Anatomy of a Contract

Contracts are comprised of terms, either express (oral or written), implied in fact, or supplied by default rules Promises and conditions are two fundamental types of terms. Promises. By definition, all contracts, whether express or implied in fact, consist of at least one promise. R.2d Contracts 1. "A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee [the one to whom the promise is addressed] in understanding that a commitment has been made." R.2d Contracts 2. In a unilateral contract, one party makes a promise. In a bilateral contact, both parties make a promise. In many contracts, either or both of the parties make multiple promises. Failure to perform the obligation created by an enforceable promise is a breach of contract, and breach entitles the promisee to a remedy from the promisor (usually compensatory money damages and sometimes the discharge of the promisee's own duty of counter-performance). . . . Parties often do not use the word "promise" to express commitment. They may use "shall," "will," "must," "is obligated to," or "agrees to." But these do not exhaust the alternatives because the language that people use to communicate varies enormously. Accordingly, one must occasionally identify promises by applying tools of interpretation. . . . Consider the written agreement in these materials between the Cheetahs (a girls soccer team) and Paula Fernandez (a soccer trainer) (hereafter "the soccer agreement") agreement [provided at the end of this reading assignment]. The contract formed by the soccer agreement is a bilateral contract in which both the Cheetahs and Paula Fernandez made multiple promises. The following chart summarizes the promises. Note that each party made promises in exchange for all of the promises made by the other party.
Fernandez promises Train and coach for stated period Supply necessary equipment Indemnify and hold harmless Supply necessary Workers' Compensation insurance Not to assign duties under the contract absent prior written consent of Cheetahs To pay costs, including attorneys' fees, if Cheetahs prevail in an action Cheetahs promise Pay stated amount To pay costs, including attorneys' fees, if Fernandez prevails in an action Not to assign duties under the contract absent prior written consent of Fernandez

Notice how the soccer agreement expressed promises: Contractor shall arrange for . . . equipment . . . ; Contractor agrees to hold harmless and indemnify . . . ; Neither this agreement nor . . . may be assigned . . .; . . . the prevailing party shall be entitled to all costs . . . The drafting of the soccer agreement would have been improved by eliminating the variation in the language used. In drafting a written agreement, always use identical language and, if possible, identical sentence structure, to express a concept that is expressed more than once (whether the concept is a

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promise or some other term of the agreement). This minimizes the risk of disputes about meaning. Do not follow the advice of your undergraduate writing instructor to find synonyms to provide variety and interest to your writing. I prefer to use the word "shall" to express commitment. Applying that preference to the soccer agreement to eliminate variation in language, the promises would read: Contractor shall arrange for . . . . equipment; Contractor shall hold harmless and indemnify . . . ; Neither party shall assign . . . ; In the event of an action, the losing party shall pay the prevailing party all costs . . . Conditions. When talking about contracts, both the parties to contracts and legal writers use the word "conditions" to express several different concepts. You will need to pay careful attention to the context to determine the meaning intended. There are at least four different intended meanings.

Sometimes people refer to the "conditions of the contract" simply as another way of saying the terms (or the provisions) of the contract. A seller of a business may say to a prospective buyer: "I'll sell for $500,000 cash plus a one year consulting contract at $50,000, with an office on the premises and those are my conditions, take it or leave it." The seller is really describing the promises that he will make and that he expects in return even though using the word "conditions." [It is really an Offer] Sometimes people refer to a "condition to the contract," by which they mean that a contract will not be formed absent the occurrence of an event that is beyond the control of the parties to the contract. For example, if the Cheetahs and Paula Fernandez orally agreed that the soccer agreement would be subject to approval by the Board of Directors of the Los Robles Soccer Club (based on a conclusion that Paula Fernandez was a qualified soccer trainer), the formation of the contract would be subject to that condition of approval. It may be difficult, even somewhat artificial, to distinguish a condition to formation from a condition to performance (discussed below). The distinction is important however because the parol evidence rule may bar introduction of evidence offered to establish a condition to performance but will not bar introduction of evidence offered to establish a condition to formation (such as the condition that the Los Robles Soccer Club approve the soccer trainer). [Additionally, there are different consequences for a failure of a condition to formation and a condition to performance.] Sometimes people use the word "condition" to refer to the manner of accepting an offer to form a unilateral contract. For example, in describing the formation of a contract of insurance one might hear that the insurance company offers to insure on condition that the purchaser of the insurance policy pays premiums. This is simply another way of saying that the offer to insure made by the insurance company can be accepted (thus forming a contract) by the action of the purchaser in paying premiums. Less frequently one might hear the word condition used to describe the acceptance of an offer to form a bilateral contract: "I promise to sell you this grain when harvested on condition that you promise to pay me $5.00/bushel." This is another way of saying that the offer to sell the grain can be accepted (thus forming a contract) by the expression of commitment to buy at the stated price and time." You will also hear the word "condition" used to refer to an event the occurrence of which either triggers or discharges the duty of a party to a contract to perform the obligations created by its promises. Here, we are speaking of a condition to performance of an obligation under a

