Contract formation

1. Contractformation International legal english

2. Matchthequestionswithparagraphsthatanswerthem A Whatformcananenforceablecontracttake? B When do third partiespossessenforceablerightsin a contract? C Uponwhichgroundsrelated to theformationof a contractmayitsvaliditybeattacked? D What are theelementsofanenforceablecontract? E What are theessentialtermsof a contract?

3. 1. 1. Underthecommonlaw, a promisebecomesanenforceablecontractwhenthere is anofferby one party (offeror) that is acceptedbytheotherparty (offeree) withthe exchange oflegallysufficientconsideration (a giftor donationdoesnotgenerallycount as consideration); hencetheequationlearnedbylawstudents: offer + acceptance + consideration = contract. Thelawregards a counterofferas a rejectionoftheoffer. Therefore, a counterofferdoesnotserve to form a contractunless, ofcourse, thecounteroffer is acceptedbythe original offeror.

4. 2. 2. For a promise to becomeanenforceablecontract, theparties must alsoagree on theessentialtermsofthecontract, such as priceandsubjectmatter. Nevertheless, courtswillenforce a vague or indefinitecontractundercertaincircumstances, such as whentheconductoftheparties, asopposed to thewritteninstrument, manifestssufficientcertainty as to thetermsoftheagreement.

5. 3. 3. Anenforceableagreementmaybemanifestedineitherwritten or oralwords (anexpress contract) or byconductor some combinationofconductandwords (animpliedcontract). There are exceptions to this general rule. For example, theStatute ofFraudsrequiresthat all contractsinvolvingthe sale ofreal propertybeinwriting.

6. 4. 4. In a contractualdispute, certaindefences to theformationof a contractmaypermitaparty to escape his/her obligationsunderthecontract. For example, illegalityofthesubjectmatter, fraudintheinducement, duressandthelackof legal capacity to contract all enable a party to attackthevalidityof a contract.

7. 5. 5. In some cases, individuals/companies who are not a party to a particularcontractmayneverthelesshaveenforceablerightsunderthecontract. For example, contractsmadeforthebenefitof a third party (third-partybeneficiarycontracts) maybeenforceablebythe third party. An original party to a contractmayalsosubsequently transfer his rights/dutiesunderthecontract to a third partybywayofanassignmentofrightsor delegationofduties.This third party is calledtheasigneeinanassignmentofrightsandthedelegatein a delegationofduties

8. Matchthesedefenceswiththeirdefinitions: 1. illegalityofthesubjectmatter, 2. fraudintheinducement, 3 duress, 4 lackof legal capacity A) when one partydoesnothavetheability to enter into a legal contract, i.e, is notof legal age, is insane or is a convict or enemyalien B) when one partyinducesanotherintoenteringinto a contractby use or threatofforce, violence, economicpressureorothersimilarmeans C) wheneitherthesubjectmatter (e.g. the sale ofillegaldrugs) or theconsiderationof a contract is illegal D) when one party is intentionallymisledabouttheterms, quality or otheraspectofthecontractualrelationshipthatleadstheparty to enter intothetransaction

9. Understandingcontracts Lawyers are usuallyinvolved at theformationstageof a contract, whichincludesadvising, draftingandnegotiating. Drafting is commonlycarriedoutwiththehelpofcontracttemplatesor forms.Nevertheless, legal counsel must advise on theinclusion or omissionofclausesandtheirwording. To do this, familiaritywithcommonclausetypesandthelanguagetypicallyused is necessary

10. Matchthesetypesofcontractclauseswiththeirdefinitions: 1,acceleration, 2.assignment, 3.confidentiality,4. consideration, 5.Force Majeure, 6.liquidated damages, 7.entire agreement, 8.severability, 9.termination, 10.payment ofcosts A clausestatingthatthewrittentermsofanagreementmaynotbevariedby prior or oralagreementsbecause all suchagreementshavebeenconsolidatedintothewrittendocument B Clausedesigned to protectagainstfailurestoperformcontractualobligationscausedbyunavoidableeventsbeyondtheparty’s control, such as natural disasters or wars

