Rule of Thumb Definitions of Common Legal Terms

What is a Contract?

A contract is an agreement with

specific terms in which there is a promise to do something in return for a valuable benefit known as consideration.

The existence of a contract requires: an offer an acceptance of that offer a promise to perform a valuable consideration

What is a Contract?

Consideration:

Anything of value given by one party to induce another to enter into a contract. It may be money, personal services or even “love and affection.”

Most people assume consideration to be the price, but that is not completely accurate. Although money may be part of the bargain, it is not always necessary.

Which is a Contract?

A. You go to the neighborhood Gas Station, pick up some bubble gum, give the man at the counter a dollar, and walk out with your gum and change without exchanging a word.

B. You manufacture men’s coats and regularly, without anything in writing, buy fabric from Zack. For the past 5 years, Zack has billed you 90 days after delivery. Suddenly, Zack bills you within 10 days of delivery. Do you have a contract with Zack? Can Zack suddenly change the terms?

C. Some guy named Vinnie decides he doesn’t like you, and asks the guys in the neighborhood to “take care of you.”

What is a Contract?

The first two are contracts. The third can be a contract, but if Vinnie doesn’t say what the party would get for “taking care of you,” there is no consideration, so it wouldn’t be a contract.

Of course, a contract can only be formed for a legal purpose, so, it also depends on what Vinnie means by “taking care of you” for it to be a contract.

Covenants

Contracts have various clauses that indicate the promises each party has made to the other.

These specific promises form the consideration of the contract and are the parties’ contractual obligations.

Once there has been a meeting of the minds over the subject matter, these promises form the basis of the parties’ enforceable rights. Such provisions are known as covenants.

Conditions

Important to every covenant is an element of timing: at what point is the promisor (the one who make the promise) obligated to perform, and at what point does the promissee (the one promised to) have an enforceable right?

This timing element, when written into a contract, is known as a condition. A condition specifies the moment at which the covenant because legally enforceable.

Covenant or Condition?

Showboat Corp. shall deliver $25,000 worth of balloons to Clowns Inc. on the 5th of each month. After such delivery is made, Clowns Inc. will provide 100 dancing bears to Showboat Corp. on the following Wednesday.

If requested by Chiron, InstAbbrev shall execute any and all applications, assignments and other instruments and undertake all such other actions as Chiron shall deem reasonably necessary.

Chiron may terminate this Agreement for any reason upon ten (10) business days prior written notice to InstAbbrev.

What is Reasonable?

A. Whatever you say in the contract is reasonable.

B. Just, rational, appropriate, ordinary or usual under the circumstances, but sometimes can be extraordinary

C. A Good idea, the best solution -- what a “common” or “average” person would do

D. Something no one has ever accused Michael Jackson of being

E.

What is Reasonable?

A. Whatever you say in the contract is reasonable

B. Just, rational, appropriate, ordinary or usual under the circumstances, but sometimes can be extraordinary

C. A Good idea, the best solution -- what a “common” or “average” person would do

D. Something no one has ever accused Michael Jackson of being

The “Reasonable Man Doctrine”The reasonable person is not the average person (necessarily).

The reasonable man (or reasonable person) standard is a “legal fiction” that originated in the development of the common law.

The idea for this standard is that the law will benefit the general public when it serves its reasonable members.

 

"...all progress depends on the unreasonable man." -- George Bernard Shaw

Reasonable?Which of these is an example of what courts have decided a reasonable person might do:

When approached by a policeman in a public place and asked a question thinks he or she has been arrested.

When approached by a policeman in a public place and asked a question thinks the officer is flirting.

When approached by a policeman in a public place and asked a question thinks the officer is just trying get some information.

Reasonable?Which of theses is an example of what courts have found a reasonable person might do:

When approached by a policeman in a public place and asked a question thinks he or she has been arrested.

When approached by a policeman in a public place and asked a question thinks the officer is flirting.

When approached by a policeman in a public place and asked a question thinks the officer is just trying get some information.

???

Reasonable?

In our Confidentiality Template:…e) Recipient is required to divulge either by a court of law or in order to comply with any federal, state or local law or regulation (after providing Discloser with reasonable notice of such requirement to divulge and with an opportunity to obtain a protective order).

