Contract Law and Commercial Agreements: Key Elements

Posted on Feb 5, 2025 in Law & Jurisprudence

Unit 2: Contract Law

What is a Contract?

A contract is an agreement between two or more people which is legally binding.

Was there a Binding Contract?

A legally binding contract must have five elements:

Offer: An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.

Offeror: The person making the offer.
Offeree: The person to whom it is made.
Counter-offer: If the offeree rejects the offer and responds by making a different offer. The legal effect of a counter-offer is to revoke the initial offer. The counter-offer is different from a pre-offer step (invitation to treat: invitación a negociar).

Acceptance: A promise or act on the part of the offeree indicating a willingness to be bound by the terms and conditions contained in the offer. The contract is created when all the terms of an offer are accepted by the offeree.
Consideration: All parties to a contract must receive a benefit and suffer a detriment (requires mutual benefit and detriment). Exception: gifts, which must be executed by deed, then signed, sealed, and delivered.
Intention to be legally bound: This means the parties must intend to create a legally binding relationship between them. These presumptions can be rebutted using evidence.
Legal capacity: All parties to the contract must have full legal capacity to enter into the contract.

Who might lack legal capacity? Minors, mentally disabled individuals, and intoxicated individuals.

Other Relevant Concepts:

Enforceability (exigibilidad): The ability of any party to oblige the other to fulfill their obligations under the contract.

A contract is void (vacío) when one of the five elements is missing.

A contract is voidable (anulable) when all five elements exist, but it may be made void by mistake, duress (coacción), or misrepresentation (falsedad).

Contracts which must be in writing to be legally valid: Transfer of real estate, consumer contracts, mortgages (hipotecarios), pre-nuptial agreements, employment contracts, and insurance contracts (de seguros).

Concluding a contract: Performed (if both parties fulfill (cumplen) their obligations under the contract), frustrated (if performance of the contract is impossible, but none of the parties is to blame (responsable)), or breached (if performance of the contract is impossible, and one party is to blame).

Remedies for breach of contract: Damages, injunction, or specific performance.

Unit 3: Commercial Contracts

A. Structure

The Names and addresses of the parties section sets out details of the individuals or companies entering into the agreement, including, in the case of companies, their registered offices and company numbers.
The Recital(s) section explains the background to the agreement. It does not normally contain any obligations. It is usually structured in numbered or lettered paragraphs and begins with the word WHEREAS.
The Definitions section sets out the meaning of specific technical and other words/phrases used in the agreement. The purpose of this is to avoid any misunderstandings or ambiguity of meaning or interpretation.
The main section of the contract, which the parties usually negotiate and agree on, is called the Operative provisions/duties and obligations. In a lease agreement, this contains clauses such as the leased property, rent, term, termination events, etc.
In commercial contracts, the purchaser of something might want to protect itself from possible future liabilities by making the seller make certain true statements about aspects of the subject matter of the contract. These statements are then guaranteed by the seller promising to compensate the buyer if they are not true. These are the Representations and warranties.
The Boilerplate clauses are a set of standard clauses, usually found towards the end of the agreement. Their purpose is to make performance of the contract more efficient. They include clauses such as governing law, severability, notices, arbitration, Force Majeure, etc.
The part where the parties confirm their agreement in writing is the Signature/execution section.
The Appendices/annexes/schedules are usually at the end of the agreement (after the part where the parties sign). They are usually used to set out lists of things or are specific documents and avoid the main text of the contract being interrupted.

B. Boilerplate Clauses

The no-waiver clause tries to ensure that a party to the contract does not accidentally or informally waive its right to bring proceedings and recover damages under the contract in the event of a breach by the other party.
The amendment clause establishes the means by which parties may make changes to the agreement.
The force majeure clause prevents the parties from being liable in the event that circumstances outside their control stop them from being able to perform the contract.
The indemnity clause provides that one party (or both parties) must compensate the other party (or each other) for any harm, liability, or loss arising out of the contract.
The clauses which determine the law of the country (or state) that governs the contract and the jurisdiction that will hear the dispute in the event of litigation are the governing law & jurisdiction clauses.
The entire agreement clause states the parties are only bound by the contents of the contract they sign, and any previous draft agreements and negotiations are not relevant.
The method for any communications made under the agreement is set out in the notices clause. It includes details of how and to whom communications must be sent.
The confidentiality clause, also known as the non-disclosure clause, prevents the parties from disclosing any secret information/documents obtained during the course of negotiating or signing the contract.
The severability/severance clause states that if any clause in the contract is considered void, invalid, or illegal, the rest of the contract will not be affected and will remain in force.
The arbitration clause provides for an alternative way to resolve disputes to the court method.
The assignment clause establishes if and how the parties may transfer rights and obligations they agree to under the contract.