Summary
The intent of this section is to provide software engineers, developers and users of the Hyperledger suite a basic working knowledge of contract law as it applies in the context of "smart contracts". References and further reading suggestions are provided below if the reader would like to expand their knowledge of the legal principles involved.
Disclaimer
This material is not intended to be, nor provided as, legal advice and the reader is encouraged to obtain their own legal advice on the topics discussed below. Neither the Linux Foundation, Members nor the authors accept any liability for any loss, damage or claims suffered or incurred in reliance of these materials which are provided "as-is" and for general educational purposes only.
Glossary of Contract Law
| Term | Definition |
|---|---|
| Acceptance | Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. (Restatement of Contracts 2nd). |
| Accord and Satisfaction | |
| Anticipatory Repudiation | |
| Assignment | |
| Breach | |
| Condition | |
| Consideration | The inducement to a contract. The cause, motive, price, or Intel he influence which induces a contracting party to enter into a contract. The reason or material cause of a contract. Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss, or other responsibility, given, suffered, or undertaken by the other. (Black’s Law Dictionary). |
| Contract | Smart Contract Hybrid Contract Contract for Goods Contract for Services Contract for Land Express Implied Executory Bilateral Unilateral |
| Counteroffer | A statement by the offeree which has the legal effect of rejecting the offer and of proposing a new offer to the offeror. The UCC (governing the sale of goods in the US) treats a counteroffer as proposed additional terms proposals for addition to the contract. (Black’s Law Dictionary). |
| Damages | Expectation Reliance Restitution Liquidated Punitive Specific Performance |
| Defenses | Misunderstanding Incapacity Mistake Fraud / Misrepresentation Duress Illegality Unconscionability |
| Delegation | |
| Excuse | Impossibility Impracticability Frustration of Purpose |
| Indemnity | |
| Integration | |
| Merger | |
| Mitigation | |
| Modification | At common law, modification of an existing contract must be supported by consideration. Agreements to modify a contract may still be enforced if: i) There is a rescission of the existing contract by tearing it up or by some other outward sign, and then the entering into of a new contract, whereby one of the parties must perform more than she was to perform under the original contract; ii) There are unforeseen difficulties, and one of the parties agrees to compensate the other when the difficulties are discovered if those difficulties would make performance impracticable; or iii) There are new obligations on both sides. Unlike under the common law, under UCC Article 2, no consideration is necessary to modify a contract; however, good faith is required. Thus, if one party is attempting to extort a modification, it will be ineffective under the UCC. (various) |
| Offer | A manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. (Restatement of Contracts 2nd) A promise; a commitment to do or refrain from doing some specified thing in the future. The offer creates a power of acceptance permitting the offeree by accepting the offer to transform the offeror’s promise into a contractual obligation. (Black’s Law Dictionary). |
| Parol Evidence Rule | Under this rule, when parties put their agreement in writing, all previous oral agreements merge in the writing and a contract as written cannot be modified or changed by parol evidence, in the absence of a plea of the state or fraud in the preparation of the writing. |
| Party | |
| Performance | |
| Reliance | A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (Restatement of Contracts 2nd). |
| Revocation | An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. (Restatement of Contracts 2nd). An offer may generally be revoked before acceptance. |
| Risk of Loss | |
| Statute of Frauds | This is the common designation of Avery celebrated English statute, passed in 1677, adopted in modified form by all states in the US. Its chief characteristic is the provision that no suit or action shall be maintain on certain classes of contracts or engagements unless there shall be a note or memorandum thereof in writing signed by the party to be charged or by his authorized agent. Its object was to close the door to numerous frauds and perjuries. (Black’s Law Dictionary). Contracts that fall within the Statute of Frauds are unenforceable unless evidenced by a writing. The writing must: i) Be signed by the party against whom enforcement is sought; and ii) Contain the essential elements of the deal. The writing need not be formal (i.e., receipts or correspondence can serve as memoranda). The essential elements may be in more than one writing only if one of the writings references the other(s). The writing need not be delivered to the party trying to enforce the contract. Even if it is lost or destroyed, it still operates to satisfy the Statute of Frauds, and its prior existence can be proved by oral evidence. |
| Most states require that the following five categories of contracts be evidenced by a writing: Marriage - A contract made upon consideration of marriage; Suretyship - A contract to answer for the debt or duty of another; One year - A contract that cannot be performed within one year from its making; UCC - Under the UCC, a contract for the sale of goods for a price of $500 or more; and Real property contract - A contract for the sale of an interest in real property. | |
| Termination | Termination refers to an ending, usually before the end of the anticipated term of the contract, which termination may be by mutual agreement or may be by exercise of one party of one of its remedies due to the default of the other party. (Black’s Law Dictionary). Termination may also be at-will and without cause, if the contract so states. |
| Third Party Beneficiary | |
| Waiver | |
| Warranty |
Sections
Basic Principles of Contract under Common Law Countries (UK, Australia, NZ etc)
[NOTE TO AUTHORS: This is an indicative high level summary of issues to cover. This list is comprehensive and could be simplified based on feedback from the community as some topics below will be less relevant for the purposes of a basic overview of contract law.]
FORMATION OF A CONTRACT
- The Fact of Agreement
- The Requirements of Certainty and Completeness
- Consideration
- Intention to Create Legal Relations
- The Requirement of Writing
- Capacity
TERMS OF A CONTRACT
- Express Terms
- Implied Terms
- Construction of Contractual Terms
- Construction of Exclusion Clauses
VITIATING FACTORS
- Misrepresentation
- Misleading or Deceptive Conduct
- Mistake
- Duress
- Undue Influence
- Unconscionable Transactions
- Unfair Contracts
DISCHARGE
- Discharge by Performance
- Discharge by Agreement
- Discharge by Breach
- Discharge by Frustration
ILLEGALITY
- Statutory Illegality
- Common Law Illegality
- Effect of Illegality
REMEDIES BASED ON CONTRACT
- Damages for Breach of Contract
- Actions for a Fixed Sum and Debt
- Specific Performance
- Injunctions
- Equitable Damages
- Rectification
- Rescission
OTHER BASES OF RELIEF
- Equitable Estoppel
- Liability in the Law of Torts
- Restitution
THIRD PARTY RIGHTS
- Privity of Contract
- Assignment of Contractual Rights and Liabilities
Basic Principles of Contract under Civil Law Countries (EU)
(to be completed)
Basic Principles of Contract under US law
(to be completed)
Basic Principles of Contract under the laws of the PRC
(to be completed)
References
Norton Rose Fulbright, ‘Can smart contracts be legally binding contracts’, (full text can be requested at https://www.nortonrosefulbright.com/en/knowledge/publications/a90a5588/can-smart-contracts-be-legally-binding-contracts)
Further Reading
N. Szabo, Smart Contracts: Building Blocks for Digital Markets (1996) (http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html)