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contract that has already been formed, not a condition to formation. The ensuing discussion, most of the relevant literature, and our study of conditions focuses on conditions to performance of obligations under contracts that have already been formed. Express and implied conditions. Like promises and like other terms of a contract, events that condition performance may be described by oral or written language of the parties ("express conditions") or implied from the circumstances ("implied conditions" or "implied-in-fact conditions"). They may also be supplied by default ("constructive conditions") discussed below under the heading Constructive conditions of exchange. There are no express conditions in the soccer agreement, but one can imagine several conditions to performance that the parties might have included. For example, the Description of Services might have provided: "Train U-16 girls select team (Los Robles Cheetahs) - soccer- Tuesday & Thursday, approx. 4-6 p.m., weather permitting." So drafted, the trainer's obligation to train on a scheduled day would be discharged in the event of lightning storms at the times scheduled for training. Once discharged, the trainer's failure to perform the discharged obligation cannot be a breach of contract. Typical language for the expression of condition are phrases such as: if . . . . then . . . "provided that . . on condition that . . . in the event that . . .

But, as suggested by the example above ('weather permitting"), there are lots of ways to express conditions. Of course, in the absence of such an express condition, the condition may well have been implied from usage of the trade. Another implied condition to the trainer's obligation to train the team through the national championships (or is it an express condition?) is that the Cheetahs first qualify to play in national championships. The events that condition performance are often labeled either "conditions precedent" or "conditions subsequent." A condition precedent is an event that must occur before performance of an obligation becomes due. A condition subsequent is an event whose occurrence discharges a duty that has already become due. Note that R.2d Contracts uses different terminology that has not generally infiltrated the case law. Under R.2d Contracts 224, "[a] condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due (emphasis added)." Thus, R.2d Contracts reserves the word "condition" to identify what is more commonly identified as a "condition precedent." See also R.2d Contracts 225, 226. R.2d Contracts 230 uses different language, avoiding the word "condition" entirely, to identify what is more commonly identified as a "condition subsequent." R.2d Contracts 230 provides: [I]f under the terms of the contract the occurrence of an event is to terminate an obligor's duty of immediate performance or one to pay damages for breach, that duty is discharged if the event occurs. In addition to a "weather permitting" term in the soccer agreement, consider the following example of a condition precedent. A portrait artist promises to paint a portrait of Bill Gates to be hung in the lobby of the Microsoft office tower in which Bill works. In exchange, Bill promises to pay $5,000 for the portrait if satisfied with the rendering. Bill's promise to pay is subject to a condition of satisfaction. Because he need not pay unless satisfied, the condition is a condition precedent. [We saw this in the Omini Group, Inc. v. Seattle-First National Bank. Conditions subsequent are less common. R.2d Contracts offers this illustration following R.2d Contracts 230:

