legal

• Contract


  A contract is formed by the meeting of an offer and an acceptance by which the parties demonstrate their will to be bound
• Offer


  Invitation to enter into a contract on certain terms
• Offer


  • It is intended to result in a contract if the other party accepts it (intention to be bound)
  • It contains sufficiently definite terms to form a contract (requirement of definiteness)
• An invitation to treat looks like an offer but not all the elements of the contract are completed
• Withdrawal of the offer

  • Civil law jurisdictions - it suffices that the offeror unilaterally promises to keep open the offer (for a stated time)
  • Common law jurisdictions - until the other offeree has accepted the offer, the offer can be revoked, so revocation of offers is generally allowed, provided that it is notified to the offeree prior to their acceptance
• Option


  A preliminary contract through which one party (the issuer) binds themselves to their own offer, and the other party (the option holder, offeree) is given the right to close the deal unilaterally
• Options


  • Call options - gives the holder the right to purchase an underlying asset at a specified price (strike price)
  • Put options - gives the holder the right to sell an underlying asset at a specified price (strike price)
• Acceptance


  Any form of statement or conduct by the offeree is an acceptance if it indicated assent (approval) to the offer. Silence or inactivity does not itself amount to acceptance.
• Time of the formation of the contract

  • Civil law - the contract is concluded when the acceptance is notified/reaches the offeror (knowledge rule)
  • English common law - in case acceptance is sent by post, the contract is concluded when the acceptance is posted (postal rule)
• Written form


  Some contracts must be in writing, either to be concluded (forma ad substantiam actus) or to be evidenced (forma ad probationem tantum)
• Merger clause


  If a contract document contains an individually negotiated term stating that the document embodies all the terms of contract, any prior statements, undertakings or agreements which are not embodied in the document do not form part of the contract
• Voidness or nullity


  • Cause - generally the nullity refers to situations when the contracts is in contrast with public interests, goes against mandatory rules and principles + or has to do with elements of the contracts (form required by law or lack of an object)
  • Aim = protect public interests
  • Subject - the party, anyone who has an interest and also the judge if he believes something is invalid can raise the issue
  • Effects - in this case there are no legal effects at all, the contract is never capable of producing any legal effect
• Avoidance or rescission


  • Cause - refers to situations where one specific party hasn't behaved properly in expressing their will + or a violation of a principle of consent by mistake, fraud and duress
  • Aim = protect private interests
  • Subject - only the party affected by the flaw can raise the issue of invalidity
  • Effects - produces effects until avoided, the judge just stop the effects, the contract is invalid but it is capable of producing its legal effects till the moment when the interested parties present a claim in court in order to avoid it
• General grounds of voidness


  • Illegality and immorality
  • Defectiveness of the agreement between parties
• Impossibility of the subject matter

  • In civil law jurisdictions, contracts whose specific performance is impossible are generally not enforceable
  • Common law jurisdictions, tend to enforce such contracts: if a party has undertaken to do something which is physically impossible, it is bound to pay damages for breach of contract
• According to Code Napoleon, (1) An obligation has as its subject-matter a present or future act of performance. (2) The latter must be possible and determined or capable of being determined
• According to BGB, (1)A contract is not devoided of its effects for the fact that one of the parties' performance is impossible already at the time when the contract has been concluded. (2)The other party can claim (expectation) damages or reimbursement of expenses
• General grounds of avoidance

  • Incapacity of contracting parties
  • Vitiating factors (mistake, deceit or fraud, duress)
• Mistake


  • Civil law jurisdictions - tend to favour an 'intention approach' to contract, which leaves more room for its avoidance based on a vitiating factor, particularly a mistake
  • Common law jurisdictions - tend to follow an 'expression approach' to contract, which immunizes it from 'unilateral' mistakes incurred by each party, unless they have been caused by a misrepresentation
• Deceit or fraud


  A deceit (or fraud) occurs when one of the contracting parties is intentionally induced into a mistake as to the prospective contract
• Unilateral mistake


  A mistake made by one party that does not affect the validity of the contract, unless it was caused by a misrepresentation
• Equitable remedy of avoidance (rescission)

  A remedy granted in case a mistake was created by a misrepresentation made by the other party, their agent, or a third party the other party had knowledge of
• Deceit or fraud


  When one of the contracting parties is intentionally induced into a mistake as to the prospective contract
• Types of fraud


  • Dolus causam dans (if correctly informed, the mistaken party would not have concluded the contract)
  • Dolus incidens (if correctly informed, the mistaken party would have concluded the contract, although on better terms)
• Avoidance is granted when the fraud is committed by the other contracting party (or their agent), or if committed by a third party, when the other contracting party knew or must have known it
• Duress


  Threats of harm to a would-be party's or their family's life, limb, honour, property, or economic interests, which induce that party to enter into a contract to avert the danger
• A threat of legal action does not constitute duress, except where the legal process is deflected from its own purpose or where it is invoked or exercised in order to obtain manifestly excessive advantage
• In most civil law jurisdictions, avoidance is granted not only when the threats are made by the other contracting party (or their agent), but also when they are made by a third party, even if the other contracting party was in good faith
• Standard contracts


  Contracts between businesses and consumers where the consumer doesn't have any chance of changing the terms, as the business develops its own standard conditions to apply to all relationships
• Information asymmetry


  The quality of goods traded in a market can degrade when buyers and sellers have asymmetric information, like in the 'lemon market' for used cars
• Control systems for unfair standard terms

  • Formal control (unfair terms have no effect unless specifically approved in writing)
  • Substantive control (provisions in standard business terms are ineffective if they unreasonably disadvantage the other party)
• Unfair terms are not binding on the consumer and the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms
• Member States must ensure that unfair terms are not included in contracts, and courts or administrative authorities must have adequate means to prevent the continued use of unfair terms
• Unfairness test


  Assessing whether the term creates a significant imbalance in the parties' rights and obligations, and whether the seller/supplier could reasonably assume the consumer would have agreed to it in individual negotiations
• Examples of potentially unfair terms

  • Excluding/limiting the seller's liability for death/injury
  • Inappropriately excluding/limiting the consumer's legal rights
  • Making the agreement binding on the consumer while the seller's performance depends on their own will
  • Permitting the seller to retain sums paid if the consumer cancels
  • Requiring disproportionately high compensation from the consumer for non-fulfilment
• Anticipatory breach of contract


  A party declares its intention of not performing the contract before the performance is due
• Actual breach of contract


  Occurs on the due date of performance or during the course of performance
• Remedies for breach of contract

  • Specific performance (forcing the party to perform)
  • Termination of contract (dissolution, refusal to perform, restitution)
  • Damages (monetary award to bring the aggrieved party to the same position as if the contract was properly performed)
• Moral approach to contract law

  Promises must be fulfilled (pacta sunt servanda), so non-performance is remedied by forcing the debtor to perform
• Economic approach to contract law

  Contracts are concluded to increase welfare, so instead of performing, the debtor may prefer to bring the other party to the financial position they would have had if the contract was properly performed