Private law 1 lecture, 2, 3 and 4.docx

Private law: Week 1 Lecture 1: What is private law? In a nutshell, private law is the area of the law that governs relationships between individuals or entities. 100% of us are subjects of private law relations! Private law vs public law Private law: Relations between individuals, groups, and entiti...

Private law: Week 1 Lecture 1: What is private law? In a nutshell, private law is the area of the law that governs relationships between individuals or entities. 100% of us are subjects of private law relations! Private law vs public law Private law: Relations between individuals, groups, and entities Public law: Relations between individuals and the State or between States. Private law areas for private law 1: Contract law Tort law Property law Contract law: Deals with binding agreements between parties. It governs the creation, interpretation, and enforcement of contracts. The issue of law(s) One of the (many) challenges of studying a practicing law is that different jurisdictions take different approaches to the same questions. While there are significant similarities and overlaps, a comparative approach is necessary. Due to their influence on other legislation, the systems chosen for this course are English law, French law, and German law. English private law: Refers to the law applicable in the United Kingdom It is very influential due to historical (the British Empire and its colonies) and commercial reasons. Broadly seen as a “pro-business” and very flexible. As a Common law country, besides laws passed by the parliament, it also develops through case law. German Law: Refers to the law applicable in the Federal Republic of Germany. Its Civil Code, the Burgerliches Gesetzbuch or BGB, has influenced the legislation of many other countries, including the Netherlands, Portugal, Italy, Greece, Japan, Korea, and China. The norms of the BGB give more discretion to the judges, allowing for a more flexible application. French law: Refers to the law applicable in France. Its Civil code, the Codé Civil, a.k.a. Napoleonic Code, is one of the most influential texts in history. In addition to the influence in countries occupied during the Napoleonic wars, it has also shaped the development of civil law in Latin America (particularly in Quebec and Louisiana). Learning objectives: Contract law Describe the different stages in the life of a contract, namely: Formation, Vitiating Element, Discharge, and Remedies from a Common Law (England and Wales) and civil law (Germany and France) perspective. Identify the main principles of rules of contract law in both common law (England and Wales) and civil law (Germany and France) perspectives. Analyze and proffer advice on a simple structured contract case from common law (England and Wales) and civil law (Germany and France) perspectives. Week 2: Why contracts? Why contracts? A contract is a legally binding agreement that the law will enforce. A contract gives rise to obligations between the parties to the contract, and the failure to perform these obligations gives the right to a remedy. Why contract law? The development of the Market Economy Move from an Agricultural to an Industrial Economy Liberalism (every individual right to shape their own life) Contract law ensures that society can function because agreements are enforceable. People make their agreements, not the state. The fundamental principles of contract law encompass two key elements: "Freedom of Contract" and the "Binding Force" of agreements. Freedom of Contract: Parties have the autonomy to make their desired choices when entering into a contract. They can choose the terms of the contract, decide when to contract or not to contract, and select the other party involved. However, it's important to note that there are limits to this freedom. Binding Force: Agreements lawfully entered into are legally binding between the parties. If one party breaches the contract, there will be consequences, typically in compensation for the non-breaching party. Exceptions may apply when contract terms are considered unfair or prohibited by law. In summary, contract law upholds the principle of allowing parties to enter agreements with freedom and autonomy. Still, it also enforces the binding nature of these agreements, requiring compensation for breaches unless the contract terms are deemed unfair or illegal. Informality: Contracts do not necessarily require a specific form to be valid. However, certain types of contracts may require a specific form mandated by the law to be considered valid. Contractual Fairness: A fundamental principle in contracts is that they should demonstrate procedural fairness. Procedural fairness strives to ensure that any unequal positions between parties are remedied. This means that every party should receive equal and fair treatment. It's important to note that procedural fairness is distinct from substantive fairness, which pertains to the contract's content. Parties can determine contract terms, regardless of how unfavorable they may seem. For instance, selling a €5,000,000 mansion for €50 is not necessarily unfair. In other words, substantive fairness is concerned with the actual substance or provisions of the contract. It assesses whether the terms and conditions of the contract are fair and reasonable, taking into account the rights and obligations of each party. In essence, contract law allows contract flexibility but emphasizes the importance of procedural fairness to address power imbalances between parties. While the contract's content is generally up to the parties involved, there are limitations to prevent blatant unfairness or illegality. Top of Form How is a contract formed? Agreement Foundation of a contract: In contract law, the agreement is the foundational element upon which contracts are built. A crucial concept within this context is "Consensus ad idem," which means that both parties must have the same understanding of the terms and details of the agreement for