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A, an insurance company, insures the property of B under a policy providing that no recovery can be had if suit is not brought on the policy within two years after a loss. A loss occurs and B lets two years pass before bring suit. A's duty to pay B for the loss is discharged and B cannot maintain the action on the policy. Notice that in this example the "event" is the failure of B to timely file suit and "event" is simply a convenient shorthand for the non-occurrence of an event. The distinction between conditions precedent and conditions subsequent is important in some jurisdictions, vestigial in others. In some jurisdictions, rules of procedure governing pleading and proof require that the party alleging breach of contract must plead the occurrence of any condition precedent to the breaching party's obligation to perform and carry the burden of proof (preponderance of the evidence) on that issue. In contrast, the party alleged to have breached a contract must plead the occurrence of any condition subsequent claimed to discharge the duty of performance and carry the burden of proof on that issue. Some jurisdictions otherwise allocate the burdens of pleading and proof; in such jurisdictions the distinction between conditions precedent and subsequent has little if any consequence. Recall that the consequence for the failure of a party to perform an obligation created by an enforceable promise is the right of the aggrieved party to compensatory money damages and, sometimes, a discharge of the aggrieved party's duty to perform its own promises. In contrast, if an event that conditions performance of an obligation does not occur, no party has a right to a remedy; the only consequence is discharge of the obligation that is conditioned on the event. In our earlier example, if Bill Gates is not satisfied with the rendering of his portrait, his obligation to pay is discharged, but he cannot hold the artist responsible for breach of contract because the artist did not promise that Bill would be satisfied. However, on occasion, a party will make a promise (express or implied-in-fact) that an event will occur. In our soccer agreement, for example, the parties may have agreed that the Cheetahs would pay for soccer training only if the soccer trainer completed a licensing course and received a Class C coaching license and the soccer trainer may have promised to complete that course and receive that license. In this instance, the soccer trainer would have promised that an event would occur. In the words of Professor Corbin, the trainer would have made a "promissory condition." Failure of that event would both discharge the Cheetahs from their obligation to pay under the contract and also would give them a right to compensatory money damages for breach of the promise. Excuse of conditions. The consequence for non-occurrence of an event that is made a condition of an obligation in a contract is severe: the conditioned obligation of a party is entirely discharged, even where the condition seems minor or the deviation from the defined event seems minor. Courts may employ one of several doctrinal devices to avoid that consequence where the consequence seems unduly severe. A court may find that the party whose duty is conditioned has waived the condition, i.e. has voluntarily relinquished it right to the occurrence of an event as a condition to performance. Bill Gates may not be satisfied with his portrait, but he may be willing to keep and pay for it nonetheless. His waiver of the condition of satisfaction excuses it. A court may also find that the party expecting the conditioned performance has justifiably and substantially relied on the expected performance by incurring expenses or otherwise in preparation for

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the expected performance. In such cases, the courts may excuse the condition on the ground that enforcing the condition would cause disproportionate forfeiture. See R.2d Contracts 229. Where language in an agreement is ambiguous, a court may interpret a term to be a promise rather than a condition such that failure of an event to occur entitles the promisee to damages but does not excuse the promisee's duty of counter-performance. See R.2d Contracts 227. Constructive conditions of exchange. The parties to a bilateral contract, by definition, have exchanged promises of future performance. They contemplate the actual future exchange of performance. They may contemplate exchange of performances concurrently (typical in a sale of goods or sale of real property in which goods or the title to real property are to be tendered for delivery concurrently with tender of the price) or may contemplate that performance by one party is to precede performance by another (typical in a service contract in which service or at least some portion of a service, such as painting a house or working for wages, is to precede payment). However, often the parties do not express an implicit understanding that performance of a promise or promises by one is a condition to performance of a promise or promises by the other. The soccer agreement does not do so. It states the obligation of Paula Fernandez to train and coach and the obligation of the Cheetahs to pay, but does not state that the obligation to pay is conditioned upon the training and coaching or that the obligation to train and coach is conditioned upon the obligation to pay. At early common law, absent express language in the agreement to the contrary, courts construed promises of one party as independent of promises of the other party rather than as conditioned upon one another. Today, with some exceptions, courts conclude that performance of one or more of the promises of one party is dependent upon the performance of one or more of the promises of the other party. In other words, performance by one party of one or more promises is a constructive condition to performance of a promise or promises by the other party. Hence, in most bilateral contracts, at least some promises are also constructive conditions of exchange. See R.2d Contracts 232. However, unlike express conditions or implied conditions, the non-occurrence of which will discharge the duties conditioned, the breach of a promise (i.e. the non-occurrence of a constructive condition of exchange) will only discharge a duty conditioned on performance of the promise if the breach of the promise is material. . . . Absent express language in the agreement, or implication from other circumstances, the court must determine whether performance of promises is to be concurrent (with tender of performance of each party's promise being a condition to performance by the other) of whether performance of some promises are to precede performance by the other. R.2d Contracts 233, 234 reflect the common law rules that guide a court's determination. Under those rules, in the soccer agreement, which says nothing about the timing of performances in relation to one another, the obligation of the Cheetahs to pay would be conditioned upon the performance by Paula Fernandez of her obligation to train (although an immaterial breach of her obligation to train, e.g. cutting a session short by five minutes, would not excuse the obligation to pay). Because the agreement calls for her to be paid $100/training session, the Cheetahs would probably have to pay her $100 promptly after she completes a session. Her continuing obligation to pay would in turn be conditioned upon that payment (although an immaterial breach of the obligation to pay, e.g. $95 with a promise to pay $105 the next time, would not excuse her obligation to continue with the next training session). UCC. 2-507(1) and 2-511(1) state the rules for transactions in goods.

