Contract meaning of the term Meaning of the

Contract – meaning of the term Meaning of the term „contract”: the fact of agreement any written record of it (document), which may be made later rights and obligations that the contract (in the first sense of the word) gives rise to Legal definitions: Italy (1321 CC) The contract is the agreement of two or more parties to establish, regulate or extinguish a legal relationship (patrimonial character only).

Contract as an agreement What is the agreement? How the courts „look for” it? (interpretation) How is it formed? (offer and acceptance) What is to be agreed? (minimum content)

Rights and obligations? Complete agreement (with no gaps)? What do the parties agree on? - expressed terms Essential terms only; as to „the rest” legal mechanisms for supplementation - implied terms (art. 56 KC) A contractual mechanism for the ascertainment of a essential term (e. g. third party): terms need to be certain when the performance is due

The mechanism of contract formation General rule: Offer and acceptacne The agreement of the parties manifests itself by the offer and acceptance Contracts concluded by an offer followed by an acceptance: the usual model for the conclusion of contracts. An offer is a proposal to make a contract. If it is accepted it becomes a contract provided that the general requirements for concluding a contract are met: „oferror is bound by the offer”

Binding nature of the offer: rejection In most if not all the countries, an offer lapses if it is rejected When a rejection of an offer reaches the offeror, the offer lapses, even if the offer is irrevocable and even if the time for acceptance has not yet run out. The offer can then not be accepted even if the offeree has a change of mind. The rejection need not be express but may be implied, for instance if the offeree makes a counter-offer or invites a lower bid or a smaller consignment than the one

For a proposal to amount to an offer it must… 1. Show an intention that a contract (on the terms set out in the offer) is to result if it is accepted: must be serious, sufficiently full and clear as opposed to preliminary discussions (art. 66 KC) 2. Contain terms which are sufficiently definite. 3. All the laws of the EU require that the offer must show an intention to be bound, and that it must be sufficiently definite to establish an enforceable contract 4. Before it can be effective it must also be communicated to one or more specific persons. Proposals which are not made to one or more specific persons (proposals to the public) may take many shapes advertisements, posters, circulars, window displays, invitations for tenders, auctions etc Are they offers?

Acceptance An acceptance of an offer is effective only if it reaches the offeror within (art. 66 KC): the time fixed by the offeror (set out in the offer). if no time has been fixed by the offeror the acceptance is effective only if it reaches the offeror immediately or within a reasonable time. Reasonable time: Due account has to be taken of the circumstances of the transaction. One factor is the rapidity of the means of communication used by the offeror. Another factor is the type of contract. Offers relating to the trade of commodities or other items sold in a fluctuating market will have to be accepted within a short time. Offers relating to the construction of a building may need a longer time for reflection.

Acceptance = a contract Under all the legal systems of the EU acceptance is any statement or conduct by the offeree which manifests assent. In general no form is required Acceptance must be unconditional Acceptances which contain modifications do not count as acceptance: mirror image rule. However in some cases they may be effective acceptances Silence and inactivity will generally not amount to acceptance (art. 682 KC) But acceptance is not required when it follows from an earlier statement by the offeree or from usage or practices, that silence will bind the offeree (art. 69 KC)

Contract as an agrement The courts main concern in disputes over contracts: discovering and giving effect to the parties’ intentions Agreement = communication between the parties (meeting of minds or intentions = common intention to make a binding contract) Reservatio mentalis is irrelevant Only express communications (but not only "words"; facta concludentia) how are they interpreted?

Contract as an agrement: intentions During a wine auction the participants can signalise their raising offer by lifting their hand. During the auction Mr. X raised his hand to greet a friend, which was interpreted as an offer by the auctioneer Usually acceptance of an offer during an auction is expressed by accepting the offer by the auctioneer The offer of Mr. X has been accepted by the autioneer who belived that Mr X thus wins the auction and makes a binding contract

Contract as an agrement: intentions A twofold role of interpretation (is the contract there? What is the content of it? ): art. 65 KC A participant’s behaviour is to be understood as the offer, if a reasonable person would understand their action as a declaration of their will to treat (to make a binding contract): objective approach A participant’s behaviour is to be understood as the offer if there is „real will” (real intention) to treat (to make a binding contract): subjective approach

