Obligations & Contract Law - everything

Week 1: Intro to Contract law

❖ Readings:
➢ Chapter 1: Introduction (pp. 1–15)
➢ Chapter 2: Sources of contract law (pp. 16–37)
➢ Chapter 4: The intention to create legal relations (except for the sections on
‘The test of earnestness in problematic cases’ and ‘Consideration and causa’)
(pp. 39, 63–70)
Chapter 1: Introduction
❖ Contracts are defined as legally binding agreements, irrespective of whether they
are written down or not
❖ Why contract law?
➢ The need for a well-functioning contract law follows from the type of society
that we live in
➢ It enables market actors (individuals and companies, but also government
bodies, municipalities, NGOs, charities, etc.) to participate in economic and
social life
➢ Contract law thus allows planning by individual members of society. Aristotle,
in his Rhetorics (I, 14, 22), already saw this: ‘… so that if you destroy the
authority of contracts, the mutual intercourse of men is destroyed’.
❖ Types of contracts:
➢ Most rules and principles of contract law are designed to apply to any
contract, regardless of the type of party and the type of obligations the parties
take upon them
■ Despite this general character of contract law, lawyers usually
distinguish between different types of contracts
➢ Commercial contracts = contracts between two or more commercial parties,
also called business-to-business or B2B-contracts
➢ Consumer contracts = contracts between a business and a consumer, or
B2C-contracts
➢ Contracts concluded between two individuals (not a business) =
consumer-to-consumer or C2C-contracts
❖ Contracts can also be distinguished on the basis of their main characteristics: what
parties need to do under the contract depends on the type of contract they concluded
➢ Specific contracts = are all governed by their own specific rules, laid down
in national civil codes or developed by the courts
■ E.g. sale of goods, barter, lease, mandate, employment contract
➢ Other specific contracts that do have a name (and therefore share with sale,
barter, etc. that they are nominate contracts), but are not dealt with in detail
in statutory law
■ E.g. distribution contracts
➢ A third categorisation of contracts is based on the reason why parties want to
be bound
❖ Contract law as part of private law:
➢ Private law consists of the rules and principles that deal with the relationships
between private actors such as individuals and companies
 ➢ In the civil law tradition, contract law is seen as only one part of a more
comprehensive ‘system’ of private law
➢ The law of contract, tort and restitution are often lumped together under the
heading of ‘law of obligations.’
■ This is because they can all give rise to so-called ‘obligations’, a
legal term indicating that a (usually) enforceable duty exists of one
person vis-à-vis another person or several other persons
■ In contract law, obligations arise voluntarily bc a party intends to be
legally bound
❖ Juridical act: Friedrich Carl Von Savigny
➢ He sought to collect under one umbrella term were acts that have legal
consequences because of the fact that these consequences are intended by
the person acting
➢ A contract is the most important example of a juridical act (sometimes also
called a ‘legal transaction’)
➢ The juridical act has a prominent place in civil codes
❖ Main principles of contract law:
➢ Freedom of contract
■ It gives legal application to the idea that each individual should be
allowed the autonomy to make the choices they desire
■ The principle of freedom of contract not only entails that a person is
allowed to conclude a contract on whatever terms it deems fit (choice
of contents), but also whenever it desires (freedom to contract at all)
and with whomever it wants (freedom to choose the other party
■ Parties are not only free to decide whether they want to contract at all,
and with whom, but also that they can determine the contents of their
contract
➢ Binding force upon the parties
■ Each party has to perform the obligations it took upon itself and if it
fails to do so, the court can intervene at the request of the other party
■ It is possible that the binding force might be set aside, for example if
the contract contains a clause that the law considers to be unfair or
prohibited
➢ Principle of informality
■ If parties are legally bound to the contract because they intend to be
bound, their intention is apparently sufficient and there is, as a
matter of principle at least, no need to put the contract into writing, to
visit a notary etc.
➢ Contractual fairness
■ If an individual is in a better position than anyone else – including a
judge – to decide what is in their own interest and they conclude a
contract conscious of its consequences, it is fair to hold this individual
to what he or she agreed upon
❖ Regulated contracts:
➢ Some contracts are so much constrained by mandatory laws that one can
speak of ‘regulated contracts’ e.g. employment contracts and residential
leases
 ■E.g. forces people to enter into a contract, health insurance for
example
❖ Two types of fairness:
➢ Procedural fairness
■ It requires that an unequal position among the parties is remedied,
mostly by obliging a party to put the weaker one in the same position
in order to allow it to make an informed decision
➢ Substantive fairness
■ If a contract clearly favours one party over the other, the law
should intervene and either declare the contract void or adapt it to
meet requirements of social justice

Chapter 2: Sources of contract law

❖ Contract law is the set of rules and principles that governs transactions among
parties, thereby establishing those parties’ enforceable rights and obligations
➢ This chapter investigates where we find these rules and principles
❖ Categories of sources:
➢ The party agreement = rules that are made by the contracting parties
themselves
■ The party agreement, consisting of what the parties expressly agreed
upon when entering into the contract, typically includes the price of the
good or service and the qualities it must possess
■ Contractual rules need not be made for one contract only ⇒ in
practice, parties often make use of standardised sets of rules that are
suited to their own interests (general terms)
● It saves a party from having to negotiate and draft contract
conditions for every new contract it wants to conclude
➢ Official sources = rules that emerge from the official national, European and
supranational sources
■ In so far as such matters are not covered by general conditions, the
law should provide so-called default (or ‘facilitative’) rules that are
automatically applicable if the parties have not made any other
arrangements
■ Parties can deviate from default rules, they just mostly fill gaps
➢ Informal rules = Informal rules that are made by others than the official
institutions, including nonstate organisations and academics
■ Soft law; principles, guidelines, codes of conducts, regulations, opinio
juris ⇒ PICC, PECL, DCFR
■ PICC: are intended to provide a system of rules especially tailored to
the needs of international commercial transactions by offering rules
designed for use throughout the world ‘irrespective of the legal
traditions and the economic and political conditions of the countries in
which they are to be applied’
■ PECL: They have a wider scope of application than the PICC as they
are intended to reflect the common core of contract law in general
(also covering B2C- and C2C-contracts)
 ■ DCFR: it builds upon the PECL, it covers other fields of private law
(e.g. torts and property) and it deals with a range of specific contracts
that are not dealt with in the PECL
❖ National law:
➢ General rules on contract law are typically found in the Civil Code of civil
countries
■ E.g. Code Civil, BGB, BW ⇒ see pp. 18-22
■ French Cc: related mostly to acquiring property, but was reformed
■ German and Dutch Code: much more systematised, have a layered
structure
➢ Consumer Codes, Commercial Codes
■ UK:
● Sales of Goods Act 1979
● Misrepresentation Act 1967
● Unfair Contract Terms Act 1977
● Contracts (Rights of Third Parties) Act 1999
● Consumer Rights Act (CRA) 2015
❖ European law:
➢ Directive 85/374 on liability for defective products
➢ Directive 86/653 on self-employed commercial agents
➢ Directive 93/13 on unfair terms in consumer contracts
➢ Directive 2000/31 on electronic commerce
➢ Directive 2002/47 on financial collateral arrangements
➢ Directive 2002/65 on distance marketing of financial services
➢ Directive 2005/29 on unfair commercial practices
➢ Directive 2008/48 on credit agreements for consumers (formerly Directive
87/102)
➢ Directive 2008/122 on timeshare (formerly Directive 94/47)
➢ Directive 2011/7 on combating late payment in commercial transactions
(formerly Directive 2000/35)
➢ Directive 2011/83 on consumer rights (replacing directive 85/577 on
door-to-door sales and Directive 97/7 on distance contracts)
➢ Directive 2015/2302 on Package Travel (formerly Directive 90/314)
➢ Directive 2019/770 on the supply of digital contents and digital services
➢ Directive 2019/771 on sale of goods (replacing Directive 1999/44)
❖ Supranational law:
➢ Convention on Contracts for the International Sale of Goods (CISG) (1988)
■ The rules of the convention are applicable to the contract unless the
parties have explicitly excluded it
■ The CISG is inspired by the idea that the adoption of uniform rules
promotes the development of international trade

