A. The Concept of a Contract

A contract is an agreement which legally binds the parties. Sometimes the contracts are referred to as “enforceable agreements”. This is rather misleading since one party cannot usually force the other to fulfill its part of the bargain. The usual remedy is damages. The underlying theory is that a contract is the outcome of “consenting minds”, each party being free to accept or reject the terms of the other.

The essential elements of a contract are:

That an agreement is made as a result of an offer and acceptance.

The agreement contains an element of value known as consideration, although a gratuitous promise is binding if it is made by deed.

The parties intend to create legal relations.

The validity of a contract may also be affected by the following factors.

Capacity. Some persons, e.g. children have limited capacity to make contracts.

Form. Most contracts can be made verbally (parole contracts), but others must be by deed, i.e. in writing. Some verbal contracts must be supported by written evidence.

Content. The parties may generally agree any terms, although they must be reasonably precise and complete. In addition some terms will be implied by courts, custom or statute and some express terms may be overridden by statute.

Genuine consent. Misrepresentation, mistake, duress and undue influence may invalidate a contract.

Illegality. A contract will be void if it is illegal or contrary to public policy.

B. The Formation and Forms of Contracts

The methods by which the courts determine whether an agreement has been reached is to enquire whether one party has made an offer (a definite promise to be bound on certain terms) which the other party has accepted. For most types of contract the offer and acceptance may be made orally or in writing, or they may be implied from the conduct of the parties. The person who makes the offer is known as the offerer and the person to whom the offer is made is the offeree. In addition to offer and acceptance the law imposes the requirements of consideration (value) and intention to create legal relations. The other requirements in the formation of a contract are contractual capacity and legality of object.

The general rule is that a contract may be in writing, or oral, or inferred from conduct, or a combination of any of these. It is a common mistake to think that a binding contract must be in writing. Writing makes it easier to prove the contents of the contract, but it is not usually necessary.

A contract may contain three types of clause, namely express terms, implied terms, and exemption clauses.

A contract that does not satisfy the relevant requirements may be void, voidable or unenforceable. A void contract has no legal effect. The expression ‘void contract’ is a contradiction in terms since if an agreement is void it cannot be a contract. However the term usually describes a situation where parties have attempted to contract, but the law will not give effect to their agreement because, for example, there is a common mistake on some major term. When the contract is void ownership of any property 'sold' will not pass to the buyer, so he will not be able to sell it to any one else. The original seller (i.e. the owner) will therefore be able to recover the property from the person in possession.

When the contract is voidable the law will allow one of the parties to withdraw from it if he wishes, thus rendering it void. Voidable contracts include some agreements made by minors and contracts induced by misrepresentation, duress or undue influence. A voidable contract remains valid unless and until the innocent party chooses to terminate it. Therefore if the buyer resells the goods before the contract is avoided, the sub-buyer will become the owner and will be able to keep the property, provided he took it in good faith.

An unenforceable contract is a valid contract and any goods or money transferred cannot be recovered, even from the other party to the contract. However if either party refuses to perform his part of the contract the other party cannot compel him to do so. The contract will be unenforceable when the required written evidence of its terms is not available, e.g. the written evidence for the sale of land.

1. Why is it misleading to consider contracts as enforceable agreements?

2. What are the main elements of a contract?

3. What factors can influence the validity of a contract?

4. How can the courts determine whether an agreement has been reached?

5. Is it necessary for a contract to be always in writing? Why, why not?

6. Differentiate between void, voidable, unenforceable contracts.

Read texts A and B and sum up the main idea of each in 2-3 sentences. Think of the titles to the texts.

A.

There is no unique layout of the contract. We may find different formats of this document which can be caused by the traditions of the country in business documents as well as in business communications and also by the development of business as such in the country. The former is determined by the degree, of trustworthiness of the partners in business. Therefore in the countries with the developed business traditions and legislation system we find that contracts are short and contain the major provisions while other business procedures may be reflected (specified) in numerous supplements and appendices. In the countries where business relationship has been introduced recently a party to the contract should specify all the particulars about the contract matter.

A contract forms the basis of a transaction between the Buyers and the Sellers and great care is exercised when the Contract is being prepared that all the legal obligations have been stated.

B.

A written contract of sale is made out in the form of a document signed both by the Buyers and the Sellers.