Contract as an agreement: INTENTIONS Objective or subjective approach? Pros and cons……

Contract as an agreement: INTENTIONS Modern legal systems – a mixed approach (the so called combined method): art. 65 KC Objective approach weakened (the view of an objective cautious, reasonable observer but put in the postiotion of given parties, e. g. with access to information they had access to) Where there really is a meeting of minds, the law does not disregard it (subjective view goes first): falsa demonstratio non nocet

Case 1 Carlo, a famous musician, agreed to come to a dinner to be held in his honour by a private music conservatory. Two days before the dinner, he was offered a large sum of money if he would give a performance in another city the night of the dinner, taking the place of another musician who had become ill. He notified the conservatory that he could not come because he had accepted a conflicting invitation. The conservatory cancelled the dinner after it had already spent a large amount of money on publicity and food. Can the conservatory recover against Carlo?

Case 2 Gaston promised to give a large sum of money (a) to his niece Catherine on her twenty-fifth birthday, (b) to his daughter Clara because she was about to marry, (c) to the United Nations Children’s Emergency Fund for famine relief, or (d) to a waitress with a nice smile. Is he bound by the promise? Could he bind himself by making the promise formally or by using a different legal form such as a trust? Is his estate liable if he dies before changing his mind? Does it matter if the promisee incurred expenses in the expectation that the promise would be kept?

Common law and the doctrine of consideration A promise or offer, even if seriously meant and accepted by the other party, will not result in a contract unless the other party gives or does something, or promises to give or do something, in exchange executory and executed consideration Contract as a bargain A promise to make a gift is not a contract (can it not be made as binding, is a gratitious transfer of the title not recognised by the law? ): exclusion of promises to make a gift from the scope of the law of contract

Common law and the doctrine of consideration For example, in an ordinary contract of sale, the consideration given for the promise to transfer title to the property can be either a promise to pay the purchase price, or actual payment

Common law and the doctrine of consideration Consideration - an essential requirement for the formation of contracts (which are not in deed) Through the doctrine of consideration, contract is largely restricted to the realm of bargains involving an exchange of value between two parties This is not the only possible approach to contract; in fact, it is unique to Common Law systems Civil law jurisdictions do not require consideration for contract formation (form is required instead) It is controversial: some academics argue that all seriously intended undertakings should be legally binding

Consideration 1) It is not necessary that the action taken or promised is of direct benefit to the promisor 2) What is vital is that the promisee has in some sense incurred a detriment in exchange for the promise (e. g. promisses to do smth for the benefit of B in return for the promise of C) 3) Proimisee must act at promisor’s request, that is in return for the promise (no spontaneous promise or act, or act required by the law, can constitute consideration); see Combe v. Combe case 4) Forberance can be consideration (compromise agreements) 5) Consideration must have economic value However the consideration need not be ‘adequate’, i. e. of equivalent value, so that a small or even a purely nominal payment is good consideration, e. g. Thomas v. Thomas (1842) 2 QB 851;

Consideration Past consideration? (not enough) The consideration must be given in response to the promise or, if given prior to the promise, at the promisor’s request and in such a manner that it can be reasonably understood as forming part of the same transaction. A new promise that is not supported by new consideration is unenforceable; past consideration is insufficient Handing over a car in return for a promise to pay Promising to pay in return for being helped a week before

Consideration and gifts A promise to make a gift is not a contract (lack of consideration) – common law Purely gratuitous promises are unenforceable unless contained in a deed Other legal system’s approach? Usually special form is required (e. g. notarial autentication)

Consideration The requirement of consideration is controversial: some academics argue that all seriously intended undertakings should be legally binding The effects of the doctrine of consideration are not confined to promises ordinarily understood as gratuitous. Some promises commonly made in commercial situations, such as an offer to unilaterally alter one’s rights or obligations under an existing contract, do not usually involve consideration in the traditional sense. In relation to agreements to alter the terms of existing contracts, there were formerly in ENGLISH law considerable difficulties when the terms were varied in a way that benefited only one of the parties; e. g. one party promised to release the other from part of the obligation (Foakes v. Beer (1884) 9 App. Cas. 605 (HL)) or to increase the price payable to the other