English Vocabulary for Contracts Drafting
English Vocabulary for Contracts Drafting is specialized and practitioners who are not native English speakers (and even those who are) often will have to spend a lot of time memorizing new expressions, words and terms. That is to say that Contract Law is a universe onto itself and it has its own vocabulary and linguistic pedigree. For those who are English language learners, learning the language of Contracts is an additional challenge to be added to learning the English language itself. Oye! Well, never fret. Today, I am going to give you a series of words and terms that are unique to the practice of Contracts and Business Law. In some cases I have tried to add a comprehensive explanation based on what I remember from law school.
Without further ado, a list of English Vocabulary for Contracts Drafting:
Acceptance – An acceptance is when the offeree learns of a commitment/promise/offer and agrees to the terms thus forming a binding contract with the offeror. For UCC contracts, acceptance is the same for bilateral and unilateral contracts. Either promise or performance is good acceptance under the UCC. In the case of acceptance by performance, the offeree must give notice to the offeror that performance is in the process.
For bilateral offers, the acceptance can be express or by conduct. That is, the offeree makes a commitment that is definite in language or conduct such that a “reasonable person” would interpret a contractual relationship had been formed between the two parties. Circumstances matter. Even if there is an expression of acceptance, the circumstances can alter the way the situation is interpreted by the Court. Acceptance must be “speedy” and “legally identical” to the way the offer came. So if the offer was made by email, you have to accept by email and this is probably “speedy” enough. You cannot accept an offer orally if that offer was made in writing – as a general rule.
For unilateral offers (promise for performance), the offeree must perform the action that was offered by the offeror in order to accept the offer. The offeree must give the offeror notice if the offer requires notice, (or if the offeror would have no other way of knowing the performance had been completed) and this becomes a part of the acceptance.
Silence and use of the goods could also be viewed as acceptance. But only the offeree’s silence can be treated as acceptance (if the offeree suggests that his or her silence means acceptance.)
In some cases, acceptance sticks even if the offeror does not receive it. In other words, an acceptance is effective when dispatched, in effect. This is called the mailbox rule. The mailbox rule only applies to bilateral offers, not unilateral offers. There are however exceptions to the mailbox rule (when the offer says you cannot use dispatch as the test; when you have an option contract; when you have an offeree who keeps changing his or her mind and then sends an rejection letter to change his or her mind; if the offeree rejects first then accepts, then whichever is received first by the offeror will prevail.)
Ambiguity – This is a term in the contract that could have more than one meaning. This could cause the contract to be unenforceable if the ambiguity pertains to a “material term” in the contract. This is an unenforceable contract or provision.
Assignment – Assignment occurs when an original party to all rights and duties of a contract transfers the rights, duties and obligations under the contract to a third party. The person who assigns a right in a contract is called an assignor and the person who receives the right is the assignee. Most but not all contract rights can be assigned. For example, if assignment is prohibited in the terms of the contract it cannot be assigned (but this is tricky because you can still assign and the assignee has a bonafide contract with the other party but this creates a breach issue that entitles the other party to damages potentially). If the right is for personal services the rights cannot be assigned as a general rule if the assignment changes the nature of the performance.
Battle of the forms rules – New and different terms are part of the contract unless the original offer prohibited new terms; or the new terms “materially” change and alter the contract.
Bilateral Contract – A contract is formed with mutual promises – a promise for a promise – the performances are “executory” that means they are not yet executed.
Black Letter Law of Contracts – This term refers to the well-established Law of Contracts that are widely accepted and not subject to dispute – the fundamental principles upon which Contracts law is based and understood by most people (this term is not limited to Contracts, btw).
Breach – Breach occurs when one or both parties fail to perform their duties or obligations under the Contract. The breach could occur because of action of the party who is suing for breach. Breach can be “material”, “minor”, “fundamental” or anticipatory. Usually, breach results in damages to the aggrieved party but on occasion, a material or fundamental breach could be subject to specific performance.
Capacity – Capacity refers to the mental ability of the party to enter into the contract. Anyone under the age of 18 is presumptively not of sufficient mental abilities to enter into most contracts; however they are considered to have capacity for “necessaries.” And a contract with a minor is not necessarily void. It is only voidable if the minor derived no benefit from the contract. Other parties lack capacity to enter into contracts. A person who has been adjudicated “mentally incompetent” cannot enter into an enforceable contract. This type of contract is more than voidable. It is void, ab initio. Other types of incapacity involve drugs, alcohol and other material that could render a person incapable of understanding the commitment he or she is making (if the other party knows or should have known about the incapacity.) This is a voidable obligation. The contract can later be “affirmed” if the incapacitated party gains capacity.
