Contracts for Engineers

Intellectual Property, Standards, and Ethics

Robert Hunter, Robert D. Hunter

• Publisher: CRC Press
• Year: 2017
• Print ISBN: 9781439852866
• eBook ISBN: 9781351833233
• Topic: Business
• Subtopic: Management
• Index: Business

Engineers encounter different types of contracts at nearly every turn in their careers. Contracts for Engineers: Intellectual Property, Standards, and Ethics is a tool to enhance their ability to communicate contractual issues to lawyers—and then better understand the legal advice they receive.

Building on its exploration of contracts, this book expands discussion to:

• Patents, copyrights, trademarks, trade secrets, and other intellectual property issues
• Development of standards and the bodies that govern them, as well as conformity assessment and accreditation
• Ethics at both the micro and macro levels—a concept under major scrutiny after several major disasters, including the Gulf of Mexico oil spill, the collapse of Boston's Big Dig, and a coal-mining accident that resulted in many deaths
  

With a brief introduction to common law contracts and their underlying principles, including basic examples, the book presents a sample of the Uniform Commercial Code (UCC) regarding the sale of goods. It evaluates elements of the different contracts that engineers commonly encounter, such as employee and associated consulting agreements and contracts involved in construction and government.

Approaching intellectual property from a contract perspective, this reference focuses on the many different types of patents and their role in commerce. It touches on the application of trademarks and recent developments in the use of copyright as a form of contract and explains the process of obtaining patents, including the rationale for investing in them. Ethical standards receive special attention, which includes a review of several prominent professional codes of ethics and conduct for both organizations and individual engineers, particularly officers and higher-level managers.

1

Common Law Contracts

Introduction

The objectives of this chapter are very modest: first, to provide an overview of the common law of contracts and, second, to supply a foundation for the treatment in subsequent chapters of the many areas that may be cast in terms of contracts to provide rapid assimilation of the concepts involved.

There are many kinds of contracts that share a foundation in common law. There are several definitions of common law, depending on the context in which the term is used, but a salient one is the cumulative body of law resulting from judicial decisions, sometimes called “judge-made law.” Courts trying common law cases should reach decisions based on precedent, that is, the previous decisions made by other courts, especially higher level courts in the same jurisdiction, on cases with similar facts or “boundary conditions.” Most major areas of the law are interconnected, but it is convenient to partition contract law into two major areas: the first involving common law contracts, treated in this chapter, and the second relating to part of the Uniform Commercial Code (UCC) contracts covered in Chapter 2. These topics are sometimes separated for discussion in texts on contracts but are often integrated, since each area complements (and to some extent competes with) the other. Both common law and UCC contracts are within the jurisdiction of the states; there is no federal common law of contracts. Many of the elements of common law contracts will not be covered in this text—for example, a treatment of remedies when contracts are breached. Other specialized but important areas of law not treated here are frequently involved such as agency, tort, and equity.

Definition of Common Law Contract

A contract, loosely defined, is an agreement between two or more parties to do, or not to do, a particular thing (performance) that the parties intend to be enforceable at law. An authoritative definition from the Restatement (Second) of the Law of Contracts reads: “A contract is a promise or a set of promises, the breach of which is given a remedy by law, or the performance of which the law in some way recognizes as a duty.”^* Other related terms are defined in the Restatement of the Law of Contracts (including First and Second) but they will not be repeated here. The Restatement of Contracts (Second) is one of several “Restatements of the Law” that attempt to collect and coordinate court decisions in a particular area of the law such as torts (including product liability). Restatements are “secondary authorities” as compared to “primary authorities” which are the original decisions.

