W38: Being bound & formation

Question 1

Why do we have contracts?

Answer 1

1. Contracts are used to create rights and obligations,
2. contracts are used to enforce obligations arising from promises, and
3. contracts function as tools to obtain goods and services (e.g. sale of goods, renting, employment, medical treatment, service contracts, etc.).

Question 2

What is a contract?

Answer 2

A contract is an agreement intended to give rise to a **binding legal relationship **or to have some other legal effect.

It is the mutual transferring of right.

Question 3

What is a promise?

Formation theories

Answer 3

A promise is a moral invention, allowing persons to create obligation where there was none before (Fried).

Promise comes in a process: Respect > Trust > Promise…

Question 4

What is contract as promise?

Formation theories

Answer 4

Contract as promise is the principle by which persons may impose on themselves obligations where none existed before.

Commitments are enforceable because the promisor has willed or freely chosen to be bound by their commitments.

Contract law is founded in the morality of promising.

Question 5

What is the duty to mitigate

Formation theories

Answer 5

With contract as promise comes a duty on the owner to avoid damage to items as much to their ability.

Question 6

What is a penalty clause?

Formation theories

Answer 6

A penalty clause is a clause in a contract that provides a penalty for when one of the parties does not perform.

Question 7

What is the subjective approach to interpreting a contract?

Formation theories

Answer 7

In contract as promise, a promise is binding in the subjective viewpoint of the promisor at the time of the agreement.

Question 8

When do we apply the objective approach to interpretation, and what does this mean?

Formation theories

Answer 8

When we cannot find the subjective view, we apply the objective approach, meaning that, with a claim of divergent intentions, the court imagines that it is respecting the will of the parties by asking what the ordinary person would have intended by such words of agreement.

Question 9

What happens if there are ‘gaps’ in the contract?

Formation theories

Answer 9

Fried concludes that an appeal to extra-contractual considerations becomes necessary when ‘gaps’ arise in one’s promise.

Question 10

What is the short defenition of consent?

Formation theories

Answer 10

Consent is the manifested intention to be bound.

Question 11

What is consent, according to Barnett?

Answer 11

According to Barnett, consent is the basis of contract (and not promise), distinguishing:
* Consent is objective, not subjective (promise is).
* Consent is an expression, not the mental act.

It is a statement that you intend your promise to not just create moral obligation, attached to every promise, but create legal obligation too.

Although no promise, such statement would be a manifestation of intention to be legally bound; consent.

Question 12

What are default rules?

Formation theories

Answer 12

Fried and Barnett agree promise does not justify the entirety of law; it needs default rules as well, which are the rules of contract law that apply unless the parties ‘contract around’ them by putting a different term in their agreement.

By remaining silent, parties consent to whatever term the law supplies as gap-filler and the conflict between freedom from and freedom to contract is ameliorated.

Question 13

What is the life of a contract?

Formation requirements

Answer 13

The life of (i.e. the steps to enter into) a contract are:
* Formation
* Consequences: Interpretation of the obligations, Performance of non-performance of the obligation, Remedies…
* Termination

Question 14

When is a contract concluded?

Formation requirements

Answer 14

A contract is conluded, without any further requirements, if the parties:
a. intend to enter into a binding legal relationship or bring about some other legal effect; and
b. reach a sufficient agreement.

Question 15

What are the requirements of forming a contract?

Formation requirements

Answer 15

1. Offer
2. Acceptance
3. Intention to be bound
4. Consideration (only in Common/English law)

(+ any formality requirements)

Question 16

What is an offer?

Answer 16

An offer is an expression of willingness to enter into a contract on certain terms and intends to form a binding contract if the other party accepts it.

Question 17

In what forms can an offer occur?

Answer 17

The expression of willingness can be in various forms like a letter, email, fax, or even conduct or orally.

Question 18

Can a joke be an offer?

Answer 18

Whether or not the person making an offer has the intention of entering into a contract is judged objectively. It does not matter whether the person has real intentions. It’s enough if, based on the circumstances of the case, it can be reasonably made out that they intended to form a binding contract.

Question 19

To whom can an offer be made?

Answer 19

An offer can be made to a specific person, a group of persons, or even the world at large (e.g. announcement to offer a reward).

Question 20

What are the requirements of a binding offer?

Answer 20

A legally binding offer will include:
1. Clearly stated terms,
2. An intention to be legally bound, and
3. Communication of the offeror to the offeree.

An offer can be uni- or bilateral.

If one or more of these requirements are unclear, there is an invitation to treat (not an offer; basically, an invitation to negotiate).