In an Indemnity section we have often used:Indemnification. To the full extent permitted by applicable law, each party shall indemnify the other party and such other party’s directors, officers, employees, agents and representatives (collectively, the “Indemnified Parties”), from and against any and all demands, claims, losses, liabilities, damages, costs, and expenses whatsoever (including, without limitation, reasonable fees and disbursements of counsel), sustained or incurred under this Agreement by an Indemnified Party if and to the extent resulting from any action or omission of the indemnifying party or any of its officers, employees, agents or representatives.

Examples of “Reasonable” as offered in our contracts

Material

ImportantNecessaryHaving influence or effect

An issue in a contract which is substantial

Which is Material?

A. The Services to be preformed in a Service contract?

B. The person to which to send notices in a Confidentiality Agreement?

C. Termination in a Confidentiality Agreement?

D. The sex of a party in an employment contract, if the job requires physical strength?

Prompt

A. Within an agreed-upon time

B. To act immediately, responding this very instant

C. Within a expeditious amount of time, usually thirty (30) days if no specific time is specified

D. A flashing dot on your computer demanding you do something NOW

Prompt

a. Within a agreed upon amount of time

b. To act immediately, responding this very instant (Black’s Law Dictionary)

c. Within a expeditious amount of time, usually thirty (30) days if no specific time is specified

d. A flashing dot on your computer demanding you do something NOW

Prompt

Though “prompt” means to act immediately, the meaning of the word depends largely on the facts in each case, for what is “prompt” in one situation may not be considered prompt under other circumstances.

Prompt In which of these situations

are we prompt?

Situation #1:

We give Intelligently Designed Tech, a University with a very small science department, tifacogin under an MTA within three months of execution.

Prompt

We have a consulting agreement with Dr. Herasma B. Dragin, the famous Nobel Prize wanting scientist (after wooing her from GenerallyGoodtech).

We state in the contract that we we will pay her “promptly,” but she lives in New Orleans and couldn’t be tracked down after the flood until the thirtieth day day after her invoice date.

In which of these situations are we “prompt”?

Situation #2:

Prompt

In which of these situations are we “prompt”?

Situation #3:We say in our software license with IncomprehensibleStuff, Inc. that payment will be “promptly” made upon installation of its software. However, there’s no room on our existing servers for their application, so we buy a new server. We don’t pay them when the contract is executed, but we do pay them after buying a new server.

The answer is it depends.

A phrase used which in effect says: the specified time and dates in this agreement are vital and thus mandatory, and "we mean it."

Therefore any delay-reasonable or not, slight or not-will be a breach of the agreement.

Time is of the Essence

May, Will & Shall

May:Usually employed to imply permissive, optional or discretional action or conduct. Not mandatory.

Will:Implies choice. A conscious and deliberate action.

Shall:Mandatory. A word of command. Shall means compulsory. It denotes obligation.

xxx

May, Will & Shall

Shall

Will May

xxx

Contractor (shall, will, may) immediately discharge, or otherwise cause to be removed any lien, which (shall, will, may) be filed in connection with the Work.

May, Will & Shallxxx

Contractor (shall, will, may) immediately discharge, or otherwise cause to be removed any lien, which (shall, will, may) be filed in connection with the Work.

In the first instance, could we have said “shall”?

May, Will & Shallxxx

Represent/Warrant

Warrant:

To guarantee especially by giving assurances that make one liable or responsible

Represent:

To provide legal representation to

Warrant

Represent

Represent/Warrant

The failure of one party to carry out any condition of a contract.

A material breach of a contract always gives rise to an immediate cause of action for breach of the entire contract because it goes to the heart of the contract itself.

Breach

Example: Marina agrees to sell Ursula her car for $1500. When Ursula takes possession, she discovers that the car is totally broken down and does not meet the contract specifications. This is a breach of the entire contract, giving Ursula the right to sue for the full purchase price.

On the other hand, if when Ursula takes possession of the car, she discovers that only the radio doesn’t work. Although the contract specified that the car was in perfect working order, this is only a minor breach, because replacing only the radio is basically insignificant.

In this case, Ursula has a cause of action against Marina for the cost of replacing the radio, but the contract is still valid and enforceable.

Breach

What factors determine whether a breach is material or minor? There is no set standard, but generally the courts look at the intent (i.e.the anticipated outcome) of the parties, the words used in the contract, the degree of hardship the breach imposes, and the extent to which the injured party can be compensated.

