Private Law

Contracts

Contracts: sources of law common law case law state law harmonized by UCC UCC International contracts:

Vienna (UN) Convention on the International Sale of Goods (CISG), 1980

UNIDROIT principles new developments to incorporate software

contracts and internet contracts consumer protection legislation

The Uniform Commercial Code American Law Institute (ALI) restatement 1906 Uniform Sales Act 1942 Uniform Commercial Code

National Conference of Commissioners on Uniform State Laws (NCCUSL)

Art. 1 UCC: General provisionsArt. 2 UCC: Sale of goods (revision) Art. 2A UCC: leases Art. 9 UCC: Secured transactions

Contract formation: overview

offer and acceptance consideration formality and the Statute of Frauds defences void/voidable contracts

offer: offeror

offeror: expression of present intent to enter into contract intent to be legally bound? objective intent? reasonable manifestation of intent?

The „reasonable“ standard is used unless one party has specific knowledge.

offer: offeree

offeree: actual knowledge communication of the offer by the offeror

to the offeree

When the offer has become known to the offeree, he has the power of acceptance.

offer vs. non-offer

advertising invitation to receive offers

specific advertisement (price and quantity, e.g. real estate) may be an offer

offer: duration

if stated in offer: measured from date of receipt of offer

if firm offer (no time limit stated): reasonable time (max. 3 months)

offer: termination by offeror revocation

prior to acceptance effective upon receipt (in possession of

offeree or authorized person, or deposited in authorized location)

express communication: revocation in the same manner as offer

conduct: offeree learns from reliable source – reasonable understanding that offer is no longer open

offer: termination by offeree rejection

express counteroffer: new offer with the offeree

as new offeror (may keep old offer „under advisement“: original offer still open) – effective upon receipt

no revival of offer except by offeror exceptions: counter-inquiry, comment on

the terms, request for modification, future acceptance (subcontracting)

offer: termination by law

death or insanity of offeror death occurs after offer and before

acceptance destruction of subject matter supervening law making contract

illegal

acceptance

must mirror terms of offer new terms = counteroffer

bilateral contract: acceptance in the way required by the offer

unilateral contract: acceptance by performance

the „mailbox rule“

for offers and acceptances made by mail: mailbox rule = acceptance effective at the time of posting

acceptance is valid when sent before receipt of revocation when out of offeree‘s possession

(reasonable medium) seasonably dispatched, received within normal timeframe

the „mailbox rule“

acceptance effective even if lost or delayed

mailbox rule only for acceptance! exceptions: offer stipulates that

acceptance has to be received; option contract: receipt necessary before end of option term

dual responses

„crossing“ of acceptance (A) and rejection (R) A) R sent, A sent; R received, A received

contract (-) B) R sent, A sent; A received, R received

contract (+)

dual responses

C) A sent, R sent; R received, A received („overtaking rejection“) contract (+) under 2nd restatement; if offeror relies on R, offeree is estopped from enforcement

D) A sent, R sent; A received, R received contract (+)

dual responses

rationale: rejection of offer effective upon receipt acceptance effective upon posting

(mailbox rule)

silence

silence is not acceptance exceptions

intent to accept (implied-in-fact contract): manifestation by conduct

trade practice: buyer-seller history offeree takes benefit, expectation that

compensation is presumed

differing offer and acceptance

no contract formed goods nevertheless delivered and

accepted contract (+) contractual terms: terms of the last

communication („last word“ rule) „battle of the forms“ problem

consideration

promise binding only if „consideration“ received in return

without consideration, the contractual promise is unenforceable

the consideration doctrine

„bargain“ performance and counter-performance

are subject of an intentional bargain contracts are exchange relationships mutual promises: both parties are

bound by contract or neither is bound

consideration: traditional view

consideration must induce detriment of the promisee and benefit of the promisor of the original offer as result of promised performance