Chapter 4: The intention to create legal relations (pp. 39, 63–70)

❖ The formation of a contract: 3 main requirements
I. Agreement of the parties
■ Usually offer & acceptance
II. An intention to create legal relations
■ English law: consideration is needed
 ■ French legal tradition: causa is needed
III. Legal capacity of the parties
IV. (Formalities)
A. Sometimes, certain formalities have to be fulfilled
❖ The intention to create legal relations
➢ Intention to be legally bound: parties not only need to agree on the same
thing (a meeting of minds, or consensus ad idem), but they also need to
agree that what they agree upon is binding in law, meaning that each of
them can go to court and enforce the agreement if necessary
➢ Questions about the intention to create legal relations:
■ What is the intention of the parties and when does it lead to
agreement?
■ What test of earnestness is to be applied in problematic cases in
which there is doubt about a party’s intention?
■ How does the legal intention relate to another requirement that some
jurisdictions pose for the valid formation of a contract, namely the
common law requirement of consideration and the French requirement
of cause?
❖ What is the intention of the parties? The objective approach to agreement
➢ Dissensus: no meeting of minds ⇒ the intention and declaration of a party
differ
■ French law: any dissensus is regarded as standing in the way of the
valid formation of a contract (cf. arts 1101, 1128 Cc) but if the other
party could reasonably believe the first party intended to say what it
did, the latter is to compensate the other party for the damages on
the basis of tort (Art. 1240 CC)
■ German law: ‘mistake in the declaration’, avoid the contract (§ 119 I
BGB) but claims to damages are possible (§ 122 BGB)
● K Speditionsgesellschaft (1956)
■ Dutch law: 3:35 BW prohibits a party from invoking the discrepancy
between intention and declaration against someone who could
reasonably rely on this party’s declaration
● The juridical act is concluded as if there is consensus
■ English law: absence of a meeting of the minds prevents the
contract from coming into being
● Reasonable reliance on a party’s declaration will bring the
contract about (see Smith v Hughes (1871))
■ Also see art 2:102 PECL
➢ Contract law: the approach is to look for an objective meaning of the used
words rather than to try to discover what the ‘real’ intention of the parties was
➢ What this means in practice only becomes clear in the circumstances of each
individual case. Courts apply the objective approach (reasonable reliance
test, p. 66 book - can be applied in multiple jurisdictions): did the parties
reach a sufficient agreement?
I. How easy it is for the addressee to investigate whether the declaration
was really intended to mean what it says
● Stichting Postwanorder v Otto (2008)
● Culpa in contrahendo, fault in contracting
 [Link] the transaction would be beneficial for one of the parties
● Dutch case Hajjout v Ijmah (1983) ⇒ ‘the employer will have to
investigate with reasonable care whether the employee
understood that he was asked to agree with ending the
employment contract’
III. What is customary in a certain branch or location
IV. The meaning of the disputed term in everyday speech
V. The place of contracting
VI. The expertise and experience of the parties
➢ Only in cases where it is impossible to find one meaning of an ambiguous
term on an essential point of the agreement (meaning that a reasonable
person would find more than one meaning plausible), is there no agreement
■ French case: Société Tirat et Cie v Société Orazzi et Fils (1961)
● Contract was disputed by Orazzi on the ground that he did not
intend to buy the wine for a price five times as high as the
original offer, the court held that no contract had come into
being as the parties’ intentions differed
● Erreur-obstacle ⇒ mistake prevents the meeting of minds
❖ The basis of contractual liability: will, expression and reliance
➢ Will theory:
■ The internal will of a party is decisive
■ If the will were indeed decisive, a party could always claim after
having declared something that it has changed its mind and now no
longer wants to be bound
➢ Expression theory:
■ It looks at what a party has declared, regardless of what its intention
was
➢ Reliance theory:
■ In its original version, this theory applies the criterion that a party is
bound if it could reasonably rely on the other party performing in
line with the declaration that it made
■ Whether there is reliance on the will of the other party to be bound -
the will-reliance theory

