreement of the parties

- by novation (novación): one of the parties can ask for the contract to

be modified in order for the dispute to be settled. The affecting party

accepts to release the another party from his contractual obligations

signing another contract with a new consideration called satisfaction

(satisfacción), settlement (liquidación) or discharge (finiquito)

- by breach of contract

b) Lease or leasehold (contrato de arrendamiento): the owner of a real

property, called the lessor or landlord, grants the possession and

exclusive use of this real property to a lessee or tenant for a fixed

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period of time. This type of contract should also be legalised by a deed,

in which covenants (estipulaciones o pactos) are included. Among the

most important covenants included in this kind of contract, we can find

the following: the parties to the contract, the term or length, the

description of real state, rent (renta), insurance (seguros) and repairs

/ maintenance (reparación y mantenimiento). The tenancy can be

for a fixed term or periodic. When the tenancy is for a fixed period of

time, the lessee can assign to another person his contract for the

remaining period of time whenever there is no covenant against it. The

periodic tenancy usually lasts until the lessor or tenant gives notice

(denunciar). When it’s the landlord who gives notice, it’s called eviction

notice (notificación de desahucio). When there is no fixed period of

time for the tenancy, it can be said that there is tenancy at will

(inquilinato sin plazo fijo). In this tenancy, the terms of the contract

are brought to an end when one of the parties thus determines.

c) Contract of employment: the employees have right to health and safety

at work, to paid holidays, to statutory sick pay (baja laboral por

enfermedad) and to statutory maternity pay. When industrial disputes

arise, they can be heard in Industrial tribunals (Magistratura de

Trabajo). Most of these disputes are related to the termination

(extinction) of contracts of employment. Among the reasons of

termination, we can find the following: unfair dismissal (despido

improcedente) or redundancy (expediente de regulación de

empleo). Among the remedies applied by Industrial Tribunals when

somebody is unfairly dismissed are the following: reinstatement

(readmisión), reengagement (recolocación) and compensation

(indeminización). The employer can also make breach of contract

when an employee is demoted (rebajado en su categoría

professional), cut in his wages (se reduce su salario) or he / she is

sexually harassed (acosado sexualmente)

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EXERCISES

1- Match these defences (1-4) with their definitions (a-d):

1. illegality of the subject matter

2. fraud in the inducement

3. duress

4. lack of legal capacity

a. when one party doesn’t have the ability to enter into a legal

contract, i.e. is not of legal age, is insane or is a convict or enemy

alien

b. when one party induces another not entering into a contract by

use or threat of force, violence, economic pressure or other

similar means

c. when either the subject matter or the consideration of a contract

is illegal

d. when one party is intentionally misled about the terms, quality or

other aspects of the contractual relationship that leads the party

to enter into the transaction

2- Identify the type of clause exemplified by each of these

clauses:

1. The seller’s liability for damages shall in no case exceed the

purchase price of the particular quantity delivered with respect of

which damages are claimed

2. Whenever, within the sole judgment of Seller, the credit standing

of Buyer shall become impaired. Seller shall have the right to

demand that the remaining portion of the contract be fully

performed within 10 days

3. Neither party shall be liable in damages or have the right to

terminate this Agreement for any delay or default in performing

hereunder if such delay or default is caused by conditions beyond

its control

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4. This Agreement may not be assigned without the prior written

consent of the other party, except that the Buyer may assign the

Agreement to a subsidiary or related corporation

5. In the event Operator defaults in the performance of any

covenant or agreement made hereunder, as to payments of

amounts due hereunder or otherwise, and such defaults are nor

remedied to the Supplier’s satisfaction within 10 days after notice

of such defaults, the Supplier may thereupon terminate this

agreement

6. This Agreement, including the Schedules and Exhibits attached

hereto, constitutes and contains the entire agreement of the

parties with respect of the subject matter hereof and collectively

supersedes any and all prior negotiations, correspondence,

understandings and agreements between the parties respecting

the subject matter hereof. No party is relying on or shall be

deemed to have made any representations or promises not

expressly set forth or referred to in this Agreement

3- In your own words, explain the following words and

expressions in italics from the clauses in exercise 2

a) liability for damages (clause 1)

b) within the sole judgment of Seller (clause 2)

c) delay or default (clause 3)

d) prior written consent (clause 4)

e) In the event Operator defaults in the performance ….. (clause 5)

f) Schedules and Exhibits (clause 6)

g) Deemed (clause 6)

