Contract Law I Flashcards
Bilateral contract
One party’s performance is given in exchange for that of the other party, e.g. contract of sale
The opposite is a gift contract
Promise
a unilateral declaration of commitment made by one person to another
A promise is said to “bind” the promisor
Command
a unilateral declaration binding the addressee - as e.g. a buyer’s notice to the seller regarding properties of the subject-matter of sale
Offer
a promise which loses its binding effect on the promisor if it is not accepted in due time
Most legal promises are offers, which means that they cease to be binding if they are not accepted before the expiry of a certain time-limit - the period for acceptance
Written gratuitous promises need not be accepted, but oral gratuitous promises do - indeed the acceptance must normally be made forthwith, cf. s. 3(2) of the Contracts Act
An offer is binding on the offeror from the moment it has been communicated to the offeree
Therefore, an offeror who regrets his offer is only capable of withdrawing it if he can manage to communicate his withdrawal so that it precedes the moment of the offeree’s cognisance of the offer itself – or coincides with it, at the latest. It is self-evident what is implied in “communicate” here
Rejection of offer
Where an offer is rejected by the offeree, it lapses definitively, cf. s. 5 of the Contracts Act
From the moment the rejection has been communicated to the offeror, he is free to dispose otherwise – in other words, the offeree is barred from withdrawing his rejection
Acceptance
the promisee’s adoption of an offer and an agreement contract is established when an offer has been accepted within the time and manner prescribed
Where the offeror has stated the period for acceptance in his offer, s. 2(1) of the Contracts Act provides that to qualify as acceptance in due time the acceptance must have reached the offeror before the expiry of the period fixed
Where the offer is made by letter, the period is computed from the day of dating of the letter
Where the offer has been made by telegram (currently not possible in Denmark), the time-limit is computed from the time of day at which the telegram was delivered at the telegraphic station, cf. s. 2(2)
In the determination of the period for acceptance the variable is the deliberation time – what constitutes normal sending (and return time) is beyond doubt
Delayed Acceptance
Where the acceptance does not reach the offeror before the expiry of the period for acceptance, the offer lapses from the moment of expiry
S. 4(1) of the Contracts Act provides that a delayed acceptance is regarded as a new offer, i.e. an offer from the original offeree to the original offeror which the latter may treat as he likes (including throwing it away)
The principle of placing the risk with the offeree may imply that the offeree holds a reasonably justified belief that his acceptance was in fact made in time and that the offeror must realise that the offeree is mistaken in his belief (the dating or postal stamp may indicate this)
Non-conforming acceptance
An acceptance which adds to the offer or contains limitations and reservations which do not correspond with the offer is deemed a rejection (cf. s. 5 of the Contracts Act and immediately above) in connection with a new offer (counter-offer from the original offeree), cf. s. 6(1) of the Contracts Act
The model of the Contracts Act for formation of contract (Example of af acceptance)
The offeror A sends an offer to the offeree B (e.g. an offer for 1 000 000 liters of oil at DKK 5 000 per 1 000 liters). B considers A’s offer and sends an acceptance corresponding with A’s offer which reaches A before the expiry of the time-limit set for acceptance
Example of an counter offer
Picture
Standard contracts - the adoption problem
If the standard terms are printed in the contract which the parties sign, the terms are agreed whether or not their contents are given above the signatures of the parties or reference is merely made there to the terms printed “on the back” (“below” or “next page”)
Although in principle the problem of adoption/non-adoption of standard terms and the problem of assessment of the contents are separate issues, it is indisputable that in the doubtful cases referred to above, the likelihood of regarding a standard term as adopted in- creases with the reasonableness of the term
Quasi contract
A party will be bound not only by his express promise but also by any implied promise made (e.g. a creditor who accepts a late instalment but omits to terminate the whole loan arrangement)
For business (certainty and reliability) purposes it is sometimes necessary to hold a person to be bound even if no express or implied promises can be ascribed to his conduct
ChatGPT svar:
In Danish contract law, there is something called a “quasi contract.” It’s a special situation where two parties don’t have an actual contract, but one of them has received a benefit or advantage from the other without a good reason. It’s like when someone gets something valuable from someone else, but they didn’t agree on it beforehand.
