Contract Interpretation

• Two primary focal points exist when interpreting a contract.

Interpreting Explicit Words

• Focuses on deciphering the parties' mutual intention through the words they chose.
• Subjective will delves into the parties' actual, internal intentions but is difficult to ascertain.
• Subjective autonomy suggests legal duties stem from the parties' conscious desires.
• Will Theory prioritizes the parties' true intentions.
• French Civil Code prioritizes the parties' shared intent over the literal definitions of their words.
• Regarding intentions that remain undetectable, decisions are made as if by a reasonable person in a similar situation.
• German Civil Code highlights fairness and reasonableness.
• Italian Civil Code focuses on systematic interpretation, interpreting the contract as a whole.
• Italian Civil Code also says to analyze the circumstances surrounding the case.
• Common Law places more emphasis on the external expression of words, because it's apparent, safeguarding commercial certainty.
• Common Law interpretation relies on case law, using The Literal Rule, The Golden Rule and The Mischief Rule.
• English courts interpret contracts as would a reasonable person with relevant background knowledge.
• The Parol Evidence Rule prevents external evidence that contradicts or adds to the contract's written content, ensuring stability.
• Evidence showing the written contract wasn't meant to include all terms is an exception.

Filling Contract Gaps

• Address points not explicitly covered, integrating without contradicting the existing contract.
• Ad hoc Gap Filling involves courts supplementing contracts by reconstructing what the parties would have hypothetically wanted.
• Supplementary constructive interpretation is equivalent to this in Civil Law.
• Construction describes this in Common Law.
• Default Rules (Civil Law) automatically fill gaps using existing rules, balancing both parties' interests.
• Parties can override these rules by addressing the specific areas in their own contracts.
• Common Law's "Terms Implied by the Law," such as implied terms by fact or custom, function similarly to default rules.
• Civil Law favors a reasonable person perspective when interpreting, whereas Common Law favors the perspective of a reasonable third party.

Ad Hoc Gap Filling Further Explained

• Courts create tailor-made solutions.
• Terms deemed contractually necessary will be used.
• Terms that the parties would have agreed upon if they had thought about it, will be used
• German Law says courts should consider overlooked aspects that the parties might have discussed.
• French Law uses equity, usage, and justice.
• Terms Implied by Fact are what the parties would have included, if they had considered it.
• The Obviousness Test allows inclusion of terms so obvious they were not discussed.
• Business Efficacy Test allows inclusion of terms necessary for business efficiency, not just fairness.
• Moorcock Case decision established an implied term assuring riverbed safety, based on the necessity for the contract to make sense, under the business efficacy test.

Vitiating Factors/Non-Binding Contracts Overview

• Vitiating Factors render a contract non-binding because of defect of consent or a prohibited contract.
• Vitiating Factors can lead to a contract being declared void or voidable.
• The non-breaching party can decide whether to maintain the contract or dissolve it.

Defect of Consent

• Involves cases where proper consent is lacking, leading to possible grounds for avoidance of contract.

Common Law: Hypothesis

• Misrepresentation is an untrue statement that influences a party to enter a contract.
• There's no overarching duty exists for good faith or disclosure in contracts.
• Silence does not usually qualify as misrepresentation.
• An exception exists in special cases where there is a duty to speak arising from the law.
• Rescission can void the contract, along with potential claims for damages.
• Fraudulent Misrepresentation requires deliberate false statements to deceive, allowing rescission and damages for "tort of deceit."
• Negligent Misrepresentation occurs when one carelessly provides false information, allowing for rescission and damages under the Misrepresentation Act (1987).
• Innocent Misrepresentation involves an incorrect statement believed to be true, allowing for rescission but typically not damages.
• The court can deny rescission and allow damages in cases of innocent misrepresentation.
• Type depends on the intention and mindset of the party making the misrepresentation.

Mistakes

• Mistake application is limited; with the law protecting reliance on the contract.
• Rescission serves as the typical remedy.
• Mutual Mistake: Occurs when both parties misunderstand contract terms, leading to a substantial "lack of consent" that prevents contract formation.
• Actual Mistake: A misunderstanding induced by oneself or the other party.
• The party's intention who induced the mistake is less significant.
• The remedy is the possibility to void the contract.
• Requirements for voiding due to actual mistake include:
  • One party misunderstood a current condition.
  • The mistake was fundamental, related to essential features.
  • Parties wouldn't have agreed under correct understanding
  • The other party knew it was crucial, although they do not need to know there was a mistake
• Mistakes arise from incorrect information (even if unknowingly) OR non-disclosure by the other party (silence).
• Fraud occurs if incorrect info was intentional.
• Common Law emphasizes misrepresentation over mistake.
• Common Law has limited impact
• Common Law lacks a principle of Good Faith: No general duty of disclosure exists
• Exceptions to the duty to disclose exist when there's a reasonable expectation to be informed, especially with expertise or hard-to-obtain information.
• High costs to acquire coupled with awareness by the other party creates a duty of disclosure.
• The focus of the law will be dealing with the party who broke the law.

Duress

• Duress relies on fear of harm to person, family, finances, etc.

Undue Influence

• Undue influence comes in two forms.
• Presumed Undue Influence: Occurs in special relationships, like fiduciary or psychological dependence, with a presumption of guilt on the stronger party.
• Actual Undue Influence: Involves abusive influence altering free will without a special relationship, presuming innocence unless proven otherwise.

