6.1 Sources and Definitions of Contract Law

• Library: Virginia Law and Practice: A Handbook for Attorneys (Virginia CLE) (2020 Ed.)

6.1 SOURCES AND DEFINITIONS OF CONTRACT LAW

6.101 Statutory Law.

A. The Code of Virginia. The first Virginia statute dealing with contracts was enacted in 1633 and provided that all contracts had to be kept and made in money and not tobacco. ⁵ Since that time, a number of Virginia statutes have also provided a significant source of contract law. Title 11 of the Virginia Code governs contracts.

Va. Code § 11-2 addresses the statute of frauds, which requires that certain contracts must be in writing to be enforceable. ⁶ Additionally, title 11 contains a companion statute to the statute of frauds, which provides

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that all contracts for the sale of real estate and all leases with terms of more than five years must be in writing or they are void as to bona fide purchasers without notice. ⁷ The ancient requirement of affixing a formal seal to a writing to make it valid as a document signed under seal is eliminated under title 11. ⁸

Title 11 also includes a number of statutes relating to consumer contracts that regulate, among other things, the size of a contract's print, ⁹ goods sent by mail, ¹⁰ unsolicited goods, ¹¹ acceleration and repossession, ¹² and promises made after bankruptcy, ¹³ as well as those pertaining to construction and design professional contracts ¹⁴ and compromise and satisfaction. ¹⁵ Furthermore, gaming or gambling contracts are made void by Va. Code § 11-14. In addition to the statutes in title 11, numerous other Virginia statutes address more specific types of contracts, such as credit cards ¹⁶ and the Virginia Public Procurement Act. ¹⁷

Other Virginia statutes also affect the enforcement of a contract. A conflicts of laws statute may determine whether the law of Virginia or another state governs the interpretation of a contract and its enforcement. A statute of limitations also influences the enforceability of a contract.

B. Uniform Commercial Code. The Uniform Commercial Code (UCC) was the first attempt to codify in a comprehensive manner the law of contracts for commercial transactions. Its articles address a variety of contractual functions. Article 2 of the UCC codifies the law of contracts for the sale of goods. ¹⁸ Article 2A of the UCC applies to lease contracts of goods. ¹⁹

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Articles 3A, ²⁰ 4, ²¹ and 5A ²² deal, respectively, with negotiable instruments, checks, and letters of credit, which are actually specific types of contracts. ²³ Article 7 codifies the law of documents of title that, besides being ownership documents and receipts, are contractual documents. ²⁴ Article 8A contains provisions dealing with contracts for the sale or purchase of a security. ²⁵ Finally, Article 9A governs secured transactions, including the creation of security interests in personal property or fixtures by security agreements. ²⁶

C. Federal Statutes. A federal statute may sometimes affect the validity, enforceability, or interpretation of a Virginia contract. For example, federal arbitration, antitrust, bankruptcy, employee benefits, environmental, and labor laws sometimes preempt state law or otherwise alter the provisions of a contract.

6.102 Definitions of Terms.

A. Glossary of Common Contract Terms. A number of contract terms are defined by Virginia statutes or have been interpreted by Virginia courts. Often, Virginia courts have given terms their ordinary and popular meanings. ²⁷

B. Acceptance. An acceptance is a promise to be bound by the terms of an offer. ²⁸ Acceptance of an offer must correspond exactly to the terms of the offer. ²⁹ Acceptance can be inferred from the acts and conduct of the offeree. ³⁰ In the absence of circumstances from which an acceptance may

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be implied, an acceptance will not be presumed from a mere failure to decline a proposal. ³¹

C. Accord and Satisfaction. Accord and satisfaction is the offer and acceptance of an agreement in settlement of a disputed claim. ³² Its hallmark is that all or part of the consideration cementing the agreement is a release of liability for the disputed claim. ³³

D. Agreement. An agreement is a manifestation of mutual assent on the part of two or more parties as to the substance of a contract. ³⁴ Mutual assent is essential. ³⁵ For there to be an agreement, there must be a proposition by one party and an acceptance by the other, which must be manifested by some appropriate act. ³⁶ Under the UCC as enacted in Virginia, an "agreement" is the bargain of the parties in fact as found in their language or by implication from other circumstances, including course of dealing, usage of trade, or course of performance. ³⁷ Whether an agreement has legal consequences is determined by the applicable provisions of the UCC or the law of contracts. ³⁸