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4- Read the following clause and for each of these words,

find the word or expression in the clause that most closely

matches the meaning

1. in the form of

2. specified in writing

3. more than

4. jointly

5. is owed to

6. including

7. as stated above

8. subtracted form

FAILURE TO FINISH THE WORK ON TIME

It is mutually agreed by and between the parties hereto that time is of the

essence and that in the event of the Contractor’s failure to complete the

contract within the time stipulated and agreed upon, the Owner will be

damaged thereby; and because it is difficult to definitely ascertain and prove

the amount of such damages, inclusive of expenses for inspection, necessary

travelling expenses and other similar expenses, it is hereby agreed that the

amount of such damages shall be the liquidated sum of Two thousand

Dollars per calendar day for each day of delay in finishing the Work in excess

of the number of working days prescribed; and the Contractor hereby agrees

that such sum shall be deducted from amounts due to the contractor under the

contract or, if no amount is due the Contractor, the Contractor hereby agrees to

pay to the Owner as liquidated damages, and not by way of penalty, such total

sum as shall be due for such delay, calculated as aforesaid.

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LISTENING ACTIVITIES:

5- You will hear Arthur Johansson, a junior lawyer who

attended the in-company seminar on negotiating

techniques, negotiating the terms of an agreement for a

client with the other party’s lawyer, Ms. Orwatz.

a) What kind of agreement are they talking about? Which clauses do they

mention?

b) Decide whether these statements are true or false:

1. the clause they are discussing wouldn’t allow the franchises to operate

any kind of restaurant within the prescribed area for a stipulated period

of time

2. the lawyer representing the franchisor argues that the purpose of the

clause is to guard her client’s legitimate business interests

3. the franchisee’s lawyer believes that his client is in a strong position in

the negotiation

4. the franchisee’s lawyer offers to strike the arbitration clause in exchange

for a reduction in the number of years set forth in the non-competition

clause

6- Listen to an attorney informing a client about the various

remedies available to him

1. What was wrong with the software program delivered to the client?

a) it was completed too late to meet the deadline

b) it didn’t work on all the ferry company’s PC’s

c) it wasn’t designed in accordance with the specifications of the clients

2. According to the lawyer, what should her client have done to mitigate his

damages?

a) he should have offered his customer less than a 10% discount

b) he should have looked for a cheaper local programmer

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c) he should have had an attorney draw up the contract

3. Provided the contract doesn’t waive the right to consequential damages,

under which circumstances might the client be entitled to receive such

damages?

a) if the reputation of the client in his town suffers

b) if the quality of the software turns out to be unsuitable for the purposes

of the customer

c) if the loss of the customer and the necessity to grant a discount could

have been foreseen

4. Why can’t the client expect to be awarded punitive damages?

a) weight gain doesn’t qualify as emotional injury

b) punitive damages aren’t awarded in a breach of contract case of this

type

c) the possibility of personal injury was not foreseen in the contract

7- You will hear Ron, the lawyer preparing the case, talking

with Sam, a senior partner, about the facts of the case.

Tick the facts of the case Ron mentions

1. The Jones corporation (the lessor) wanted to sell a restaurant to Keats

(the lessee)

2. Keats requires consent from the Jones Corporation to assign the lease to

a third party

3. Prior written consent to assignment is not necessary

4. The Jones Corporation is not permitted to withhold consent unreasonably

5. Keats couldn’t provide the information about the buyer that Jones

requested

6. the prospective buyer withdrew his offer for the restaurant

7. the buyer is suing Keats for breach of contract

Education

Contracts: characteristics and exercises