it to be valid. In simpler terms, for an agreement to be legally binding, both parties must share a mutual understanding or "mutual assent" about the terms and conditions of the contract. This ensures that there is a meeting of the minds, where both parties are on the same page and have a clear, shared understanding of what they agree to. In cases where there is no mutual consent or parties do not share the same understanding of the agreement, the courts may not enforce the contract, as it would not be considered a valid and binding agreement. So, the principle of "Consensus ad idem" underscores the importance of shared understanding and mutual agreement in contract law, making it a fundamental element in the formation of contracts. Mutual Assent A contract is an agreement between parties This agreement is evidence of consensus ad idem (agreement as to the same thing) The promisor makes the offer (also known as the offeror) The promise is the person to whom the offer is made (also known as the offeree) Acceptance of the offer creates an agreement, which, if legally enforceable, is a contract Effect of making the promise Undertaking that a particular state of affairs exists Undertaking that something shall happen or not happen in the future. . Failure (of the promisor to do or refrain from) doing the action promised) = a breach Breach creates a legal right to remedy. French Civil Code: German civil code: What is an Offer? Is there an expression of willingness to contract on specified terms? Is there an intention that this willingness expression will be binding once accepted? Says who? The Reasonable Person (objective standard) Offer v. Invitation to treat An invitation to treat is not an offer but an indication that a person is willing to start a negotiation to enter a contract. Depending on jurisdiction, there are legal presumptions regarding specific transactions, including: Advertisements Calls for tenders Displays of goods in shops Price Lists Brochures Are advertisements an Offer? The same for goods on websites Invitation to treat "by a party to make an offer." Thus, it is not a contractual offer. There is no intention to be legally binding. Are goods on display in a shop an offer? Is it an offer? – English law: Is there an Offer? - Ask yourself these questions The distinction between an offer and an invitation to treat is a crucial aspect of contract law. To determine whether a statement or communication is an offer or an invitation to treat, you can ask the following questions: 1. Is there an Offer? Yes: If the statement is sufficiently definite regarding the relevant terms, it is considered an offer. No: If there is still room for negotiation or the statement requests information, it is generally seen as an invitation to treat. 2. Is there a Clear Intention to be bound immediately upon acceptance? Yes: If there is a clear intention to be bound by the terms immediately upon acceptance, it is likely an offer. No: If the intention is to negotiate the terms further, it's more likely an invitation to negotiate. 3. Is there Certainty regarding the Substance of the Contract? Yes: If there is certainty regarding the critical elements of the contract, such as the benefit conferred, subject matter, and time, place, or manner of performance, it leans toward being an offer. No: If there is a lack of certainty in these fundamental aspects, it may not be a valid offer. In contract law, it's essential to understand that the terms of the offer, if accepted, become the terms of the contract. The offeror (the party making the offer) promises to be bound by those terms if the offeree (the party receiving the offer) accepts them. This distinction is vital because accepting an offer creates a binding contract. Responding to an invitation to treat is typically a preliminary step in negotiations and does not form a contract. Understanding when an offer is present and when it's an invitation to treat is crucial in determining the enforceability of agreements in contract law. Section 9: Termination of an offer Terminating an offer: = There cannot be an acceptance because there is no longer an offer to be accepted! Revocation Is there a general rule? Does it need to be communicated? When can it be revoked? Are there limits on the type of offer that can be revoked? Can an Offer be Revoked? French Law - Civil Code Art. 1115. - An offer may be withdrawn freely as long as it has not reached the person to whom it was addressed. Art. 1116. - An offer may not be withdrawn before the expiry of any period fixed by the offeror or, if no such period has been fixed, the end of a reasonable period. The withdrawal of an offer in contravention of this prohibition prevents the contract being concluded. The person who thus withdraws an offer incurs extra-contractual liability under the conditions set out by the general law, and has no obligation to compensate the loss of profits which were expected from the contract. English Law - Case Routledge v Grant (1928) 4 Bing 653 Offer of house for sale to remain open for 6 weeks. Offeror took house off market before 6-week period. Held that action legitimate because at time of revocation there had been no acceptance." ( page 34 our Law Collection 2023 - Contract Law) Offer may be withdrawn at any time before acceptance (no consideration). The general rule is that an offer can be revoked at any time before it is accepted, even if the offeror says he will leave it open for a defined period. Can an offer be rejected or lapse? Section 10: Acceptance 1. Acceptance must be unconditional (unequivocal): When a party accepts an offer, their acceptance should be apparent and without conditions. It should be an unequivocal agreement to the terms of the offer. 2. Acceptance must mirror the offer: The acceptance should match the terms of the offer exactly. Any deviation from the offer's terms would typically be considered a counteroffer. 