University College Cork Office of Corporate and … · University College Cork Office of Corporate and Legal ... What is a Contract? Essential Elements of a ... indemnity over a breach

University College Cork

Office of Corporate and Legal Affairs

Hilda O'Keeffe

University Solicitor

31st May 2011

Negotiating Contracts – Basic Principles

Presentation by Hilda O'Keeffe, 31 May 2011

Introduction

While all reasonable care has been taken in the preparation and

completion of this documentation, no responsibility is undertaken for

any errors and/or omissions

This documentation has been prepared for information purposes only

and does not constitute legal advice.

Presentation by Hilda O'Keeffe, 31 May 2011 2


Basic Principles

What is a Contract?

Essential Elements of a Contract

Verbal and written contracts

Capacity to Negotiate and Contract

Negotiating – Subject to Contract

Indemnities, Warranties and Insurance

General and Boilerplate Clauses

Tips and Traps

3

What is a Contract?



Background

A Contract may be defined as an agreement between two

or more parties that is binding in law.

This means that the agreement generates rights and

obligations which may be enforced in the Courts.

5




1. Offer

2. Acceptance

3. Intention to Create Legal Relations

4. Consideration

6



OFFER

a statement or indication that the individual is prepared

to enter into a contract with another on specified terms;

must be capable of acceptance;

must be clear that the parties are prepared to be bound if offer

accepted;

must be communicated to another party

“I will cut your lawn for €10” – Does this constitute an offer?

must be distinguished from an “Invitation to Treat” which expresses

an intent to accept an offer which he is free to accept or reject e.g.

Auction, advertisement, shop window displays

7


ACCEPTANCE

Acceptance occurs when the person receiving the offer

indicates/communicates acceptance

Acceptance may be defined as an unconditional assent,

communicated by the offeree to the offeror, to all terms of the offer,

made with the intention of accepting.

In response to offer to cut the lawn

“That sounds like a good deal “ – acceptance?

“We have a deal” – acceptance?

If the offeree queries or bargains with the terms of the original offer it

is considered that the offeree has passed the initiative back to the

original offeror by making a counteroffer e.g. terms and conditions



INTENTION TO CREATE LEGAL RELATIONS

The Parties must have an intention to create

legal relations between themselves.

In commercial agreements there is a strong presumption that the parties

intend to be legally bound.

This presumption can generally only be rebutted by express words.

Letters of intent, heads of agreement and memoranda of understanding

Any document intended to operate as a non binding document should

contain an express term that there is no intention to create legal

relations.



CONSIDERATION

There must be some form of consideration for the contract

Adequacy – left to the parties to determine whether consideration is

adequate - provided there is some consideration, the

courts will not investigate its adequacy

Sufficiency – law requires sufficiency e.g. promise to perform existing

contractual obligation is not sufficient. If the

consideration is empty or illusory then the court may

not regard it as sufficient

White – v- Bore

Promise by son not to bore father with complaints - not sufficient


Formation and Interpretation

There must be agreement on the fundamental elements of

a contract. Whether the parties have reached an

agreement is determined by an objective standard. What

each party believes the other to be agreeing to will not be

the determining factor.

Rather, would an objective bystander,

acting reasonably, looking at all of the relevant

facts conclude that the parties had come to an

agreement on the essential terms of the contract

with the intent to form a legally binding

relationship.


ORAL OR VERBAL CONTRACTS

Irish Contract Law is relatively informal. Contracts can be held to

exist without any paperwork. Even very large deals can be

completed verbally or with minimum paperwork

Contract for construction of “Queen Elizabeth”

contained in letter from builder to the effect :

“ We agree to build the Queen Elizabeth for 5 million pounds”

A Verbal Contract can be put in place in many circumstances where

the essential elements of a contract are agreed or to an objective

observer they would be considered to have been agreed .

Ryanair Case 2010 – “fairly brought to the attention of the other party”


Contracts in Writing

Certain Contracts must be evidenced in writing under the Statute of

Frauds 1695 which include:

Contracts for the sale of land

Contracts for marriage

Contracts of Guarantee

Contracts not to be performed within a year

Must be evidenced by a memorandum in writing containing particulars in relation to:

1. Parties to the Contract

2. Price

3. Property

Known as the “three P’s”.