When there is no necessity of introducing special terms and conditions into the contract of sale. Standard forms of contracts containing the following clauses (articles) are used:

1. Naming (definition) of the Parties

2. Subject of the contract and volume of delivery

3. Prices and the total value (amount) of the contract (including terms of delivery)

4. Time (dates) of delivery

5. Terms of payment

6. Transportation (=carriage) of goods (packing and marking, shipment)

7. The Sellers' guarantees (the quality of the goods)

8. Sanctions and compensation for damage

9. Insurance

10. Force majeure circumstances

11. Arbitration

12. General provisions

Also, there may be standard General Conditions which form an integral part of the contract and are either printed on the reverse side of the contract or at the foot of the face of the contract or attached to it.

In the case of a contract for sophisticated machinery and equipment there may be other clauses: technical conditions, test and inspection conditions, requirements to technical documentation, supervision of erection and putting the machinery into operation (commissioning), and sending specialists for the purpose, training of the Buyers' specialist, the Sellers’ obligations for technical servicing and the like. These clauses may be included in the contract itself or in the Appendices to the contract which are an integral part of it.

When detailed special terms and conditions are introduced into the contract or the agreement, it is customary to draw up an individual contract or agreement in each particular case (e.g. a turnkey contract, a licence agreement).

Standard forms of contracts are worked out by the biggest federations and associations of merchants and importers abroad, by exchanges, Chambers of Commerce and the like for use in particular trade.

Ex. 1. Complete the table below using these verbs, which all collocate with the noun contract.

amend, cancel, enter into, execute, modify, rescind, sign, supplement, terminate

To form or make a contract valid	To make a contract partly or wholly invalid	To change or add to a contract

Ex. 2. Complete the table.

Verb	Adjective	Noun
apply	—	—
—	authorized	—
—	—	overdraft
alter	—	—
—	requisite	—
—	—	overdraft
specify	—	—
—	abbreviated	—
—	—	indorsement
secure	—	—
—	confidential	—
—	—	cancellation
modify	—	—
—	prescribed	—
—	—	beneficiary
economize	—	—
—	remedial	—
—	—	legality
accumulate	—	—
—	completed	—
—	—	negotiation
confirm	—	—
—	fabricated	—
—	—	negligence
agree	—	—
—	definitive	—
—	—	enforcement

Ex. 3. Complete the following text using the words in the box.

estimated, performance of the contract, to meet parties’ requirements, fixed price, assumed, contractor, supported with, circulation, contract terms, incurred, cost reimbursement contract, subject of the deal, nature of the goods

There are different classifications of the types of contracts. The selection of an appropriate contract type depends on factors such as ¹⁾ ______, services, or construction to be procured, the uncertainties which may be involved in contract performance, and the extent to which the parties are to assume the risk of the cost of ²⁾ ______. Contract types differ in the degree of responsibility ³⁾ ______ by the contractor.

Contracts are divided into administrative-managerial, financial-economical, advertising, scientific-technical, and artistic-publicational contracts. Functional spheres of their ⁴⁾ ______ can be easily guessed from names of contract types in this classification.

Contracts may be differentiated by the ⁵⁾ ______. There are export contracts for the sale of oil products, machinery tools, grain, timber, the supply of goods, etc. Orders in import trade deal with ordering and purchasing goods. They are often ⁶⁾ ______ requests, remindings, verifications of different terms, guarantee and waving inspection letters, and many others.

There are two broad contract groups — ⁷⁾ ______ and cost reimbursement. Within each of these groups, there are various types of contracts which can be used individually or in combination.

A fixed-price contract places responsibility on the ⁸⁾ ______ for the delivery of the product or the complete performance of the services or construction in accordance with the ⁹⁾ ______ at a price which is firm or may be subject to contractually specified adjustments. The fixed-price contract is appropriate for use when the extent and type of work necessary ¹⁰⁾ ______ can be reasonably specified and the cost can be reasonably estimated, as is generally the case for construction or standard commercial products.

A ¹¹⁾ ______ allows for payment of all ¹²⁾ ______ costs, within a predetermined ceiling, that can be allocated to the contract, and are allowable within cost standards, and reasonable. This type of contract is required when the uncertainties of performance will not permit a fixed price to be ¹³⁾ ______ with sufficient accuracy to ensure that a fair and reasonable price is obtained.

Ex. 4. Link the type of contract to its description.

Consultancy agreement, Distribution agreement, Franchise agreement, Loan agreement, Manufacturing licence agreement, Terms and conditions of sale agreement, Contract of employment, Directors’ service agreement, Shareholders’ agreement

1. This agreement is used to insure the repayment of money borrowed, usually in monthly installments.

2. This agreement is used where one party buys goods from the manufacturer and re-sells them on his own account. He will however be given the right to use the manufacturer’s intellectual property rights.

