By Robert Nathan and Burgundy Morgan
In the beginning was the word... or the music... or both. Everything in the music industry starts with the creation of a song or tune, without which there is no music industry.

Beyond their essential role in songwriting, words are also critical to the formation of the express contracts which govern almost every relationship within the music industry (and elsewhere). In fact, the term "express contract" is a short way of saying that the contract has been "expressed in words," rather than merely implied by the conduct of the parties. A basic understanding of what contracts are, and how they are formed, is the first step toward avoiding the pitfalls of ill-considered agreements.

Unless you are a hermit, you enter into and perform contracts almost every day of your life. You may hire employees; agree to provide goods or services to someone; purchase goods or services from others; rent, lease, or buy residential or business property; you may borrow money, open a bank account, or retain an attorney. Each of these involves the creation and performance of a contract. Anyone can create a potentially binding contract — sometimes without consciously realizing that an enforceable contract has been formed.

A contract is no more than an agreement between two or more people that creates an obligation to do or not to do a particular thing. The ability to freely enter into contracts is a fundamental right. In fact, Article I Section 10 of the U.S. Constitution states, in relevant part: "No State shall [...] pass any [...] Law impairing the Obligation of Contracts..."

Of course, that constitutional prohibition is not absolute, and subsequent judicial interpretations have allowed exceptions were there is a pressing state interest in exercising protective powers to enforce laws and public policies, but as a general rule two or more people can form a binding agreement for any lawful purpose and, unless there is a specific statute or public policy which bars that purpose, that contract has all the force and effect of law, and will be enforced as such by the courts.

Principal Forms of Contract

Contracts fall into three general categories:

1. Written contracts: These are contracts where the terms are expressly set forth in some tangible medium. While that medium is almost always ink on paper, the legal definition of a "writing" is much broader, and a "written" contract may be memorialized by other means such as video or audio recordings under certain circumstances. (As discussed later, some types of contracts must be in writing, as a matter of law.)

2. Oral contracts: As the name implies, these are agreements reached orally, without reducing the terms to a "writing." Note, however, that all five essential elements of a contract (discussed below) must still be present.

3. Implied contracts: Sometimes binding contracts are created without their specific terms ever being expressly reduced to written — or even spoken — words. Instead, the existence of a contract may be implied by parties' respective conduct, with its enforceable terms inferred as a matter of logic through judicial analysis of that conduct. Situations where there is a reasonable assumption that a contractual relationship existed between parties, but without an express contract, are also referred to as quasi contracts, or as "tacit" agreements, since they are understood to exist without being openly expressed or stated, but are instead inferred from the parties' conduct, silence, ratification, or acquiescence.

Stated somewhat differently, contracts are either "express" or "implied." Express contracts can be either oral or in writing. Implied contracts are those which may be inferred from the conduct of the parties. (For legal reasons discussed later, some types of contracts are only valid if they are contained in "a writing" — which is not necessarily limited to ink on paper.) Since "verbal" means "in words," the term "verbal contract" is synonymous with "express contract," which can be either written or oral.

Essential Elements of a Valid Contract

Whether express or implied, a valid contract contains five essential elements:

1. Competent Parties: There must be two or more parties who are not suffering from a mental or legal defect which would impair their legal competence to formulate an intent to enter into a contract. Court intervention may be required to form a binding contract with a minor or legally incompetent person.

2. Subject Matter: The contract must relate to some real thing or purpose, which may be tangible or intangible, but which may nonetheless be described with reasonable particularity.

3. Legal Consideration: Consideration is the value exchanged between the parties to the contract. The ancient formula is, "a hide, a hair, or a peppercorn," meaning only that there must be some tangible or intangible thing of at least minuscule value — a dollar, a million dollars, a glass marble, or some action or effort — that one party agrees to provide to the other. Consideration is the inducement to a contract; the price, right, interest, profit or benefit received; or some forbearance, detriment, loss, or responsibility given, suffered or undertaken, under the contract terms.

4. Mutual Agreement: There must be a "meeting of the minds"; a common understanding between the parties as to the subject matter of their agreement, the terms of that agreement, and a manifestation by each party of an intent to do or to refrain from doing some specific act or acts required by those terms.

5. Mutuality of Obligation: This simply means that a contract must legally bind all parties to perform under the terms of the contract. A "contract" which requires one party to perform, but requires nothing of the other party, is not a contract. (But mutuality of obligation does not necessarily mean equality of obligation.)

If any of those five essential elements are missing, the contract may be held to be legally defective and voidable or void.

Formation of Contract

A contract is formed when three things have occurred.

1. An offer;

2. Unconditional acceptance of that offer; and

3. Some manifestation of consideration.

These three steps comprise the elements of a legal doctrine called "offer and acceptance." Simply stated, once there has been unqualified acceptance of an offer, a contract comes into existence the instant that either party takes even the slightest action in accordance with their agreement.

Now you know everything that there is to know about contracts... except of course for everything else that follows... and in thousands of learned treatises on the subject.



(Excerpt from Chapter 1, …but where do I sign?, a guide to understanding the music industry and its various contracts, copyrights and licenses by Robert Nathan & Burgundy Morgan, © 2007 (Unpublished work, due to be released in January 2008).











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