Getting Down To The Details: Contract Basics for Non-Lawyers

Getting Down to Details
Contract Basics for Non-Lawyers
Callan G. Stein, Esq.
Donoghue Barrett & Singal P.C.
1 Beacon Street, Suite 1320
Boston, MA 02108
cstein@dbslawfirm.com
www.dbslawfirm.com
This presentation and content hereof are intended for general informational purposes only and do not constitute, and should not be construed as constituting,
legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by reading this material or
watching this presentation.

Presentation Overview
1. What is a contract?
2. Common Types of Contracts
3. Written Contracts Versus Oral Contracts
4. Elements of a Contract
5. Negotiating a Contract
6. Drafting a Contract
7. Enforcing a Contract

“What is a contract? Webster’s dictionary defines it as ‘an agreement under the law which is
unbreakable.’ Which is unbreakable!”
-Lionel Hutz
“A contract is an agreement which creates obligations.”
- Waldbridge A. Field (1884)

How do we create an “agreement”?
Through Words (i.e., “Express” Contracts) Through Actions (i.e., “Implied” Contracts)
The parties expressly declare (either
verbally or in writing) the terms of their
contract.
The parties’ actions imply the terms of
their contract (even though they were
never expressly stated).
Example: John states “I will mow Jack’s
lawn every Friday morning,” and Jack
states “I will pay John $50 every Friday
afternoon for mowing my lawn.”
Example: Every Friday morning John
shows up at Jack’s house and mows his
lawn, and every Friday afternoon Jack
goes outside and pays John $50.

Sales/Service Contracts: These contracts describe the terms of a sale of goods
or the performance of services. A sales/service contract will typically spell
out: (i) the payment price (for the goods/service); (ii) the manner and timing
of payment; (iii) details concerning the delivery of goods or performance of
service; and, (iv) any other rights or obligations of the parties.
Examples:
• Asset Purchase Agreements • Consulting Agreements • Employment Agreements
• Leases (Equipment/Housing) • Franchise Agreements • Licensing Agreements
• Manufacturing Contracts • Sales Contracts • Service Agreements

Corporate/Business Contracts: These contracts describe the obligations between or among
individuals in a business venture including each person’s ownership interest and
management responsibilities.
Examples:
• Partnership Agreements [e.g., for LLPs]
• Operating Agreements [e.g., for LLCs]
• Stock Agreements [e.g., for corporations]
Tip: All business ventures should have a corporate or business contract.
Confidentiality/Non-Compete Contracts: These contracts protect confidential business
information and assets such as trade secrets, client lists, and other intellectual property.
Tip: Confidentiality and non-compete contracts are often seen in connection with sales/service
contracts, in particular employment contracts.

3. Written Contracts Versus Oral
Contracts

A Comparison of Written Contracts and Oral Contracts
Generally speaking, contracts may be written or oral, and both forms may be
used to bind the parties.
Written Contract Oral Contract
Is it an agreement? Yes Yes
Does it create obligations? Yes Yes
Are those obligations
binding?
Yes Yes
Is it legally enforceable? Yes Yes

Risks of Oral Contracts
1. Limitation on Subject Matter: Oral contracts that implicate any of the
following are typically not enforceable.
• Sale of land
• Sale of goods in excess of a “small number of dollars”
• Contracts that cannot be fully performed within 1 year
2. Difficult to Prove Terms: If one party needs to enforce a contract (i.e., sue)
and its terms were not reduced to writing, it may be difficult, or even
impossible, to prove the terms.
3. Confusion: Written contracts tend to increase the clarity of the parties’
promises and obligations, and reduce the chances of confusion.

How do I know if I need a written contract?
1. Money: The more money you have at stake in a contract, the less risk you should be
willing to take that it will not be enforceable.
2. Value of Products/Services: The more valuable the products/services you are offering
or receiving in a contract, the less risk you should be willing to take that you will not
be able to collect payment or receive the services.
3. Length/Duration: The longer the period of time for which the contract binds you, the
less risk you should be willing to take that there will be confusion over any of the
terms.
4. Risk of Breach: The less reliable the opposing party, the higher the likelihood he/she/it
will breach the contract, and the less risk you should be willing to assume via an oral
contract.
Bottom Line: Written contracts are virtually always preferable. If you are unsure if you need
a written contract you should consult with an attorney.

3 Elements of Every Contract
1. Offer: The offer is the promise by one party to do or refrain from doing a specific act in
exchange for a return promise by the other party.
Tip: You can usually spot an offer by looking for the words “will” and “if.”
Example: “I will sell you my car, if you give me $10,000.”
2. Acceptance: The acceptance is the agreement by the party who receives the offer. The
acceptance can be explicit (i.e., through a verbal or written statement) or implied (i.e.,
through conduct).
Tip: When possible, you should accept an offer in writing and use the words “I accept.”
Example: “I accept your offer to sell me your car for $10,000.” [Explicit]
Example: “Here is $10,000 for your car.” [Implied]
3. Consideration: Consideration is the thing of value that is received by both parties to a
contract.
Tip: Both parties must give consideration to form a contract, but it need not be equal.
Example: The car and the $10,000.