Ppt: intro to Contract law

● What is a contract: an agreement (a promise) that is legally binding on parties (see
slides on Canvas)
● Why do we need contracts?
○ ‘Contract society’
○ Division of labour e.g. companies, businesses,
● Why do we need contract law?
○ Result of society we live in - the market economies
○ Ensures that the contracts (agreements/promises) parties concludes are
binding & can be enforced in courts if non-performance by one of the parties
○ Allows market actors (e.g. individuals, companies, governments,
municipalities, NGOs) to participate in the economic & social life
● What is contract law?
 ○ Set of rules & principles that governs transactions among parties establishing
those rights & obligations
● Contract Law as part of private law:
○ Private law:
■ Rules & principles that deal with relationships between private actors
(e.g. individuals, companies, NGOs)
■ Different areas like: contract law, tort law, restitution, inheritance,
property law, family law, company law
○ Law of obligations: contract law, tort law, restitution (so other areas)
■ Obligation = an enforceable duty that one person has vis-à-vis another
or several others
○ Classification of different areas of law into one system of private law &
different type of obligations into law of obligations is typical for civil law
traditions
■ Common law doesn’t work that much with obligations
● Example: contract law as part of private law
○ E.g. you want to buy a bicycle ⇒ the moment you purchase a bicycle, you
agree on a purchase ⇒ you become then the owner of the bicycle
○ Tort: obligations arising from unlawful events (e.g. if you ride into someone
with your bike) ⇒ different from contract
● Contract as juridical act:
○ Doctrine of juridical act (von Savigny, 1779-1861)
○ A juridical act is an act that has legal consequences because the person
acting intends to create these consequences
○ Prominent place in civil codes
○ Contract is the most important example of juridical act
○ Other: making of a will, decision to establish a company, recognizing a child
etc.
● Types of Contracts: Different classification criteria:
○ Type of parties:
■ Business-to-business (B2B)
■ Business-to-consumer (B2C)
■ Consumer-to-consumer (C2C)
○ Type of performance:
■ Specific/nominate
■ Innominate
■ Difference: One has a proper description (sharing and receiving
service; buying stuff) and others don’t
● E.g. if we work together and share data to research something
○ Reason for performance
■ Bilateral - e.g. you buy a bicycle and the shop offers your some sort of
service after the purchase
■ Unilateral - e.g. sales contract
● Main principles of contract law: four main principles
○ (1) Freedom of contract
■ Freedom to contract at all
■ Choice of contents
■ Freedom to choose the other party
 ○ (2) Binding force (pacta sunt servanda)
○ (3) Absence of formalities
○ (4) Contractual fairness
■ Substantive fairness
■ Procedural fairness
● Sources of contract law:
○ Party Agreement: what the parties agreed upon when entering into the
contract (price, quality)
■ If the arrangements that they made are not valid - the law can provide
the remaining rules that are applicable for contracts
○ Official sources
■ National law (civil countries: e.g. Civil Code; not in common law
countries (they have statutes): case developed by courts, but also
statutes
● Mandatory rules
● Default rules
■ EU law: over 15 Directives (e.g. consumer law)
■ Supranational law (e.g. CISG) - A Convention that deal with
contracts between businesses
○ Informal rules:
■ Soft law: guidelines, codes of conduct, resolutions, action plans,
principles, model rules
■ Principles (e.g. PECL, DCFR, PICC)
○ Case law
○ Custom
○ Scholarship:
■ Reports can be relevant for interpreting rules
● Civil vs Common law perspective on sources:
○ Sources have a different weight in common law vs. civil law tradition
■ Common law: case law may be more influential
○ Differences in codification vs. development through case law
■ For arbitration e.g. choosing guidelines or certain principles, there’s no
universal answer
● Creation of legal relations: for valid contracts, three main requirements
○ Intentioned to create legal relations
■ ‘Consideration’ in English law
■ ‘Causa’ in French-based legal systems (not in France)
○ Parties must intend to be legally bound
○ Parties must reach a sufficient agreement (consensus ad idem or meeting of
minds) ⇒ offer corresponds to acceptance
● Example provisions regarding intention:
○ English law: ‘the intention of creating legal relations
● Dissensus:
○ Subjective approach: the party’s subjective intention, regardless of
appearances
○ Objective approach: how a reasonable person would interpret a party’s
intention from his/her conduct in all circumstances
 ○ Contract law is not interested in parties’ mental state of mind ⇒ look into
objective meaning of words used
● Reason for objectivity:
○ Accessibility
■ Evidential difficulty of determining the party’s intention
○ Avoidance of fraud
■ to determine a person’s intention simply by reference to his/her
assertion as to his/her subjective state of mind at the time is to invite
dishonesty & chaos
○ Certainty & protection of reasonable expectations
■ Vital function of contract law: facilitate the security of transactions →
should enable people to plan based on apparently enforceable
contract
■ Function would be undermined if a party could escape the liability by
saying ‘when I said “white” I meant “black”’
● Objectivity from whose point of view?
○ Actor’s objectivity
○ Addressee’s objectivity?
○ Third (external) party objectivity?
○ Decisive: what the words or actions of the other party suggest to a
reasonable person in the position of the promisee
● Intention: objective factors
○ How easy it is for addressee to investigate whether the declaration was really
intended to mean what it says
○ Whether the transaction would be beneficial for one of the parties
○ What is customary in a certain branch/location
○ Meaning of the disputed term in everyday speech
○ Place of contracting
○ Expertise & experience of the parties
● Basis of Contractual Liability:
○ The will theory
○ The expression theory
○ The reliance theory
○ No contract if dissensus, but the reasonable reliance of the other party is
protected
● Consequences if Not Possible to Find Ones Meaning
○ English & French law: no meeting of minds = no contract
○ German law: ‘mistake in a declaration’ (Erklärungsirrtum) → contract can be
avoided (§119 BGB)
○ Dutch law: contract is concluded but the party can invoke the absence of
intention in a declaration if the other party could not reasonably rely on this
party’s declaration (Art. 3:35 BW)

Week 2: The intention to create legal relations

❖ Readings:
➢ Chapter 4: The intention to create legal relations (only the sections on ‘The
test of earnestness in problematic cases’ and on ‘Consideration and causa’)
(pp. 70–90)
 ➢ Adam Smith, An Inquiry into the Nature and Causes Of the Wealth of Nations,
London (W. Strahan) 1776, available on CanvasFiles (3 pages)