11. Matchthesetypesofcontractclauseswiththeirdefinitions: 1.acceleration, 2.assignment, 3.confidentiality, 4.consideration, 5.Force Majeure,6. liquidateddamages, 7.entire agreement, 8.severability, 9. termination, 10.payment ofcosts C clauseoutliningwhenandunderwhichcircumstancesthecontractmaybeterminated D clauseconcerningthetreatingofinformation as privateandnot for distributionbeyondspecificallyidentifiedindividuals or organisations, orusedotherthan for specificallyidentifiedpurposes E clausein a contractrequiringtheobligor to pay all or a partofapayableamountsoonerthan as agreedupontheoccurrenceof some event or circumstancestatedinthecontract, usuallyfailure to makepayment

12. Macha thesetypesofcontractclauseswiththeirdefinitions: 1.acceleration, 2.assignment, 3.confidentiality, 4.consideration, 5.Force Majeure,6. liquidateddamages, 7.entire agreement (ParolEvidence), 8.severability, 9.termination, 10.payment ofcosts F clausein a contractrequiringwhichparty is responsible for paymentofcostsrelated to preparationoftheagreementandancillarydocuments G clauseexpressingthecause, motive, price or impelling motive whichinduces one party to enter intoanagreement H clausereferring to anamountpredeterminedbytheparties as the total amountofcompensation a non-breachingpartyshouldreceiveiftheotherpartybreachesapartofthecontract

13. 1.acceleration, 2. assignment, 3. confidentiality, 4. consideration, 5. ForceMajeure, 6. LiquidatedDamages. 7. EntireAgreement, 8. Severability, 9. Termination, 10. Paymentofcosts I clauseprohibitingorpermittingassignmentundercertainconditions J clauseprovidingthat, inthe event that one or more provisionsoftheagreement are declaredunenforceable, thebalanceoftheagreementremainsinforce

14. Severability The severability clause states that the terms of the contract are independent of each another, so that if a term in the contract is deemed unenforceable by a court, the contract as a whole will not be deemed unenforceable. It may contain two parts: (a) savings language to preserve the validity of all other terms in the event that one provision is determined to be unenforceable; and (b) reformation language to scale back overly broad provisions to terms and scope that are enforceable (such as limiting the time and geographic scope of non-compete covenants).

15. Key 1e 2i 3d 4g 5b 6h 7a 8j 9c 10f

16. Identifythetypeofclauseexemplifiedbyeachoftheseclauses 1. Theseller’s liability for damagesshallin no caseexceedthepurchase price oftheparticularquantitydeliveredwithrespectofwhichdamages are claimed. 2. Whenever, withinthe sole judgmentofSeller, the credit standingofBuyershallbecomeimpaired, Sellershallhavetheright to demandthattheremainingportionofthecontractbefullyperformedwithin ten (10) days.

17. Key 1. liquidateddamages 2. accelaration

18. PlainEnglish 1. ifthesellerbreachesthecontract, or partofthecontract, he mayhave to paycompensationtothepurchaser. Themaximumamountofthatcompensation is fixed. It can’t be more thanthevalueofthedeliverythat led to thebreachofcontract (inotherwords, the price peritemtimesthenumberofitemsinthatdelivery). Ofcourse, theactualcompensationmightbemuchlessthanthat, but it can’t be more thanthat.

19. PlainEnglish 2. Thebuyerhas a reputation for payingdebts on time, whichtheselleruses to calculate a credit standing for thatbuyer. Ifthesellerdecidesthatthebuyer’s credit ratinghas got worse, for exampleifthebuyerhasfailed to pay one oftheinstalments on time, thesellercanforcethebuyer to pay all theremaininginstalmentswithin ten days.

20. Identifythetypeofclauseexemplifiedbyeachoftheseclauses 3. Neitherpartyshallbeliableindamages or havetheright to terminatethisAgreement for anydelay or defaultinperforminghereunderifsuchdelayordefault is causedbyconditionsbeyonditscontrolincluding, but notlimited to, actsof God, governmentrestrictions (includingthedenial or cancellationofanyexportorothernecessary licence), wars, insurrectionsand/or anyothercausebeyondthereasonablecontrolofthepartywhoseperformance is affected.