CISG – United Nations Convention for the International Sale of Goods
Collateral Debts – There is an existing obligation to pay the debt and the obligation is not that of the person who promises to pay the debt, and this third party gains no benefit from paying the debt. Collateral debts have to be in writing to be enforceable according to the Statute of Frauds.
Commitment – in the context of a contract, a commitment is an agreement to enter into a contract.
Common Law Contracts – The term common law contracts generally refers to those contracts that do not involve the sale of movable goods, vis a vis UCC contracts (and on the international level CISG contracts) which are limited to the sale of goods.
Conditions of a contract – Each contract has general conditions and special conditions. These are just the terms and conditions that set the rights and duties of the parties in a contract. Boilerplate provisions outline the general conditions and the special conditions are usually the result of negotiation between the parties.
Conforming Goods – Conforming goods are goods that meet the specifications contracted for in the contract vis a vis non-conforming goods which do not meet the specifications of the contract.
Consideration – Every contract requires consideration. Gifts, moral convictions and prior acts are not contracts because they do not have a bargained for exchange. The consideration is the part of the transaction that makes the contract enforceable. The promises must both have consideration for a contract to be enforceable. Both the offeror and the offeree makes promises in a contract. For there to be consideration, the promise must have induced performance from the promisee. Was there detriment? Was there a bargained for exchange? Is the promise real? Or illusory?
Counter Offer – This is a rejection of the original offer and the proferring of new terms and conditions. Under Common Law Contracts law, the words of acceptance must be the mirror image of the offer. The offeree cannot impose new terms and rules at his or her whim. The UCC is not so strict. To have a counteroffer under the Code, it is necessary that the seller ships nonconforming goods as an “accomodations.” In other situations, if the buyer accepts under conditional language and conditions his or her acceptance on new terms, then this is a counteroffer and the original offeror must accept these new conditions in order for there to be a contract. Under the UCC the goods can be conforming or nonconforming. If the goods are noncoforming, this creates a breach but it is an acceptance and thus a contract is formed. The offeror can obtain remedies for the non-conforming goods (but not if the offeree tells the offeror that the goods are an “accommodation” or “counteroffer.”)
Defenses to a contract – The defenses of a contract include incapacity, Statute of Frauds, Operation of Law, illegality, impossibility, duress (personal and economic), impracticability, unconscionability, force majeure, ambiguity
Delegation of Duties – This implies transferring obligations and duties in a contract to a third party but not necessarily the entire contract as in the case of an assignment of rights.
Firm offer – Merchants can make a firm offer. That means that the person who makes this offer is someone who is in business. These types of offers have to be in writing. Under the UCC (American Law) this is not valid if it is not in writing. With these offer, the merchant promises to keep the offer open. These offers are not revocable for a reasonable time. So whereas most other offers can be revoked at will, firm offers must be kept open by the merchant for at least three months. If the offeree paid consideration to the merchant, then the merchant has to keep the firm offer open for longer than three months under the UCC.
Forbearance – Forbearance to abstain from doing something you would normally not be required from abstaining from. This is good consideration in a contract.
Formation – This concept applies to all the preliminary and necessary steps that precede and include the “commitment” to enter into a contract.
Fraud in the execution – This occurs when a party is deceived into entering into a contract. They did not even know this was a contractual situation. (Another name for fraud in the execution is fraud in the factum.)
Fraud in the inducement – Fraud in the inducement occurs when one party is misled through coercion or deceit to enter into a contract he or she otherwise would not have entered into.
Good – According to the UCC, § 2-105. Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit” see, http://www.law.cornell.edu/ucc/2/2-105#Goods_2-105
(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).
(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
(3) There may be a sale of a part interest in existing identified goods.
(4) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller’s interest in the bulk be sold to the buyer who then becomes an owner in common.
(5) “Lot” means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.
(6) “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.
Lapse – This occurs if a party takes too long to accept an offer. No contract is formed in this case. The deal is considered to be off.
Mail Box Rule – The mail box rule refers to how acceptances are made on the date the acceptance is dropped into the mail by the offeree. Rejections are not subject to the mailbox rule. Those are effective when received. Acceptances are effective when they are dropped or post-marked into the mailbox.