E. Anticipatory Breach. The doctrine of anticipatory breach provides that "when one party to a contract has entirely abandoned it, or has

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absolutely refused to perform it, the other party may elect to sue on it without waiting for the time of performance to arrive." ³⁹

F. Breach. A breach of contract is a "failure, without legal excuse, to perform any promise which forms the whole or part of a contract." ⁴⁰ All defaults under a contract are breaches, but not all breaches are necessarily defaults. ⁴¹

G. Collateral Contract Doctrine. The collateral contract doctrine is one of the well-recognized exceptions to the parol evidence rule. A prior or contemporaneous oral agreement that is independent of, collateral to, and not inconsistent with the written contract, and which would not ordinarily be expected to be embodied in the writing, is admissible as an exception to the parol evidence rule. ⁴²

H. Condition. A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due. ⁴³

I. Condition Precedent. A condition precedent calls for the performance of some act or the happening of some event after the terms of the contract have been agreed upon and before the contract will take effect. ⁴⁴ A condition precedent is distinguishable from a promise in that it creates no

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rights or duties in and of itself but is merely a limiting or modifying factor. ⁴⁵ A warranty differs from a condition precedent in that a warranty undertakes that a certain condition of a thing exists when a contract is made, while the enforcement of a contract is not possible until a condition is fulfilled. ⁴⁶ The failure of a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the contract never mature. ⁴⁷

J. Consideration. Consideration is the price bargained for and paid for a promise. ⁴⁸ Consideration is one of the three essential elements of a contract. ⁴⁹ Any consideration given in good faith, no matter how small, is sufficient to sustain a contract, and the courts will not inquire into the adequacy of the consideration for the promise. ⁵⁰

K. Counteroffer. A counteroffer is a purported acceptance that varies the terms of an offer and rejects the original offer. ⁵¹

L. Damages. There are two categories of contract damages: direct damages and consequential damages. ⁵² Direct damages are those that "flow naturally" from a breach of contract, such as those that, in the ordinary course of human experience, can be expected to result from the breach, and are compensable). ⁵³ Consequential damages arise from the intervention of "special circumstances" not ordinarily predictable and are compensable only if it is determined that the special circumstances were within the contemplation

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of all parties when the contract was made. ⁵⁴ Contemplation includes what was actually foreseen and what was reasonably foreseeable. ⁵⁵

M. Default. A default is a "failure to do something required by duty or law." ⁵⁶ A default is "the omission or failure to fulfill a duty, observe a promise, discharge an obligation, or perform an agreement." ⁵⁷ All defaults under a contract are breaches, but not all breaches are necessarily defaults. ⁵⁸

N. Duress. Duress is a defense to a contract if the party was deprived of his or her ability to exercise volition and free will. ⁵⁹

O. Electronic Signature. If created or used in a transaction before July 1, 2000, an electronic signature is any electronic identifier intended by the person making, executing, or adopting it to authenticate or validate a record. ⁶⁰ If created or used in a transaction on or after July 1, 2000, an electronic signature is "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." ⁶¹

P. Execution. The term "execution" appears to contemplate the signing of a written instrument. ⁶²

Q. Impossibility of Performance. Impossibility of performance is a defense to the enforcement of a contract based on the principle that the

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failure or nonexistence of a certain state of affairs, the continued existence of which was contemplated by both parties as the basis of their contract but not contracted for, excuses the promisor. ⁶³

R. Indemnity. Typically, a contract of indemnity is a bilateral agreement between an indemnitor and an indemnitee in which the indemnitor promises to reimburse the indemnitee for any loss suffered or to save the indemnitee harmless from liability. ⁶⁴ The indemnitor, however, makes no promise to perform the obligation undertaken by the indemnitee. ⁶⁵ Although a nonparty to the contract may have some consequential interest in the subject matter of the indemnity, the nonparty is not in privity with the indemnitor and has no standing to sue directly on the contract. ⁶⁶ The general rule is that the indemnitee may recover reasonable attorney fees and costs under a contractual indemnification provision. ⁶⁷

S. Liquidated Damages. Liquidated damages are the amount of damages that the parties to a contract may properly agree in advance to be paid for a loss that...