When this happens, Danish law has a principle called “unjust enrichment” (uberettiget berigelse). It means that the person who received the benefit unfairly might have to give something back or compensate the other person. This principle is used to make sure that things are fair and no one takes advantage of someone else.
EDI (Electronic Data Interchange)
EDI means Electronic Data Interchange on a general level but in this context the concept is used in a narrower sense to describe electronic transfer of trade date to enable substantial data to be processed at the addressee’s place immediately upon transfer
The advantage of a data structure model of such character increases with the amount of participants (in a common model)
(Example from slides, “automatic orders when stock runs low, Just-in-time-delivery”).
Formation of contract on an international level
If a Dane – or more typically, a Danish enterprise – enters into a contract with a foreign business (an international contract) there is an immediate problem as to whether issues on the contract are to be settled on the basis of Part I or by applying the “corresponding” rules of the contract partner’s legal system
The problem is termed choice of law and is dealt with in private international law, cf. also Chapter 22 below
The problem of choice of law is not identical with the problem of court jurisdiction – which is also true for international contracts
If a dispute between an Italian company from Milan and a Danish company from Copenhagen cannot be solved by negotiation and ends in court, the problem of choice of law involves deciding on the application of either Danish or Italian rules of law whereas the jurisdiction issue relates to whether the case should be brought before the court in Copenhagen or in Milan
Solutions via choice of law
To a wide extent the parties may agree on the law applicable (they may solve the choice of law problem by mutual agreement) but otherwise the answer to that question is very much dependent on the nature (type) of contract involved – money loan, sale, employment contract, etc., cf.
Different laws
Danish Act
US law
English law
CISG (International Act)
Many similarities, but also important differences to be aware of when trading Internationally
The right to withdraw invalid contracts
In a contract of sale the seller is bound to deliver the subject-matter sold at the time agreed and in proper condition for which the buyer is to pay the purchase price agreed in return
In a contract of employment, the employee must perform the work agreed for which the employer is bound to pay him the wage agreed etc
Where one of the parties fails to perform, the starting point is that the contract has been breached for which – under the circumstances – the other party is offered various remedies, in particular a right to demand performance (specific performance), to withdraw from the contract (rescission) and to claim financial compensation (damages and proportionate price reduction)
Danish law does not provide rules on a general right to withdraw from valid agreements to enable a party, in the absence of breach, to be released from his obligations under the contract unilaterally and at random
Termination rights
Termination when there is a breach (cause), or by will/convenience (because you have negotiated the right, or because you may do so according to background law)
Interpretation
most statutory rules in contract and property law are non-mandatory, which means that both in areas regulated by statute and areas regulated by case law the parties are prima facie to determine the contents of their contract themselves
As far as possible attempts are made to interpret the contract, i.e. it is sought via application of the contract’s individual elements (cf. Section 3.1.1 below) to determine the “reality” (contents) of this particular contract
Only when no more progress can be made by interpretation will gap-filling be re- sorted to – which means that the contract is supplemented by the rules of law, customs or principles applying to contracts of the particular type, cf. Chapter 2 above, especially Section 8, on the similar process in legislation v
Interpretation Elements
The most important sources for interpretation are – naturally – the words applied in the contract but other factors are also relevant
Information (e.g. witness statements) in respect of the negotiations preceding the making of the contract document may clarify vague draftings in the contract and the same applies to any previous contracts between the same parties
Where the parties have a common understanding at the entering of the contract on a certain issue in the contract this consensus will be decisive – even if the conception of the parties deviates from normal (“proper”) conception and even if one of the parties has now a different understanding of the contract term in question
Principles of interpretation
Where it is doubtful what a promisor has intended to bind himself for a first principle is to interpret his promise to the least onerous extent – the so-called minimum rule
With bilateral contracts (cf. Section 1 above) in which both parties are promisors and their promises are given in mutual exchange, the minimum rule is not very helpful
A principle of far more general application is the so-called “ambiguity” rule (in English law, the contra proferentem rule) upon which an ambiguity is interpreted against the party who drafted the contract
The ambiguity rule is primarily important for the interpretation of standard terms the drafting of which will often be left to one party
It is important to keep in mind that the ambiguity rule should not be applied too rigorously
