Pre contract and contract (4,5,6,7)

Question 1

What is the phase called before making a contract?

Answer 1

pre-contracutal phase

Question 2

What does the pre-contractual phase contain?

Answer 2

formal and informal exchanges

Question 3

What are formal exchanges

Answer 3

Formal documents like the Letter of Intent, Non-disclosure agreement, Memorandum of Understanding and Head of Agreement

Question 4

What are informal exchanges

Answer 4

calls, emails and meetings

Question 5

what is the Letter of Intent

Answer 5

aims and intentions of negotiation

Question 6

What is the purpose of the Letter of Intent

Answer 6

confirm the commitment of the other party

To document that they are negotiating

Technical aspects for further negotiation (who is drafting and timeframe)

Determining legal framework (choice of law and jurisdiction, termination etc.)

Question 7

What does the letter of intent contain?

Answer 7

Name of parties

Statement of intend (like a preamble)

A part that covers term that have already been agreed upon

Binding terms (could be a confidentially clause or cost distribution clause)

Question 8

Is the Letter of Intent binding or non-binding

Answer 8

Both. Split clauses can be used to make some parts binding and some non-binding

Question 9

What is the non-disclosure agreement?

Answer 9

Agree of confidentiality

Question 10

What is the Memorandum of Understanding and Head of Agreement

Answer 10

MoU: Parties document the agreed terms that have been negotiated so far
HoA: Document where all key terms which have been negotiated are listed.

What is it:
Document of progress and terms already agreed upon

Working instructions for legal team to put into contract the already agreed upon terms

Clarification of further schedule

Question 11

What is contractual liability pre contract.

Answer 11

If the pre-requites of contract formation is met then you a legally bound even if you have signed “THE contract” yet.

The pre-requisites can easily be found and misinterpreted in the formal documents.
The part which is important to focus on to ensure that you aren’t legally bound is the wording which can ensure that you aren’t “intended to be legally bound”.

Question 12

What is non-contractual liability?

Answer 12

Relates to behaviour in pre contractual stages.
Stems form obligations in behavior.

2 types of obligations:
- Obligation to negotiate in good faith
You have to make a serious effort to reach an agreement

• Obligation to disclose information that is vital for reaching a contract

Used and accepted in civil law.
In common law they just write them into a contract.

Question 13

How is the law governing the contract detmined?

Answer 13

Either through a choice of law clause and if not then you can use Rome 1 to decide which law to use and Brussels 1A to decide which court to use if you are from the EU.

If not then you need to rely on national law

Question 14

What are the prerequisites for contract formation?

Answer 14

The same for common and civil law:

Offer and acceptance:
- Requirements determined by national law:
- Language, Definiteness and Certainty of terms, Method of communication
- Circumstances
- Custom of the industry

Essential elements:
- Price
- What the product is
- The Parties

Intention to be legally bound:
The parties need to know they are legally bound and that they are signing a contract.

Formal requirements:
Could be:
Requirement for it to be in writting.

Only common law
- Consideration:
Both parties need to give something and therefor receive something (Gifts or one-sided givings are not a contracts)

Question 15

Does e-contracts use the same requirements

Answer 15

yes. But some national laws have different requirements. For example how a e-contract can fulfill the written requirements that there are in some contracts.

There can also be special rules for the incorporation of standard terms

Question 16

What is Smart Contracts

Answer 16

Automatic self-executing software which independently executes obligations upon triggering

Question 17

What is the structure of a contract

Answer 17

Introduction:
Contains the preamble and recitals

Definitions

Primary operative provisions

Secondary operative provisions

Framework provisions

Question 18

What is the introduction in a contract?

Answer 18

Title and Date

Identification of parties

Preamble:
Statement of the intentions of the parties and tell about the history of the deal.
Is non-binding.
In common law it is neccessary for guidance of interpretation

Question 19

What are the definitions in a contract?

Answer 19

Non-binding
Defines the phrases used in the contract, for example what is a business day.