Chapter 4: Intention of the parties as a requirement

❖ for the valid formation of a contract ⇒ when is this intention directed towards the
creation of legal relations?
➢ The law decides when such an intention exists
➢ The law, suspicious as it is of altruism, presumes that a party will only bind
itself legally if it is to gain from the transaction
❖ Commercial agreements:
➢ Parties to commercial contracts are assumed to have the intention of
being legally bound ⇒ especially in English law, there is even a legal
presumption that a commercial agreement is legally binding
■ Such a presumption means that it is for the other party to prove that it
did not intend to be bound, which is difficult in practice
➢ From Bear Stearns Bank plc v Forum Global Equity Ltd (2007)
■ If the parties have shown an intention to be contractually committed,
albeit while deferring discussion of some aspect or aspects of the
deal, then the court will recognise a contract unless what remains
outstanding is not merely important but essential in the sense that
without it the contract is too uncertain or incomplete to be enforced
➢ The main exception to the bindingness of commercial agreements is when
parties explicitly say that they do not intend to be bound
■ They can do so by making their negotiations ‘subject to contract’,
which means that any agreement the parties reach orally or by way of
a written summary or ‘heads of agreement’ is not binding
➢ Deliberate intention not to be bound cal also be put in different wording (e.g.
in honour clause)
■ there are no legally enforceable rights if the other party does not do
what it promised
❖ Gratuitous and disadvantageous transactions:
➢ The intention to be legally bound is not assumed
■ The first type of a gratuitous transaction is the promise to make (1) a
gift (donation)
➢ Under English law, a gratuitous promise is equally unenforceable, but for the
reason that it does not have any consideration i.e. a promise must always
be given in return for a counter-performance by the other party
■ This is not the case by a gratuitous promise
➢ Transactions that are not formal gifts, and yet concern cases in which (2) a
party does something without asking anything in return (the French
would say ‘par complaisance’) = 2nd type of gratuitous transactions
■ E.g. if I immediately gave notice to my landlord after hearing my
neighbour’s generous offer (allowing me to live in her house for free),
thereby leaving me without a home if she should renege on her
promise, these are strong arguments to claim that there is a binding
contract
 ➢ (3) Third category: e.g. I can sell my Tesla X for €10 or agree to provide legal
services to coffeeshop Easy Going on the sole condition that its owner
regularly comes over to my house to water my plants
■ As these transactions are not particularly beneficial to the
promisor, there must be clear evidence that he was really willing to
commit himself beyond the boundaries of the ordinary
■ Neither civil nor English law requires these transactions to be put in
any particular form
❖ Social agreements:
➢ Such agreement is not assumed to be legally binding unless clear and
unequivocal evidence exists for the contrary
■ ‘Freedom from contract’: in their private lives, citizens should be
protected from unnecessary interference by the courts
➢ Social agreements often lack any monetary value
■ The understanding of two friends going on holiday together are in
principle not relevant to the law
➢ There is more doubt in cases where someone provides services without
remuneration if these services have monetary value and would normally be
paid for, but parties deliberately refrain from making them paid
❖ Domestic agreements:
➢ The law is reluctant to deal with what people agree upon in a family context
■ Most legal systems assume that people in one household are not
legally bound to their promises unless the contrary is proved
■ The emphasis must here of course be on the word ‘legally’: socially
and morally close relatives are arguably more obliged towards each
other than anyone else
■ Most court cases on domestic agreements are about (former) spouses
or cohabitants
➢ E.g. prenuptial agreements (‘prenups’) are contracts entered into prior to
the marriage or civil union and provide for what happens to the property of the
partners in case of divorce or separation
■ English courts have been willing to set aside prenuptial agreements,
even if these were made under a foreign law that does recognise the
agreement
➢ Domestic agreements can also relate to matters that the law does not see as
suitable for contracting because they violate public policy
■ E.g. the law regards it as a violation of one’s personal freedom if one
could make binding contracts about having a child or not
❖ Consideration and causa
➢ PECL: in many jurisdictions, a contract is concluded if:
(a) The parties intent to be legally bound, and
(b) They reach a sufficient agreement without any further requirement
➢ But in English law, an agreement also needs to be supported by so-called
consideration
■ And in French-based legal systems such as Spain, Italy, Belgium,
Romania and Bulgaria, a causa is required
❖ Common historical roots: finding the reason for being bound:
 ➢ A need for a criterion to distinguish binding from non-binding agreements was
needed
■ This was found in the requirement of causa: a naked agreement
(nudum pactum in Latin, the legal language of that time) was not
enforceable for lack of causa, whereby ‘causa’ simply stood for a
proper reason to be bound
➢ In England: ‘consideration’ for the promise, a good enough motive for why
a promisor was bound, developed
■ But aren’t causa and consideration not superfluous since it is after all
this intention that now fulfils the role of separating binding from
non-binding agreement
➢ The only good reason (causa, consideration) why a party is bound to its
promise is because it seriously and deliberately intended to be bound
■ The explanation for why causa and consideration are still
requirements for the formation of a valid contract is therefore mostly
historical
❖ Consideration in English law:
➢ English law requires that an agreement is supported by consideration.
This means that each party to the agreement must give, do or promise
something in return
■ The consideration often only consists of a promise without the other
party acting
➢ The consideration is the thing, service or promise that is given in return
➢ In cases where there is only an exchange of promises to perform acts in the
future (for example if A and B conclude a bilateral sales contract with delivery
and payment seven days from now), this is called executory consideration
➢ Executed consideration exists when a promise is made in exchange for an
act and the act is performed (the moment A delivers the goods to B, A’s
consideration becomes executed)
❖ (1) Consideration must be sufficient but it need not be adequate
➢ Consideration must be ‘sufficient’, meaning that it must consist of ‘something
of value in the eye of the law’, but this something does not have to be
‘adequate’: its economic value is not taken into account
➢ That a party pays too much or too little is not relevant as long as something is
given in return for the promise
❖ (2) Past consideration is not good consideration
➢ Any act carried out before a promise is given is not given in exchange for
the promise and does therefore not qualify as consideration to support it
➢ E.g. If Ranomi saves Pieter from drowning and Pieter promises to pay her
£1,000 as a reward to show his gratitude, Ranomi cannot claim the money
from Pieter. Pieter’s promise was not made in return for anything but was
subsequent and independent of him being rescue
❖ (3) an existing duty does not amount to valid consideration
➢ if a promisee is already under an obligation to perform (the promise), to
perform this duty does not amount to valid consideration
■ if the promisee does something that he is already obliged to do he
suffers no detriment, while the promisor only obtains what he was
 already entitled to and therefore obtains no benefit from the ‘extra’
promise
➢ An existing duty does not necessarily follow from public law. Consideration
is also absent if the duty already follows from a pre-existing contract
■ E.g. Stilk v Myrick (1809): the court agreed that the sailors had not
provided any consideration for the promise the captain had made:
they had only done what they had already promised to do in the initial
contract, namely sail back the ship
➢ Williams v Roffey Bros & Nicholls (Contractors) Ltd: the court found that
Roffey had obtained a practical extra benefit by Williams’s promise to
complete the work on time against extra pay
❖ (4) There is no good consideration for the promise to accept part payment of a
debt as discharge of the entire debt
➢ If someone owes another person money, it often happens that the debtor
offers to pay a smaller sum than the entire debt in return for the creditor
accepting this as full discharge
■ If you agree to discharge me of the £250 I owe you in return for me
paying you £200, you can always go back on your promise as I have
not provided you with consideration for it: I am already obliged to
repay the entire debt
➢ English law does not regard the creditor’s promise to accept this part payment
as valid consideration
❖ (1) Agreement by deed
➢ Parties can escape from the requirement of consideration by putting their
agreement in a so-called deed
■ It’s a formal contract ⇒ see section 1 of the Law of Property
(Miscellaneous Provisions) Act 1989
➢ The written document must indicate that it is a ‘deed’, be signed by the maker,
and the signing must be attested by a witness
➢ A deed provides an easy way for a party to make a gratuitous promise
enforceable
❖ (2) Promissory estoppel
➢ No one is allowed to act in a manner contrary to one’s own previous
conduct ⇒ estoppel is often described as providing a legal bar to alleging or
denying a fact in contradiction of one’s own previous conduct
➢ Estoppel thus prevents a party from going back on what it said or did
■ English law lacks one uniform principle of estoppel: its exact
conditions are dependent on the field to which it is applied
➢ The question to be answered here is whether promissory estoppel can make
a promise binding even if there is no consideration for it
■ See Central London Property Trust Ltd v High Trees House Ltd
(1947)
■ The claim by Central London to be paid the full rent had to succeed:
its promise to accept a lower yearly amount was not supported by
consideration
➢ “They are cases in which a promise was made which was intended to
create legal relations and which, to the knowledge of the person making the
promise, was going to be acted on by the person to whom it was made and
 which was in fact so acted on. In such cases, the courts have said that the
promise must be honoured.”
■ A promise lacking consideration (and not laid down in a deed)
can still be binding on basis of promissory estoppel
➢ Requirements: cite the Central London Property case
I. There must be a pre-existing contractual relationship between the
parties
II. A clear promise must have been made that the promisor will not
enforce his legal rights against the promisee
III. The promisee must have acted in reliance on the promise,
preferably to its own detriment (sometimes called detrimental reliance)
IV. It must be inequitable for the promisor to go back on its promise
V. Promissory estoppel is ‘a shield but not a sword’ ⇒ it can only
prevent the enforcement of an existing right and cannot create a
new right
❖ Causa in French law-based systems:
➢ They usually define causa as the goal (cause finale) that the parties pursue
with the contract
➢ This in itself is not a clear definition as the goal of a contract can be defined at
both an abstract level and at a more concrete one
■ At the abstract level (the so-called objective causa) the goal of the
parties with a certain type of contract is always identical
■ In bilateral contracts, the objective causa is the counter-performance
(or promise thereof) by the other party, similar to consideration under
English law
■ At the concrete level (subjective causa) the goal differs from one
party to another
➢ (1) The first function of causa is that it allows courts to prevent contracts
from taking effect if the goal that the parties pursue cannot be realized
■ A contract could also lack the subjective causa
● E.g. a party believes it has a debt towards another person,
which turns out to be untrue
■ The field of application of causa is very diverse ⇒ the exact function
of causa was not very clear and overlapped with other doctrines, such
as formation and mistake
➢ (2) The second function of causa in French-based jurisdictions is that it
prevents contracts against public policy or good morals from being
valid
■ But the new French law no longer needs causa to realize this; Art.
1162 CC now simply states that a contract cannot derogate from
public policy

Adam Smith reading: On the principles which gives occasion to the division of labour:
❖ About mankind: Give me that which I want, and you shall have this which you want,
is the meaning of every such offer; and it is in this manner that we obtain from one
another the far greater part of those good offices which we stand in need of
➢ It is not from the benevolence of the butcher, the brewer, or the baker, that we
expect our dinner, but from their regard to their own interest
 ❖ As it is by treaty, by barter, and by purchase, that we obtain from one another the
greater part of those mutual good offices which we stand in need of, so it is this same
trucking disposition which originally gives occasion to the division of labour
❖ Everyone is very much alike when they are born and grow up in the first few years ⇒
About the age of 6-8 years, or soon after, they come to be employed in very different
occupations
➢ The difference of talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing to acknowledge
scarce any resemblance
❖ If we did not have different jobs ⇒ All must have had the same duties to perform, and
the same work to do, and there could have been no such difference of employment
as could alone give occasion to any great difference of talents
❖ Among men: the most dissimilar geniuses are of use to one another;
➢ the different produces of their respective talents, where every man may
purchase whatever part of the produce of other men’s talents he has occasion
for

