Contract Law

Contract

an agreement that all parties willingly consent to enter that is legally binding

Gratuitous contract

a contract that only creates obligations for one party
stricter laws surrounding them - they are suspicious

First source of contract law

what the parties agreed upon - as if they are the legislators of their relationship

Secondary source of contract law

from legislature, including:

• default rules: to fill gaps (e.g. an unexpected situation emerges for which the parties had not thought to plan for) or solutions that the parties don’t want to deviate from

• mandatory rules: apply even if parties agree otherwise (impossible to make a contract that does not satisfy these)

Exceptions to general principle of freedom of contract

• infringing on public order, good morals, fundamental principles - contracts that do are null

• infringing on other mandatory rules - either null or modified contract

What constitutes an agreement to enter a contract

• real intention to enter into a binding legal relationship

• terms sufficiently agreed upon (enough information)

What constitutes to show agreement of contract

• written document

• witnesses to verify oral agreement

• actions that show complying with agreement

What real intention to enter into a binding legal relationship is

• capacity to make & accept the offer (not a minor or mentally ill)

• not vitiated consent

Vitiated consent to enter a contract

consent while there was a mistake, fraud, threat, or undue influence

What constitutes a mistake in a contract

• misunderstanding of an important quality of the good or other party

• misunderstanding caused the conclusion of the contract

• the mistaken clearly would not have entered the contract as it is

• misunderstanding caused by incorrect information by the other party, non-disclosure of the other party, or common mistake

• misunderstanding is excusable (not the fault of the mistaken)

then avoidance possible

What constitutes as fraud in a contract

• knowing misrepresentation by other party

• intended to induce a mistake of the party

then avoidance and damages possible

What constitutes threat/duress when entering a contract

• contract induced by threat of an imminent and serious harm

• party had no reasonable alternative to entering the contract

then avoidance and damages possible

What constitutes undue influence when entering a contract

• imbalance: party is

  • dependent on the other, or

  • in economic distress, or

  • having urgent needs, or

  • being improvident, ignorant, inexperienced, or

  • lacking in bargaining skill

• exploitation: other party knew of imbalance and took advantage of it to gain an excessive benefit

then avoidance possible

Avoidance

possible if the party does not re-confirm the agreement after knowing about whatever cause for the avoidance and the avoidance notice is given in reasonable time
avoidance nullifies the contract, and the parties should be restored to their original states as much as possible if part of it has already been completed

Pre-contractual duties

duties to give correct, relevant information
duties to collect necessary information for the contract

Pre-contractual negotiations

duty to negotiate with real intention to reach an agreement
duty to not disclose or use confidential information (can’t disclose your own? why would one do that?)
damages possible for losses if other party suddenly & unexpectedly breaks off negotiations - not in good faith & fair dealing

Offer

proposal of a contract, intention for it to become one if other party accepts, specific enough for one, communicated

Offers to the public validity

binding if it shows an intention of being binding if accepted

Revoking an offer

an offer can be irrevocable - “firm offer”
if there is a fixed time for an offer’s acceptance, it cannot be revoked before then
if other party had reason to rely on offer as irrevocable and already acted accordingly, the offer cannot be revoked
otherwise, offer can be revoked before an acceptance

Accepting an offer

can be done by statement or by conduct indicating agreement, even silence if the agreement details so
acceptance must reach the party within a fixed time detailed in the offer - if there is none, then within a “reasonable” time
late acceptance cannot result in a contract unless the party had informed the other otherwise or there has been a sufficient delay in transmission

Modifying an offer

offer might detail that acceptance is only possible if it is unconditional
otherwise, acceptance can also allow modification of the offer, but only in a non-material way and if the first party does not object promptly

the other party cannot accept while modifying the offer in a material way, this would be a new offer

Standard terms

the terms & conditions - pre-formulated, non-negotiated contractual provisions

Standard terms enforceability

to be binding, the other party just needs to have had the opportunity to read them before / while forming the contract, they do not have to be on the contract
the notice required for informing other party about standard terms is higher if they are unusual or if the other party is less powerful

Conflicting standard terms of both parties

two parties can make a contract even if they have conflicting standard terms. (out of desire for efficiency? not expecting things to go wrong and therefore to need the standard terms?)
standard terms in common are part of the contract, conflicting terms are not included, default rules fill the gap

Debtor & creditor

debtor of a duty is the party that does it, creditor is the one that benefits from it being done
both parties are debtors & creditors of different duties in a contract unless it is gratuitous

Determination of price & quality of goods

should be on the basis of agreed terms
if it is not on the agreed terms, it should be reasonable

Subjective intention

a principle used when interpreting a contract with ambiguous language, from the civil law family
courts aim to find the common intentions of the parties when they formed the contract

Objective intention

a principle used when interpreting a contract with ambiguous language, from the common law family
courts aim to find what an informed, reasonable person in the field would understand the contract to mean from its language instead of the parties’ subjective inner thoughts

Preferences for interpretations of contracts

• should deal with individually-negotiated terms carefully

• should make the contract lawful or effective

• if the contract has discrepancies between its translations, interpretation should be based on:

  • the one in the original language

  • the one in the stated authoritative language, if there is one

• should be in favour of the party that had less influence during negotiations, if there was an imbalance

