Good Faith & Lord Denning's Relief

Good Faith (English common law)

• Courts can impose solidarity in the limitation of party autonomy, according to the principle.
• Agreements may include explicit terms, as well as implicit consequences and measures based on custom or usages.
• Parties in a contract may have duties of loyalty, responsibility, informing/advising, cooperation, negotiation, provision of evidence, and proportionality.

Lord Denning's Relief

• English courts may provide relief or intervention when someone enters a very unfair contract or sells property for an extremely low price, especially when
  • The weaker party lacks independent legal advice.
  • The weaker party is in a vulnerable position due to desperation, ignorance, or mental weakness.
  • The stronger party takes advantage by imposing unfair terms.
• Undue influence is not the same as wrongdoing.
• Strong parties may act in self-interest without realizing the harm caused.
• Denning's approach was not followed by peers.

Longmore's Argument

• Obligations to negotiate in good faith are too uncertain to be legally enforced.
• To negotiate in good faith is an agreement to agree, making it too uncertain to enforce.
• It is difficult to determine if negotiations brought to an end are terminated in good or bad faith.
• It is difficult to assess losses caused by breach of obligation.

Walford v Miles

• The duty to carry out negotiations in good faith is contradictory to the opposing nature of parties.
• Each party can pursue own interest as long as no misinterpretations are made.

Lord Bingham

• English law never committed to the principle of good faith.
• English law developed piecemeal solutions in cases of unfairness.

Summary in UK Common Law

• There is no implied term to perform a contract in good faith generally.
• The doctrine of good faith (Lord Denning) was not followed.
• Courts have implicitly acted on a principle of good faith.
• Courts developed piecemeal solutions to provide equity (fairness) to parties.
  • Enforcing promises that lead to reliance via promissory estoppel.
  • Tender process
  • Unfair relationship investigation

Good Faith in Civil Law

• Established doctrine supplement agreement with implied duties.
• Established doctrine soften strict application of agreement if reasonable and appropriate for the situation.

Interpretation

• Many difficulties when reading a contract can be present due to unclear meaning of words, inability to predict future developments, and differing methods of interpretation.
• There is increasing use of foreign (i.e American) legal concepts in contracts subject to another legal system

Subjective "Will theory"

• Actual intentions of parties considered.
• Includes negotiation process, draft agreements, correspondence, and parties conduct ex post & ex ante without hindsight bias.

Objective "Declaration theory"

• Looks at the objective meaning of a contract.
• Based on all relevant information available from an objective third person.
• Focuses on the meaning of words used rather than guessing intention.
• Considers textual interpretations, preamble, plausible legal consequences.

Contra Proferentem

• Operates when there are doubts.
• Also known as "against the offeror".
• The interpretation that is least favorable to the party who drafted the supplied term should be preferred if a contract term is unclear or ambiguous.
• Another name for this rule is Anti-Drafter.
• Protects the weaker party.
• Usually used in consumer and insurance contracts.
• If a term is not individually negotiated, it means pre-drafted, not discussed or modified.
• Terms can be seen in standard form contracts (one for all).
• The weak party has no opportunity to alter the terms.

Other Rules for Contract Interpretation

• There is a preference for negotiated terms (over standard, pre-written) to better reflect intentions.
• Intercepted in context with the entire contract.
• The contract should be read in context with the entire intercept.
• Don't isolate term.
• Favor terms that give the contract legal effect, making it enforceable rather than void.
• Preserve the contract rather than declaring it unenforceable due to ambiguity.
• Address Language difficulties from existing in multiple languages with preference for original draft.

Unexpected Circumstances

• Future is unpredictable

Force Majeure (Impossibility)

• Under the principle of Pacta Sunt Servanda (Sanctity of contacts).
• Parties are bound by their agreements and were free to determine the content of their obligations, so the equality in values exchanged is immaterial.
• This provides a provision of Force Majeure.
• Relief is given to affected party if an unforeseeable situation occurs where the performance of one party becomes absolutely impossible.
• The affected party is excused in the event of non-performance.
• However, an affected party who performs could be held liable.

Conditions of Force Majeure

• Non-performance is excused to the party that proves that non-performance was due to an impediment beyond its control.
• That could not be reasonably expected to have taken into account at the time of conclusion of the contract.
• That could not be avoided or overcome its consequences.
• The burden of proof lies on the affected party, who must give notice to the other party.
• Or to have avoided or overcome its consequences.
• Include Unforeseen circumstances at the moment of conclusion of contract.
• Which could not be reasonably expected to have taken into account at conclusion of contract.