Its application should be restricted to cases in which no result is obtainable by more individual interpretation factors – and the ambiguity rule is not applicable merely because a term might have been drafted with greater clarity
Gap-filling
Gap-filling is a kind of resignation in relation to interpretation – the attempt to hit “bull’s eye” is given up for the satisfaction of at least hitting the target
Therefore, interpretation precedes gap-filling but from an evidence point of view the contract party who claims that a decision was made at the entering into of the contract which deviates from the result which will obtain on the basis of gap-filling is faced with the burden of proof to that effect
If the parties agreed in the course of contract negotiations that a term which must be interpreted to the effect that an employee has been entitled to a notice of four months, this term will take precedence over the rules of the law on employees giving him a notice of only three months but the burden of proving that the parties did agree to the term is on the employee if the employer disputes it
the first step is to examine whether non-mandatory statutory rules apply in the area in question – an example is provided by the Sale of Goods Act whose provisions are in the main a (detailed) set of non-mandatory rules, cf. s. 1(1) of the Sale of Goods Act
Invalidity of contract
A promise is void where – on account of defects in the declaration of the promise – the promise will not bind the promisor neither on its immediate contents nor in respect to payment of compensation based on the interest of the promisee in its performance – whether the defect in the declaration is attributable to the promisor’s person (e.g. incapacity), the manner of origination of the promise (e.g. fraud on the part of the contract partner) or the con- tents of the promise (the promise may, e.g., be contrary to a mandatory statutory provision)
Thus, a promise will not be void merely because the promisor is not obliged to perform under its immediate contents (specific performance)
Forgery and fraud
When a promise is forged it is given in another person’s name; when fraud occurs a promise someone else has given is changed so that its content deviates from that contemplated by the promisor (e.g. changing a figure from DKK 1,000 to 11,000)
Neither invalidating factor is mentioned in the Contracts Act but there is no doubt that they are both “strong” invalidating factors – on a line with registered minority, registered incapacity and mental illness, etc. rendering a per- son unfit to act “reasonably”
Good or bad faith
writing a contract in bad faith the contract will be invalid, but if the contract is written in good faith the contract can be valid
Duress
Duress with physical or threatened physical violence and mechanical duress
A promise which has been unlawfully provoked by personal violence or threatened immediate application of violence does not bind the party coerced irrespective of the good or bad faith of the promisee, cf. s. 28(1) of the Contracts Act
This provision governing constraint on the will of the promisor (duress with violence or threats) may be applied analogously to mechanical duress, i.e. assumption of control of the organs of the party coerced, e.g. by leading his hand in writing
Fraud
Fraud will lie if a person unlawfully and contrary to his own knowledge of the true state of affairs either makes misrepresentations as to such state or remains silent with the purpose of provoking a promise
Fraud in contractual setting is governed by s. 30 of the Contracts Act and like the duress described in s. 29 only qualifies as a non-operative invalidating factor
Undue influence
Under s. 31(1) and (2) of the Contracts Act a promisee in bad faith may not rely on a promise provoked by unduly exploiting a promisor’s considerable difficulties, lack of insight, recklessness or a relationship of dependence subsisting between them when the promise has been provoked or been conditional upon a benefit grossly disproportionate to the consideration
To apply the invalidation rule in s. 31 several requirements must be satisfied: 1) the promisor must be placed in one (or more) of the inferior positions described in the section; 2) the promisee must be aware of this – he must have exploited the inferior position of the promisor, 3) the promise is to leave the promisee with a benefit grossly disproportionate to the consideration, and 4) the promisee must be in bad fait
Disagreement between the will of promisor and the declaration given
The content of a promise may be different from what the promisor intended for several reasons
For one thing, the promisor himself (or one of his employees) may commit an error in connection with the drafting of the promise, e.g. miswriting, cf. s. 32(1) of the Contracts Act; the promise may be subject to distortion on its way from promisor to addressee, e.g. on account of an error in the telegraphic office, cf. s. 32(2) of the Contracts Act, and it may occur that the promise externally is of the content envisaged by the promisor but that he made it “pro forma” (i.e. the agreement is only fictional), cf. s. 34 of the Contracts Act
The rule in s. 32 (2) of the Contracts Act
The provision in s. 32(1) is drafted as follows: “Any person who has made a declaration of intention whose terms do not express his intentions as a result of a clerical error or other mistake on his part is not bound by the terms of his declaration if the person to whom the declaration was made realised or ought to have realised that an error or mistake had been made.”