WHY HAVE A CONTRACT IN WRITING?

Precludes argument from the other side that they didn’t know or

didn’t read the terms.

Terms are clearly set out which reduces the risk of dispute.

If certain terms are omitted or not in writing courts

will take a commercial common sense perspective

in the case of dispute. If in writing, the courts will

rarely look behind the written contract.


CAPACITY TO NEGOTIATE AND

CONTRACT?


Capacity to Contract

Contracting party must be free to enter into the contract and have authority to

enter into the contract.

All persons of full age (over 18) & sound mind - capacity to contract

Companies - refer to OCLA and we will check the “objects” clause in the

Memorandum of Association of the Company to ensure they have capacity to

enter into a particular contract.

Companies outside Ireland – OCLA will need to carry out additional checks

If a party does not have capacity to contract , there is a risk that the contract

will be held unenforceable and could result in exposure to the University


Capacity within the University

Capacity to contract within the University is delegated by Governing

Body

University College Cork – National University of Ireland, Cork is the

correct legal tile (under Statutory Instrument 446/1998) and is the

contracting party for all contracts/agreements binding the University

For details refer to the University Signing Authority and Approval

Policy http://ocla.ucc.ie/LegalAffairs/SigningAuthorityFeb2011.pdf

Review the policy to determine relevant approvers and the relevant

signing authority who has the capacity to enter into a binding

agreement on behalf the University

Read in conjunction with other University Policies


REVIEW OF CONTRACT


ALL AGREEMENTS BINDING THE UNIVERSITY

(OTHER THAN STANDARD PRE APPROVED AGREEMENTS)

TO BE APPROVED BY

THE OFFICE OF CORPORATE AND LEGAL

AFFAIRS

Review of Contracts

All research contracts to be sent to the Research Office

All financial terms to be approved by the Finance Office

All intellectual property matters to be approved by Research

Office/TTO

All academic agreements to be approved by the Registrar’s Office

All approvals to be obtained in accordance with the signing authority

policy


Negotiating – Subject to Contract


Negotiating Contracts

1. Understand your requirements and objectives and

what you can deliver within the cost/time/resource

constraints

2. Identify risks for the University and stakeholders

within the University

3. Brief and involve stakeholders and your internal

advisors at an early stage (legal, financial,

technical, head of unit, relevant VP)

4. Anticipate the other parties strategy and objectives

5. Avoid communicating information which reduces

your negotiating power


Subject to Contract

Non binding negotiations

SUBJECT TO CONTRACT

As a matter of good practice – when negotiating contracts all

discussions should be stated to be “Subject to contract” and all

correspondence should be headed “Subject to contract/contract

denied”

This term has the effect that neither party will be contractually bound

until agreements have been signed and exchanged.

Originally used in property negotiations, now widely used in all

negotiations.


Memorandum of Understanding/Agreement

Misunderstanding within the University that Memorandum of Understanding/

Agreement are non binding

Remember: Any agreement which complies with the essential elements of a

contract may be considered binding between the parties.

Best practice is to take advice from OCLA as to the binding nature of the

agreement

If intended that the agreement will be non binding include a clause which

states that it is not the intention to create legal relations between the parties

or a legally binding agreement.

This will not guarantee the memorandum is not binding but should serve to

defeat any claim that there is an intention to create legal relations


Undertakings, Indemnities and Warranties


Undertakings and Warranties

Undertaking

Express promise to do something in the future

Warranty

Statement as to a particular state of affairs. Expressed in the present tense.

Warranties and Undertakings are terms which allow one party to sue the other

Party. If breached, the injured party is entitled to claim damages for breach of

Contract.

Under Irish contract law, the amount and type of damages are limited to those

that flow directly from the breach or were in the reasonable contemplation of

the parties at the time they entered into the contract.


Indemnities

Indemnities

An indemnity is a promise from one party to pay another in the event

that party suffers a loss in respect of a particular event.

