Private Law

1. Private Law Contracts

2. 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

3. 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 provisions Art. 2 UCC: Sale of goods (revision) Art. 2A UCC: leases Art. 9 UCC: Secured transactions

4. Contract formation: overview • offer and acceptance • consideration • formality and the Statute of Frauds • defences • void/voidable contracts

5. 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.

6. 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.

7. offer vs. non-offer • advertising  invitation to receive offers • specific advertisement (price and quantity, e.g. real estate)  may be an offer

8. 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)

9. 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

10. 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)

11. 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

12. acceptance • must mirror terms of offer • new terms = counteroffer • bilateral contract: acceptance in the way required by the offer • unilateral contract: acceptance by performance

13. 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

14. 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

15. 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 (+)

16. 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 (+)

17. dual responses • rationale: • rejection of offer effective upon receipt • acceptance effective upon posting (mailbox rule)

18. 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

19. 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

20. consideration • promise binding only if „consideration“ received in return • without consideration, the contractual promise is unenforceable

21. 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

22. 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

23. 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

24. consideration: modern Approaches • modification of bargain concept • anything actually sought by one party in exchange for his promise constitutes consideration

25. 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)

26. 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)

27. limits of consideration doctrine • state law of some states: writing is substitute for consideration

28. 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

29. 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

30. 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)

31. 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

32. formality • Statute of Frauds: (limited) writing required for some contracts • contract modification: nature of future contract determines form requirement

33. 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

34. 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

35. Statute of Frauds • non-fulfilment of form requirements • some states: voidable contract • some states: contract considered void and cannot be invoked (e.g. Alabama)

36. 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)

37. 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

38. 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“)

39. 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

40. 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

41. Illegality • contracts are void if concluded for illegal ends

42. 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

43. mistake of fact • error or miscomprehension concerning facts (not judgments) • both parties mistaken about essential part of contract  voidable

44. 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