Obligations and Contract Law I
LECTURE 1: Introduction to contract law
Structure of the course : life of a contract
remedies for
formation performance
breach
What is a contract?
- legally enforceable
- ‘contract society’
- we enter into several contracts every day
- Division of Labor – Adam Smith
Private law
- private actors such as individuals and companies
e.g. tort, property law, inheritance law, family law
Law of obligations – contract law, tort law, restitution
- Obligation = enforceable duty vis à vis one another
a. contract law: voluntary obligation
b. tort law : involuntary
c. restitution : should money transferred be returned? (if someone received money they were not
entitled to)
cannot be done through tort, not necessarily a wrong committed
cannot be done through contract law, people might not know each other/ not have an
agreement
Contract as a juridical act
- Friedrich Carl von Savigny
- juridical act = an act that has legal consequences, because of the fact that these consequences are
intended by the person acting
e.g. contract, making of a testament, the decision to establish a company
Parties to a contract
- promisor (making the promise)/promise (receive something promised) or creditor/debtor
Classification of contracts
- types of parties :
B2B = business to business
B2C = business to consumer
C2C = consumer to consumer
1
,Type of performance (freedom of contract)
-Nominate contracts/ specific contracts = established categories of contracts
-innominate contracts = not yet established category
Reason for performance
-Bilateral contracts (both parties promise to do something)
-unilateral contracts (one party promises to do something for the other)
Principles of contract law
freedom of contract
- freedom whether to contract at all
- choice of contents
- freedom to choose the other party
- regulated contract = freedom of contract is limited to protect the weaker party
principle of binding force of a contract (pacta sunt servanda)
principle of informality (Roman law)
- parties to are free to make contract without formalities e.g. not necessarily written
principle of contractual fairness
- substantive fairness (not important in contract law, assumed parties are the best judges of
their own interests except when mentally ill)
- procedural fairness
= equal position of the parties, protect the equal party)
Sources of contract law
national law
- mandatory rules
- default rules (fill in the gap)
EU law consumer law
supranational law
-CISG (Vienna Convention on the Sale of Goods)
informal rules (soft law, not binding)
– PECL, DCFR, PICC
Requirement for formation of the contract
agreement of the parties (offer + acceptance)
intention to create legal relations
- English: consideration needed
- French : cause is needed
legal capacity of the parties
- minors? Mental handicaps?
formalities, only in some jurisdictions
- some contracts may require written form
Intention to create legal relations
- parties must intend to be legally bound
- parties must reach a sufficient agreement (consensus ad idem/ meeting of minds*)
*for a reasonable man to conclude there is an agreement
2
,Dissensus (when there is question as to the parties’ intent)
- subjective approach
- subjective intention, regardless of appearances
- objective approach
- how a reasonable person would interpret a party’s intention from their conduct
Justification for objectivity
- accessibility
- overcome difficulties in determining the parties’ intentions
- avoid fraud
- certainty and protection of reasonable expectations
Basis of contractual liability
- the will theory (subjective approach)
- will of the party is the only thing that counts
- the expression theory (favors addressee)
- only what is expressed counts
- the reliance theory (objective approach)
- whether a reasonable person could rely on the statement made by a party
Smith v Hughes
- objective approach
Objectivity – factors:
- how easy it is to investigate whether the declaration was intended as it was presented
- whether the transaction would be beneficial for one of the parties
- what is customary in a branch or location
- meaning of the disputed term in everyday speech
- place of contracting (currency)
- expertise and experience of the parties
* French doctrine – not entirely accept objective approach
- objective circumstances to establish subjective intention
SELF-STUDY QUESTIONS
Week 1– Introduction to contract law
1. What is meant with a cascade of contracts?
supply chain of contracts behind an individual contract
2. Give a definition of an obligation in the context of private law. Take into consideration that each
obligation has two sides.
Can be enforced by law, remedy for a breach
3. Where do you place contract law within the overall ‘system’ of private law?
Law of obligations
3
, 4.
a. What is the relationship between a contract and an obligation?
A contract can make legally binding obligations.
b. And between a contract and a juridical act?
A contract has legal consequences because this was so intended by the parties.
5. Why are third parties, in principle, unaffected by a contract?
Because the contract is only binding on the parties, see the doctrine of privity.
6. What are the main principles of contract law?
- freedom to contract
- principle of informality
- principle of binding force of a contract (pacta sunt servanda)
7. What does the principle of pacta sunt servanda mean? Has this principle always been accepted?
Principle of the binding force of a contract. Since Roman law.
10. Explain the difference between procedural and substantive (contractual) fairness.
Procedural fairness
= to remedy an unequal position among the parties to allow the parties to make an informed
decision
Substantive fairness
= fair terms in the contract as well
Procedural fairness is important is contract law is agreed to everywhere.
13. What does it mean to say that contract law is a ‘multi-level’ legal system?
Mandatory rules and default rules.
18. What are the aims of the PECL?
re-state contract principals from the EU, general rules of contract law
19. Which theories exist to explain contractual liability?
- reliance theory
- expression theory
- will theory
20. Which factors play a role in establishing whether reasonable reliance or an objective intention
exists?
