Contract Law Primer

1. The four elements of a valid contract

Under US common law, a contract requires four elements to be enforceable:

Offer. A definite proposal to enter into an agreement on specified terms.
Acceptance. Unqualified assent to the offer's terms. A counteroffer is a rejection + new offer.
Consideration. Something of value exchanged by each party. Money, goods, services, or a promise to do (or not do) something. A gratuitous promise generally is not enforceable.
Mutual assent + capacity. Both parties must intend to be bound, and both must have legal capacity (age of majority, mental competence, corporate authority).

Missing any element = no contract. This is the framework courts apply to every contested agreement.

2. UCC vs common law

Two bodies of contract law apply to different transactions:

Common Law

Governs services, real estate, employment, licenses. Origin: English common law, developed by courts. Modified by statute in some areas but the default framework is judge-made.

Key features: "mirror image" rule for acceptance, statute of frauds for certain agreements, strict enforcement of stated terms.

UCC Article 2

Uniform Commercial Code — governs sales of goods. Adopted in all US states with minor variations. More flexible than common law.

Key features: "battle of the forms" rule allows contracts even with mismatched terms; gap-fillers for missing terms; merchant-specific rules; warranty of merchantability implied by default.

3. The Statute of Frauds — which contracts must be in writing

Some contracts are only enforceable if in writing signed by the party charged. The categories (mnemonic: MY LEGS):

Marriage — prenuptial agreements
Year — contracts not performable within 1 year
Land — sale or interest in real estate
Executor — promise to pay estate debt from personal funds
Goods — sale of goods valued at $500 or more (UCC)
Suretyship — promise to answer for another's debt

Modern digital signatures (e-signature under E-SIGN Act and UETA) satisfy the writing requirement for all of these except a small handful of state-specific exclusions (wills, family court orders).

4. Boilerplate that actually matters

Every operating agreement, subscription agreement, and services contract has a "General Provisions" or "Miscellaneous" section that most people skim. These clauses have outsized impact when things go wrong.

Clause	What it does	Watch for
Governing Law	Which state's law applies	Delaware for corporate; NY for financial contracts; sponsor's home state for real estate
Forum / Venue	Where lawsuits must be filed	Exclusive jurisdiction clause locks you into a specific court
Waiver of Jury Trial	Judge-only decision, not jury	Common in commercial agreements; unenforceable in some states/contexts
Arbitration	Private dispute resolution outside courts	Choice of arbitrator matters (JAMS, AAA); confidential; often faster + more expensive per hour
Attorney's Fees / Prevailing Party	Loser pays winner's legal fees	Default is each side pays own; this clause changes it
Notice	How formal notices must be delivered	Certified mail + email + physical address. Failure to comply invalidates the notice.
Merger / Integration	Prior negotiations / discussions are excluded	Kills reliance on oral promises, side letters, or emails not in the final contract
Amendment	How the contract can be changed	"In writing signed by both" is standard; watch for "in writing signed by the Manager" only
Severability	Invalid clause doesn't kill the whole contract	Standard; but pay attention to how "materially adverse" is defined
Force Majeure	Excuse performance for events beyond control	Post-COVID versions specifically enumerate pandemics; watch for what's excluded

5. Breach and remedies

Not every failure to perform is a "breach" that entitles the other party to damages. The tiers:

Immaterial breach. Technical non-compliance with minor terms. Non-breaching party may recover incidental damages but must continue performance.
Material breach. Goes to the essence of the bargain. Non-breaching party may suspend performance, sue for damages, or terminate.
Anticipatory breach. One party clearly signals it will not perform before performance is due. Other party may treat as immediate breach.
Fundamental / total breach. Non-breaching party is entitled to full contract-price damages, restitution, and (in some cases) consequential damages.

Remedies available (varies by jurisdiction and contract):

Expectation damages. Put the non-breaching party in the position they would have been in had the contract been performed. This is the default measure.
Reliance damages. Reimburse expenses incurred in reliance on the contract.
Restitution. Return any benefit conferred on the breaching party (unjust enrichment).
Specific performance. Court orders the breaching party to actually perform. Only available for unique goods/services (real estate, custom-built assets); not available for services requiring personal skill.
Liquidated damages. Pre-agreed damage amount specified in the contract. Enforceable if reasonable estimate at time of contracting; unenforceable if a "penalty."
Rescission + restitution. Unwind the contract entirely, return everything to the pre-contract state.

6. Reading a securities-adjacent contract

When reviewing an operating agreement, subscription document, PPM, or smart-contract audit, apply this checklist:

Who are the parties? Named entities are the ones bound. If it says "Manager" but doesn't specify which entity, that's a defect.
What is being exchanged? Consideration must be identified for each party.
What are the conditions to performance? Distinguish between conditions (must occur before duty arises) and covenants (breach gives rise to damages).
Where are the risk allocations? Indemnification, limitations on liability, insurance requirements.
What happens on default? Trigger events, cure periods, remedies available, cross-defaults.
How does it end? Term, termination rights, survival of specific clauses post-termination.
Who wins ties? Governing law, forum, arbitration — because ambiguity is inevitable.

7. Smart contracts and legal contracts — the alignment problem

A smart contract (code that executes on a blockchain) and a legal contract (paper signed by parties) are different things. In serious tokenized-securities structures they must reference each other:

The legal contract (LLC operating agreement, subscription agreement) is the source of truth for rights and obligations.
The smart contract is the execution layer that enforces certain of those rights automatically (transfer restrictions, distributions, cap-table updates).
If they conflict, the legal contract wins. Courts have no obligation to defer to on-chain state where the operative document says otherwise.
Well-drafted structures include an on-chain / off-chain reconciliation clause in the operating agreement: the legal document acknowledges the smart contract as the operating ledger of record but preserves the parties' underlying legal rights in the event of a divergence.