Podcast: Formation of contract

➢ Questions:
○ When is the parties’ intention directed towards the creation of legal relations?
○ How does the legal intention relate to additional requirements some
jurisdictions pose for the valid formation of a contract?
■ Consideration in common law &
■ Causa in French law-based jurisdictions
➢ Determining when intention is directed towards creating legal relations:

➢ Relation between legal intention & additional requirements:

○ Many jurisdictions (e.g. Germany, the Netherlands, the Nordic countries), as
well as supranational law (CISG), or soft law instruments (e.g. PECL) assess
the following two elements in determining the intention to conclude a contract:
■ If the parties’ intent is to be legally bound, and
■ If they reached an agreement
○ Others add additional requirements, such as:
■ Consideration in English law
■ Causa in French law-based systems (e.g. Italy, Spain, Belgium,
Romania, Bulgaria)
➢ Consideration:
 ○ Feature of common law
○ Agreement needs to be supported by consideration
■ Unique feature of common law
○ Each party to an agreement must give, do or promise something in return
(the party offers a counter-promise)
➢ Causa:
○ Initially stood for a proper reason to be bound to a promise (causa
obligations)
○ Systems maintaining it ⇒ defines it as the goal (causa finite) that parties
pursue with the contract
○ Are consideration & causa superfluous?
■ See criteria of intention of the parties to create legal relations ⇒
separates binding from non-binding agreements
➢ Newest developments
○ Some jurisdictions decided to get rid of it
■ E.g. Dutch Civil Code (1992), French Civil Code (2016)
○ Cause & Consideration remain requirements for valid formation of contracts in
some countries for historical reasons
KC: Formation of contract

➢ Requirements for Formation of Contract:

1. Agreement of the parties (an offer & an acceptance)
2. Intention to create legal relations (including consideration in English law, or
causa in French law-based legal systems, but not in France)
3. Legal capacity of the parties to conclude the agreement
4. (Formalities) - depends on the jurisdiction and what kind of contract
➢ Additional Requirements to Intention:

➢ Consideration:
○ Each party to the agreement must give, do or promise something in return
⇒ contract as a bargain
■ Required both for formation & modification of the contract
■ Promise to do something in the future is sufficient (executory v.
executed consideration, but cannot be past)
○ Example: two companies conclude a sales contract for two cans of tomatoes
to be delivered in two weeks time with payment in seven days after delivery.
 ■ An executory consideration is fulfilled when the promise is made in
exchange for an act that has been performed
■ When the tomatoes are delivered, the seller’s consideration becomes
executed
○ Erreur-obstacle ⇒ mistake prevents the meeting of minds ‘a valuable
consideration in the sense of the law may consist either in some right,
interest, profit, or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility give, suffered or undertaken by the other’
➢ Consideration Doctrine: can be summarised in four rules - each rule is reflected in
English case law
1. Consideration must be sufficient but it need not be adequate
2. Past consideration is not good consideration
3. An existing duty does not amount to valid consideration
4. No good consideration for promise to accept part of payment of debt
➢ (1) Consideration must be sufficient but need not be adequate
○ Chappell & Co. Ltd v Nestle Co. Ltd [1960] AC 87 (HL)
■ ‘All you have to do to get each NEW STARS record is to send three
wrappers from Nestlé’s [Link] Chocolate bars, together with Postal
Order for 1s6d.’
○ Nestlé had a contract to buy several music records and Chappell had the
copyrights to these recordings ⇒ to promote the chocolate sale, the client
had to send three chocolate wrappers and pay a small amount of money
■ Nestlé offered to sell these records at a discount price to anyone
presenting three wrappers from their chocolate bars. The wrappers
themselves were worthless and were thrown away by Nestle.
■ Chappell sought an injunction for restraining the manufacturing of the
recordings and their sale bc they breached the copyright
○ Were the wrappers part of the consideration? Yes
■ The offer made by Nestle stated that the wrappers would [didn’t
understand this part] ⇒ the wrappers were part of the contract
■ Despite the wrappers having no considerable economic value,
Nestle benefited from them and encouraged their sale of
chocolates and an interactive way of advertising benefit
○ Peppercorn theory:
■ Consideration can be anything stipulated by the promisor, anything of
value in a particular case
■ 'A contracting party can stipulate whatever consideration he chooses.
A peppercorn does not cease to be good consideration if it is
established that the promisee does not like pepper and will throw
away the corn.’
■ Even something of very small value can be considered to be part
of consideration - so it doesn’t matter how much the consideration is
■ Something of very little value can be sufficient for consideration
➢ (2) Past consideration is not good consideration
○ Eastwood v. Kenyon (1940) 11 Ad & E 438, (1840) 113 ER 482
■ The claimant acted as the guardian for the girl - pays for the education
of the girl. He took out a loan, and when the girl came of age, her
later husband promises to repay the costs
 ■ But the promise wasn’t made true - the couple argued that it was a
not binding contractual agreement ⇒ the claimant had not provided
consideration for their promise to pay, they were past consideration
■ Is the promise enforceable? In other
words, is a promise sufficient to
form a contract?
○ Court argued that enforcing all serious
intended promises without consideration
would create a flaw of legal claims & had
consequences for society
○ The husband and the girl actually had a
moral obligation to honour the promise but
they were not under any legal obligation
since the consideration was missing
➢ (3) An existing duty does not amount to valid consideration
○ Stilk v Myrick [1809] EWHC KB J58, 170 ER 1168
■ Shipping case, consideration was absent here
■ Duty already existed for a pre-existing contract
■ The captain promised the sailors that they would get an additional
salary if they sailed the ship back to London ⇒ but once back in
England, the captain refused to pay
■ The court agreed that the sailors hadn’t provided any additional
consideration for the promise that the captain had made
■ Relationship to doctrine of economic duress (maybe the captain was
under duress and had no alternative but to return to England)
○ Williams v. Roffey Bros and Nicholls Ltd. [1991] 1 QB 1, [1990] 1 All ER
512 ⇒ exception to this key point
■ Construction case: Roffey contracted with a housing association for
the refurbishment of 27 flats
● Contract contained a damage clause for Roffey if he didn’t
complete the work in time
■ Roffey sub-contracted carpentry to Williams (for 20,000 pounds) ⇒
Williams encountered difficulties bc he underestimated the job
● For completing Roffey’s job in time, Williams needed an
additional pay
■ Williams negotiates higher price for on-time completion
● After he managed to finish the apartments, Roffey refused to
pay extra to Williams bc Williams provided no consideration
for the additional pay
■ Was there a practical benefit? The court believed that Roffey did
obtain a practical benefit i.e. he finished his job in time, he avoided the
penalty and he didn’t have to search for another carpentry company
■ This case made clear that an additional practical benefit makes
good consideration (even when there was already an existing duty)
➢ (4) No good consideration for part payment:
○ Pinnel’s case (1602) - part payment does not discharge a debt, paying a
debt is not consideration, unless extra benefit
○ Foakes v. Beer [1884] UKHL 1, [1881-85] All ER Rep 106
 ■ If a party gives a waiver, e.g. making the entire payment not
enforceable ⇒ a part payment can never discharge a debt unless
there are other circumstances
■ Judgment for 2,000 pounds to be paid by Foakes to Beer
■ Agreement to pay in instalments
■ Waiver of interest payments
○ Waiver unenforceable for lack of consideration
○ Question: How does this relate to Williams v. Roffey Bros?
■ If the parties agreed to pay sooner, should they change the contract,
how does this relate to Williams v. Roffey Bros?
■ Is this at odds with the debt prior decision e.g. imagine you’re the
debtor and you agree to pay part of the loan, then there’s a practical
benefit
● E.g. you as creditor received the money now
■ Court didn’t use Williams v. Roffey Bros as precedent tho, they didn’t
want to since it made it easier for the debtor to get out of the obligation
of repaying the money
■ Inconsistency
➢ Circumventing Consideration: Agreement by Deed
○ Parties can escape their consideration by putting their agreement in a deed;
it’s an alternative consideration if the requirements of consideration are not
met
○ A deed is a formal contract - a certain promise is enforceable based on this
○ Requirements are contained in S 1 of Law of Property (Miscellaneous
Provisions) Act 1989 (see the Maastricht Collection at p. 287)
○ It is a way for a party to make a gratuitous promise enforceable
○ Formally compared to a ‘simple’ contract (e.g. Dutch law intention to be
legally bound is sufficient)
➢ Circumventing Consideration: Promissory Estoppel
○ No one is allowed to act in a manner contrary to one’s own previous conduct,
especially when another person acted in reliance on this
■ E.g. It can protect parties against enforcements of certain rights
○ Requirements:
■ pre-existing contractual relationship
■ clear promise that legal rights will be enforced
■ promisee acted in reliance on the promise to his own detriment
■ inequitable for a promisor to go back on the promise
■ it is ‘a shield but not a sword’ - it’s a protection mechanism but it
cannot create rights
➢ Promissory Estoppel: Central London Property Trust Ltd v High Trees House
Ltd [1947] KB 130 (High Trees case)
○ High Trees house was a block of flats - lease of properties by High Trees in
Central London
○ Low occupancy during WWII, it had difficulties in subletting it to individual
tenants
○ 1940: agreement to reduce rent by half, no final date fixed in the contract
○ Central London claims full rent over final half of 1945 when building reached
full occupancy again
 ○
What if CL claimed full rent over 1940-1945?
■ Judge said that there was a promise made between the parties and it
would have been inequitable for CL to come back to its promise to
change the rent price between 1940-1945 when they had agreed to
half the price
➢ Should the doctrine of consideration be abolished?
○ Increased criticism towards the doctrine for:
■ Being inconsistent with the intention of the parties
■ Over-inclusive ⇒ enforcing some non-bargains as bargains
■ Overly technical, artificial, and internally incoherent