- business practice, customary, meaning in every day speech, whether one of the parties benefitted
from it, expertise and experience of the parties
4
LECTURE 1: Introduction to contract law
Structure of the course : life of a contract
remedies for
formation performance
breach
What is a contract?
- legally enforceable
- ‘contract society’
- we enter into several contracts every day
- Division of Labor – Adam Smith
Private law
- private actors such as individuals and companies
e.g. tort, property law, inheritance law, family law
Law of obligations – contract law, tort law, restitution
- Obligation = enforceable duty vis à vis one another
a. contract law: voluntary obligation
b. tort law : involuntary
c. restitution : should money transferred be returned? (if someone received money they were not
entitled to)
cannot be done through tort, not necessarily a wrong committed
cannot be done through contract law, people might not know each other/ not have an
agreement
Contract as a juridical act
- Friedrich Carl von Savigny
- juridical act = an act that has legal consequences, because of the fact that these consequences are
intended by the person acting
e.g. contract, making of a testament, the decision to establish a company
Parties to a contract
- promisor (making the promise)/promise (receive something promised) or creditor/debtor
Classification of contracts
- types of parties :
B2B = business to business
B2C = business to consumer
C2C = consumer to consumer
1
,Type of performance (freedom of contract)
-Nominate contracts/ specific contracts = established categories of contracts
-innominate contracts = not yet established category
Reason for performance
-Bilateral contracts (both parties promise to do something)
-unilateral contracts (one party promises to do something for the other)
Principles of contract law
freedom of contract
- freedom whether to contract at all
- choice of contents
- freedom to choose the other party
- regulated contract = freedom of contract is limited to protect the weaker party
principle of binding force of a contract (pacta sunt servanda)
principle of informality (Roman law)
- parties to are free to make contract without formalities e.g. not necessarily written
principle of contractual fairness
- substantive fairness (not important in contract law, assumed parties are the best judges of
their own interests except when mentally ill)
- procedural fairness
= equal position of the parties, protect the equal party)
Sources of contract law
national law
- mandatory rules
- default rules (fill in the gap)
EU law consumer law
supranational law
-CISG (Vienna Convention on the Sale of Goods)
informal rules (soft law, not binding)
– PECL, DCFR, PICC
Requirement for formation of the contract
agreement of the parties (offer + acceptance)
intention to create legal relations
- English: consideration needed
- French : cause is needed
legal capacity of the parties
- minors? Mental handicaps?
formalities, only in some jurisdictions
- some contracts may require written form
Intention to create legal relations
- parties must intend to be legally bound
- parties must reach a sufficient agreement (consensus ad idem/ meeting of minds*)
*for a reasonable man to conclude there is an agreement
2
,Dissensus (when there is question as to the parties’ intent)
- subjective approach
- subjective intention, regardless of appearances
- objective approach
- how a reasonable person would interpret a party’s intention from their conduct
Justification for objectivity
- accessibility
- overcome difficulties in determining the parties’ intentions
- avoid fraud
- certainty and protection of reasonable expectations
Basis of contractual liability
- the will theory (subjective approach)
- will of the party is the only thing that counts
- the expression theory (favors addressee)
- only what is expressed counts
- the reliance theory (objective approach)
- whether a reasonable person could rely on the statement made by a party
Smith v Hughes
- objective approach
Objectivity – factors:
- how easy it is to investigate whether the declaration was intended as it was presented
- whether the transaction would be beneficial for one of the parties
- what is customary in a branch or location
- meaning of the disputed term in everyday speech
- place of contracting (currency)
- expertise and experience of the parties
* French doctrine – not entirely accept objective approach
- objective circumstances to establish subjective intention
SELF-STUDY QUESTIONS
Week 1– Introduction to contract law
1. What is meant with a cascade of contracts?
supply chain of contracts behind an individual contract
2. Give a definition of an obligation in the context of private law. Take into consideration that each
obligation has two sides.
Can be enforced by law, remedy for a breach
3. Where do you place contract law within the overall ‘system’ of private law?
Law of obligations
3
, 4.
a. What is the relationship between a contract and an obligation?
A contract can make legally binding obligations.
b. And between a contract and a juridical act?
A contract has legal consequences because this was so intended by the parties.
5. Why are third parties, in principle, unaffected by a contract?
Because the contract is only binding on the parties, see the doctrine of privity.
6. What are the main principles of contract law?
- freedom to contract
- principle of informality
- principle of binding force of a contract (pacta sunt servanda)
7. What does the principle of pacta sunt servanda mean? Has this principle always been accepted?
Principle of the binding force of a contract. Since Roman law.
10. Explain the difference between procedural and substantive (contractual) fairness.
Procedural fairness
= to remedy an unequal position among the parties to allow the parties to make an informed
decision
Substantive fairness
= fair terms in the contract as well
Procedural fairness is important is contract law is agreed to everywhere.
13. What does it mean to say that contract law is a ‘multi-level’ legal system?
Mandatory rules and default rules.
18. What are the aims of the PECL?
re-state contract principals from the EU, general rules of contract law
19. Which theories exist to explain contractual liability?
- reliance theory
- expression theory
- will theory
20. Which factors play a role in establishing whether reasonable reliance or an objective intention
exists?
- business practice, customary, meaning in every day speech, whether one of the parties benefitted
from it, expertise and experience of the parties
4