3. Changing the offer results in a counter-offer: If the party accepting the offer attempts to change any element of the offer, this is not an acceptance but a counter-offer. A counteroffer effectively terminates the original offer. 4. The counter-offer replaces the offer: When a counter-offer is made, it becomes the new offer, replacing the original one. The roles of the offeror and offeree may switch as the negotiation continues. Understanding these principles is essential in contract law because they determine the point at which a legally binding agreement is formed. It is critical for both parties to have a clear and mutual understanding of the terms and conditions before a contract is finalized. 1. Postal Rule and Other Modes of Communication: The postal rule, which states that acceptance is effective upon posting, does not generally apply to other modes of communication, especially instantaneous methods. 2. Receipt Rule for Instantaneous Communication: In instantaneous methods of communication, such as email, text messages, or phone calls, acceptance is considered adequate when it arrives at the offeror's end of the relevant communicative technology. This is often referred to as the "receipt rule." 3. Requirement of Receipt for Effective Communication: For acceptance to be valid in instantaneous communication, it is crucial that the offeror receives the acceptance. The communication is not considered adequate if there is no receipt from the offeror. 4. Example: No Pick-Up and No Message: An example of the receipt rule is when you use an instantaneous method like a phone call to accept an offer. If there is no answer on the other end, and you do not leave a message on an answering machine or voicemail, there is no receipt of your acceptance, and the communication is ineffective. Understanding the timing of acceptance and the rules that apply to various modes of communication is vital in contract law, as it helps determine when parties are legally bound by their agreements. In the case of instantaneous communication, the moment of receipt on the offeror's end is a key factor in establishing the effectiveness of the acceptance. Lecture 3: Must contracts have a certain format? PRINCIPLE OF INFORMALITY • “If parties are legally bound because they intend to be bound, their intention is apparently sufficient and there is, as a matter of principle at least, no need to put the contract into writing....” (Jan Smits p.11) A Contract Can Take Any Form and can be Proven by Any Means. ramed small napkin reads, ‘In Barcelona, on the 14th of December of 2000 and in the presence of Josep Minguella and Horacio (Gaggioli), Carles Rexach, F.C.B technical secretary, committed under his responsibility and despite some views against it to sign the player Lionel Messi, as long we stick to the amounts agreed upon.’ National law determines formal requirements ( i.e. EXCEPTIONS to the general rule) 1. Contracts Required to be Made by Notarial Deed: Common in Civil Law countries. These are contracts that, for their validity, must be executed in the presence of a notary public or another authorized official and often require additional formalities. 2. Contracts Required to be Made in Writing: The requirement that specific contracts must be in written form varies depending on the specific national laws. These contracts must be documented in writing to be considered valid. 3. Contracts Required to be Evidenced in Writing: Some contracts may not require the initial agreement to be in writing, but they may need written evidence to prove their existence, terms, or conditions. This is often called a "writing requirement" or "evidence requirement." 4. Contracts Requiring Pre-contractual Information Duties: Specific contracts, especially in the context of consumer protection, may impose duties on sellers or service providers to provide pre-contractual information to consumers. EU Directives, for example, may mandate sellers to provide specific information to consumers before a contract is concluded. These formal requirements are specific to certain types of contracts and are designed to serve various legal and practical purposes, such as ensuring clarity, evidentiary support, and consumer protection. It's essential for individuals and businesses to be aware of these requirements and comply with them to avoid potential legal issues and to ensure that their contracts are valid and enforceable under the relevant national laws. National law determines formal requirements ( i.e. exceptions to general rule) Indeed, various national laws may stipulate specific contracts that must be legally valid in writing. These requirements are considered exceptions to the general rule of informal contracts. Here are some common examples of contracts that are often required to be in writing: Prenuptial Agreements or Life Partnership Conditions: Agreements related to marriage or partnerships are often subject to formalities and may need to be in writing to be legally binding. Wills: Creating or modifying a last will and testament typically requires a written document to ensure clarity and prevent disputes. Transfer of Title to Immovable Property: Contracts involving the sale or transfer of real estate, such as a house or land, must often be in writing. This helps protect property rights and prevents fraudulent transfers. Establishing Rights in Rem: Contracts creating rights in rem, like a mortgage on immovable property, are commonly required to be in writing to ensure legal protection and clarity. Insurance Contracts: Insurance policies and agreements often need to be documented in writing, outlining the terms and conditions of the coverage. Incorporating a Private Limited Company: The process of forming a private limited company typically involves various legal documents that must be in writing to establish the company's existence and structure. Transfer of Shares in a Private Limited Company: The transfer of ownership or shares in a private limited company typically involves written agreements to record the details of the transaction. Establishing a Foundation: The creation