Indemnities can transfer entire risk from one Party

Advantage of an indemnity over a breach of contract claim is an indemnity

can be regarded as a debt claim and not subject to the same remoteness of

damage and mitigation of loss.

Indemnity only appropriate in circumstances where you have agreed to

allocate full risk from one party to another or there would be indirect and

consequential losses which would not be recoverable if relying on

undertaking or warranty.


Negotiating Indemnities and Warranties

Do not agree to an indemnity, warranty or undertaking in any circumstances

where you have not taken legal advice

Always resist an indemnity for breach of contract - unnecessary – have

action in damages and only serves to increase the scope of loss recoverable.

Advise that all indemnities need to be approved by University and University

may require a limitation/cap or exclusion on our liability

Do not accept a clause which states we will “hold a party harmless”

Generally university seeks to exclude liability for indirect and consequential

loss however liability may have been assumed under a related agreement -

seek legal advice

University would normally not give warranties or indemnities in relation to

breach of confidence, or infringement of third party rights – seek legal advice

It is common practice not to exclude liability for personal injury, death or fraud.

(based on unfair contract terms legislation in UK)

Generally indemnifying party should have control of claims to which the

indemnity relates


Insurance

University will always require evidence of insurance (as appropriate)

e.g. Employers liability, public liability, professional indemnity,

product liability

Evidence of insurance does not alter liability at law but ensures that

parties have the resources to meet the claims that fall under the

scope of their insurance

Remember the limitations on insurance cover

Note: Many policies do not cover liability

assumed under a contract and will be subject

to various exclusions, conditions and excesses.





Dispute Resolution Clause - Mediation and Arbitration

Confidentiality – where necessary and appropriate

Termination Clause

Survival of Obligations Clause

Severability Clause

No partnership or agency

No assignment

Entire Agreement Clause

Governing Law

Jurisdiction Clause – where enforceable and where

litigation should proceed

Amendments


Tips and Traps


Consider what you want to achieve. What ? Why? When?

Communicate the purpose and objective and any risk areas to the OCLA

Identify any conflicts of interest and disclose at an early stage

Involve your internal advisors at an early stage. Do not wait until the

fundamental terms have been agreed – it may be too late to renegotiate

Ensure all agreed terms are detailed in writing in the final contract.

Read the final contract/agreement. Make sure you understand the terms.

Where the terms are rewritten by other side ensure they reflect what has

been agreed. If you don’t understand the terms it is likely a judge may view

in the same way. Seek advice if you are not clear.


Always take care in using legal terms in negotiations as there is

often a legal meaning which is not intended by the negotiating

parties e.g. Use of the word “Shall “ and “may”

Use of the word “partnership” or “joint venture” – these words have

particular legal meaning which could potentially have serious

implications for the University – joint and several liability. In the

alternative, use the word “Collaboration”

Insert legal title for the University (S.I. 446/1998) as

“ University College Cork – National University of Ireland, Cork”

Remember: UCC as a public body is expected to conduct business

in a proper manner


Conclusion

Remember the essential elements of a contract

Always conduct negotiations subject to contract

Identify the approver and party with the

capacity to bind the University under the

signing authority policy

Identify the stakeholders and approvers

Seek advice at an early stage

Consider Procurement requirements

Be extremely careful in relation to Undertakings

Warranties and Indemnities

Ensure all agreements binding the University

are forwarded for review by the Office of

Corporate and Legal Affairs with background

details, identified risks and copies of relevant

documentation with sufficient time to allow

adequate review.


THANK YOU - QUESTIONS?


This presentation is for general purposes only and does

not constitute legal advice.

For further information or if you require Legal Advice in

relation to a contract , please contact:

Hilda O'Keeffe

Solicitor

Office of Corporate & Legal Affairs

UCC

Tel: 021 4901880

Email: [email protected]

Web: http://ocla.ucc.ie


mailto:[email protected]

http://ocla.ucc.ie/

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University College Cork Office of Corporate and … · University College Cork Office of Corporate and Legal ... What is a Contract? Essential Elements of a ... indemnity over a breach