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Contracts

Contracts . Capacity/Consent Statute of Frauds Drafting Tips Class 3. Contractual Capacity. The bases for showing lack of capacity to enter into a contract are: Minority Intoxication Mental incompetence. Contracts with Minors.

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Contracts

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  1. Contracts Capacity/Consent Statute of Frauds Drafting Tips Class 3

  2. Contractual Capacity • The bases for showing lack of capacity to enter into a contract are: • Minority • Intoxication • Mental incompetence

  3. Contracts with Minors • In most states, as in Washington, the age of majority for contracting is 18 years old. • A contract with a minor is not void – only voidable. It may be • Disaffirmed • Ratified

  4. Disaffirmance • A minor may disaffirm – or rescind – the contract only if: • The disaffirmance is timely and • The minor returns the consideration received – to the extent possible.

  5. Ratification • After becoming an adult, the minor may ratify the contract. If the contract is ratified, it is enforceable.

  6. Mental Impairment • A contract with a person who has a mental impairment is governed by the same principles that apply to a contract with a minor – the incapacitated person may either disaffirm the contract or ratify it.

  7. Intoxication • The general rule is that intoxication is not a defense to enforcement of a contract. • However, if intoxication results in an inability to have the requisite mental capacity to make a contract, then the contract is voidable. • This is a very high burden.

  8. Genuine Consent • A court may refuse to enforce a contract if the agreement was not genuine – not made with a true understanding of the facts or not voluntary because of • Misrepresentation or Fraud • Mistake • Undue influence • Duress

  9. Fraud/Misrepresentation • Fraud is the intentional misrepresentation of material facts under circumstances in which the defrauding party expects the other party to rely on the misrepresentation to that party’s detriment. There must be proof of: • Misrepresentation of a material fact • An intent to deceive • Justifiable reliance on the deception

  10. Innocent Misrepresentation • Misrepresentation is the unintentional deception of another party. • Must involve a material fact • The fact must be within the exclusive knowledge of the person making the misrepresentation and • Not reasonably available to party deceived.

  11. Mistake • There are two kinds of mistakes • Mutual • Unilateral

  12. Undue Influence • Exists where there is a confidential or fiduciary relationship between the contracting parties (one of the parties is in a position of trust) and • This (1) position of trust was abused (2) influence the vulnerable party to enter into the contract.

  13. Duress • If a party enters into a contract involuntarily – because the party was forced to agree – the contract is voidable at the option of the party who was coerced.

  14. Statute of Frauds • Some contracts are required to be in writing to be enforceable: • Interests in land • Made by an executor of an estate • To pay the debt of another • Cannot be performed in one year • Made in consideration of marriage • For sale of goods worth more than $500

  15. Washington’s Statute of Frauds • We have a number of statutes that require contracts to be in writing. • RCW 19.36.010 (General statute) • RCW 64.04.020 (Deeds) • RCW 62A.2-201 (Sale of goods over $500) • RCW 62A.2A-201 (Lease of goods over $1000)

  16. Sufficiency of the Writing • The contract or memorandum of contract • Must be signed by the party to be charged (i.e., the party resisting enforcement) • Must state with reasonable certainty • The names of the parties • The subject matter of the agreement • All essential terms and promises

  17. Parol Evidence Rule • Once the contract is written, “parol” or extrinsic evidence to contradict, vary or add to its terms. • Unless: • The court determines the written agreement is incomplete or ambiguous • The contract was modified or • The evidence is used to prove a defense.

  18. Negotiating and drafting the agreement

  19. Negotiations • Know • Your client’s business goals • How the contract can further (or frustrate those goals) • What risks are involved in the transaction • What issues are raised by various terms • Does the deal give the other side too much control • Should the agreement address remedies

  20. Negotiations • Meeting with the other party • Remember this is not litigation; it is not adversarial • Work to achieve an agreement that is acceptable and clear to all parties

  21. Drafting • Translating the “Deal” into a Conract • Guiding Principles • Don’t be afraid to start with a form • Use clear, unambiguous language • Be consistent throughout the contract • Include all essential terms

  22. Contract Parts • Preamble • Recitals • Words of agreement • Definition of important terms • Action Section • Substantive business (warranties, conditions, covenants, etc.) • Endgame provisions • General provisions (boilerplate) • Signature lines

  23. Preamble • The first paragraph – its purpose is to identify the contract. It sets out the name of the agreement, the parties and date the contract is signed: Non-competition Agreement, dated May 1, 2010, between Pat Flynn, Cary Moore and Ned Evans, doing business as LawHelpNOW!, (Sellers) and Chris Mason, Helen Swift, Dirk Dudley and Kerry Cline (Buyers).

  24. BACKGROUND This is an agreement for the sale by Sellers and the purchase by Buyers of LawHelpNOW!, a business that provides temporary paralegal staffing and support to attorneys in Washington State. The value of LawHelpNOW! is significantly enhanced by its client list, reputation and the relationships it has with its clients. It is a condition to the consumation of the Purchase and Sale Agreement between the parties that the Sellers enter into this Noncompetition Agreement. Recitals • Explains the background. They are not contract terms and are not enforceable.

  25. Words of Agreement • State – for the record – that the parties agree to the terms of the contract: Accordingly, the parties agree:

  26. Definitions • Usually follow words of agreement. Definitions in the contract are a good way of referring to complex concepts and ensure that the concepts have the same meaning to all parties – and throughout the agreement. “Litigation expense” means any expense incurred in connection with asserting, investigating, or defending any claim . . .

  27. Action Sections • This section tells the parties how to perform the principal objective of the contract. Its primary components are: • The provisions in which the parties agree to perform the main subject matter of the contract; • The consideration provisions (generally payment of money. At Closing, Sellers shall sell the business LawHelpNOW! to Buyers, and Buyers shall buy LawHelpNOW! from Sellers. Purchase Price: The purchase price is $500,000, payable at time of closing.

  28. Substantive Provisions • Representations • Warranties • Covenants • Rights • Conditions • Discretionary Authority • Declarations

  29. Endgame Provisions • These relate what happens when the contract ends . . . Release of collateral . . What happens on default …

  30. General Provisions • These dictate how the parties will govern their relationship and administer the contract. This may include: • Notice provisions • Choice of law • Choice of forum • Anti assignment clause • Modification • Severability

  31. Signature Lines To evidence the parties’ agreement to this Contract, they have signed and delivered it on the date set forth in the Preamble. May Corporation By____________________ Meg Pearson, President Craven Company By___________________ Frank Foster, President

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