of a foundation, which is a legal entity established for various purposes, usually requires written documentation to define its structure and purposes. These examples demonstrate how formal requirements can vary and may apply to specific types of contracts in different jurisdictions. It's crucial for individuals and businesses to understand and comply with these formalities to ensure the validity and enforceability of their contracts under the applicable national laws. Why Form? Why does the LAW require form sometimes? The requirement for a prescribed form in legal contracts serves several vital functions, which are essential for the proper functioning of contract law and to protect the interests of the parties involved. Here are the key functions of requiring a specific form in legal contracts: Warning Function (Cautionary Effect): The prescribed form serves as a cautionary measure. It prompts the parties to think more carefully about the contract they will enter into, especially in the case of significant or financially impactful transactions. This encourages a more deliberate and conscious decision-making process. Evidentiary Function (Promotes Certainty): Having a specific form for contracts promotes certainty and clarity. It helps establish a clear record of what the agreement contains. This is crucial for preventing disputes and ensuring that the terms of the contract are well-defined and easily provable in case of disagreements. Informative Function: The prescribed form informs and advises the parties about the legal consequences of their contract. It ensures that the parties are aware of the implications and obligations associated with the agreement. This transparency helps parties make informed decisions. Protective Function (Protects Weaker Party): Requiring a specific form also protects the interests of the parties, particularly the potentially weaker party. It ensures that the contract terms are appropriately documented, reducing the risk of one party taking advantage of the other through misrepresentation or unfair terms. In summary, the law may require a particular form for contracts to fulfill multiple vital functions. These functions include warning parties to be cautious and thoughtful, providing evidence of the agreement's terms, informing the parties of their legal obligations, and safeguarding the interests of all parties involved, focusing on protecting those who might be disadvantaged in the transaction. Using prescribed forms helps maintain contract law fairness, transparency, and reliability. NOTARIAL ACTS (special form) Notarial acts are documents in which a valid Notary legally records agreements and declarations. It is compulsory for some types of agreement to be included in a notarial act. Only then are they valid. The most notable examples are: Art. 931 (FR), § 518 (DE) - Promise to Gift (except small gifts handed out) Art. 2416 (FR), § 873 (DE) - Mortgages Art. 1394 (FR), § 1410 (DE) - Matrimonial Contracts Art. 1583 (FR), § 925 (DE) - Transfer of immovable property These articles are not in the Law Collection. Don’t obsess, Mr. Lima included them in this presentation so you can make send of the Law systematically. Make evidence (proof) in writing: France Germany England Art. 1359 et al. (debts and money owed) Section 766 (consumer law) Surviving Section 4 of Statute of Frauds The law may require specific contracts to have written evidence to facilitate proving it Some Examples of Contracts that Must be ‘Evidenced’ In Writing in the United Kingdom • Contracts of Guarantee - S.4 UK Law of Property (Miscellaneous Provisions Act 1989 • Consumer Credit Agreements – UK Consumer Credit Act 1974 - Must be in writing to be valid • Contracts for sale or Interest in Land – UK Sale or disposition of an interest in Land S.2(1) Law of Property (Miscellaneous Provisions) Act 1989 What about Online E-Contracts? EU Directive on Electronic Commerce 2000/31 Article 9 - Treatment of contracts 1. Member States shall ensure that their legal system allows contracts to be concluded by electronic means. Member States shall, in particular, ensure that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity because they have been made by electronic means. Effect of “No Writing” when required? Contract unenforceable unless there is a ‘writing’ that evidences the document. Unenforceable = you can’t ask the State to force the other party to perform the contract. Capacity: What do these persons have in Common? • 15-year-old shop assistant • 51-year-old person with Alzheimer's • 32-year-old under guardianship. • 18-year-old drug addict • 48-year-old person with severe Schizophrenia. Legal Capacity = Control and ability to assess Minors & Legally Incapacitated Adults Contracts are voidable at the instance of the minor / legally incapacitated. Effect of Lack of Capacity? • The OTHER Party cannot claim enforcement = VOIDABLE at the instance of the person with a lack of capacity. • Categories of natural persons lacking capacity can be: − Intoxicated − Mentally challenged − Underage (Minors) Contractual Capacity – Minors Common Law General Rule – Infants / Minors No capacity to Contract. Exceptions Contracts for necessaries are enforceable. Examples:- contracts for clothing, training, employment, apprenticeship. Necessaries = things necessary to life, e,g. clothes, medicines, food, shelter, etc. Not luxuries. Contractual Capacity - Minors Common law • Nash v. Inman (1908) 2 KB 1, CA A tailor sued a minor to whom he had supplied clothes, including 11 fancy waistcoats. − ...an infant may contract for the supply of articles reasonably necessary for his support in his station in life if he does not already have a sufficient supply. ... two conditions must be satisfied, namely, 1. the contract must be for goods reasonably necessary for his support in his station in life, 2. he must not already have a sufficient supply of these necessities. Intention: The concept of intention is central in contract law, as it often determines the validity