As a general rule, if any portion of a contract is deemed to be of special importance to one of the parties, it should be identified in the contract as a “material” clause. One such example would be a “time of the essence” clause.

Breach

Example.

A couple is divorced The husband is contractually obligated to pay child support.

The wife moves cross country with the kids in breach of the agreement, and the husband, in protest, stops paying child support.  

Who should the court hold in breach and why?

Breach

Cure

The act of healing.

If you are accused of breaching a contract, and you cure the breach, it means you are no longer in breach.

Damages

The one who caused the damage is bound to repair it, and, if he or she did it maliciously, he or she may be compelled to pay beyond the actual loss.

The financial compensation awarded to someone who suffered an injury or was harmed by someone else's wrongful act, such as breaching a contract.

Compensatory Damages

Damages recovered in payment for actual injury or economic loss.

Example: Karen purchases a pearl ring from Ryan for $200. After the sale is complete, Karen discovers that the ring is a phony and is only worth $2. The amount of Karen’s compensatory damages would be $198.

Punitive Damages

Money awarded by the court that is intended to punish a party rather than to reimburse the other party for any specific loss.

Punitive Damages

Example: Nancy is induced to buy a table from Ethan for $500. Ethan is an antique dealer, and although he claims that it is an antique, he knows that the table is not. Because a fraud is involved as well as a breach of contract, is Nancy entitled to punitive damages?

Damages

Punitive Damages (Punish and deter)

Compensatory Damages (Make the party “whole”)

Nominal Damages (Vindication but no money)

Indirect Damages or Consequential DamagesAre damages to people associated with injured party or damages that happen as a consequence of the injury.(e.g. loss of consortium, loss of household services, loss of guidance, cost of caring for injured party, emotional suffering of others)

Direct Damages

Direct Damage are damages to injured party.

Damages which come about naturally or ordinarily from breach of the contract are direct damages.(e.g. lost wages, future earning capacity, medical bills, disability, pain, emotional suffering)

Consequential Damages

For example:

Consequential Damages can occur if a man throws a log into the public streets and another person falls on it and become injured by the fall.

Or, Consequential Damages can occur if a man erects a dam on his own ground, and by because of the dam the water overflows his neighbor's land.

Negligence Negligence: The failure to use the

care a reasonably prudent and careful person would use under similar circumstances.

Gross Negligence: Failure to use even the slightest amount of care in a way that shows recklessness or willful disregard for the safety of others.

.Willful misconduct: The intentional doing of something with knowledge that it is likely to result in serious injuries, or with reckless disregard of its probable consequences.

Negligence,Gross Negligence, or Willful Misconduct?

Negligence,Gross Negligence, or Willful Misconduct?

Negligence,Gross Negligence, or Willful Misconduct?

Negligence,Gross Negligence, or Willful Misconduct?

Negligence

Intentional Misconduct

Reckless Misconduct

Willful Misconduct

Gross Negligence

Negligence

Negligence

Subrogation

In our Agreements we say:

1) Worker’s Compensation, as prescribed by any applicable statute, endorsed to waive subrogation against Chiron for any claim arising out of the performance of this contract.

This means that in Worker’s Compensation cases, we want the insurance company for a worker making a claim to give up the right to subrogation.

Subrogation

So what is Subrogation?

Subrogation is the legal right of one party, (when that party pays someone else’s debt), to recover money from the party who actually owes the money.

Subrogation

In Insurance it means:Substitution of one creditor for another.

When insured damage is clear, but fault is not, insurers are generally required to pay their insured party even when the fault is not clear.

Afterward, if the want they can file a claim of subrogation to get back their money.

Subrogation

So what is Subrogation?

So, what we are saying in our clause is that Chiron requires that an insurance company that has paid its client for a claim must give up its right to go after us for that money.

Jurisdiction:

the right and power to interpret and apply the law.

In terms of contracts, it means the court that has the right to interpret the law.

Venue:The place where a suit or charge is brought to court, generally the place where the alleged

wrong was committed.

Court looks to “weight of contacts” to determine venue (witnesses, parties, and location of event).

