Riassunto esame Inglese Giuridico, prof. Cadel, libro consigliato Legal English, Di Renzo, Villata

Contract law overview

Contract law is the body of law which regulates legal rights and remedies resulting from contracts and agreements between individuals and/or companies. It is part of private law.

Understanding contracts

A contract is an oral or written promise among two or more individuals or companies which obliges each party to do or not to do something. A contract can be express (in this case the existence and the terms are stated in words or in writing among parties) or implied (the existence and terms are inferred from the conduct of the parties, not said directly).

A valid and enforceable contract requires certain elements, including: the invitation to negotiate, the offer, the acceptance of the offer, and the consideration in common law states. The consideration is what distinguishes enforceable promises from promises which are gratuitous. In other words, it is the requirement of reciprocal obligation of both parties to contract and both parties must receive valuable consideration for performance having to comply.

Contract formation

Contract formation is divided into three steps: the invitation to negotiate (where one party invites to open a negotiation), the offer (an indication by one person who decides to contract with one or more parties, on certain terms), and the acceptance (or consent). A contract offer has only been accepted when the acceptance is brought to the attention of the offeror. The consent of the parties must be mutual, free, and communicated by each to the other. The moment of acceptance is the moment from which a contract is said to exist.

Letter of intent (LOI)

A letter of intent is an agreement expressing whereby the parties wish to agree upon a contract. With a letter of intent, one party expresses the intention to form a later binding agreement. Therefore, it is used to bind a party to negotiate exclusively with another party. At the end, the parties can execute a binding contract or they can take different paths.

Memorandum of understanding (MOU)

A memorandum of understanding is a more detailed letter of intent. This has a binding character and is generally used in connection with substantial transactions, such as mergers and acquisitions.

Non-disclosure (NDA)/confidentiality agreements

A non-disclosure agreement is a confidentiality or secrecy agreement, it is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship. Most agreements tend to be one-way, but it can also be a mutual agreement.

Contract drafting

The drafting of a contract aspires to convert and to articulate:

• The rights and obligations of the parties
• Provision for future events that may occur
• Remedies are used to make enforcing the rights and obligations

Contract conditions

• Parties: the names and full addresses of the parties.
• Definition and interpretation of the conditions of the agreement itself.
• Payment provision: exact price to be paid by a party for the goods provided.
• Description of goods or services and delivery (clearly and in detail).
• Duration of the contract (terms).
• Limitation of liability: each party will try to limit its own liability.
• Termination clause: the circumstance under which the parties can end the agreement.
• Dispute resolution: the procedure to be followed if the parties have a dispute (for example, if there is an option such as arbitration or mediation).
• Confidentiality: in this section, the sensitive information that the parties wish to keep confidential should be stated.
• Intellectual property rights: specify who has the intellectual property rights.
• Warranties: in a contract for supply of goods or services, warranties give the party a contractual right to sue for damages if there is a breach of warranty.
• Force majeure: covers situations where performance of the contract becomes impossible through no fault of either party, e.g., a natural disaster.
• Applicable law: this section should state which law governs the contract.
• Entire agreement: used to determine the content of the contract and which terms or conditions are to be included in the contract.

Breach of contract

Breach of contract is the failure, without legal excuse, of one party to perform what is specified in the contract entered into with the other party. Breach of contract comes in different forms:

• Complete breach: when a party refuses to fully perform the contract.
• Substantial performance: this situation has the effect of binding the other party to performance, at least in an equivalent proportion as the party that has not fully performed.

Breach of contract leaves the non-performing or improperly performing party open to a claim for damages by the other party.

Provision regarding damages

• The liquidated damages clause: a common provision in commercial contracts allowing for the payment of a specific sum should one of the parties breach the contract.
• The penalty clause: specifies a sum of money, already agreed upon by the parties, to be paid if one party fails to perform. It is different from the liquidated damages clause because its function is to deter breach rather than to compensate the non-breaching party.

Remedies and alternative dispute resolution

There are many ways to remedy a breach of contract. Typically, the remedy for breach of contract is an award of money, called damages. Damages are an attempt by the court to compensate the innocent party, that is, the party that suffers the breach. Damages can be:

• Compensatory damages: awarded to the party who suffered from the breach, including consequential and direct damages.
• Punitive damages: used to punish the party at fault.

Specific performance: there may be cases in which it would be unjust to allow only damages. The court would order the defaulting party to perform the contract. This remedy is called coercive.

Injunction: the court may issue an injunction that obliges a party to refrain from doing something that would breach the contract. It is another coercive legal remedy that can be used to stop the breach of contract of a party.

Alternative dispute resolution (ADR)

ADR is a wide variety of methods of resolving disputes outside the government judicial process.

• Negotiation: drafting a contract to facilitate the resolution of an issue or a dispute that has arisen between the parties.
• Mediation: acts as a facilitator assisting the parties to communicate and negotiate their ability to settle.
• Arbitration: another procedure for settling disputes; there is an arbitrator, independent and neutral, that delivers a final and binding decision.

Mergers and acquisitions (M&A)

A merger is a combination of two or more entities into a single one. There are three different kinds of merger:

• Consolidation: combination of two or more independent companies into the “combined entity”.
• Forward merger: incorporation of a subsidiary into its controlling company.
• Reverse merger: incorporation of the controlling entity into a subsidiary.

An acquisition is the purchase by the buyer from the seller of an interest in another entity, called the target. The choice between an acquisition and a merger depends on the strategic plans of the parties. The parties usually consider the following factors:

The buyer

• Strategic purpose: the buyer makes the purchase to consolidate, link, or integrate the acquired business with their own, creating synergies.
• Financial purposes: the buyer makes the purchase to improve and revitalize the acquired business and eventually sell it at a substantial gain.

The seller

The seller may sell all or a part of the business to get cash and/or to solidify the relationship with the buyer, staying in as a majority or minority shareholder.

Common elements between mergers and acquisitions

Both transactions change not only who controls the business, but also the strategic direction the business will take. One side wants to learn as much as possible about the business and understand it deeply. Both sides try to maximize the value of the deal. Also, the people involved and the key steps of the processes of both transactions are very similar.

People involved

Investors can be buyer or seller:

• Founders: people who start the business and help from the first steps.
• Venture capital firms: entities that help promising, early-stage businesses develop and grow.
• Private equity firms: entities that provide the company with the human and financial resources.
• Institutional investors: entities like mutual funds, pension funds, etc., that invest with a medium/long-term goal to maximize the value of their portfolio, rather than trying to influence the management of the business.

Advisors: Strategic advisors play a crucial role in guiding the process.