21. Key ForceMajeure

22. PlainEnglish 3. thisclauseprotectsbothpartiesincasesomethingunexpectedhappenswhichtheycan’t control. For example, theremightbe a natural disaster (earthquake), or thegovernmentmightdenyorcancel one oftheirexportlicenses, or theremightbe a war. Ifanything like thishappens, theparty who is affecteddoesn’t have to paydamages for anyfailure to pay or deliver on time. Theotherpartyisn’t allowed to cancelthecontract as a resultoftheseunexpectedproblems. Thisonlyapplies to deliveries or paymentswhich are directlyaffectedbytheunexpected event

23. Identifythetypeofclauseexemplifiedbyeachoftheseclauses 4. ThisAgreementmaynotbeassignedwithoutthe prior writtenconsentoftheotherparty, exceptthatBuyermayassigntheAgreement to a subsidiary or relatedcorporationsolong as theownersof at leastseventy-fivepercent (75%) ofthestockofsuchcorporation are eitherBuyer or theshareholdersofBuyer.

24. Key Assignment

25. PlainEnglish 4. Thebuyer is allowed to assigntheagreementtoanothercompanyifthebuyer or thebuyer’s shareholders own at least 75% ofthatothercompany. Apartfromthissituation, ifeitherpartywants to assigntheagreementto a third party, theyhave to getwrittenpermissionfromtheotherparty first.

26. Identifythetypeofclauseexemplifiedbyeachoftheseclauses 5. Intheevent Operator defaultsintheperformanceofanycovenant or agreementmadehereunder, as to paymentsofamountsduehereunder or otherwise, andsuchdefaults are notremedied to theSupplier’s satisfactionwithin ten (10) daysafternoticeofsuchdefaults, theSuppliermaythereuponterminatethisagreementand all rightshereunderofthe Operator but suchterminationshallnotaffecttheobligationsofthe Operator to takeaction or abstainfromtakingactionafterterminationhereof, inaccordancewiththisagreement

27. Key Termination

28. PlainEnglish 5. Ifthe operator fails to makethenecessarypayments, thesupplierwillgivethe operator ten days to makethepayments. Ifthe operator stillfails to makethepaymentsafterthose ten dayshavepassed, thesupplierhastheright to cancelthecontract. Ifthishappens, the operator loses all therights he had underthecontract, but he doesn’t lose his obligations.

29. Identifythetypeofclauseexemplifiedbyeachoftheseclauses 6 ThisAgreement, includingtheSchedulesandExhibitsattachedhereto, constitutesandcontainstheentireagreementofthepartieswithrespectofthesubjectmatterhereofandcollectivelysupersedesanyand all prior negotiations, correspondence, understandingsandagreementsbetweenthepartiesrespectingthesubjectmatterthereof. No party is relying on or shallbedeemed to havemadeanyrepresentations or promisesnotexpressly set forth or referred to inthisAgreement.

30. Key EntireAgreement/Merger/ParolEvidence

31. PlainEnglish 6. Thisagreement is thecompleteagreementbetweentheparties; no otherdocumentsconnectedwith it are validany more. Inotherwords, all old agreements, promises, representations or documentswhich are connectedwiththe new agreementhavebeenreplacedandshouldbeignoredfromnow on.

32. Explainthefollowingwordsandexpressions 1. Liability for damages(clause 1) 2.Within the sole judgmentofSeller (clause 2) 3. delay or default (clause 3) 4. prior writtenconsent(clause 4) 5. intheeventOperator defaultsintheperformance…(clause 5) 6. abstainfromtakingaction(clause 5) 7. SchedulesandExhibits(clause 6) 8. Deemed(clause 6)

33. Liability for damages Responsibility to paycompensation

34. Withinthe sole judgmentof… Thepartyalonecandecide

35. Delay or default Carryoutlater or not at all

36. Prior writtenconsent Agreementgivenbeforeinwriting

37. Intheevent Operator defaults… If Operator defaultsinperformance…

38. Abstainfromtakingaction Do nothing

39. SchedulesandExhibits Attachment

40. deemed considered

41. A covenant 1. Whatkindofagreement is it? 2. Whydoesthetexthavegapsin it? 3. Whattypeofclauses are 2b, 3, 5 and 6?

42. NON-COMPETITION AGREEMENT OF SHAREHOLDER OF SELLER IN CONNECTION WITH SALE OF ASSETSCOVENANT NOT TO COMPETE This COVENANT NOT TO COMPETE (the “Covenant”, dated as of ____, 20__, is madeandenteredintobyandbetween ___(“Shareholder”) and ____, a ____ corporation (“Purchaser”, with reference to thefollowingfacts:

43. COVENANT NOT TO COMPETE A ______, ______ corporation (“Seller”), andPurchaser are parties to thatcertainAssetPurchaseAgreement, dated as of ___, 20__ (as amended, supplemented or otherwisemodifiedfrom time to time, the “PurchaseAgreement”), pursuant to whichPurchaseragreedtopurchasefromSeller, andSelleragreedtoselltoPurchaser, certainassetsofthe ___businessownedandoperatedbySellerlocated at ____(“theBusiness”). Unlessotherwisenoted, capitalizedtermsusedhereinshallhavethemeaningsascribed to theminthePurchaseAgreement.

44. COVENANT NOT TO COMPETE B Shareholderowns all oftheissuedandoutstanding capital stockofSeller. C Shareholder, duringthecourseofownershipandoperationoftheBusiness, hasacquirednumerousbusinesscontactsamongthepublic, financial institutionsand ___industryemployees. D Purchasershallexpenda considerableamountof time, money, and credit withrespect to thepurchaseandoperationoftheBusiness.l

45. COVENANT NOT TO COMPETE E Purchaserdoesnotdesire to expendsuch time, money, and credit andthensubsequentlycompetewithShareholderinthebusinessof____ F It is a conditionprecedent to theclosingofthetransactionscontemplatedbythePurchaseAgreement (“theClosing”), thatShareholderexecuteanddeliverthisCovenantandthatPurchaserpayShareholdercertainamounts at Closing, all as more fullydescribedbelow.

46. COVENANT NOT TO COMPETE THEREFORE, inconsiderationoftheforegoingand for othergoodandvaluableconsideration, thereceiptandsufficiencyofwhich are herebyacknowledged, thepartiesheretoagree as follows:

47. COVENANT NOT TO COMPETE 1. For a period of ____yearsfromthe date hereof, Shareholdershallnothaveanycontrollingownershipinterest (ofrecord or beneficial) in, orhaveanyinterest as a director, principal executiveofficer, keyemployee, agent or consultantin, anyfirm, corporation, partnership, proprietorship, orotherbusinessthatengagesinanyofthefollowingactivitieswithin a ___mile radiusoftheBusiness’s currentlocation (describe).

48. COVENANT NOT TO COMPETEWhattypeofclauses are 2b, 3, 5 and 6? 2. Additionally, Shareholdershall: A notreferprospectivepurchases or lesseesof ___in ___, otherthantheBusiness; and B subject to anyobligationtocomplywithanylaw, rule, or regulationofanygovernmentalauthorityorother legal process to makeinformationavailabletothepersonentitledthereto, keepconfidentialandshallnot use or permit his attorneys, accountants, or representatives to use, inanymannerotherthan for thepurposeofevaluatingthetransactionscontemplatedbythePurchaseAgreement, anyconfidentialinformationofPurchaserwhichShareholderacquiredinthecourseofthenegotiationofthetransactionscontemplatedbythePurchaseAgreement.

49. COVENANT NOT TO COMPETE Whattypeofclauses are 2b, 3, 5 and 6? 3 As consideration for theagreementsofShareholder set forthinSections 1 and 2 above, Purchasershall, at theClosing, deliver to Shareholder $___bywire transfer ofimmediatelyavailablefundsinsuchamount to a bank accountdesignatedbyShareholder. 4. ThetermofthisAgreementshallbe ___months, commencing on the date hereof.

50. COVENANT NOT TO COMPETE Whattypeofclauses are 2b, 3, 5 and 6? 5. Intheeventthatanyprovision or anypartofanyprovisionofthisAgreementshallbevoidorunenforceable for anyreasonwhatsoever, thensuchprovisionshallbestrickenandof no forceandeffect. However, unlesssuchstrickenprovisiongoes to theessenceoftheconsiderationbargained for by a party, theremainingprovisionsofthisagreementshallcontinueinfullforceandeffect, and to theextentrequired, shallbemodifiedtopreservetheirvalidity.