Question 21

Are advertisements/websites offers or invitations to treat?

Answer 21

Under German/English law, advertisements are an invitation to treat.

Under French law, they are an offer, unless personal qualities matter.

Question 22

Are goods on display in shops offers or invitation to treat?

Answer 22

Under German/English law, goods on display in shops are invitations to treat.

Under French law, they are offers.

Question 23

Can an offer be revoked before accepted in German law?

Answer 23

Under German law,
the one who has offered to conclude a contract is bound by that offer unless they state they are not bound.

As exception, an offer may be retracted if the withdrawal reaches the offeree before or at the same time as the offer.

Question 24

Can an offer be revoked before accepted in English law?

Answer 24

Under English law,
revocation is always allowed before an acceptance. An offer can be revoked at any time before it has been accepted, even if the offeror included a deadline for acceptance in the offer.

Question 25

Can an offer be revoked before accepted in French law?

Answer 25

An offer is revocable before acceptance but the offeror must compensate the damage the offeree suffers as a result of the revocation.

Question 26

What is acceptance?

Answer 26

Acceptence is when a person agrees to all the conditions of an offer made to them without placing any counter-condition (counteroffer), the communication of such assent to the offerer is called acceptance, provided it’s done with the intention of accepting the offer.

Question 27

Can conduct result in acceptance?

And explain.

Answer 27

Sometimes, conduct of the offeree may constitute an expression of acceptance. In such cases, it would be no defense to say that the party did not enter into a legally binding agreement.

Courts often refer to the corrospondence between the parties while deciding whether acceptance has occured.

Question 28

What is especially important for an acceptance of an offer?

Answer 28

It is important that the offeree accepts the offer unconditionally. If they make a counteroffer, the original offer becomes irrelevant.

Question 29

What is the externalization theory?

Time of conclusion of a contract

Answer 29

According to externalization theory, a contract is concluded the moment the message containing the acceptance is written.

Question 30

What is the expedition/dispatch theory?

Answer 30

According to the expedition or dispatch theory, a contract is concluded the moment the message is sent or posted.

It is also called the postal rule.

Question 31

What is the receipt theory?

Time of conclusion of a contract

Answer 31

According to the receipt theory, a contract is concluded the moment the message is received by the offeror.

Question 32

What is the actual notice theory?

Time of conclusion of a contract

Answer 32

According to the actual notice theory, a contract is concluded the moment the offeror reads the message.

Question 33

Why is the time of conclusion of a contract relevant?

Answer 33

• From the moment the contract is concluded, the offeror can no longer revoke their offer.
• The parties need to know when they have to perform the contract.
• Many jurisdictions (including France and England) make the transfer of property dependent on the conclusion of the contract: So the buyer becomes the owner of the goods once the contract is concluded, even if actual delivery has not yet taken place.

Question 34

What theory for the time of concluding contract do Germany and France use?

Answer 34

Both France and Germany use the receipt theory.

Question 35

At what time is a contract concluded in English law?

Answer 35

In English law,
(a) the receipt theory is used for instantaneous communication and
(b) the expedition theory is used for non-instantaneous communication.

Question 36

What falls under instantaneous communication?

Answer 36

Instantaneous communication includes fax and online chatting but not emails.

As in English law the receipt theory applies for this communication, a disruption of the communication, meaning the message does not arive, does not conclude a contract.

Question 37

What falls under non-instantaneous communication?

Answer 37

Non-instantaneous communication includes e.g. post, telemessaging, email, and texting through mobile phones.

As the expedition theory applies for this communication, an acceptance becomes effective at the moment of posting.

The postal rule should not be applied to a revocation.

Question 38

What does intention to be bound mean?

Answer 38

In order to constitute a valid contract, an offer must be made and accepted with the intention to be legally bound.

However, having a real or apparent intention to form a legal relationship is unnecessary. It is usually construed from the conduct of the parties.

Question 39

What, in contract, is consideration?

Answer 39

Consideration in contract refers to the benefit each party receives in exchange for what it gives up in the contract.

It can be in the form of money, property, promise, services, or something else. It can be something as simple as a promise to do or not to do something.

Question 40

What conditions must a contractual consideration meet?

Answer 40

In order to form a valid contract, consideration must meet the following conditions:
* It must be something worth bargaining for,
* It must benefit all the parties of the contract, and
* It must be something of value.

Question 41

In what forms can contract be established?

Answer 41

Contract can but need not always take the form of a formally signed document; they can also be established verbally or by conduct.

E.g. nodding or raising a hand at auctions.

However, there are exceptions, such as when dealing with estate transactions.