Risk Allocation

• Risk was not allocated in the contract in terms of what happens if A, a manufacturer in X, has a contract to supply B, a company in Y, with uranium for 5 years at a fixed price in USD.
  • In that case B is not excused from liability, as parties have allocated this risk by the payment provisions.
  • In that case B is excused from paying in USD.
  • In that case A is not excused from delivering uranium at contract price, as this risk was foreseeable at the time of making the contract.

Consequences

• If losses are definite that equals excuses for the non-performance (full relief).
• If losses are only temporarily that only suspends the obligations of affected party.

Hardships (More Onerous)

• When performance becomes more or extremely difficult (but not impossible) options:
  • Holding the affected party to original terms.
    • Granting specific performance.
    • Damages.
  • Granting some relief to the affected party under the same conditions as with force majeure.
    • Giving the court the power to adjust the provisions of the contract.
    • By obliging parties to renegotiate the agreement to restore the lost contractual equilibrium.
• Where cases of unascertained goods (delivery of generic goods) is usually a hardship, rarely accepted as force majeure.
• This also includes events affecting expected profits due to foreseeable changes.
• A Price indexation clause is a provision that allows price to be adjusted based on changes in external cost factors, (inflation, material costs and labor expenses).
  • If the contract already has a price indexation clause in place, then it is already covered.
    • It can't renegotiate the price for (i.e) higher cost of raw materials.
    • If it were unforeseen circumstances, then yes.

Non-performance

• If a party/person to whom an obligation was instructed does not follow through, the other party must launch an (judicial) action to obtain a forced performance of the obligation.
• Non-performance can be excused given force majeure, hardships, creditors fault.

Remedies for Non-Performance

• Specific performance forces the party to perform the contract; preferred remedy.
• Termination occurs as a result of a fundamental breach when:
  • Strict compliance is essential to contract, or
  • Substantially deprives the aggrieved party of what it expected to receive, or
  • If not reasonably foreseeable
• Termination has to be intentional and gives the aggrieved party reason to believe it can't trust the other party future behavior.
• The aggrieved party needs to give notice within a reasonable amount of time.
• The main difference lies in discharge and impact on past performance.

English common law vs Civil law

• English common law sees the victim is released from duties not yet accrued, but not from those already accrue.
• In English common law the guilty party is released from primary duties not yet due, but not from primary duties already due.
• Termination only affects future obligations - past obligations already done (accrued) remain valid.
  • For example, if a client refuses to pay after contractor does 50%, then the contractor can stop work (future duties) but client must pay for work already completed (past obligations. Civil Law:
• In principle, there is retroactive effect in case of a fundamental breach → parties, restitute everything which has been exchanged → restore parties to original positions.
• Price reduction is where an aggravated party can reduce price proportional to the decrease in value had performance been conforming at the time..
• The main remedy is a repair or replacement of defective goods; services:
  • In case of defective performance, the delivery of car was not in conformity with contract

Damages

• If one party fails to fulfill an obligation, other party can claim financial compensation (damages) - (if not excused).
• This can be done on top of claiming specific performance or termination.
• To request damages for any loss caused (or not prevented) by non-performance.
• Party has a Duty to mitigate harm.
  • An aggrieved party is not entitled for damages (for loss suffered) to the extent that harm could've been diminished if said party had taken reasonable steps to reduce harm.
  • They are entitled for any expense reasonably suffered when reducing harm

Cumulation of Remedies

• If remedies are not incompatible, they can be accumulated.
  • Ex: late payment interest and damage clause, which consists of Late payment interest → compensates for financial losses and Damage clause → compensates administrative cost. Suspension of one's own performance is another remedy.
• An action of remedy in :: Exceptio non adimpleti contractus → a party who has to perform an obligation after a first party, CAN withhold performance if the first party does not fulfill its own contractual obligations.

Restriction/Limitation of Remedies

• Contractual clauses that restrict or limit the right to invoke remedies are valid. But they must be within limits of good faith/fair dealing and unfair contract (by law).
• Clauses to restrict damages are also valid, but limited in good faith/fair dealing/foreseeable time

Week 5: Contracts and 3rd Parties

• Privity of Contract: A contract cannot confer rights rights to third parties.
• A contract cannot effectively impose duties on 3rd parties
• However, 3rd parties can benefit from one.