Merchant – Pursuant to Article 2 Sec. 104 of the UCC a merchant is defined as follows: “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.”
Mirror image rule – in common law contracts, the acceptance must mirror the offer or it is considered a counteroffer. The rule is different under the UCC and under the CISG in some occasion
Mutual Mistake – This occurs where both parties to a contract made a fundamental mistake as to the subject matter of the contract where the subject matter does not exist.
Offer – Whether a statement is considered an offer is a “reasonable person” test – an objective test. An offer must contain definite terms which are “material” to the subject matter of the contract. Would a reasonable person believe that the speaker intended to form a contract with the listener or offeree? Circumstances matter. Words are not enough for a valid offer to have been made. Was this serious or was the speaker joking, for example? Horsing around does not create a valid offer if the reasonable person should have known that the speaker was horsing around. So it is language and it is circumstances that will determine if there has been an offer made. (Advertising is not an offer it is an invitation to enter into a contract but it is not an offer or commitment – as a general rule.)
Offeree – In a contract this person must be identifiable and definite and it is someone who has actual knowledge that an offer has been made. THEY MUST KNOW THE OFFER WAS MADE OTHERWISE THERE IS NO CONTRACT. This is the person who receives the offer from the offeror.
Option Contract – An offeree creates this contract by paying consideration to the offeror to keep an offer open for a specific time. The offeror cannot revoke this at will, only within a reasonable time.
Promissory Estoppel – The concept here is that if you make some promises you are estopped from revoking them freely. Promissory estoppel is considered to be a “consideration substitute.” So if the offeree relies on your promise and takes action based on this promise to their detriment, the promise is treated as if consideration was given for that promise.
Rejection – The offeree is the only party who can reject an offer. Rejection can be express or by conduct. To reject an offer means that the offeree does not make a commitment to enter into a contractual relationship with the offeror.
Revocation – The offeror revokes a contract. This can occur expressly or by conduct. Revocation is not always at will. For example, in the case of merchants whwo make “firm offers” these are not revocable at will. For unilateral contracts which involve a promise for a performance, revocation is not at will when there is partial performance.
Statute of Frauds – This is a defense to the enforcement of a contract. Some kinds of contracts are protected by SoF defenses including contracts for the sale of land, real estate contracts, marital agreements, and contracts for paying the “collateral debts” of a third party are protected if there is o written agreement. In this case, collateral means there is a debt in existence. Third party had no obligation to pay the debt in the first place but he or she promises to pay the debt. This has to be in writing.
Subject Matter of the Contract – The purpose/main “material” material of the contract. For example for the sale of goods the subject matter if the quantity and the price. In an employment contract the subject matter is the duration or term of the employment.
Termination – To end a contractual agreement; revoke an offer; reject an offer (express or conduct); or by operation of law
Third Party Beneficiaries – These parties appear in the contract when it is formed. They are technically a non-party in that they have no duties and obligations but they receive the benefit of the contract and this is evident at the time of formation of the contract. Beneficiaries are intended or incidental. Intended third party beneficiaries are identified in the promise made in the contract and the benefit of the performance goes to this beneficiary. The promisee and the beneficiary must be related in order for the third party to be considered an intended beneficiary. Only intended beneficiaries have rights under the contract! Donee beneficiaries (gift beneficiaries) v. creditor beneficiary (the promise has an obligation to the third party beneficiary)
UCC – The UCC stands for Uniform Commercial Code.
Unconscionability – A term in a contract that is unfair on its face at the time of formation of the contract.
UNIDROIT – INTERNATIONAL INSTITUTE FOR THE UNIFICATION OF PRIVATE LAW. “Its purpose is to study needs and methods for modernising, harmonising and co-ordinating private and in particular commercial law as between States and groups of States and to formulate uniform law instruments, principles and rules to achieve those objectives.” http://www.unidroit.org/dynasite.cfm?dsmid=103284
Unilateral Contract – a unilateral contract is formed with a promise for a “fully executed performance.” The other party has to complete the performance in order for the contract to come into force. This cannot be freely revoked by the offeror. Partial performance matters. So that even if you do not have full performance as offeror you have to give the offeree a reasonable time to perform.
Unilateral Mistake – This occurs where one party to the contract is mistaken about the subject matter of the contract. This is a defense to enforcement of the contract if the other party knew the mistaken party was making a mistake when the contract was formed.
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