➢ Causa:
○ It stands for a proper reason to be bound/purpose for making a contract
○ Objective causa = the performance by the other party missing if impossible to
perform
○ Subjective causa = an individual motive to be bound
○ Abolished in French law in 2016, but still present in other French law-based
jurisdictions
○ Intention can create legal relations and tailor to the needs of the parties much
better

Ppt: Intention to create legal relationships

● Peppercorn theory:
○ The Nestle case: the judge mentioned that even if the wrappers are of very
little value, it was still an agreement among the parties
■ 'A contracting party can stipulate whatever consideration he chooses.
A peppercorn does not cease to be a good consideration if it is
established that the promisee does not like pepper and will throw
away the corn.’
■ Even something of very small value can be considered to be part of
consideration - so it doesn’t matter how much the consideration is
■ Something of very little value can be sufficient for consideration
● Williams v. Roffey Bros case:
○ It was more a development of an existing duty, of the consideration doctrine
● Need to know both consideration (English law) and causa (French-based systems)
⇒ apply the one that is relevant in your situation
○ Also be aware of the differences
● Earnestness of Intention Test:
○ When is the intention directed towards the creation of legal relations?
■ Law input
■ Law reluctance to enforce purely gratuitous promises/promises among
family members/friends because it is less likely someone would want
to be bound
○ Presumption: party will only bind itself legally if there is some gain from the
transaction
● Types of situation:

● Commercial agreements:
○ Parties to commercial agreements are assumed to have the intention of
being legally bound ⇒ legal presumption
○ What is a legal presumption?
■ Counterparty: has to prove the contrary
○ Bear Stearns Bank plc v Forum Global Equity Ltd [2007] EWCA 1576
■ There was no intention to bound themselves contractually to selling
the loan that they had for this company, Parmalat (court agreed)
■ Case for legal presumption between a bank and a company
○ Main exception: parties explicitly say they do not want to be bound
○ Bloom v Kinder [1958] 1 TR91
● Regarding case law: Know what the issue was and the outcome of the case law
that we get - don’t have to know all the details, but do know what the case was
about
● Gratuitous & disadvantageous transactions:
○ The intention to be legally bound is not assumed
○ Law is suspicious about gratuitous transactions: earnestness of intention
○ Gratuitous promise: civil v English law
○ Disadvantageous transactions: civil & English law - no form requirement,
but are they enforceable?
■ Why are gratuitous transactions not enforceable under English law?
It’s missing an element: consideration is missing - the quid pro quo,
getting something in return
■ Under civil law: a notary ⇒ notary could explain the legal
consequences when you go for a gratuitous transaction
 ○ No consequences in terms of a binding agreement
● Social agreements:
○ Promises among friends, people who know each other well
○ Often lack monetary value
○ It’s not really binding i.e. not assumed legally binding unless clear &
unequivocal evidence for contrary
○ Doubt: when providing a service to someone without remuneration if this has
a money value & would normally be paid for, but parties refrained from
making them paid ⇒ babysitting
○ Cost-sharing?
■ Coward v Motor Insurance Bureau (Coward v MIB) [1963] 1 QB 327
○ Lottery?
■ Simpkins v Pays [1955] 1 WLR 976
● Domestic agreements
○ Law is reluctant to deal with what people agree in family context
○ Most legal systems assume people in a household are not legally bound
unless contrary is proved
○ Socially or morally obliged
○ Prenuptial?
■ Civil law countries
■ English law
○ Public policy: domestic agreements related to matters that law does not see
suitable for contracting

