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© 2014 Jones and Bartlett Publishers

Chapter 6

Contracts

LEARNING OBJECTIVES

  • Explain what a contract is and the elements thereof.
  • Discuss independent contractors, as they apply to contract law.
  • Describe how a hospital can be liable for the acts of a physician based on the concept of contract law.
  • Explain the possible defenses and remedies for nonperformance of a contract.
  • Describe under what circumstances an employee handbook could be considered a contract and how to avoid that assumption.

Contract

  • A special agreement, written or oral, that involves legally binding obligations between two or more parties.

Purpose of a Contract

  • To specify, limit, & define agreements that are legally enforceable.
  • A contract forces the participants to be specific in their understandings & expectations of each other.
  • Contracts serve to minimize misunderstanding & offer a means for parties of a contract to resolve disputes that may arise.

Types of Contracts - I

  • Express
  • Oral
  • Written
  • Implied
  • Voidable

Elements of a Contract – I

  • Offer
  • Consideration
  • Adequacy

Elements of a Contract – Acceptance

  • Meeting of the Minds
  • Definite & Complete
  • Duration
  • Complete and Conforming

Breach of Contract

  • Occurs when there is a violation of one or more of the terms of the contract.
  • Elements necessary to establish a breach
  • a valid contract was executed.
  • plaintiff performed as specified in the contract.
  • defendant failed to perform as specified in the contract.
  • plaintiff suffered economic loss as a result of defendant's breach of contract.

Competent Parties

  • Corporations
  • Partnerships
  • Agents
  • Independent Contractors

Legality of Object

  • To be a valid contract, the contract must not violate any federal or state statute, law, rule or regulation.

Conditions

  • Act/s or event/s that must occur or be performed by one party before the 2nd party has any responsibility to perform under the contract.

Performance

  • Substantial performance by one party to a contract will obligate the other parties to perform.

Nonperformance Defenses – I

  • Fraud
  • Mistakes
  • Mistake of Fact
  • Mistake of Law
  • Duress
  • Illegal Contract
  • Impossibility
  • Statute of Limitations

Remedies

  • Specified Performance
  • Monetary Damages
  • General & Consequential Damages
  • Duty to Mitigate Damages

Employment Contracts

  • Express Agreement
  • Implied Contracts

Text Cases: Employment Contracts

  • Nurse Breaches Contract:
  • Repayment of Tuition Required
  • No Express Agreement: Right to Terminate
  • Restrictive Covenant Enforceable
  • Restrictive Covenant Not Enforceable

Employee Handbooks – I

  • Elements necessary to establish employee handbook as a contract:
  • policy statement that clearly sets forth a promise the employee can construe to be an offer
  • policy statement must be distributed to the employee, making him or her aware of the offer
  • after learning about the offer & policy statement, the employee must “begin” or “continue” to work

Employee Handbooks – II

  • Hospital Violates Provisions of Employee Handbook
  • Handbook Not a Contract Due to Disclaimer
  • Termination of Contract Due to Insubordination

Medical Staff Bylaws a Contract

  • Applicants for appointment to a medical-dental staff submit a signed application attesting he has read & agree to accept & abide by the bylaws.
  • The physician promises to abide by the medical staff bylaws in exchange for medical staff privileges.
  • Exchange of promises, constitutes consideration to support any contract of this bilateral nature.

Exclusive Contracts

  • An organization often enters into an exclusive contract with physicians or medical groups for the purpose of providing a specific service to the organization.
  • Exclusive contracts generally occur within the organization's ancillary service departments (e.g., radiology, anesthesiology, and pathology).

Noncompetitive Contract Clauses

  • Often included in employment agreements.
  • Agreement not to practice within agreed upon geographic area.
  • Legal counsel should be sought prior to executing such agreements.

Transfer Agreements – I

  • Identification of parties to agreement
  • Purpose of agreement
  • Policies & procedures for transfer
  • Organizational responsibilities for transfer
  • Exchanging/Sharing information

Transfer Agreement – II

  • Retention of autonomy
  • Procedure for settling disputes
  • Procedure for modification or termination
  • Sharing of Services
  • Publicity
  • Exclusive v. Non-exclusive agreement

Insurance Contracts

  • Form of risk management used primarily to hedge against risk of potential loss.
  • Insurer obligation to indemnify insured for losses caused by specified events.
  • Insured pays fixed premium

Review Questions – I

What is a contract?

Describe differences between express & implied contract.

What are the elements of a contract?

Discuss remedies available for nonperformance of a contract.

Discuss importance of disclaimers in employee handbooks.

Review Questions – II

6. Discuss why courts often consider medical staff bylaws a contract.

7. Explain why exclusive contracts are so controversial.

8. What is an insurance contract?