bilateral contract: (counter)promise unilateral contract: promisee‘s

conduct

example promisor: „I will pay you

(offer/promise) if you mow my lawn (detriment to promisee, benefit to promisor)“

promisee: mows lawn (not legally obliged to perform, performs with intent to accept offer)

the mowing of the lawn is the consideration; a contract is formed

consideration: modern Approaches

modification of bargain concept anything actually sought by one party

in exchange for his promise constitutes consideration

lack of consideration without consideration, the contract is

viewed as „illusory“ (not obligating either party)

economic equivalence is not required: a „peppercorn“ is enough (provided it is what the promisor wants in exchange)

moral obligation is not enough for consideration (legal value needed)

lack of consideration

„past consideration“ (past performance/forbearance) cannot be consideration (no bargain)

„pre-existing duty rule“: promise to discharge existing legal/contractual duty lacks consideration (no detriment to promisee)

limits of consideration doctrine

state law of some states: writing is substitute for consideration

promissory estoppel

problem: promise is unenforceable without consideration

protection of promisee: promissory estoppel may substitute

consideration for gratuitous promises (e.g. gifts; intra-family promises)

only used in special cases

promissory estoppel

„estoppel“ from equity jurisprudence „estopped“ means somebody loses

their right to invoke a particular defense

„promissory estoppel“: promisor is not allowed to invoke the lack of consideration as his defense not to fulfill his promise

promissory estoppel

conditions: promise has been given promisee acted in reliance on it promisor knew/should reasonably

anticipate this reliance action injustice can be avoided only by promise

enforcement (in full or in part)

modification of contracts

traditional view: modification of existing contract requires additional consideration (unless unforeseen event, or UCC § 2-209(1))

modern trend: modification is binding even if no further consideration is given

formality

Statute of Frauds: (limited) writing required for some contracts

contract modification: nature of future contract determines form requirement

Statute of Frauds promises in consideration of marriage promises to answer for debt/duty of another

person (guarantees) real property contracts contracts that will not be performed within

one year contracts not to be performed within

promisor‘s lifetime UCC 2-201: sale of movables over $500

Statute of Frauds

requirement: defendant has signed something that is evidence of existence of contract

aim: proving the existence of the contract

no need for contract contents or terms in writing

Statute of Frauds

non-fulfilment of form requirements some states: voidable contract some states: contract considered void

and cannot be invoked (e.g. Alabama)

Statute of Frauds: exceptions

performance of contract according to its terms cures non-compliance with Statute

conveyance of real property rights: when seller has conveyed rights to buyer, non-compliance with Statute is cured (however, full payment by buyer is not enough on its own)

Statute of Frauds: exceptions

sale of goods: UCC § 2-201 (3): (a) specially ordered goods: Statute

cannot be invoked after production starts (b) acknowledgment in litigation that

contract was concluded (c) partial performance promise

enforceable to the value of rendered performance

Void and voidable contracts

„void“ means the contract is considered non-existent

„voidable“ means that a party can ask in litigation for the contract to be set aside („power of avoidance“)

lack of capacity

minors (under age 18 in most states) mentally handicapped persons intoxicated persons if condition was

known to other party/apparent some states: capacity following

marriage (e.g. Iowa)incapacity contract is voidable by

the person lacking capacity

lack of capacity

when reaching age of capacity, minor can ratify contract (expressly/by implication)

contracts for necessities (items purchased for requirements of daily living) are binding upon minors

Illegality

contracts are void if concluded for illegal ends

fraud and duress promises given under force/duress

voidable undue influence: particular power of one

party over the other voidable misrepresentation causing error of one

party misrepresentation causing contract formation

void misrepresentation of content voidable

mistake of fact

error or miscomprehension concerning facts (not judgments)

both parties mistaken about essential part of contract voidable

fairness

courts can deny enforcement of valid contracts for reasons of equity

only in exceptional cases element of surprise truly harsh and inequitable results

relevant for consumer contracts, disclaimer clauses