Other Things to Know
1. An offer need not contain every term of the eventual contract, but it must
contain sufficient terms to identify the parties’ material obligations (e.g., the
price, quantity, quality, etc.).
2. Once an offer is made it can only be revoked by an explicit revocation, and
even then only if it has not already been accepted.
3. If an offer contains a limitation or condition concerning how or when it may
be accepted, the acceptance must conform to those limitations/conditions or
it is invalid.
4. Only things that possess objective value can serve as consideration. For
example, a promise of love or affection is generally insufficient.
Warning: A contract will not be formed if any of the 3 elements is missing.

5. Negotiating a Contract
4 (Very) Basic Things to Consider
1. Know the Goals: Before negotiating a contract, think about what you and
the other party want to accomplish.
2. Strengths vs. Weaknesses: Identify as early in the negotiation as possible
the strengths and weaknesses of both parties’ bargaining positions.
3. Be Patient: When you know where you want to end up, make sure you
leave enough room to negotiate up or down.
4. Don’t Be Pushed Around: Know what you want to achieve and do not feel
like you have to settle for less. Be especially wary if the other party insists
on certain “form” contract terms and refuses to negotiate.

Which party should draft the contract?
Advantages to Drafting the Contract:
1. Control: Drafting the contract provides an extra measure of control over the contract
language (e.g., how the obligations and the consideration are described).
2. Defining Issues: Drafting the contract allows you to take the first pass at defining what
issues are and are not addressed in the contract.
3. Timing: Drafting the contract allows you to exert direct influence over the timing of
the drafting and signing process.
Disadvantages to Drafting the Contract:
1. Cost: Whether you are drafting a contract or not, you should always consult with an
attorney. But drafting a contract often involves more time than simply reviewing a
contract.
2. Ambiguities: There is a body of law that says ambiguities in a contract are construed
against the drafter.

Common Contract Provisions
Contracts should be tailored to the specific parties and transaction. But the
following are common provisions seen across various types of contracts:
1. Parties: This provision identifies and defines the parties to the contract. A “Parties”
section will often provide a short hand method for identifying parties that will be
used through the contract.
Tip: Pay particular attention to this section with regard to corporate entities, and make
sure you have the correct entity named (including LLCs, LLPs, Corporations, etc.).

2. Recitals: The “Recitals” are the introduction to the contract. They often state
background information about the parties and the purpose of the contract.
Tip: You can almost always spot the “Recitals” by looking for the word “whereas.”
Warning: Even though they look different than the rest of the contract, the “Recitals” are
part of the contract, so take them seriously and make sure they are accurate.

3. Statement of Service/Work: The “Statement of Service” or “Statement of Work”
is often the crux of the contract, in that it defines the primary bargain the parties
have reached.
Tip: The label “Statement of Service/Work” may not appear in the contract. Instead, the
section may be labeled with something more tailored to the type of contract (e.g.,
“Purchase and Sale” for a sales contract).

4. Price/Amount: The “Price” or “Amount” section of a contract will set forth the
financial terms of the contract. More often than not, this is the most critical
section of the contract.
Tip: For more complex contracts, it may be necessary to include a separate schedule of
prices/costs as an appendix or exhibit to the contract.

5. Representations/Warranties: A “Representations” or “Warranties” section will include
statements the parties make to each other concerning the contract. Representations
are statements of fact by one party that induce the other to enter the contract.
Warranties are stipulations that a particular fact is as it is stated in the contract.
Tip: Make sure everything you are relying upon in entering a contract is listed in this
section.
Warning: Double and triple check the accuracy of all representations and warranties that you make.
Because parties’ are permitted to rely on representations and warranties in a contract, you can be found
liable for fraud if you make a false representation or warranty.

6. Indemnities: Indemnity clauses shift the burden of certain potential costs from
one party to the other by obligating a party (or both parties) to compensate the
other for loss or damage.
Tip: Take your time reviewing indemnity clauses. They are, by their nature, frequently the
most confusing provisions in the contract.
Warning: Indemnity clauses create financial obligations (often in the form of a promise to
pay defense/legal fees). Be sure you understand exactly what will trigger indemnity
obligations.

7. Termination: Termination clauses specify the grounds that permit one party to
terminate the contract before its expiration (usually upon the occurrence of a
“default” or a “breach”), and the manner for doing so.
Tip: Termination clauses often require the non-breaching party to provide notice of the
default/breach and allow the defaulting/breaching party a chance to cure it.