and enforceability of a contract. However, disagreements can arise when there is a disparity between what the parties intended and what they said or declared. Here are key points related to intention and disagreements in contract formation: Intent to be Bound - Meeting of Minds (Consensus ad idem): A fundamental principle is that for a contract to be valid, there must be a mutual intention to be bound by the terms of the agreement. This is often called the "meeting of minds" or "consensus ad idem." Disagreements Between Intention and Declarations: Disagreements, known as "dissensus," can occur at different stages of contract formation, leading to various legal implications. a. Diverging Intention and Declaration in Formation: Parties may have differing intentions during the initial formation of the contract, leading to disputes regarding the contract's existence or validity. b. Diverging Intention and Declaration About Quality or Value: Disagreements regarding the quality or value of the subject matter of the contract can arise, often due to mistakes, which can be a vitiating factor that renders the contract voidable. c. Diverging Intention and Declaration About Actual Terms (Interpretation): Disputes may also occur when parties have differing interpretations of the actual terms of the contract, which can lead to legal disputes over the contract's performance or obligations. Understanding and resolving these differences between intention and declaration is a complex matter in contract law. Courts often consider the parties' objective intent, as well as the language used in the contract, to interpret and enforce the agreement in a manner that aligns with the overall purpose of the contract and the parties' original intent. Top of Form Bottom of Form Look for hints about whether or not there was intention? Mere puffery? – Drink Gogo Juice and you will pass your Contract Law Exam! Family / social / domestic arrangements? – Husbands, wives, children, family members make agreements all the time and they do not intend that these be enforceable in a court of law. No commercial intent? – Parties are in a transport arrangement with payments being made without any intention that it is legally enforceable Negotiations that are ’subject to contract’ Gentlemen’s agreements? – Parties agree that they have an agreement but that it will not be enforceable in a court of law Comfort Letters? – Company refuses to commit to legal obligations but agrees to be supportive How does the Court conclude whether there was Intention? • Objective approach – the reasonable person’s viewpoint (the court cannot look INTO a person's mind). • Statements and Conduct of the Parties - Factors to Consider, −  How easy it is for the addressee to investigate whether the declaration was really intended to mean what it says. −  Whether the transaction would be beneficial for one party −  What is customary in a particular business or location −  The meaning of disputed terms in everyday speck −  The place of contracting −  The expertise and experience of the parties. • Presumptions of Law (Common Law) Presumptions of Intention in Common Law • Presumptions − a rule of law that permits a court to assume a fact is valid until such time as there is a preponderance (greater weight) of evidence that disproves or outweighs (rebuts) the presumption − Presumptions shift the burden of proof – The case is brought by the claimant, who usually has to prove his/her case. Presumption means the defendant must prove that he/she did not intend to be bound. − Presumptions can be rebutted. Presumptions of Intention or lack thereof ... Intention to be legally bound – English Law Mere puffery? – The term originated from the Carlill v. Carbolic Smoke Case, where the defense argued that the advert was a mere puff. The Court rejected this argument. Family / social/domestic arrangements? - Balfour v. Balfour / Merrit v. Merrit No commercial intent? – Edwards v. Skyways Gentlemen’s agreements? – Rose & Frank Co. V. JR Crompton Bros Comfort Letters? - Kleinwort Benson Ltd v. Malaysia Mining Corporation Intention -Agreements of A Social or Domestic nature Balfour v. Balfour [1919] 2 KB 571 • Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff remained in England for medical treatment, and the defendant agreed to send her a specific amount of money each month until she could return. Mrs Balfour petitioned for divorce and sued for the allowance. • Agreements between husband and wife over matters that affect their daily lives are not subject to contractual interpretation , even when consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. The court held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be sued upon. The court held that, as a matter of public policy, it could not resolve disputes between spouses. Intention -Agreements of A Social or Domestic nature Merrit v. Merrit [1970] 1 WLR 1211 • Mr. Merritt and his wife jointly owned a house. Mr. Merritt left to live with another woman. They agreed (signed) that Mr. Merritt would pay Mrs. Merritt a £40 monthly sum, and eventually transfer the house to her, if Mrs. Merritt kept up the monthly mortgage payments. When the mortgage was paid Mr. Merritt refused to transfer the house. Lord Denning held: ‘When ... husband and wife, at arm’s length, decide to separate and the husband promises to pay a sum as maintenance to the wife during the separation, the court does not as a rule, impute to them an intention to create legal relations.’ NB.: arm’s length – reaching an agreement as if it were in fair market terms 35 Intention-Consideration-Capacity However, in the circumstances of this case, this presumption was rebutted, and the wife’s action was successful. Intention -Agreements of Commercial Nature Edwards v Skyways Ltd [1964] 1 WLR 349 Mr. Edwards, a pilot, was made redundant by Skyways. As part of the redundancy arrangements, he was offered the opportunity to withdraw his contribution to the company pension scheme or to allow it to mature and claim at 50. It was in the company's interests that he withdraw, and they offered an ``ex-gratia payment to do so. In the end, however, the company refused to honour the arrangement. In its defence Skyway claimed that using the term ``ex-gratia implied that it was not intended to create legal relations. However, the court decided this was not a strong enough argument to overturn the assumption that commercial dealings are contractual. The assumption will always be that commercial dealings (including employer-employee) will be intended to create legal relations. Consideration: WHAT IS REQUIRED FOR A CONTRACT TO COME INTO BEING? UK jurisdiction: CONSIDERATION • Doctrine of Consideration is unique to the common law. Causa vanishing from Civil Law canons. • It refers to the principle that there should be a ‘cost’ for a promise / quid pro quo • Doctrine is based on the idea of reciprocity: ‘something of value in the eye of the law must be given for a promise in order to make it enforceable as a contract.’ − Treitel: The Law of Contract 12th Edition p.74 What is Consideration? Common Law Defined in terms of Benefits and Detriment ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’ Currie v. Misa (1875) 1 App Case 554 Defined in terms of Sale and Purchase ‘an act of forbearance or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’ Dunlop v. Selfridge [1915] AC 847 Basic rules of Consideration Consideration must not be Past Consideration must move from the promisee [the one who received the promise] Consideration need not be adequate but must be Sufficient Fulfilling an existing legal obligation is not consideration Re McArdle (1951) A mother and her three grown-up children lived together in a house. The wife of one of the children did some decorating. Later, after all is done, the children They promised to pay her £488, and they signed a document. “promise was not made in return for anything, but was subsequent and independent of” (Smit, p.81) the work done. Glasbrook v. Glamorgan CC (1925) Miners strike, and the strikers asked the police for extra protection. The police said that the patrols were sufficient. The strikers offered to pay £2,200. The police accepted and provided the extra protection. The strikers refused to pay. The court ruled that the police had an existing public duty to provide security. However, the “extra” service provided went beyond that duty. Such “extra” constituted consideration. Mr Lima’s Happy Summary of Consideration • Something of value exchanged between the parties to a contract. • Identify what the consideration element could be. Test to see whether it is valid according to the basic rules: Must not be past consideration Move from promisee, but not always to promisor (privity) Must be sufficient, not necessarily adequate Cannot be for the performance of existing duty Re McArdle Tweedle v. Atkinson Chapple v. Nestle Glassbrook v. Glasgow Week 4: Vitiating elements Freedom of Contract is Central to Contract Formation An agreement is BINDING: This means that when two or more parties enter into a contract, they are legally obligated to fulfill the terms and conditions outlined in that contract. Thus ‘loss’ of FREEDOM: When individuals enter into a binding agreement, they may be restricted in specific ways, such as giving up some of their freedom or rights as part of the contract. ‘Giving up’ of freedom must be VOLUNTARY and WITH FULL KNOWLEDGE: For a contract to be valid and enforceable, any restriction on freedom or rights must be done willingly by all parties involved, and they must have a clear understanding of the consequences of their agreement. If INVOLUNTARY, the ‘consent’ of the party in error is ‘defective’: If one party is coerced, misled, or otherwise forced into an agreement without their voluntary and informed consent, their consent is considered defective, and the contract may not be enforceable. The courts will not enforce an agreement that is based on defective consent: Courts generally do not enforce contracts where one party's consent is defective due to coercion, fraud, misrepresentation, or other factors that undermine the voluntary nature of the agreement. This is also true of agreements contrary to public policy or illegal: Contracts that violate public policy or involve illegal activities are typically considered void and unenforceable. In summary, these statements reflect fundamental principles of contract law. A valid and enforceable contract requires voluntary, informed consent from all parties, and the terms of the contract must be legal and not contrary to public policy. Contracts that do not meet these criteria may be deemed unenforceable by the courts. WHAT CAN MAKE A CONTRACT VOIDABLE OR VOID? First, you have to have a validly formed contract Prohibited Contracts • Statutory Illegality • Contrary to Public Policy Defects of Consent • Mistake • Fraud • Threat / Duress • Undue Influence • Misrepresentation (CL) Terminology • Rescission = Unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante) • Avoidance = Cancelling a contract when it cannot be continued or is no longer profitable. The parties are released from any future performance of their obligations and restitution of that which has already been delivered may be required. • Void Never existed in the eyes of the law; lacks enforceability in law • Voidable Contract valid until the party applies for the contract to be declared void. ILLEGALITY: Illegality Statutory Provisions and Contract Legality: All jurisdictions have laws prohibiting certain types of contracts. Examples: Contracts encouraging criminal activity (e.g., hiring a hitman) or involving buying things that knowingly were stolen (fencing). Statutory illegality is often aligned with public policy or moral standards, providing a clear legal basis for contract invalidation. Void Contracts and Statutory Prohibitions: When a contract violates a statutory provision, the court may declare it void. Example: Contracts involving the sale of body parts, which is