3. This agreement sets out the terms and conditions on which a business supplies goods.

4. This agreement is used where one party grants to another the right to run a business in the name of the first party.

5. This is the equivalent of a contract of employment for directors.

6. This agreement is used where one party is providing services as an independent advisor to a company.

7. This agreement should be used where one party (the licensor) owns intellectual property rights in respect of a product it has developed and wishes to license the manufacture of the product to a third party.

8. This is intended to govern the relationship between a number of shareholders in a company. The agreement works as a second layer of protection preventing the company from being run in a manner other than has been agreed.

9. This contract comes into existence as soon as a job is accepted whether that offer is oral or in writing.

Ex. 5. Insert the correct prepositions where necessary.

A foreign trade contract is a legal document governing an export-import transaction. It should be strictly drawn up ¹⁾ ___ updated terms and conditions, considering international trade practice. If the powers (rights) and liability ²⁾ ___ the foreign partner are not verified, the contract may turn out to be null and void; improper definition ³⁾ ___ the obligations ⁴⁾ ___ the parties may lead ⁵⁾ ___ disputes and failure to complete the transaction; absence ⁶⁾ ___ penalty clauses may result ⁷⁾ ___ delays ⁸⁾ ___ deliveries; absence ⁹⁾ ___ an arbitration clause may prevent the parties ¹⁰⁾ ___ setting claims quickly.

Serious attention should be paid ¹¹⁾ ___ the existing ¹²⁾ ___ some countries ¹³⁾ ___ high discriminatory rates ¹⁴⁾ ___ the customs tariff, strict licence regime, export and import quotas, anti-dumping legislation, regulation ¹⁵⁾ ___ unfair competition, embargo, other trade policy restrictions.

Ex. 6. Find synonyms to the following words.

1. capacity of the contractors, 2. performance of a contract/a machine, 3. to settle, 4. to meet liabilities, 5. appendix, 6. by deed, 7. invalid, 8. to be entitled, 9. to commission, 10. to make out a contract, 11. the total value, 12. contingency, 13. general provisions, 14. at the foot, 15. to attach smth, 16. to adopt, 17. in full conformity with, 18. to infringe a contract, 19. to annul a contract, 20. counterpart, 21. lease, 22. outside the extent of a contract, 23. buyer and seller, 24. with full particulars.

Ex. 7. Translate into English using your active vocabulary (in writing). Pay special attention to the words in italics in part B.

A.

1. выполнять свой долг, 2. строгое соблюдение взаимных обязательств, 3. заключить крупномасштабную сделку, 4. основные операции, связанные с обменом товарами, 5. отвечать за перевозку товара, 6. гарантировать проведение расчета по платежам в срок, 7. быть действительным в течение 60 дней, 8. иметь право заключать агентские соглашения от имени своего объединения, 9. отвечать за монтаж, 10. взять оборудование по договору аренды и займа на пять лет, 11. вспомогательные операции, связанные с обеспечением успешного проведения основных, 12. получить обратно должным образом подписанное соглашение, 13. ряд бартерных и компенсационных сделок, 14. предложить компенсацию за ущерб (за повреждение товара), 15. лицензионное соглашение сроком на 10 лет, 16. рабочие характеристики поставленного оборудования, 17. начать рекламную кампанию, 18. общая стоимость контракта, 19. общий объем поставки, 20. составить условия договора аренды и займа, 21. являться неотъемлемой частью контракта, 22. напечатать Общие Условия поставки на обратной стороне контракта, 23. приложить к инициативному предложению список запчастей, 24. обеспечить обучение специалистов покупателя, 25. принимать обсужденные меры (шаги), 26. включить стоимость маркировки и упаковки в цену товара, 27. принять новый типовой контракт, 28. ряд статей контракта, 29. получить большую сумму денег в качестве компенсации за повреждение товара в пути, 30. составить контракт на поставку электрооборудования, 31. количество поставленного оборудования, 32. при сложившихся обстоятельствах, 33. проводить пуск оборудования в эксплуатацию, 34. увеличить взаимные поставки товаров, 35. предпочитать покупку в кредит или в рассрочку, 36. покупая товар у новой фирмы, следует знать ее финансовое положение, 37. ссылаясь на вышеуказанный факс о наступлении чрезвычайного обстоятельства, 38. как указано выше, особое внимание будет обращено на, 39. быть более или менее удовлетворенным качеством поставленного товара, 40. в дополнение к нашему факсу вы получите письмо со всеми подробностями.

B.

1. а) быть удовлетворенным работой этой машины б) обеспечивать работу демонстрационного зала в) отвечать за работу этого оборудования

2. а) широкая рекламная кампания б) он — тебе не компания в) крупная иностранная компания

3. а) принимать гостей по воскресеньям б) не принимать дефектное оборудование в) принимать обсужденные рекомендации