1.2 DEFINITIONS OF TERMS
1.201 Definition of a Contract. In Virginia, a contract is "an agreement between two or more persons which creates an obligation to do or not to do a particular thing." 26 The essential elements of a contract are an offer and an acceptance supported by valid consideration. 27 A contract is "a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." 28 There is no contract where there is no mutual commitment. An agreement to negotiate later is too indefinite to constitute a binding contract. 29
Under the UCC as enacted in Virginia, a contract is the total legal obligation that results from the parties' agreement as affected by the UCC and any other applicable rules of law. 30
1.202 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. 31
Acceptance. An acceptance is a promise to be bound by the terms of an offer. 32 Acceptance of an offer must correspond exactly to the terms of
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the offer. 33 Acceptance can be inferred from the acts and conduct of the offeree. 34 Absent circumstances from which an acceptance may be implied, an acceptance will not be presumed from a mere failure to decline a proposal. 35
Accord and Satisfaction. Accord and satisfaction is the offer and acceptance of an agreement in settlement of a disputed claim. 36 Its hallmark is that all or part of the consideration cementing the agreement is a release of liability for the disputed claim. 37
Agreement. An agreement is a manifestation of mutual assent by two or more parties as to the substance of a contract. Mutual assent is essential. 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 act. 38 Under the UCC as enacted in Virginia, an "agreement" is the bargain of the parties as found in their language or by implication from other circumstances, including course of dealing, usage of trade, or course of performance 39
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Whether an agreement has legal consequences is determined by the provisions of the UCC or the law of contracts. 40
Anticipatory Breach. The doctrine of anticipatory breach provides that "when one party to a contract has entirely abandoned it, or has absolutely refused to perform it, the other party may elect to sue on it without waiting for the time of performance to arrive." 41
Breach. A breach of contract is a "failure, without legal excuse, to perform any promise which forms the whole or part of a contract." 42 All defaults under a contract are breaches, but not all breaches are defaults. 43
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. 44
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. 45
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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. 46 A condition precedent differs from a promise because it creates no rights or duties in and of itself but is merely a limiting or modifying factor. 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. The failure of a condition does not breach a contract, but it discharges the liability of the promisor whose obligations on the contract never mature. 47
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, will sustain a contract, and the courts will not inquire into the adequacy of the consideration for the promise. 50
Counteroffer. A counteroffer is a purported acceptance that varies the terms of an offer and rejects the original offer. 51
Damages. There are two categories of contract damages: direct damages and consequential damages. Direct damages are those that "arise naturally" or ordinarily from a breach and which might reasonably have been
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expected to result from a breach of the contract and are compensable. 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 of all parties when the contract was made. 52 Contemplation includes what was actually foreseen and what was reasonably foreseeable. 53
Default. A default is a "failure to do something required by duty or law." 54 A default is "the omission or failure to fulfill a duty, observe a promise, discharge an obligation, or perform an agreement." 55 All defaults under a contract are breaches, but not all breaches are defaults. 56
Duress. Duress is a defense to a contract if the party was deprived of his or her ability to exercise volition and free will. 57
Electronic Signature. 58 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." 59
Execution. The term "execution" appears to contemplate the signing of a written instrument. 60
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Impossibility of Performance. Impossibility of performance is a defense to the enforcement of a contract based on the principle that the 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. 61
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. The indemnitor, however, makes no promise to perform the obligation undertaken by the indemnitee. 62 Generally the indemnitee may recover reasonable attorney fees and costs under a contractual indemnification provision. 63
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 may result from a breach of the contract where damages are difficult to determine. A liquidated damages clause in a contract is valid and enforceable when the amount fixed is not out of proportion to the probable loss. 64
Material Breach. A material breach of a contract is a failure to do something that is so fundamental to the contract that failing to perform
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that obligation defeats an essential purpose of the contract. If the initial breach is material, the other party to the contract is excused from performing its contractual obligations. 65 A material breach is one that goes "to the root of the contract." 66 A partial failure of performance of one party excuses the other from performing the contract or provides a right of rescission if the breach is material. 67
Memorandum. A memorandum is a writing that satisfies the requirement of the statute of frauds that certain contracts be evidenced by writing if it contains the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification. 68
Misrepresentation. Misrepresentation is a basis for rescission of a contract where (i) the misrepresentation is a positive statement of a material
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fact made to secure the contract 69 and (ii) there is prejudice because of justifiable reliance thereon. 70
Mutual Mistake. A mutual mistake of fact is a material misapprehension of fact that goes to the substance of the contract. A contract may be reformed or rescinded in equity on the ground of mutual mistake. 71
Novation. Novation is the substitution of a new obligation with the intent of extinguishing an old one. The old obligation is done away with and the new one replaces it. 72
Offer. An offer, which is usually but not always a promise, is a manifestation of a willingness to enter into a bargain. 73 An offer identifies the bargained-for exchange 74 and creates a power of acceptance in the offeree. 75
Parol Evidence Rule. The parol evidence rule provides that when a contract is complete on its face and is plain and unambiguous in its terms, a court is not free to search for its meaning beyond the contract itself. 76 An ambiguity is "the condition of admitting of two or more meanings,
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of being understood in more than one way, or of referring to two or more things at the same time." 77
Plain Meaning Rule. The plain meaning rule provides that where an agreement is complete on its face and plain and unambiguous in its terms, the court is not free to search for its meaning beyond the instrument itself. 78
Privity. Privity is the common-law rule that an action on a contract must be brought in the name of the party in whom the legal interest is vested, that the legal interest is vested in the person to whom the promise was made, and that only that person or his or her privy may sue upon the contract. 79
Promise. A promise is "a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in...