Week 3: Offer and Acceptance

❖ Readings:
➢ Chapter 3: Offer and acceptance
Chapter 3: Offer and acceptance
Civil codes, legal doctrine and case law of any jurisdiction in the world define a
contract as a legally binding agreement
➢ French Cc: Art. 1101 CC: ‘A contract is an agreement of wills among two or
more persons intended to create, modify, transfer or extinguish obligations.’
➢ Art II-1:101 (1) DCFR: ‘A contract is an agreement which is intended to give
rise to a binding legal relationship or to have some other legal effect. (…)’
❖ A contract only exists if one party (the offeror) has made an offer (offre, Antrag,
aanbod) and the other party (the offeree) has accepted this offer by way of an
acceptance (acceptation, Annahme, aanvaarding)
➢ Before the acceptance, no one is bound to do anything under the contract,
while after acceptance one party (in case of a unilateral contract) or both
parties (in case of a bilateral contract) are bound
➢ This offer is often made explicit
➢ Also, the model of offer and acceptance is universally applied in both civil
law and common law jurisdictions
➢ But it must be remembered that the question of when an offer is made and
acceptance is sent does not arise as long as contracts are concluded
between bystanders
❖ What is an offer?
General:
➢ Art 2:201 (1) PECL states the following:
■ A proposal amounts to an offer if:
(a) it is intended to result in a contract if the other party accepts it, and
(b) it contains sufficiently definite terms to form a contract
➢ In other words, this requires that the offer indicates both the intention of the
offeror to be bound and the terms by which the offeror is willing to be bound
■ If both these requirements are not met, there is no offer at all, but at
best an invitation to the other party to enter into negotiations
➢ To tell an offer from an invitation; the proposal itself might indicate that it is to
be seen as a ‘binding offer’
■ Otherwise, the offer might contain a clause that includes ‘subject to
agreement’, ‘subject to confirmation’, ‘without any obligation’, or sth in
similar wording
➢ E.g. English case: Gibson v Manchester City Council (1979)
■ The court did not find an offer in the Council’s letter (it only contained
the price of the house): this was only an invitation to the tenant to
make an offer (invitation to treat case law)
➢ Any agreement that is too vague or incomplete will therefore not be
regarded as a binding contract
■ In case of a sales contract, this will include the good to be sold and
the price (Art. 1583 of the French Code Civil even requires this
explicitly)
Offers to the public: advertisements
➢ An offer can also be addressed to the general audience, but in general, it
depends on the jurisdiction what is seen as a proper offer
➢ In French and Dutch law, an offer to the public is binding in the same way as if
it had been made to a particular person
■ French case: Maltzkorn v Braquet (1969)
● Court found that an advertisement could be a binding offer to
the public that binds the offeror to the first person who accepts
it ⇒ but it doesn’t mean that any advertisement is an offer
■ Intuitu personae contracts: ‘a personal service contract where the
particular individual cannot be replaced.’
■ Dutch case: Hofland v Hennis (1981)
● House was put up for sale, the advertisement contained the
address, the price and details of the layout of the house
● When Mr. Hennis had visited the house, he told the seller that
he accepted his offer
● However, when the sale had to be closed, the seller refused to
cooperate with the transfer of the house, arguing that no
contract had come into being
● Court’s decision: ‘An advertisement offering to sell a specific
property at a certain price does in principle not qualify to be
interpreted by potential offerees as anything else than an
invitation to enter into negotiations’
➢ English and German law: an ad invites potential customers to make an
offer to the seller to buy the good
■ English case: Partridge v Crittenden (1968)
 ● Mr. Partridge had put on sale some birds, but these birds were
protected by law and Mr. Partridge was charged by the RSPCA
● However, as the advertisement was only seen as an
invitation to treat, he could not be convicted
➢ What the French and Dutch could contend against this view is that their rule
at least protects customers against a seller who advertises at a low price to
lure people into his shop or onto his website, and then makes up some
excuse for not selling to them
➢ It is argued in Germany and England that, as an advertisement can be read
by anyone, the advertiser cannot be expected to sell to all interested parties
as stocks are always limited
➢ Art. 2:201(3) PECL:
■ ‘A proposal to supply goods or services at stated prices made by a
professional supplier in a public advertisement or a catalogue, or by a
display of goods, is presumed to be an offer to sell or supply at that
price until the stock of goods, or the supplier’s capacity to supply
the service, is exhausted.’
■ In short, the offeree cannot reasonably expect that the offeror is
still willing to sell if the products are sold out
➢ In some cases the advertiser simply wants to be bound to its proposal by the
mere acceptance of somebody else without the need to negotiate ⇒
English law regards these offers as offer for a unilateral contract
■ English case: Thornton v Shoe Lane Parking (1971)
● ‘The customer pays his money and gets a ticket. He cannot
refuse it. [...] He was committed at the very moment when he
put his money into the machine. The contract was concluded
at that time.’ ⇒ parking ticket amounts to an unilateral contract
■ German § 657 BGB: in case of an ad for a reward
● ‘Anyone offering by means of public announcement a reward
for undertaking an act, including without limitation for
producing an outcome, is obliged to pay the reward to the
person who has undertaken the act, even if that person did
not act with a view to the promise of a reward.’
● However, the advertiser may withdraw the offer for the
reward before the necessary act is performed (§ 658 (1) BGB)
➢ The offer and acceptance question is governed by the respective national
laws
■ German and English law therefore regard advertising goods on a
website as non-binding invitations to treat
➢ Carlill v Carbolic Smoke Ball Co (1893) ⇒ sold products which allegedly
provided protection against the potentially lethal influenza virus
■ ‘£100 reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the increasing epidemic influenza colds, or any
disease caused by taking cold’ after having used the ball several times
■ Mrs. Carlill bought the product and got influenza, but the company
refused to pay, arguing that the ad was not meant as an offer, but
was a mere advertising hype
 ■ Court’s decision: Such advertisements are offers to negotiate - offers
to receive offers (...). If this is an offer to be bound, then it is a
contract the moment the person fulfils the condition.’
■ Rewards as an unilateral contract amount to an offer
➢ Products offered on websites are considered as offers under French and
Dutch law, e.g. see Dutch case: Stichting Postwanorder v Otto BV (2008)
■ Online retailer Otto had offered for sale a TV for €99,99 and got a lot
of customers who all ordered the TV
■ All customers received an automatic e-mail confirming their order
■ When Otto refused to deliver, claiming that there was an obvious
mistake in the pricing of the product, dissatisfied customers took Otto
to court
■ The Court of Appeal made clear that an offer was made by Otto, but
denied that a valid contract had come into being
■ The question is whether the consumers at the moment they accepted
the offer – thus at the moment they ordered over the internet – could
reasonably assume in the circumstances of the case that this offer
was correct
■ In order to address this problem, many websites provide specific rules
to the consumer on how to order
Offers to the public: goods on displays in shops
➢ French and Dutch law consider the display of goods in a shop as an offer,
while English and German law in principle do not
➢ English leading case: Pharmaceutical Society v Boots (1953)
■ Display of goods in a shop could never qualify as an offer for a
bilateral contract because ‘once an article has been placed in the
receptacle [basket, shopping cart] the customer himself is bound
and would have no right, without paying for the first article, to
substitute an article which he saw later of a similar kind and which he
perhaps preferred’
➢ French case of Exploding lemonade bottle (1964):
■ A bottle of Vittel lemonade that had just been taken out of the basket
at the checkout exploded and injured the customer
■ Court’s decision: the customer could claim damages in contract
● ‘the sale takes place as soon as the customer, seeing an
item marked with a price the client is prepared to accept,
places the item in the basket or bag made available to her
and which she is required to use until the goods are checked
out by the employee at the till’
❖ Can an offer be revoked?
➢ Revocation of an offer means that the offeror is no longer bound by his