Common law uses a large definitions section as the dont have statutory laws and write everything in the contract instead.

Question 20

What are the primary operative provisions in a contract?

Answer 20

All terms which defines the initial plan of the parties.

Typically contains:
- Sales clauses
- Price clauses
- Payment clauses
- Delivery clauses
- Documents needd

Question 21

What are the secondary operative provisions in a contract?

Answer 21

Clauses which explain the plan b if something goes wrong

Question 22

What are the framework provisions in a contract?

Answer 22

Terms which do serve the purpose of manifesting the business deal as such but instead provide a framework to the deal it self.

Called boiler plate clause:
You dont change them to much but instead are just adapted to the given deal

Could be an assignment clause: agreement may not be assigned by one party without the acceptance of the other

Could be a Governing law and jurisdiction clause

Could be a survival clause

Question 23

What are model contracts and terms?

Answer 23

Contracts are usually not started form scracth but consists of model contracts or model terms.

Terms or full contracts that you have purchased or found online.

The are negotiable and need to be handed to the other party and and accepted

They have to be tailored to the circumstances.
Especially so that it fits the mandatory governing laws

Question 24

Who can you buy model contracts from

Answer 24

International Chamber of Commerce located in Paris

Question 25

what are standardized terms?

Answer 25

Terms designed for repeated use. Typically not adjusted or negotiable. They still have to be tailored to ensure they don't conflict with mandatory governing law. Rationale: You want standard solutions for standard problems which are then solved by standard clauses

Question 26

What are the advantages and disadvantages of using model contracts

Answer 26

Advantages of model contracts: - Time and Cost effective Disadvantages of model contracts: - Might chose a contract that doesn't fit the area you are in - Could be outdated

Question 27

what are the types of standardized terms?

Answer 27

The can be: - Private or public (either made for specific companies or for the public) - Written or non-written Private and written: General terms and conditions Trade terms Public and written: Trade terms (INCOTERMS) Private and non-written: Trade practice/usage/custom (london metal exchange hand signs) Public and non-written: Trade practice/usage/custom (could be the handshake when buying cows)

Question 28

How do you incorporate the terms and conditions and governing law into you contract (written standardized terms)?

Answer 28

You reference them in the contract because the the terms are not part of the contract itself. They need to appear as a clear statement in the offer and acceptance and contract. The other part must have had a chance to read to terms.

Question 29

Do non-written standardized terms need to be referenced in the contracts

Answer 29

No. The apply when you enter the certain industry

Question 30

What is a sales clause

Answer 30

Defines the sales: Who is selling What to Whom. Usually combined with price and/or payment clause

Question 31

What is a price clause

Answer 31

How much the product is being sold for. you need to be specific with which currency is used. They can be fixed (a fixed buying price) or variable price which is based on later earnings

Question 32

What is a payment clause

Answer 32

When is the payment due Conditions for containing the payment Mode of payment Target account Currency Handling of delays Securities

Question 33

How do you secure payment?

Answer 33

there are different ways. Some are more secure for the buyer and some are more secure for the seller. Advance payment is the best option for the seller but worst option for the buyer Open account is the best option for the buyer but worst option for the seller Documentary collection is in the middle for both parties

Question 34

What are Trade Documents and what are the different types

Answer 34

Simple documents: doesn't give you the right to the goods for example a dock receipt. Documents of title: proves ownership of the goods and are required for the release of goods eg. bill of lading

Question 35

What is the bill of lading

Answer 35

Is a document of title and required for the realse of goods. Issued by carrier Functions: - Receipt of delivery of goods to carrier - Actual carrier contract Negotiable: goods can be handed over to any carrier Non-negotiable: goods are only handed over to the person mentioned in the document

Question 36

What are delivery obligations

Answer 36

Type of trade document Could be documents the buyer requires from the seller eg. the bill of lading

Question 37

how is payment tied to delivery of documents

Answer 37

You can pay via letter of credit You can pay via document collection

Question 38

What is a letter of credit

Answer 38

Promise written on a legal document issued by a bank. It promises to pay the holder if he fulfills certain obligations eg. shows that the goods have been shipped as promised. Bank pays seller before the buyer has actually paid the bank

Question 39

What is documentary collection

Answer 39

There is no pre payment like in the letter of credit. Instead the bank holds the shipping document needed to receive the goods and only give them to buyer when the have payed.