Contract/Clauses in Favor of 3rd Parties

• Contracts that include clauses where a 3rd party (beneficiary) gains rights under an agreement between other parties.
  • Ex: Life insurance, gifts can be a class of this contract.
• The promisor makes a promise.
• A third party beneficiary should be identifiable.
• These can be identified at the conclusion of the contract with the defined method of identification.
• To be valid the Beneficiary rights have to be determined by the agreement between the promisor and promisee.
  • Ex: Married, no grandchildren. Pays for insurance - promise to pay 10x to each grandchildren on death. Grandchildren born after contract / before death are entitled to 10x 1.2 Limiting or excluding liability on 3rd parties:

Limiting or Excluding Liability on 3rd Parties

• Exists if there's a Himalaya clause in bills of lading, which is a shipping contract.
• An owner makes contact with the carrier to carry x to y.
• A bill of lading can exclude liability for (a) master and crew, (b) stevedores who load/unload,, owner of ship which transports.
• A good precedent for this is Himalaya clause, Adler vs Dickson.

Assignment

• Occurs when there is Transfer of rights/obligation/contracts to a 3rd party without changing original contract terms.
• Effect of original contract remains intact, only right to claim a benefit is transferred and 3 things can be assigned: a right: Assignor, Debitor still owes obligation, but now to assigne
• An assignment entails that What is transferred is All assignor's right to repayment or other performance related to right assigned as well as All rights securing performance.

Rules of Assigment

• A asigns roalties to B, those eanred from licenses to X, since the start of the agreement.
• Rights can be tranfrred via Mere agreement between assignor and assignee.
• You don't even need Even if you don't have notice/consent of debtor tacit assigment.

Special Righs

• Some specific rights may need more formalities (i.e negotiable instruments , rights related to transfer of business)
  • Before receiving notice of assignment: Discharge to assignor
  • After receiving notice of assignment: Discharge to assignee 2.2 Transfer of obligations:

Debitor Obligation

• A debtor's obligation to repay/render performance can be transferred to the new debtor - Delegation of duties either by:
  • Original debtor and new debtor agree - Needs consent of creditor; or
  • New debtor and creditor agree Without creditor's consent = 3rd party performance Why? Creditor has assessed the credit risk of original (not new) debtor Discharge of original debtor Creditors choice
• If satisfied with new one, creditor can discharge original debtor
  • But can also keep original debtor liable if new debtor fails to perform No express discharge both original and new are jointly liable Assignment of contracts
• Unliik, a contractassignment transfer both from the assignor with assigne.

Novation

• Unlike a right or obligation, a contractassignment transfers both from the assignor to asignee- Assigne transfers to assignee the rights and obligations arising from a contract with other party Needs assignor / assignee agreement and consent of other party.
• Novation replaces an old contract with a new one (substitutes), which Needs (proven) intention. Forms of novation include changing the debtor where the original is completely discharged. Also it entails changing the creditor where, Unlike assignment of right, needs agreement by all parties as well as changing the object of contract where it does not changing modalities of the contract. Consequences include that all Old obligations

Extinguishes

• In novation, Old obligations / contract disappear and Warranties & securities expire Co-debtors and guarantors are discharged in novation, Al defences linked to old contract disappear Difference with assignment is that Novation cancels old contract and replaces it with new one. However, Assignment only transfers rights, but keeps the,original contact intact

Subrogation

• Occurs when a 3rd party takes the legal position of another contract without changing the original contract. It is Accompanied by transfer of rights and duties. Replace put in the same legal position and the Initial contract is kept intact and remains in force.
• Forms are there is Subrogation of a good, for example where there exists A floating charge on stock and if the stock is destroyed in a fire - insurance payout takes its place as security.

Subrogation cont.

• There is also Subrogation of a person where A 3rd party pays the debt of a contracting party because, debt obligations are performed and BUT 3rd party takes the place/legal position of creditor. Key characteristics of subrogation is that it Docs Not modify the original contract and the Initial one still has effect; no novation. There is No need for assignment agreement since It does Not require agreement of all parties. Happens automatically meaning that new party gains creditors legal rights and Subrogation requires as only condition the payment of sum.

Sumarizaiton

to assignmernt contracts etc Assignment of rights, obligations, and contracts □ Novation (contract replacement) Subrogation (replacing a party while keeping the contract intact) Week 6: Sale of Goods

International Sale of Goods Convention

CISG:Need for Uniform Law, which creates Long-term contracts including different legal systems, high transportation costs Uniform rules facilitate international trade & renegotiation

• Where CISG Uniform sales law for international business transactions involving movable goods There is Consumer sales directive as another uniform law, but concerns B2C Applies to contracts for the sale of tangible, movable goods (including gas). requires transfer of property AND payment (monetary consideration)

Software is also now included

• (i.e physical drive) counts as tangible good - CISG applies Download from internet Before - classified as intangible (No CISG) Nowadays - now considered gible (Yes CISG) Tailor always seen as a service rather

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