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Other components of written agreements. Well drafted written agreements include several components in addition to promises and conditions. The soccer. . . provides a useful illustration. Professor Scott Burnham describes some of those components in S. BURNHAM, DRAFTING CONTRACTS 220-30 (2d Ed Michie 1993), from which I draw some of the labels and drafting suggestions that follow. Title. The soccer agreement bears a title "Agreement for Independent Contractor Services." One may refer to this component as the title, the heading, or the description of the agreement. A title is not necessary to the enforceability of the agreement as a contract, but it is certainly useful as a reference and adds professional gloss. Because this was a form agreement rather than a custom document, the title is generic. In a custom document, the lawyer should strive to create a more specific title, one both more useful as a reference and an aid to interpretation. "Agreement for Training of Girls Soccer Club" would be a more specific and useful description of the soccer agreement. Caption. The first sentence of the soccer agreement is a caption. A caption identifies the parties and the action that they are taking. Written agreements sometimes identify parties in cumbersome ways, such as "party of the first part" and "party of the second part." These phrases derive from some now musty, lost or destroyed document drafted long ago whose language has been repeatedly and mindlessly copied. Written agreements should instead identify parties in straight forward and logical ways and provide, in a parenthetical, a convenient and logical shorthand reference to each party that will be used uniformly throughout the remainder of the agreement. The soccer agreement does this, but a custom document could profitably use tailored rather than generic parenthetical references. "Los Robles Cheetahs (hereafter 'soccer club')" and "Paula Fernandez (hereafter 'trainer')," or "Los Robles Cheetahs (hereafter 'Cheetahs')" and "Paula Fernandez (hereafter 'Fernandez')" would be preferable to "Los Robles Cheetahs (hereafter "Client") and "Paula Fernandez (hereafter 'Contractor')." Captions frequently include a date, often stated to be the date on which the contract is "made" or "effective." A date in the caption will usually be superfluous and can sometimes be confusing. The important dates are the dates on which the agreement is signed and the dates on which events are to occur or promises are to be performed. For example, the caption of the soccer agreement reads "effective May 1, 2,013" but the agreement was not signed by the parties until July 15, 2013 (and often parties sign an agreement on different dates because they are not physically present contemporaneously to sign at the same time). The written agreement calls for the soccer trainer to begin training the soccer players in "mid-July" even though the facts of the dispute to which that agreement is relevant (Soccer Trainer Dispute coming later) state that the Cheetahs and Fernandez orally agreed that Fernandez would conduct tryouts in May and begin training the soccer players at the beginning of July. If dates were the subject of dispute, a court [would have to determine whether the oral evidence is barred or whether] the parties were bound to an oral agreement covering training during the first half of July (and perhaps to pay for conducting the tryouts) and a written agreement covering training and other matters beginning July 15. To these facts the May 1, 2013 effective date in the caption only adds confusion. To avoid confusion, omit any date from the caption. Recitals. Parties to a written agreement will often be well served by a brief statement of facts in the agreement that provide background and context for the agreement and that suggest or state the purpose of the agreement. This statement, often referred to as "Recitals," should follow the caption. The recitals can provide a useful tool to help resolve later disputes about interpretation of the contract. The soccer agreement, a generic form adapted to the circumstances, understandably does not