prohibited by statute, would be rendered void. Contracts are null and void where there is illegality OR may be void or voidable where they infringe on mandatory law. Illegal and Unenforceable Contracts • Contracts void or declared illegal by statute − e.g., Contracts whose object is criminal activity • Contracts void or illegal at common law − Contractstooustthejurisdictionofthecourts − Contracts prejudicial to family life, i.e. any arrangement that will harm a marriage or the family. − Contracts in restraint of trade. Defects of consent: Vitiating Elements – Defects of consent • Vitiating factors “poison” the formation of the contract! • Vitiating factors are elements or circumstances which render a contract void or voidable, affecting its enforceability and validity • The law aims to protect the party who believes there WAS a real contract UNLESS there is − Mistake − Threatsandduress − Undue Influence − Fraud − Misrepresentation(CommonLaw) French Law – Civil Code Art. 1130. – Mistake, fraud, and duress vitiate consent where they are of such a nature that, without them, one of the parties would not have contracted or would have contracted on substantially different terms. German Law – Civil Code Section 119 - Voidability for mistake - (1) A person who, when making a declaration of intent, was mistaken about its contents (...) may avoid the declaration if it (...) the person would not have made the declaration had they been aware of the factual position and had they had a sensible understanding of the case. Mistake: Vitiating Elements – Defects of consent • Vitiating factors “poison” the formation of the contract! • Vitiating factors are elements or circumstances which render a contract void or voidable, affecting its enforceability and validity • The law aims to protect the party who believes there WAS an actual contract UNLESS there is − Mistake − Threatsandduress − Undue Influence − Fraud − Misrepresentation(CommonLaw) Causal Link – WITHOUT the Mistake , the party would have entered into a contract Rule of thumb – the contract is then VOIDABLE Mistake – What’s in it? 1. Misapprehension of the Correct Situation: One party or both parties must have a mistaken understanding of a fundamental or essential characteristic of the subject matter (e.g., the nature of goods or a person's quality). A trivial mistake, such as a minor detail of limited relevance, does not meet this criterion. 2. Contract Would Not Have Been Concluded Under Correct Assessment: There must be a direct causal link between the mistake and the decision to enter into the contract. For example, a party paying a high price for a book thinking it's a rare first edition when it's actually a reprint would likely not have paid that price with correct information. 3. Clear Knowledge by the Other Party: It should be evident to the other party that, had the mistaken party known the truth, they would not have entered into the contract (or not on the same terms). The other party doesn't necessarily need to know about the specific mistake, but they should be aware or reasonably expected to be aware of the importance of the mistaken characteristic to the party. 4. Reasonable Reliance and Communication: Parties are expected to communicate their intentions or specific needs, especially if they significantly impact the contract. For instance, if a buyer intends to use a car for extreme activities, they should inform the seller to ensure suitability. 1. Unilateral mistake Only one party is mistaken. The contract will be upheld unless the non-mistaken party is aware of the mistake and tries to take advantage. A company orders 30 coffee machines for the price of EUR 30 per unit. However, due to a typo in the contract, the supplier mistakenly wrote EUR300 per unit instead of EUR30. The company signs the contract without noticing the mistake and later realizes the error. This is an example of a unilateral mistake, as only the supplier was mistaken about the price, and the company was unaware of the mistake. Be careful with the following: Someone selling their products using words such as ‘unique’, ‘the best’, and ‘the cheapest’ is general sales talk in invitation-to-treat mode and normally does not create rights. Someone selling a fake product - a ‘gold’ ring which is not gold – should not make us think about rules on a mistake. The wronged party should claim for performance, damages, or termination 2. Mutual mistake (UK) Both parties are mistaken, but different mistaken beliefs. Raffles v. Wichelhaus [1864] EWHC Exch J19 They agreed sale of 125 bales of cotton to arrive in Liverpool on ship named “Peerless”; 2 (two) ships called “Peerless” to arrived in L’pool: one in Oct., another in Dec. Claimant thought it was the December shipment; defendant thought it was October. Court will try and uphold the contract, but in this case impossible to determine which ship was intended, therefore, the contract avoided. There was no actual meeting of minds, consensum ad idem. 2. Common Mistake: Res Extincta Couterier v Hastie (1856) 5 HL Cas 673 Parties contracted for sale of corn. At the time of the contract the corn was in transit. However, during the transit (and at the time of the sale), the corn had fermented and was no longer fit for sale. The plaintiff gave notice that he repudiated the contract on the ground that at the time of the sale to him the cargo did not exist. The court held that since the subject matter of the agreement did not in fact exist at the time of contracting, the contract was void for mistake. Fraud: Fraud (Lies) But for the representation to deceive (causal link), the party would not have entered into the contract French Law – Civil Code Art. 1137 - Fraud is an act of a party in obtaining the consent of the other by scheming or lies. The intentional concealment by one party of information, where he knows its decisive character for the other party, is also fraud. For example: • Tampering with a car odometer to deceive client into buying a car. Buyer may reclaim contract