Lecture slides: Contract Law (II) - Endterm

Question 1

What is good faith in civil law?

Answer 1

Helps parties & courts impose a form of solidarity in limitation of party autonomy. It helps parties & courts to take into account additional measures when negotiating and/or performing a contract

Question 2

What is good faith in common law?

Answer 2

• There is no implied term to perform a contract in good faith
• Doctrine of good faith as argued by Lord Denning was not followed, but courts and legislators have implicitly acted on principle of good faith and developed solutions to provide equity to parties

Question 3

What four factors make reading contracts difficult?

Answer 3

1. Meaning of words is not always clear
2. Parties cannot predict future developments
3. Methods of interpretation differ throughout the world
4. Increasing use of foreign legal concepts subject to other legal systems

Question 4

What are the two methods of interpretation of legal texts?

Answer 4

1. Subjective (will) theory
2. Objective (declaration) theory

Question 5

What is subjective (will) theory:

Answer 5

What is the true subjective, common meaning of the parties?

Question 6

What are the relevant elements of subjective (will theory)

Answer 6

• Negotiation process
• Draft agreements
• Correspondence between the parties
• Parties conduct ex post & ex ante

Question 7

What is objevtive (declaration theory)?

Answer 7

What is objective meaning of a contract, based on all relevant information available for an objective third person?

Question 8

What are the relevant elements of objective (declaration theory)?

Answer 8

• Textual interpretation
• Preamble
• Plausible legal consequences

Question 9

What is contra proferentem?

Answer 9

interpretation against the party who wrote, inserted the contractual clause. When there is doubt about the meaning of a contract term not individually negotiated, an interpretation of the term against the party that supplied (inserted) the term is preferred.

Question 9

Name five rules of contract interpretation?

Answer 9

1. Contra proferentem
2. Preference for negotiated terms
3. In light of a contract as a whole
4. Favor those terms that give the contract legal effect
5. Preference for originally drafted version in case of language difficulties.

Question 10

What is force majeure?

Answer 10

When a not foreseeable event makes the performance agreed to in the contract impossible, relief is usually given to the affected party. Often no accepted in case of unascertained goods.

Question 11

What is relief?

Answer 11

Affected party is excuses in the event of non-performance. Affected party who performs could be held liable.

Question 12

What does pacta sunt servanda mean?

Answer 12

parties are bound by their agreements and were free to determine the content of their obligations  equality in values exchanged is immaterial

Question 12

Name the five conditions to give relief?

Answer 12

1. Burden of proof lies on affected party
2. Impediment is beyond the control of the affected party
3. Affected party must give notice to the other party
4. Unforeseen circumstances at moment of conclusion of contract
5. Risk was not allocated in the contract

Question 13

What is hardship?

Answer 13

performance has not become impossible but becomes more or extremely onerous or difficult.

Question 13

What are the two types of force majeure?

Answer 13

• Definitive force majeure: excused for the non-performance
• Temporary force majeure: impediment only suspends obligations of affected party

Question 14

What are the steps to proceed when someone faces hardship?

Answer 14

1. Hold affected party to original terms, granting specific performance and damages
2. Granting some relief to affected party (same conditions as with force majeure)

Question 14

Name two consequences of hardship?

Answer 14

1. Giving court the power to adjust contractual provisions to suit the new circumstances
2. Obligating parties to renegotiate in order to restore contractual equilibrium.

Question 15

What is breach of contract?

Answer 15

If party or person entrusted does not perform, other party must launch action to obtain a forced performance of obligation. If non-performance cannot be excused, claim remedies for the non-performance

Question 15

Name the different remedies for non-performance?

Answer 15

1. Demand specific performance (preferred by legislators)
2. Suspension of one’s own obligations
3. Termination of contract
4. Price reduction
5. Repair or replacement of defective goods/ services
6. Damages

Question 16

When can a contract be terminated as a remedy for non-performance?

Answer 16

• Only in case of fundamental breach. Conditions:
• Non-performance causes fundamental breach
• Notice is to be given to aggrieved party within a reasonable time after it knew or could know the fundamental breach

Question 16

Name two instances in which non-performance is fundamental?

Answer 16

• It substantially deprives aggrieved party of what it was entitled to expect under the contract, unless other party didn’t and couldn’t reasonably have foreseen that result (force majeure).
• It is intentional and gives aggrieved party reason to believe that it cannot rely on other party’s future performance

Question 17

What are the three steps to suspend one’s own obligations as a remedy for non-performance?

Answer 17

• First party obliged to doesn’t perform
• Party supposed to perform after first party suspends its own performance obligations
• As long as first party doesn’t perform its obligations under the contract

Question 18

What is the effect of contract termination in english private law (common law)?

Answer 18

• Victim released from obligations not yet accrued, but not from obligations which had already accrued
• Guilty party from primary obligation not yet due; no release from primary obligations already then due

Question 19

What is the effect of contract termination in civil law legal systems?

Answer 19

- In principle, retroactive effect in case of fundamental breach. Parties have to restitute everything which have been exchanged.

Question 20

How does a price reduction work as remedy for non-performance?

Answer 20

- Party who accepts performance not conforming to contract may reduce the price - Proportional decrease: decrease in value of performance at the time this was tendered compared to value which conforming tender would have had at that time - No extra damages for the reduction of value if chosen, but could be collected for other losses

Question 21

How can damages be a remedy for non-performance?

Answer 21

- Aggrieved party entitled to damages for loss caused by other party’s non-performance which is not excused. - Could be on top of claiming specific performance or termination of contract - Harm/loss caused by non-performance or not prevented by the cure

Question 22

Explain how cumulation of remedies work?

Answer 22

- Late payment interest and damage clause 1. Late payment interest compensates financial losses which are result of non-performance 2. Damage clause compensates costs of administration linked to non-performance.

Question 23

Name two restrictions or limiations of remedies?

Answer 23

1. Contractual clauses to restrict or limit the right to invoke remedies 2. Contractual clauses to restrict damages

Question 24

How should an aggrieved party mitigate its harm?

Answer 24

- Aggrieved party is not entitled to damages for loss suffered to extend that harm could have been reduced by the latter party’s taking reasonable steps - Aggrieved party is entitled to recover expenses reasonable incurred in attempting to reduce the harm.