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contain recitals, and they are not necessary for the enforceability of the agreement. . . .Recitals are sometimes drafted as a series of "Whereas" clauses. You needn't draft recitals in that manner. Definitions. Definitions of words or phrases used in the written agreement are often useful. The soccer agreement does not include definitions. [However, more complex documents usually do.] . . . Closing. A written agreement is closed by the signatures of the parties, the date on which each party signs, and, typically, the county in which each party signs. "Execution" of a written agreement is synonymous with "signing" a written agreement. Do not confuse "execution" used in this sense with "executory contract" (meaning a contract as to which performance by one or more of the parties remains due) or "executed contract" (meaning a contract as to which performance by both parties has been completed), or similar uses of the root "execut" to refer to performance rather than signature. You should be able to tell the difference in intended meaning from the context. [Also, do not confuse the closing of an agreement with the closing of a transaction. For example, a real estate transaction has a closing date when the transaction is executed.] Individuals sign written agreements, but often do so in a representative capacity. For example, a president or other authorized officer of a corporation will sign on behalf of a corporation thereby obligating the corporation, but not the president or other signing officer, to perform the obligations of the contract. Moreover, under corporate law the officer who signs the contract on behalf of the corporation will not be liable for any breach of the contract by the corporation. Or an individual who is a partner in a partnership may sign on behalf of the partnership, thereby obligating the partnership to perform the obligations of the contract. However, under partnership law, the partner who signed the contract may be liable for any breach of the contract by the partnership. In the soccer agreement, Ralph Towson signed "on behalf of the Cheetahs." Because Cheetahs is the name of a soccer team, and because the girls on the soccer team are minors, it is likely that Ralph Towson signed with the implicit authorization and on behalf of the parents of the soccer players, obligating the group of parents collectively (also including Ralph if he is a parent of a girl on the team) to the terms of the written agreement. In the soccer agreement, Paula Fernandez signed in her individual capacity, not in a representative capacity, obligating herself to perform the obligations of the contract. If a party is signing in a representative capacity, it is important for the closing to clearly so indicate (as in "John Doe, President, XYZ Corporation") to avoid any later contention that the individual signing has obligated herself under the contract. Other. The soccer agreement includes four other terms that are neither promises nor conditions. Those terms are entitled: "Independent Contractor;" "Entire Agreement;" "Partial Invalidity;" and "Governing Law." The content of those terms is precatory, expressing hopes for the manner in which third party decision makers, such as a taxing authority or a court, would construe the agreement. But those provisions do not bind such decision makers. Should the Cheetahs withhold payroll taxes from the amounts payable to Paula Fernandez? The tax law says "no" if Fernandez is an independent contractor. The term entitled "Independent Contractor"might help persuade taxing authorities on that issue, but taxing authorities and a court are not bound by the parties' self serving statement. Will Fernandez be allowed to introduce evidence of an oral agreement (e.g. that the Cheetahs will pay Fernandez a $500 bonus if the team wins the national championship) to supplement the terms of the written agreement? Under the parol evidence rule, the merger term (entitled "Entire Agreement") is relevant but not controlling on that question. Will the unenforceability, invalidity or illegality of any portion of the agreement affect the remainder? The "Partial Invalidity" term adds little if anything to

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the common law rule on that subject and in making a determination on that question the court is not bound by the parties' statement. Will the agreement be governed and construed in accordance with the law of Cohen, as the "Governing Law" term instructs? If the contract was entered and is to be performed in Cohen, a court would apply the law of Cohen without that term. If the contract was entered or is to be performed elsewhere, the court would not be bound by that term if the transaction does not bear a reasonable relationship to Cohen. Written agreements often will include three other terms that are binding as a general matter. It may include a "No Oral Modification" term providing that no modification of the contract will be enforceable unless in a writing executed by the parties. Such terms are typically, although not always, enforced. . . .for transactions in goods, is governed by UCC 2-209(2). Written agreements may include a term governing dispute resolution, such as a term requiring that any dispute arising under the agreement be resolved through mediation or arbitration. JAMS (formerly known as Judicial Arbitration and Mediation Services) offers a wide variety of samples of such terms.1 Written agreements may also include an "attorney's fees" term providing that a party prevailing in any dispute relating to the agreement is entitled to recover the attorney's fees it has incurred in connection with resolution of the dispute. Absent such a term, each party is responsible only for payment of its own attorney's fees (the "American rule" on attorney's fees) unless a statute otherwise specifies. . . . Many federal and state consumer protection statutes provide for prevailing party attorney's fees even absent a contractual term to that effect. A California statute also provides for prevailing party attorney's fees to whichever party prevails even though the written agreement provides for prevailing party attorney's fees for one of the parties to the agreement. See Cal. Civ. Code 1717. The right of a prevailing party to recover its own attorney's fees, i.e. the threat that the losing party will have to pay two sets of attorney's fees (its own and those of the prevailing party) often provides considerable leverage toward settlement of a dispute, especially when the contemplated attorney's fees may exceed the amount in dispute.

