8. Functions, contents and choice of contract law

Question 1

What assumption is contract law based upon?

Answer 1

Parties are the best judges of their own interests Subsidiarity principle => freedom of contract

Question 2

Define freedom of contract

Answer 2

1. Everyone is free to contract or not to contract, to choose the person with whom to contract and to determine the content and form of the contract within limits imposed by legislation
2. Contractual freedom DOES NOT allow derogation from rules which are an expression of public policy

Question 3

Limits to freedom of contract

Answer 3

• May happen that parties would like to contract in a way that is considered contrary to law or morality
• May happen that one of the contracting parties is not capable of assessing his/her own interest, or though being capable, his or her will is affected by some ground of rationality

Question 4

What happens when one party is affected by ground of irrationality?

Answer 4

Law dictates mandatory rules - declare such a contract void or at least avoidable by one of the parties

Question 5

Remark about EU internal mkt law

Answer 5

In B2C contracts, EU internal mkt law imposes intense limits on party and autonomy

Question 6

An example of uniform contract law

Answer 6

UN convention on contracts for the international sales of goods Hard law Solely applicable to B2B sales of goods Known as Vienna convention or CISG

Question 7

Note about European contract law

Answer 7

• European legislature has enacted nearly 20 directives regarding contract law, which in almost their entirety rule solely to B2C transactions
• Rather fragmented - directives only deal with special contracts (e.g. package travel, doorstep sales, consumer sales) and with only certain aspects of contracts (e.g. info duties, rights of withdrawal)

Question 8

Who primarily lays down national contract law?

Answer 8

Legislature and the courts

Question 9

Notes about commonalities of national contract law

Answer 9

Despite commonalities among national contract laws, parties may have the need to choose a particular national law to regulate their contract, particularly when they undertake a cross-border transaction

Question 10

Contents of contract law

Answer 10

1. When is a binding contract concluded? When can a promise to do, or not to do, or to give something be enforced in court? => FORMATION
2. Given that a contract is concluded, WHAT SHALL BE EXACTLY PERFORMED BY THE PARTIES in order to execute it? => DETERMINATION OF CONDITIONS AND WARRANTIES (AND INNOMINATE TERMS)
3. In case a party does not perform a contract, WHAT CLAIM CAN BE PURSUED BY THE INNOCENT PARTY? => REMEDIES FOR NON-PERFORMANCE

Question 11

Define choice of law

Answer 11

Choice of law clause is a term of a contract by which the parties specify:

1) Which court shall have jurisdiction in the case of legal disputes between them;
2) Which law is applicable to their contractual relation

Question 12

The question of jurisdiction

Answer 12

• If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction
• Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either:
  a) in writing or evidenced in writing;
  b) in a form which accords with practices which the parties have established between themselves
  c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

Question 13

Arbitration clause to question of jurisdiction

Answer 13

“Any dispute or claim arising out of this Agreement shall be referred to and resolved by the International Chamber of Commerce (ICC) in Paris in accordance with the ICC Conciliation and Arbitration rules”

Arbiration is ruled by domestic jurisdictions as well as by international treaties

Question 14

The question of proper law (2 choices)

Answer 14

1. Hard law
2. Soft law

Question 15

Hard law

Answer 15

To the contract law rules of a national State (e.g. France, Delaware, etc.)

Question 16

Soft law

Answer 16

To the contract law rules set out in a restatement (e.g. PICC, PECL, DCFR), generally combined with an arbitration clause

Question 17

Best-known sets of soft law rules in contract law

Answer 17

• Unidroit Principles of International Commercial Contracts (PICC) of 1994-2016
• Principles of European Contract Law (PECL) of 1995
• Draft Common Frame of Reference (DCFR) of 2008-2009

Question 18

PICC

Answer 18

• cover all the most important topics of general contract law
• main source of inspiration was the CISG
• general rules of international sales law and other contracts to be performed at one time
• drafted by a working group composed by scholars and practitioners from all over the world

Question 19

PECL

Answer 19

• set of model rules drawn up by leading contract law academics in Europe set up by Ole Lando (“Lando Commission”)
• attempt to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold in common
• are based on the concept of a uniform European contract law system
• take into account the requirements of the European domestic trade

Question 20

Restatement (second) of contract

Answer 20

• seeks to formulate “in the aggregate” the American law of contract, as though the U.S. consisted of only one, rather than fifty, state jurisdictions
• when the single States are in conflict, it is represented not the rule adopted in their majority, but the “better view”

Question 21

When is choice of law barred?

Answer 21

when the business activity of the trader or the professional who enters into a contract has been either pursued in, or directed to the country where the consumer has her/his habitual residence

If so, the contract shall be governed by the law of the country where the consumer has his habitual residence

Question 22

Uniform commercial code in US

Answer 22

Since contract law is regulated at state-level, and there is no formal Federal contract law, uniform commercial code is drawn up by private organizations and actually adopted by the legislature of all 50 states, the District of Columbia, and the U.S. territories (e.g. Puerto Rico, American Samoa, etc.)

restricted to contracts for the sale of goods.