Jurisdiction/Venue

Example from a contract:

PROCESS. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. LENDER MAY IN ITS SOLE DISCRETION, ELECT THE STATE OF NEW YORK, NEW YORK COUNTY, OR THE UNITED STATES OF AMERICA, FEDERAL DISTRICT COURT HAV1NG JURISDICTION OVER NEW YORK COUNTY, AS THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING

Jurisdiction/Venue

Choice of law is a concept within the field of the conflict of laws, relating to relationships between different nations, and in the United States between individual states.

Under certain circumstances, the courts of a particular legal jurisdiction will be called upon to apply the law of a different jurisdiction. This usually arises in the context of lawsuits arising from torts or contracts.

Choice of Law

A formal command or admonition

A judicial remedy issued in order to prohibit a party from doing or continuing to do a certain activity; "injunction were formerly obtained by writ but now by a judicial order"

Injunction

Termination Clause

Termination clauses ensure that either or both parties have the right to terminate the contract under certain circumstances. Generally, termination clauses describe breach of contract events that trigger the right to terminate the contract (for example, nonpayment of royalties).

Termination clauses also describe the methods of giving notice of exercise of the termination right, and whether the breaching party must be given an opportunity to cure the breach before the other party can terminate the contract.

The intentional and voluntary giving up of something, such as a right, either by an express statement or by conduct.

The problem which may happen is that a waiver may be interpreted as giving up the right to enforce the same right in the future.

Example: the holder of a promissory note (a legal document which the borrower must sign to get a loan) who several times allows the debtor to pay many weeks late does not agree to waive the due date on future payments. A waiver of a legal right in court must be expressed on the record.

Implied/Expressed waiver

Referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Example: after 20 years of employment Larry Loyal's pension rights are now vested.

Vested

Termination Clause

Termination clauses ensure that either or both parties have the right to terminate the contract under certain circumstances.

Generally, termination clauses describe breach of contract events that trigger the right to terminate the contract (for example, nonpayment of royalties).

Termination clauses also describe the methods of giving notice of exercise of the termination right, and whether the breaching party must be given an opportunity to cure the breach before the other party can terminate the contract.

Void

Invalidate: declare invalid;

"The contract was annulled";

"void a plea"

Indemnity is generally a payment or compensation for damages done. For example, after wars, the losers have sometimes been required to pay indemnities.

Indemnity

Voidable

The law distinguishes between contracts which are void and those which are voidable. Some contracts have such a latent defect that they are said to be void (see definition of "void" above).

Other have more minor defects to them and are voidable at the option of the party victimized by the defect. For example, contracts signed by a person when they are totally drunk are voidable by that person upon recovering sobriety.

The act of transferring an interest in property or some right (such as contract benefits) to another. It is used commonly by lawyers, accountants, business people, title companies and others dealing with property.

Assignment

The holding of funds, documents, securities, or other property by an impartial third party for the other two participants in a business transaction. When the transaction is completed, the escrow agent releases the entrusted property.

Escrow

Only the parties to a contract can be sued on it.

The doctrine of privity says that a contract can only be enforced the parties to that contract.

Privity

For example, a tenant of a buyer of real property cannot sue the former owner (seller) of the property for failure to make repairs guaranteed by the contract between seller and buyer since the tenant was not "in privity" with the seller.

Dunlop v Selfridge (1945)

The issue put to the court was whether Dunlop can get damages from Selfridge without a contractual relationship.

Privity

Dunlop sold tires to Dew (a middle man) with a term in the agreement that: Dew would not sell them more cheaply to anyone else, and that Dew would not enter into a contract with anyone else to sell the tires

more cheaply.

Dew sold the tires to Selfridge at the agreed upon terms, but Selfridge sold them more cheaply.

Dunlop brought an action against Selfridge, which failed because Dunlop had no contract with Selfridge, and was not a party to the contract which had allegedly been breached.

Dunlop could have taken an action against Dew, who could certainly have taken action against Selfridge.

Privity

Agent

Agency is an area of law dealing with a contractual or quasi-contractual relationship between at least two parties in which one, the principal, authorizes the other, the agent, to represent her or his legal interests and to perform legal acts that bind the principal. The agent has a fiduciary relationship with and is under a legal duty to act in the best interests of the principal. ...