http://www.jamsadr.com/rules-clauses/

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AGREEMENT FOR INDEPENDENT CONTRACTOR SERVICES

THIS AGREEMENT is between Los Robles Cheetahs (hereinafter "Client"), and Paula Fernandez, an individual (hereinafter "Contractor"), an independent contractor, effective May 1, 2013. 1. Term of Contract. This Agreement is effective on the date set forth above and shall continue in effect until the services provided for herein have been performed, unless terminated by the failure of a party to perform. Provided, however, that the term shall not exceed one year. 2. Contractor's Services. Contractor agrees to perform the services specified in the "Description of Services and Compensation" attached to this Agreement and incorporated herein by reference. 3. Method of Performing Services. Contractor shall determine the method, details, and means of performing the services provided for herein. 4. Equipment. Contractor shall arrange for the provision of all equipment required to perform the services provided for herein. 5. Employment of Assistants. Contractor may, at Contractor's own expense, employ such assistants as Contractor deems necessary to perform the services required of Contractor by this Agreement. Client may not control, direct, or supervise Contractor's assistants or employees in the performance of those services. 6. Independent Contractor. No relationship of employer and employee is created by this Agreement, it being understood that Contractor will act hereunder as an independent contractor, and that Contractor shall have no claim under this Agreement or otherwise against Client for Social Security, Worker's Compensation, Disability or Unemployment Insurance benefits, or employee benefits of any kind. 7. Indemnity. Contractor agrees to hold harmless and indemnify Client for any and all claims arising from any and all claims arising from any negligent acts committed by Contractor or Contractor's employees or agents during the performance of services under this Agreement. Contractor agrees to provide Worker's Compensation insurance for Contractor's employees or agents. Contractor agrees to hold harmless and indemnify Client for any and all claims arising out of any injury, disability, or death of any of Contractor's employees or agents. 8. Compensation. In consideration for the services to be performed by Contractor, Client agrees to pay Contractor the amount specified in the "Description of Services and Compensation" attached to this Agreement and incorporated herein by reference. 9. Assignment. Neither this agreement nor any duties or obligations under this Agreement may be assigned by either party without the prior written consent of the other party. 10. Entire Agreement. This Agreement constitutes the entire agreement of the parties. It may not be modified except by a writing signed by the parties. 11. Partial Invalidity. The unenforceability, invalidity, or illegality of any provision of this Agreement shall not render the other provisions unenforceable, invalid, or illegal. 12. Attorney's Fees. In any legal or equitable action brought by either party to this Agreement to enforce its terms, the prevailing party shall be entitled to all costs incurred in connection with such action, including reasonable attorney's fees. 13. Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of Cohen. Executed on July 15, 2013, in the County of Los Robles, State of Cohen. Client: /s/ Ralph Towson on behalf of the Cheetahs Contractor: /s/ Paula Fernandez

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DESCRIPTION OF SERVICES AND COMPENSATION

CONTRACTOR:

Paula Fernandez

DESCRIPTION OF SERVICES:

Train U-16 girls select team (Los Robles Cheetahs) - soccerTuesday & Thursday, approx. 4-6 p.m., from mid - July until beginning of high school soccer (mid - Nov.) and from end of high school soccer (late Feb.) until teams finishes participation in state, regional and national championships. Attend and coach 50% of league games and 100% of any state, regional, and national championship games. $200/training session, $100/game.

COMPENSATION:

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