Statute of Frauds

The original statute of frauds was an English law passed by parliament and titled “An Act for Prevention of Frauds and Perjuries.” The goal of the statute was to prevent fraudulent making of contracts and perjury. Similar laws are usually included in common laws and the UCC. The term statute of frauds is used here to denote the adoptions in state laws that apply the principles of the original statute of frauds. A contract need not be in writing to be enforceable unless it falls under a modern version of the statute of frauds. Statutes of frauds require a written and signed form of contract for certain transactions including others of no interest here:

• Sales or leases of land

• Contracts for sale of goods above a specified value

• Any contract that cannot be performed within a year

• Any change to a contract that would be performed in a year that extends the performance period to beyond a year

• Contracts where one party agrees to pay another party’s debt

An exception to a defense based on the statute of frauds is available if the only way to avoid injustice is to enforce a promise in spite of its pro forma violation of the statute of frauds. The avoidance of the statute of frauds in this manner depends on the lack of other available remedies. A contract that should but does not comply with the provisions of the statute of frauds may be voidable (set aside) in most states. Only a party to the contract may raise the issue of noncompliance. There are some preliminary issues involved in the formation of a contract; these involve the parties, the classification of the contract, the purposes of the contract, and the considerations given by the parties.

Parties (Natural Persons)

In the law, a person can be a natural person or an “artificial person” such as a corporation or other business entity. There is a basic set of requirements for natural persons to make a legally enforceable contract, and two conditions against this:

• Minors (called infants in law) cannot make most kinds of contracts until they are adults (ages 18–21 in various jurisdictions). An exception is the ability of minors to contract for necessities.

• Mental incapacity due to mental illness, intoxication, or drug use, etc.

Parties (Artificial Persons)

When one or both parties to a contract are corporations, or certain other artificial persons in various situations, several questions of “competence” can arise. Corporations must have a “charter” to legally do business in a state; the charter outlines the kinds of things the corporation can do legally. If a corporation contracts to something not authorized by its charter, this is called an ultra vires transaction that usually cannot be legally defended in case of fault by another party. Another major issue that arises when a party to a contract is a corporation is one of the authority of the natural person (or electronic agent involved) in the making of the contract. Corporations and other legal persons generally have delegations of authority in which various officers and others (notably buyers) are authorized to make legally enforceable contracts. The delegations of authority often have dollar limits on contracts that may be made by the several classes of people.

Classification of Contracts

There are many kinds of contracts from a legal perspective. These range, for example, from executed contracts, like the simple purchase of an item in a store, to executor contracts, where the parties promise to perform in the future. An executory implied contract may arise from the actions of the parties, even in the absence of a deliberate formation of a contract. Formal contracts are sealed, written documents that clearly show that the parties intended to make a binding contract, and are usually enforceable. Simple or informal contracts are not required to carry a seal, and may be either written or oral. If the contract is formed by the exchange of promises, it is called a bilateral contract. A unilateral contract is one in which only the offeree is required to perform, based on an offer from an offeror. Other methods of formation may also be used to classify contracts. In addition, there are many forms of contracts that have been classified by the industry or trade that uses them, for example, construction contracts, government contracts, international contracts, subcontracts, contracts for sale of land, noncompete contracts, option contracts and many others. A quasi-contract is an invention of a court that permits a party performing something to be compensated for work, even in the absence of a contract.

Purposes (Subject Matter) of Contract

The purposes of a contract must be legal for the contract to be enforceable. A contract calling for a per se violation of a statute cannot be enforced at law. A contract calling for the violation of a U.S. Environmental Protection Agency regulation, for example, could not be enforced. Similarly, an employment contract that required a worker to work for a wage lower than that prescribed by law would not be legal. It is sometimes said that in the United States, everything not prohibited is permitted but in Europe and elsewhere, everything not permitted is prohibited!

Consideration

Each party to a contract must give the other party something of value called a consideration. A promise, in contract law, is a written or oral expression of an intent to be legally bound if a contract is formed. The promise given by each party is a usual form of sufficient consideration. A promise to do something that a party is already obligated to do is not consideration. Nominal consideration in money agreements such as loans may not be legally sufficient if grossly out of balance. Consideration of ten cents for a loan of 10,000 dollars for 2 years would be recognized as a sham consideration. A promise not given in return for consideration from the other party is unenforceable. The dollar value of the consideration does not have to be large but it cannot be totally without value. A promise to do something, or refrain from doing something (unless either is illegal), is lawful consideration. The two things of value, considerations, are sometimes called the quid pro quo (something for something) of the contract. A situation where one of the considerations becomes insufficient after a contract is formed is sometimes called a “failure of consideration.”