Question 40

What is conformity of goods

Answer 40

Legal term which describes whether the goods subject to the contract fulfill the agreed criteria. Example: the contract promises apples and if apples is what is delivered then there is conformity. Areas of definition: Quality of the product Quantity of the product Packaging of the product

Question 41

What are the 3 ways conformity can be handled

Answer 41

Terms of the deal Express warranties Implied warranties

Question 42

Explain terms of the deal

Answer 42

where: In the contract How: - Definition clause: exactly to describe what the product should be like - Sales clause: describe the quantities - Packaging clause: describe the packaging required - Product specifications: describe other product specifications in appendix Why: Define the deal being made and product that should be delivered Remedy: If obligations aren't met then there are certain liability both in civil and common law. Common: breach liability Civil: contractual liability

Question 43

Explain express warranties

Answer 43

Is put in the contract. It promises the future performance of your product. You can use this to enhance or limit your liability. Remedy: If obligations aren't met then there are certain liability both in civil and common law. Common: breach liability Civil: contractual liability

Question 44

Explain implied warranties

Answer 44

Is found in the governing law. Are used as gap fillers and therefor only apply if the contract hasn't mentioned anything on it. They are used as a minimum legal standard and for the buyers protection. Remedy: If obligations aren't met then there are certain liability both in civil and common law. Common: breach liability Civil: contractual liability

Question 45

Explain the differences in liability in civil law and common law

Answer 45

Common law: - Has a prerequisite which is breach of contractual obligation (Breach liability) - Has no Fault Claim (Civil law has) - Only 2 remedies: Damages and Termination. Other remedies are only available at equity which requires the discretion of the judge Civil Law: - Has varying prerequisites depending on the claim - Fault requirement - Various remedies available

Question 46

Explain a breach of contract

Answer 46

Also called non-performance or default could be a non-performance of contractual obligations. An exception is if the party has already announced that they will breach the contract, let say they have announced that they won't be able to deliver on time

Question 47

Explain fault requirements

Answer 47

Civil law: Fault of breaching party is required for liability Common law: Breaching party must not use fault as a defence and the party effected is not required to prove any element of fault.

Question 48

Explain causality

Answer 48

2 Concepts: - Causal Link (Equivalence): The link between the breach of contract and the damage. If the damage has only happened due to the breach of contract then there is causality. - Foreseeability (adequacy): You are only held accountable for the damage if it was foreseeable and proximate. If not then there should be no liability or causality

Question 49

Explain foreseeability

Answer 49

Entales 2 aspects. It is either: Foreseeable by any reasonable person or Foreseeable by the parties only due to actual knowledge

Question 50

What types of compensation are there?

Answer 50

unliquidated damages Liquidated damages Quantum meruit

Question 51

Explain unliquidated damage

Answer 51

you sum up the individual position one by one and then reach a result. You can calculate it in 2 ways: -Expectation Damages The party is put in a position as if the contract was performed correctly. The net profit which would have been made if the contract haden't been breached is paid as compensation - Reliance Damages The party is put in a position as if the contract wasn't signed. Cost and expenses made after the contract is signed is being paid back as compensation

Question 52

Explain liquidated damage

Answer 52

You pay a lump sum instead of going through calculating each position. This is a fixed amount put in the contract beforehand. A disadvantage is that the amount could be way to high and therefor instead work as a penalty

Question 53

Explain quantum meruit

Answer 53

You calculate the position of damage based on the assumed value of each position instead of concrete bills and cost.

Question 54

Which type of compensation is used if it hasn't been decided in the contract

Answer 54

Usually governing law would chose Unliquidated Damage and dictate which type of formula is used.