Gap-filling interpretation

in case a situation arises that the parties hadn’t planned for, a gap-filling interpretation is creating the needed rules to add to the contract that they would have agreed on if they’d thought about the issue
the interpretation is based on

• good faith (civil law), or

• the contract itself (common law)

the alternative to gap-filling interpretation is gap-filling through the default rules

When pre-contractual statements are part of the contract

the other party reasonably thought they were part of it
public statements by the producer are assumed part of contract
producer’s statements about the product during negotiations are part of it

Principles for cooperation in performance

duty to act with good faith and fair dealing
duty to cooperate

Place of performance

if undetermined in contract:

• seller’s place of business for money obligations

• buyer’s place of business for other obligations

Time of performance

if undetermined in contract: reasonable time
early performance may be rejected if it causes problems or affects the time for reciprocal performance

Payment for performance

if undetermined in contract: use method in ordinary business, pay in the seller’s currency
seller can have interest if they have not received payment on time and they’ve fulfilled their obligations

Types of non-performances

no performance, late performance, or defective performance

Proving non-performance for obligation of means v. result

obligation of means: “I will try my best to…” - need to prove the debtor did not make all reasonable efforts to perform
obligation of result: “I guarantee that I will…” - just need to show the result was not achieved

What could excuse a non-performance

force majeure - an impediment outside of the debtor’s control has made performance impossible

does it apply even for obligations of result?

Remedies for excused non-performance

creditor can withhold their performance of a reciprocal obligation, terminate the contract, ask for a price reduction. Can claim for multiple remedies for combinations that make sense (e.g. not price reduction + termination)

Remedies for unexcused non-performance

creditor can ask for a specific performance, get damages, or same remedies for an excused non-performance.

Remedy: specific performance

civil law: the contract is a promise, we enforce that promise with specific performance. Only use damages if specific performance is impossible, unreasonably expensive, etc

common law: the contract is an economic device, if you don’t follow the agreement then you are responsible to restore the damage. Use damages when they are more expensive than specific performance, otherwise use specific performance. (Does not allow for damages to be simply a business cost)

Remedy: withholding performance

creditor of the unperformed obligation can withhold their performance until the other party performs

Remedy: termination

available for fundamental breaches of the contract:

• a unexcused non-performance that seriously affects the creditor

• an intentional/reckless non-performance that shows the debtor’s future performance is not trustworthy

• if performance is still late even after another notice by the creditor. (so late performance → creditor’s notice with another deadline → creditor entitled to withholding performance & __ in this period → deadline passes with no performance → fundamental non-performance, termination available)

• the debtor has made it clear they will not perform in a fundamental way

creditor has to notify the debtor of the breach to give them the chance to make amendments

terminating the contract means the affronted party does not have to fulfill any more of their obligations and that they claim back all of the obligations they’ve already performed
termination means no obligations of the contract apply anymore and restitution

Remedy: price reduction

reduction must be proportionate to the decrease in value

Remedy: damages

creditor suffers a loss from the non-performance → creditor takes reasonable steps to reduce their loss (as is their duty) → creditor still has a loss, they are entitled to damages to restore their assets/self

Unilateral termination

agreements for a fixed term are terminated at the end of that term
agreements for an indeterminate duration are terminated after a reasonable notice period

Types of contracts

sales, rental, __, etc…
parties may not qualify their agreement with these terms, but based on their contents the courts may, the courts are not bound by their terminology

Sales contract

transfer of ownership of goods in return for payment of price

obligations of seller:

• transfer of ownership

• delivery of goods

• conformity of goods with contract

obligations of buyer:

• payment of price

• taking delivery of goods

National law have rules about sales contracts.
For international sales, the Vienna Convention (CISG) tends to apply (most countries have ratified it)

Sales contracts: conformity of goods

requires the right quantity, quality, description, packaging, capacities, and free from any right / claim of a third party.
in case of non-conformity the buyer must examine the goods and notify the seller in a short reasonable time in order to be entitled to remedies

Sales contract: risk

seller is responsible for goods before they are to be delivered, buyer is responsible afterwards and once they are clearly identified

Sales contract: incoterms

an acronym referring to a point in the transport of goods, used to summarise the obligations of the parties at one of these points?

Rental contract

provision of termporary right to use goods in exchange for rent (ownership not transferred)

obligations of the provider: to make the rented good available in a good state at the beginning of the rental period, to ensure the renter’s “quiet enjoyment”

obligations of the renter: payment

Service contract

provision of service in exchange for price
obligations of service provider:

obligations of service recipient:

Consumer protection law

branch of law protecting consumers

EU Consumer Protection law

1980s and 90s saw the first EU directives: minimum harmonisation on misleading ads, product liability, doorstep selling, unfair terms, distance selling, consumer sales, etc…

2000s saw more full harmonisation directives: on unfair commercial practices, consumer rights, ___

Consumer definition

a natural person acting for non-professional purposes

Strategies of consumer protection

• banning misleading practices

• imposing pre-contractual information requirements

• granting a right of withdrawal from certain contracts

• regulating the content of the contract

EU consumer protection directive: unfair terms

unfair terms are non-binding on consumers
minimum harmonisation

EU consumer protection directive: sales of goods

full harmonisation

EU consumer protection directive: consumer rights

precontractual information obligations
on and off premises contracts
full harmonisation