Civil Law Specifics

• Good faith is a consideration.
• Mistake is the same as Common Law.
• Fraud/Misrepresentation is intentionally giving false information, with possible voiding and damages.
• Threats include physical/economic duress.
• Duress relies on fear of harm to person, family, finances, etc.
• Undue Influence occurs when there must be a deliberate exploitation of a relationship and reliance that leads to unfair advantage, especially with vulnerability to create unfair imbalance.
• Remedies include avoidance or court adjustment.

Prohibited Contract Considerations

• Prohibited Contracts are void, unenforceable due to violation of mandatory laws (statutory illegality), public policy, or good morals.
• Exceptions occur when the rules exclusively intend to protect the innocent party, allowing that party to potentially void the contract.
• Contracts can become illegal during performance, leading to specific consequences.
• Both parties aware leads to NON-enforcement.
• If only one party was aware, the innocent party can potentially enforce.
• Statutory illegality arises from statutes prohibiting certain contracts
• Statutory illegality can arise at the performance, too

Public Policies & Good Morals

• These are based on society’s evolution based on courts usually following society’s evolution.
• Public policies are a fundamental principle of society.
• Good morals are common decency of a reasonable person belonging to that society.
• Types of Restricted Items based on this: Personal, artistic, or economic freedom.
• Could be one-sided agreements
• A person / party waving their fundamental rights
• Contracts against current moral views within the society, like surrogate-mother agreements, have consequences.
• Contracts can be voided or avoided, with no ability to sue for performance or breach.
• If the contract contains both parties having unclean hands, then no action for the recovery of the already performed obligations is possible
• If one party was innocent, then that party can claim restitution for the obligations performed

Performance & Non-performance of a Contract

• Contract discharge occurs through full performance by both parties.
• Non-performance (breach) gives rise to contractual remedies: specific performance, claiming obligations, determination, and damages.

Civil Law

• Generally allows the creditor to seek specific performance as the main remedy, with court-ordered compliance.
• Claims start from the due date onward, with default rules for reasonable time if no specific date exists.
• French Law grants courts discretion to deny performance claims if disproportionate to the creditor's interest.
• German Law allows declining specific performance in case of contract defects.

Common Law

• Typically relies on damages and termination.
• Specific performance is exceptional through equity court.
• It's only available if alternative goods are scarce, such as the sale of land, but never for employment contracts.
• Frustration of contract is the discharge of obligation by frustration when external events render performance impossible, a complex legal issue.
• It stems from the Taylor v. Caldwell case in 1863 that shifted the idea of the sanctity of a contract - that a contract is always binding, even if impossible
• Relative impossibility does not lead to frustration.
• Frustration by illegality or altered common purpose can sometimes trigger it.
• A Hardship Clause allows contract termination or renegotiation due to supervening events, protecting parties against impossibility.

Impossibility of Performance

• If there is impossibility of performance, parties can't request damages or specific performance.
• Parties can request for discharge of impossibility
• Absolute Impossibility occurs when:
  • Performance is objectively impossible.
  • The performance needs to be objectively impossible
  • Performance is intuitus personae and the person is incapacitated OR dead
  • The contract required to perform something that had already been achieved.
• A fixed time goes past it, and sometimes it entails that the performance is impossible
• Sales of goods involving general goods can always be performed, but absolute impossibility is a relevant factor when there are specific goods.
• Remedies such as termination and remedies are available.
• Relative/Practical impossibility says the performance is technically possible, but become expensive therefore performance cannot be expected.
• Moral impossibility occurs when performance endangers life, health, or freedom.
• Legal impossibility is prohibited by statutes, public policy, or good morals.

US Contract Law: Termination VS Quitting

• In the US, termination with cause means the employee loses benefits, and termination without cause means the employee keeps benefits.
• Clarity ensures mutual understanding in contracts.

Contract Value

• Contract value depends on market values and circumstances.
• This means lawyers need to anticipate and account for what might go wrong, and even anticipate potentially breaching a contract

Dynamic Areas of Contract Law

• Rapid Evolution is happening in: pre-nuptial agreements, content creator agreements, click-wrap contracts, smart wraps, widespread use of mandatory arbitration provisions, non-disclosure agreements, and non-compete clauses.

US Contract Aspects

• Freedom of Contract is a major aspect.
• Due to a lack of trust, contracts are written anticipating breach.
• Contracts are long and detailed to protect both parties' interests.
• Contracts serve as a need for clarity in addition to trust.
• Contracts are getting longer due to previous areas of conflict being addressed and needing to adapt to technology.
• The common law has an important role in the market, awareness of litigation, and awareness for good faith and fair dealing.

US Common Law

• Implied clauses of good faith and fair dealing will be used.
• Interpret ambiguous clauses that are written in the contracts, as well as interpretations of intent of parties.
• Used for creating doctrines and defenses utilized used in contract enforcement such as requiring they be written to be valid.

Whistleblower Protection

• Protects individuals that inform law enforcement about illegal activities even when confidentiality agreements are in place.
• Confidentiality agreements are valid until a party informs law enforcement about crimes.

Freedom of Contract and Limited Liability Companies (LLCs)

• Freedom of Contract = the extent to which people can form contracts without government restrictions.
• Delaware allows LLC members to modify or even eliminate fiduciary duties, except the implied covenant of good faith.
• This means LLC members can't be held liable

Deliberately Ignoring Contract Breaches

• Ignoring depends on market conditions and maintaining relationships may be more profitable than enforcing the agreement.