Promissory Estoppel

A possible exception to the requirement for consideration is called a promissory estoppel.

That situation is one where a promise might be enforced, even one without consideration, if the promisee had changed his position due to the promise.

Valid, Void, Voidable, and Unenforceable Contracts

A valid contract, or contract provision, is one that meets all of the requirements outlined above for competent parties, legal purposes, sufficient consideration, and genuine offer and acceptance or their equivalents. Valid contracts and provisions will be enforced by the courts. Invalid contracts and provisions will not be enforced by the courts.

A void contract or contract provision is one that has no legal existence and one which cannot be cured to make it a valid contract; it is not binding and has no legal purpose.

A voidable contract or term is one that may be avoided or found to be legally void but not one that is “incurable” to make it a valid contract or term. A simple example is when a minor (infant) contracts with another competent party. The contract is voidable by the minor unless it is for necessities.

Unenforceable contracts or terms are those that, for a variety of reasons, cannot be enforced. A contract or provision that violates the statute of frauds, for example, would normally be unenforceable, but see the exception noted in the statute of frauds discussed before.

Contract Formation Process (Offer and Acceptance)

The “offer and acceptance” model has been a mainstay for describing the formation of a common law contract. While it is still practically and conceptually useful, it does have limitations in many actual situations. If the forgoing requirements of competent parties, legitimate subject matter (purpose), and consideration are met, then an offer followed by acceptance will normally form a contract, subject to other requirements on the offer and the acceptance. The party making the offer is referred to as the “offeror,” while the party receiving the offer is called the “offeree.”

Offer

An offer is the communication of the offeror’s intention to give a consideration and create a contract in exchange for a consideration (promise, money or performance) given by the offeree or his agent. The Restatement, Second, defines an offer as: “An offer is a manifestation of a 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.”^* The terms of the offer must be sufficiently certain to form a contract, although terms implied by law would not have to be included to make such an offer definite. Terms that include the definition of a breach and the resulting remedy usually help satisfy the certainty requirement. An indefinite offer may be made definite by including another document by reference, to a standard form contract for example. The offer may be validated by the conduct of the offeror to indicate to the offeree that his acceptance is all that is required to form a contract. The offer can take many forms, except that it must comply with the statute of frauds mentioned above. An invitation to negotiate that does not include the elements of an offer outlined above is not an offer and creates no legal obligations.

Advertisements, even those including price quotations, do not usually constitute an offer in common law contract formation. The rationale of this principle is that advertisements are normally directed to m...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgments
• The Author
• 1 Common Law Contracts
• 2 Sales Contracts under the Uniform Commercial Code
• 3 Contracts of Special Interest to Engineers
• 4 Intellectual Property: Emphasis on Patents
• 5 Patent Processes
• 6 Copyright
• 7 Trade Secrets
• 8 Trademarks
• 9 Standards, Codes, and Regulations
• 10 Standards Bodies and Their Products
• 11 Development of Standards, Codes, and Regulations
• 12 Conformity Assessment
• 13 Accreditation
• 14 Ethics for Individual Engineers
• 15 Ethics for Organizations
• Appendix 1 United Nations Convention on Contracts for the International Sale of Goods
• Appendix 2 The Associated General Contractors of America (AGC of America) Summaries of American Council of Engineering Companies (ACEC) and the Engineering Joint Contracts Documents Committee (EJCDC) Standardized Contracts for Engineering Projects
• Appendix 3 Title 48, Code of Federal Regulations—Federal Acquisition Regulations System
• Appendix 4 Outline of the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
• Appendix 5 ACM Code of Ethics and Professional Conduct
• Index