The drafting leaves no doubt that s. 32(1) describes a non-operative invalidating factor
As indicated in the text of the Act, a clerical error will represent the most common source of error but the words “or other mistake” of s. 32(1) make no limitation in the factors to which it may be applied
At least with support in the principle in s. 32(1) it is generally deemed that a mistake which is material (for the promisor) and evident (to the promisee) will lead to the invalidity of the promise disregarding the type of mistake made by the promisor
The rule in s. 32 (2) of the Contracts Act
The rule in s. 32(2), first sentence, is drafted as follows: “If a declaration transmitted by telegraph or made orally by an agent is inaccurate as a result of an error on the part of the telegraph service or inaccurate expression by the agent, the person making the declaration is not bound by the declaration as made even if the person to whom it was made acted in good faith.”
According to the drafting, s. 32(2), first sentence, is clearly an operative invalidating factor
The protection of an innocent promisee, if any, in s. 32(2), second sentence, is safeguarded by imposing on the promisor a duty to give notice corresponding to the duty imposed on a promisor under s. 28(2) under the Con- tracts Act (cf. further in Section 4.6.1)
An error in a telefax is not covered by the rule in s. 32(2) on telegraphic errors – but by the rule in s. 32(1)
Breach of basic assumptions - the general clause in s. 36 of the Contracts Act
When a person makes a promise he has certain preconceived ideas of the circumstances prevailing at the making of the promise and quite often he has certain (considered) expectations of the future sequence of events
In both situations the promisor may be wrong – in the first situation the basic assumptions are simply false – in the latter there is a breach of assumptions (as events did not turn out as presupposed)
In both situations the promisor must prima facie bear the consequences of his own misjudgement but as mentioned below situations may arise in which the promisor will have a right to with- draw his promise
The presumption principle
Apart from the invalidity rules in special legislation it has been deemed, e.g., in case law that a mistake with the promisor induced to him by the promisee will, as a main rule, invalidate the promise if the misrepresentation was a determining factor in the promisor’s making of the promise (entering into the contract)
In case law, wrongful assumptions or breach of assumptions have been relied on to uphold a promise to an even wider extent via the so-called principle of assumptions
Invalidity for contract contents - the setting aside of standard terms in particular
Special statutes contain a multitude of rules establishing that contracts of a certain content cannot be validly made.
Where a contract is made contrary to such statutory provision, the contract is prima facie invalid, i.e. not binding on the parties
A promise may be invalid for its contents even if it is impossible to show a statutory rule expressly determining that a promise cannot validly have a certain content – the wording of s. 36 of the Contracts Act (cf. Section 4.10.2 above) certainly encourages the view that a court may hold a promise to be void on the sole grounds that it will find the result of binding the promisor to it “unreasonable”
Legal effects of the invalidity
Legal effects of the invalidity
When a promise is invalid, the promisor is no longer bound to its terms towards the promisee