Question 55

When do you have the right to terminate a contract

Answer 55

The contract give you the right to terminate either through a balanced or asymmetric termination clause governing law gives you statutory termination rights (the case in most civil law systems) In common law you have the right to terminate after a Repudiatory breach

Question 56

What is ordinary termination

Answer 56

Not related to any breach. Clause in the contract that states frem when to when the contract is running and after that it will be terminated

Question 57

What is a balanced and asymmetric termination clause?

Answer 57

Balanced: clause that give both parties equal right to terminate the contract in case of a material breach Asymmetric: only one party has the right to terminate the contract in case of a material breach

Question 58

explain repudiatory breach

Answer 58

Part of common law 3 types: - Material terms (conditions) They cover the core of the contract (payment, delivery etc.) You are allowed to terminate the contract. - Intermediate terms Breach permits termination if the consequences are serious. - Non-material terms (warranty) Less important side terms Don't allow for you to terminate the contract if a breach happens here.

Question 59

Explain remedies at equity

Answer 59

Used in common law if the court finds that damage or termination are insufficient to do justice in this case. They are not given automatically and only at the discretion of courts. Not very reliable for the parties and therefor they write what they need directly into the contract An example of a remedy in common law could be that the party who breached the contract has to do a specific performance for example fulfill the contractual obligations anyway

Question 60

What is the limitation of liability

Answer 60

General rule: there aren't any limitation of liability. If you want to limit your liability you have to look at different fields of liability which stem form your contract and limit each one of them seperately. There might be formal requirements when limiting liability for example that the limitations must be in capitalized letters There can also be statutory limitations to limiting liability for example mandatory governing law that prohibits limitation of certain aspects of liability

Question 61

Mention some limitation of liability clauses

Answer 61

Maximum amount of liability: a certain amount set as a maximum amount of liability Limitation of remedies: limit the different remedies a counterparty can demand Limitation the actions: limit time the counterparty can file a claim to court Limitation of warranty: you exclude certain parts that buyer can make warranty claims on

Question 62

What is indemnification?

Answer 62

you promised compensation by you counterpart for any claims made by a third party. Example: You buy CD from a company in Japan an sell them in you store. One of you customers makes a claim that the CD's are broken. The Japanese company has, due to indemnification, promised to pay for the the expenses you get from the customers claims.

Question 63

What is force majeur?

Answer 63

Legal solution for when a obligation becomes impossible for one party.

Question 64

What is hardship?

Answer 64

Legal solution for when a obligation becomes economically unbearable for one party.

Question 65

What are the 3 pre-requisites for force majeure

Answer 65

Impossibility Unforeeseablity No fault in prevention (you have tried to prevent, but it didn't work)

Question 66

What are typical remedies for force majeure?

Answer 66

Suspension or termination of contract

Question 67

What are different types of impossibility requirements

Answer 67

Physical: the obligation is impossible for anyone to perform Legal: you could fulfill the obligation but legal provisions doesn't allow it Economic: Economically it is unbearable for the party Personal: it is not physically impossible but you can't do it. example: a soccer player can't play due to broken leg. Only Germany recognize the last 3.

Question 68

How is force majeure recognized in national law

Answer 68

Recognized in most civil law countries, but in common law it has to be written into the contract.

Question 69

What is frustration?

Answer 69

a remedy in common law for when a default is based on matters of impossibility. It is a remedy at equity. Court only grants it if the circumstances go to the core of the contract and if there aren't any other alternative.

Question 70

What is needed in a force majeure clause?

Answer 70

Define the events covered by the force majeur clause The perfomance duty of the party is suspended in the case of any force majeure events. The liability for default is excluded Definition of the duties of the parties

Question 71

What are the 3 pre-requisites for Hardship

Answer 71

Substantial economic burden The substantial burden must be a result of the change in circumstance outside the parties sphere of risk. Party would not have singed the contract if they had known it would result in this burden.

Question 72

What are typical remedies for hardship?

Answer 72

Termination of contract or re-negotiation