Other Common Contractual Provisions
1. Notices: A notice provision identifies the person (and his/her address) to whom any
notice or demand required or permitted under the contract must be sent.
Tip: This will include legal notices such as notice of a breach or intent to terminate. You should
make sure the person identified is qualified to handle these types of situations.
2. Counterparts: When an agreement may be “executed in counterparts” it means each
party can sign his/her own copy and all signatures need not appear on a single
signature page.
Tip: Permitting agreements to be executed in counterparts greatly expedites the signing process.
3. Invalid Provisions: If a provision of the contract is deemed unenforceable, an “Invalid
Provisions” section may preserve the enforceability of the remainder of the contract.
Tip: In addition to preserving the remainder of the contract, this provision can also require the
parties to work in good faith to reform any provision deemed invalid.

Other Common Contractual Provisions
4. Force Majeure: A force majeure clause may relieve the parties of their contractual
obligations when an extraordinary event beyond their control prevents them from
fulfilling the contract.
Tip: Force majeure clauses are typically far more narrow than they appear, and are limited to
things like war, strikes, riots, and “acts of God.”
5. Governing Law: A governing law clause allows the parties to choose the law of a
particular state that they wish to have govern the contract.
Tip: Although governing law provisions are typically enforced, courts will sometimes invalidate
them if the parties choose the law of a state that has no relation to them or the contract.
6. Alternative Dispute Resolution: An ADR clause usually requires a party seeking to
institute legal action (i.e., a breach of contract lawsuit) to first attempt to arbitrate or
mediate the dispute in good faith.
Tip: The cost and time associated with civil litigation often dissuade one or both parties from
filing a lawsuit. ADR clauses can counteract that by making legal remedies more accessible.

Breaches of Contract
What is a breach of contract?
• When one party does not fulfill his/her obligations precisely and exactly, he/she
commits a “breach” and the other party may take legal action to enforce the contract.
Tip: Breaches that are not “material” to the contract may not give rise to a lawsuit or
damages.
How do I know if a breach has occurred?
• The party fails to perform a contractual obligation. [i.e., an “actual” breach]
• The party states that he/she will not perform a contractual obligation. [i.e., an
“anticipatory” breach]
Tip: One party’s breach of the contract does not always relieve the other party of its
obligations. Never breach a contract without first consulting with an attorney.

Remedies for a Breach
The following types of remedies may be available in the event of a breach:
1. Money Damages: Typically, the non-breaching party is entitled to the amount of
money needed to place him/her in the position he/she would have been in had the
other party fulfilled its obligations.
2. Injunctions: Injunctions are court orders that compel or prevent the breaching party
from doing something (e.g., requiring it to perform its contractual obligations).
3. Equitable Remedies: These may include other, case-specific remedies tailored to allow
the contract to continue or to prevent future breaches.
Tip: These remedies are not exclusive of each other. A non-breaching party may be entitled to
any one or combination of these remedies to compensate for a breach.
Warning: If you believe you are the victim of a breach of contract, you should consult an attorney
immediately. Taking no action or improper action can result in you losing some of your rights and may
also subject you to penalties.

Unenforceable Contracts
Reasons why a contract may be unenforceable or invalidated:
1. Lack of Capacity: If one of the parties lacked the “capacity” to contract, any
agreement will be invalidated.
Examples: Intoxication, minors, duress
2. Illegal Subject: Contracts that concern committing crimes or other subject matter
that is against the law will not be enforced.
Example: Murder for hire contracts
Tip: Courts also may not enforce contracts that are contrary to public policy, even though
their subject matter may not technically violate the law.

Unenforceable Contracts
3. Unconscionable Contracts: A contract is “unconscionable,” and will not
be enforced, if it is so outrageous or unfair that no rational person would
make it, and no honest person would accept it.
Warning: Do not ever rely on a court ruling a contract is “unconscionable.”
It is very hard to prove!

Questions?
Callan G. Stein, Esq.
cstein@dbslawfirm.com

Donoghue Barrett & Singal P.C.
Since 1989, Donoghue Barrett & Singal has built a reputation as trusted advisors to a substantial
list of clients ranging from individuals to Fortune 500 companies. We take a highly practical
approach to legal service, one that leverages our attorneys’ deep and diverse experience. We
have health law attorneys who have worked in the medical field, criminal defense attorneys who
have been prosecutors, and government relations attorneys who have served in government.
This hands-on experience makes for a deeper understanding of the challenges clients face and
illuminates a broader range of responses to multi-dimensional issues.
Callan Stein’s legal practice focuses on civil and contract litigation for individuals and businesses,
white-collar criminal defense, commercial and employment litigation, healthcare litigation, and
professional licensing matters. He practices in federal, Massachusetts, and Rhode Island courts,
and before state and federal governmental agencies.
Callan graduated from the Boston University School of Law in 2007. He was named an Up &
Coming Attorney by Massachusetts Lawyers Weekly in 2013, and has been recognized as a
Massachusetts Super Lawyers Rising Star in 2014 and 2015. He can be reached at
cstein@dbslawfirm.com or at (617) 720-5090.

Getting Down To The Details: Contract Basics for Non-Lawyers

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