price and seek damages if breakdown happens after delivery. • Company sells “vitamin” pills which contain nothing but wheat. Company intentionally lied to customers. Misrepresentation: UK Misrepresentation • Misrepresentation = Common law concept. • It is A FALSE statement of fact that has the effect of INDUCING a party to ENTER into a contract. THREE ELEMENTS - In order to prove a misrepresentation. − A false statement of past or existing fact has been made, − The statement was made to the party bringing the court action. − Thestatementhadinfluencedthepartybringtheclaimtoenterintothe contract. Three Types of Misrepresentation − Innocent honestly made − Negligent honestly made,but ought to have known Hedley Bryne v. Heller − Fraudulent knowing it was untrue or reckless as to truth Derry v. Peeks Fraud (Civil law) / Misrepresentation (Common Law) Fraud normally overlaps with Common law notion of Fraudulent Misrepresentation Threat/Duress: Threats (Civil Law) & Duress (Common Law) But for the imminent and serious threat (causal Link), the party would not have entered into a contract. What is a Threat or Duress? • Reason: Abrogates Contractual Freedom • Types of threat: Physical or economic • Causative factor: The threat must be the reason for entering into the contract • Effect: Voidable at the instance of a party to whom duress is directed. Such a party may also claim damages. Undue influence: Abuse of Circumstances / Undue Influence But for the dependency that was taken advantage of (causal link) party would not have entered into a contract 41 Abuse of Circumstances or Undue Influence What is undue Influence? • Contradicts the principle of freedom of contract • Germany and England: different from a threat / Exploits (takes advantage of) a relationship between parties that leads to an unfair situation. France sees it as a variation of a “threat.” • Effect: Contract is voidable at the instance of the party negatively affected. How does a contract come to an end? MISREPRESENTATION Discharge of a contract: By performance: THE BASIS: DUTY TO FULFILL OBLIGATIONS Exchange of Promises = Obligation to Perform: In a contract, promises are exchanged between the parties involved. Each party agrees to do something (or refrain from doing something), and this exchange of promises creates an obligation for each party to fulfill their respective commitments as outlined in the contract. When Parties Perform Their Obligations Under the Contract: The contract sets out specific terms and conditions to which the parties must adhere. When both parties fulfill their respective obligations as specified in the contract, they have performed their duties under the agreement. The Contract is Discharged by Performance: When both parties have successfully performed their obligations as required by the contract, the contract is considered discharged. In other words, the contract is fulfilled, and there are no further obligations or duties remaining for either party to perform under that specific contract. Performance = The End of the Contract / Termination: Once the parties have performed as required, the contract ends or is terminated because there are no outstanding obligations to be met. When is a Contract Performed?: A contract is considered performed when both parties have completed all the obligations and promises outlined in the contract. This is typically referred to as the "execution" or "fulfillment" of the contract. The exact timing of when a contract is performed depends on the terms and conditions stipulated within the contract. It could be upon delivery of goods or services, payment, completion of work, or any other action specified in the contract. In essence, a contract is considered performed when both parties have done everything the contract requires and all their obligations have been met. The contract is terminated then, and its terms no longer bind the parties. WHEN IS THE CONTRACT PERFORMED? Performance But for the imminent and serious threat (causal Link), the party would not have entered into a contract. Substantial or partial performance: Exception to Strict Rule - Substantial Performance • Where a party has substantially performed obligations under a contract, the courts will not apply the strict rule. • Substantial performance is a matter of interpretation. • Discharge of contract by substantial performance avoids the injustice caused by applying the strict rule. Strict or Partial Performance? - Common Law Cutter v Powell (1795) • A sailor agreed to sail from Jamaica to Liverpool under a contract which provided as follows: • ‘Ten days after the ship Governor Parry, myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793.’ Strict or Partial Performance? - Common Law • The ship sailed from Jamaica on 2nd August 1793, and arrived in the port of Liverpool on 9th October 1794. T. Cutter went on board the ship on 31st July 1793, sailed on 2nd August 1793, and proceeded, continued and did his duty as second mate in her from Kingston until his death, which happened on 20th September 1793 (i.e., before the ship's arrival in the port of Liverpool). The usual wages of a ship's second mate on such a voyage, when shipped by the month out and home is four pounds per month, but when seamen are shipped by the run from Jamaica to England, a gross sum is usually given. The usual length of a voyage from Jamaica to Liverpool is about eight weeks. Strict or Partial Performance? - Common Law • The court held that the contract was clear about what constituted performance. That where the parties have come to an express contract, none can be implied. • This performance had not occurred because the sailor did not complete the journey. Where work is to be done for a sum named neither that sum nor any part of it can be recovered while the work remains undone. • As such, the court held that the ship-owners were not under any obligation to pay the widow because of the non-completion of the contractual obligations by the sailor = Strict Rule of Full Performance.