Third Party Contracts

Moveable items of property which are neither land nor permanently attached to land or a building, either directly or vicariously through attachment to real property. A piano is chattel but an apartment building, a tree or a concrete building foundation is not. The opposite of chattel is real property which includes lands or buildings. All property which is not real property is said to be chattel

Chattel

Articles of personal property such as household goods, furnishings, and fixtures that are not permanently affixed to the house

Power of Attorney

A power of attorney is a document that allows you to appoint a person or organization to handle your affairs while you're unavailable or unable to do so. The person or organization you appoint is referred to as an "Attorney-in-Fact" or "Agent."

General Power of Attorney - authorizes your Agent to act on your behalf in a variety of different situations.

Special Power of Attorney - authorizes your Agent to act on your behalf in specific situations only.

Health Care Power of Attorney - allows you to appoint someone to make health care decisions for you if you're incapacitated.

"Durable" Power of Attorney -The general, special and health care powers of attorney can all be made "durable" by adding certain text to the document. This means that the document will remain in effect or take effect if you become mentally incompetent.

Revocation of Power of Attorney - allows you to revoke a power of attorney document.

A fiduciary is a person who occupies a position of trust in relation to someone else. This person is required to act for the other person’s benefit.

In business or law, it generally means someone with a particular professional or role, e.g., investment advisor or trustee. A fiduciary relationship must also have a dramatic difference in power between the two parties: one party having a great deal more expertise. A fiduciary owes a duty of "utmost good faith".

Fiduciary

Generally, the law recognizes three major fiduciary duties:

1. duty of loyalty, i.e. a fiduciary must not place his own interests ahead of the beneficiary's interest;

2. duty of care, i.e. a fiduciary must exercise an amount of care appropriate to manage the beneficiary's interest; and

3. duty of disclosure, i.e. a fiduciary must disclose certain information to the beneficiary.

Fiduciary

Common Law

There are two meanings for Common Law in regular use. First, `common law' is used to mean the body of law in any legal system in which decisions of the judiciary become, over the years, new laws (`judge-made law').

In our country, the term is mostly used this way. In England, the term was originally used to mean the uniform set of laws that apply to England and Wales, derived from custom and practice by judges.

EquityLiterally `fairness'. In mediaeval times, people could petition the King for redress in cases that could not be dealt with adequately in the common law as it then stood.

Equity is the name given to the whole area of the legal system in countries following the English common law tradition that resolves disputes between persons by principles of fairness and justness. Equity comes into play typically when none of the parties to the dispute has done anything against the law, but their rights or claims are in conflict.

Thus, it is to be contrasted with "law,", the laws enacted by governments, and the “case law" (the principles set forth in courts' opinions deciding cases).

Settlement

An agreement between the parties disposing of a lawsuit

The majority of cases are decided by a settlement. Both sides often have a strong incentive to settle to avoid the costs associated with a trial, particularly where a trial by jury is available. Generally, one side or the other will make a settlement offer early in litigation.

Merchantability

Merchantability means that the article sold shall be of the general kind described and reasonably fit for the general purpose for which it shall have been sold,

When the article sold is ordinarily used in but one way, its fitness for use in that particular way is impliedly warranted unless there is evidence to the contrary.

.

Merchantability

Implied Warranty of Merchantability

Implied in every contract for the sale of goods is a warranty that the good is fit for the ordinary purpose for which it is intended. [California Commercial Code]

This means that when you sell a vehicle (for example), if you do not indicate that the car is being sold "as-is", or with a "warranty," then you are providing the buyer with an implied warranty that the car will run and drive just fine for a reasonable time period, given the age, mileage, condition, and price of the vehicle. It is always best to indicate either "as-is" or "warranty" so there is no confusion as to whether there is any warranty or not.

• .

A legal restraint that stops or prevents a person from contradicting or reneging on his previous position or previous assertions or commitments.

Estoppel includes being barred by false representation or concealment (equitable estoppel), failure to take legal action until the other party is prejudiced by the delay (estoppel by laches), and a court ruling against the party on the same matter in a different case (collateral estoppel).

Equitable term; the doctrine bars certain actions in the interest of fairness

Estoppel

Incorporate by Reference/Attached Hereto

The term "rule of thumb" or similar exists in many languages and cultures. Its likely origin is that the thumb is often used for rough measurement by carpenters, seamstresses, artists and many others. In fact, the measurement of an inch is believed to have been derived from the distance between the tip of the thumb and the first joint.