offer
■ The rules on offer and acceptance are only default rules and can be
set aside by the parties if they wish
➢ German law: § 145 BGB ⇒ ‘One who has offered to conclude a contract with
another is bound by that offer unless he states that he is not bound.’
 ■ But there is one self-evident case in which an offer need not be
revoked (also in other jurisdictions); if the offeree does not know of
the offer, no harm is done if the offer is withdrawn by the offeror
■ It is therefore generally accepted that an offer may be retracted if
the withdrawal reaches the offeree before or at the same time as
the offer
■ Art. 1115 CC, Art. 3:37 (5) Dutch Civil Code and § 130 (1) BGB
explicitly provide so, as does Art. 1:303 (5) PECL.
➢ English law: revocation is always allowed
■ 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
■ This is due to the doctrine of consideration ⇒ a promise can only be
enforced if the other party does or promises something in return
■ In the case of an offer, the offeree does not provide any consideration
and therefore the offer is not binding
➢ French law: see art 1116 CC
■ Any offer is revocable before acceptance, but that this revocation is
abusive (and therefore a tort under Art. 1240 Code Civil) if it
frustrates the legitimate expectations of the offeree
■ This is the case if the offer contains a time period within which it is to
be accepted (offre avec délai), or if the offeree could reasonably
believe that the offer would remain open for a reasonable time (offre
avec délai raisonnable)
➢ Art. 2:202 PECL: universal approach
(1) An offer may be revoked if the revocation reaches the offeree before it has
dispatched its acceptance (…).
(2) An offer made to the public can be revoked by the same means as were
used to make the offer.
(3) However, a revocation of an offer is ineffective if:
(a) the offer indicates that it is irrevocable; or
(b) it states a fixed time for its acceptance; or
(c) it was reasonable for the offeree to rely on the offer as being irrevocable
and the offeree has acted in reliance on the offer.
❖ How long does the offer last?
➢ The law provides rules on when an offer ceases to exist, the so-called lapse
of an offer
The offer is rejected:
➢ Art. [Link] ‘When a rejection of an offer reaches the offerer, the offer lapses
■ English case: Hyde v Wrench (1840)
● Wrench offered to sell his farm to Hyde for £1,000 and two
days later Hyde offered £950, which was rejected by the seller
● When Hyde then told the seller that on second thought he
agreed to buy for £1,000, the seller was no longer bound to
his offer: the offeree’s counter-offer had terminated it
The time for acceptance expires:
➢ Germany: §§ 146–148 BGB
 ■ § 146: An offer expires if a refusal is made to the offeror, or if no
acceptance is made to this person in good time in accordance with §
147 to 149.
■ § 147(1): An offer made to a person who is present may only be
accepted immediately. This also applies to an offer made by one
person to another using a telephone or another technical facility.
● (2) An offer made to a person who is absent may be accepted
only until the time when the offeror may expect to receive the
answer under ordinary circumstances
■ § 148: If the offeror has determined a period of time for the
acceptance of an offer, the acceptance may only take place within this
period
➢ The offer lapses if the time that the offeror has set for acceptance
expires
■ If the offer is made inter absentes (for example by post, e-mail or
WhatsApp), much depends on the speed of the means of
communication
❖ What are the requirements that the acceptance must meet?
➢ The contract is concluded when the offer is accepted ⇒ this acceptance will
usually take place in writing or orally
■ It does not have to meet any specific requirements as long as it makes
clear to the offeror that the offeree unconditionally agrees with the
terms of the offer
● English law speaks of the ‘mirror image’ rule: the offer must
be mirrored by an acceptance
➢ Art 2:204 PECL:
(1) Any form of statement or conduct by the offeree is an acceptance if it
indicates assent to the offer.
(2) Silence or inactivity does not in itself amount to acceptance
■ Is the specified method of acceptance exclusive or not? The answer
naturally depends on how the offer should be interpreted
■ English law: Tinn v Hoffman (1873) - if ‘post’ is described, a quicker
method is fine as well
■ If ‘registered or recorded delivery’ is required, an ordinary letter is also
acceptable (see (Yates Building Co Ltd v R.J. Pulleyn & Sons
(York) Ltd, 1975)
➢ An important question is whether silence can count as acceptance of the
offer
■ Art 2:204(2) PECL reflects the view of any jurisdiction that silence ‘in
itself’ does not suffice ⇒ but it is not impossible
■ French case Cour de Cassation in 1988 (Amusement park
attraction case) - the parties had agreed that the buyer could
exercise an option to buy an amusement park attraction from the
seller by proposing a price and that the seller would then reply within
14 days ⇒ offeree had offered a price and didn’t hear anything from
the seller
● The court found that the silence amounted to acceptance
 ■The French speak of a silence circonstancié (‘circumstantial
silence’), now codified in the new Art. 1120 CC
■ Germany: confirmatory notes
● If the other party does not agree with the document, it must
quickly reject it at the risk of being bound
➢ What happens if each party uses its own general conditions? Several
solutions:
■ ‘First shot’ rule (NL): the conditions of the offeror prevail unless they
were explicitly rejected in the acceptance
■ ‘Last shot’ prevails (England): if this offer is accepted by
performance of the obligation (such as delivery of the goods), the
offeree is presumed to have accepted the general conditions
referred to in the latest offer (the ‘last shot’ prevails)
■ ‘Knock out’ rule (DE): general conditions only become part of the
contract insofar as they are common in substance
➢ What if the offeree does not formally accept the offer, but acts as if it has
accepted it
❖ What is the time of conclusion of the contract?
➢ Why is this relevant?
■ One of the reasons, is that from this moment onwards the offeror can
no longer revoke his offer
■ Another is that the parties need to know as of when they have to
perform the contract
➢ All jurisdictions adopt either the expedition or the receipt theory:
■ § 130(1) BGB: ‘A declaration of intention to another, if it is made to
another in his absence, is effective at the moment when it reaches
him. (…)’
■ Art. 1121 CC: ‘A contract is concluded as soon as the acceptance
reaches the offeror. (…)’
■ Art. 3:37 (3) BW: ‘A declaration addressed to a specific person must
have reached (‘bereikt’) this person in order to have the sought legal
effect. Nevertheless, if such a statement has not reached this person
or it did not reach him in time, and this is merely a result of his own
actions, of the actions of other persons for whom he is responsible, or
the result of other circumstances which justify that he is accountable
for any disadvantage caused by it, then this statement will still have its
originally intended legal effect.’
■ Art. 2:205 (1) PECL: ‘If an acceptance has been dispatched by the
offeree the contract is concluded when the acceptance reaches the
offeror.’
➢ English law makes a sharp distinction between instantaneous and
non-instantaneous communication
■ If parties sit opposite each other or speak to each other over the
phone, the receipt theory is applied (see Entores Ltd v Miles Far East
Corporation)
● ‘Not until I have his answer am I bound.’
■ The offeree will know when his acceptance was not communicated to
the other party, and can try again
 ➢ In case of non-instantaneous communication, such as sending a letter by
regular post, English law does not accept the receipt theory ⇒ instead, it
adopts the expedition theory (i.e. postal rule or mailbox rule)
■ Adams v Lindsell (1818): The postal rule entails that the acceptance
becomes effective at the moment of posting and not when it is
received by the offeror
➢ Postal rule (England):
■ First, the postal rule implies that the contract is formed even in cases
where the letter containing the acceptance never arrives at its
destination, for example because it gets lost in the post
■ Second, the practical effect of the postal rule is that it limits the
possibility of revocation by the offeror
● Under English law revocation is always allowed before
acceptance ⇒ if the acceptance has already taken effect when
it is posted, the effective time left to revoke the offer is
restricted
■ See Byrne & Co v Leon van Tienhoven & Co (1880) ⇒ at the
moment of posting with the offer of sale, the plaintiffs had accepted
the offer
● An offer for the sale of goods cannot be withdrawn by simply
posting a secondary letter which does not arrive until after the
first letter had been responded to and accepted

Podcast: Offer & acceptance

➢ Contract Formation
○ Do you remember what the three main requirements were for the contract to
be validly concluded
○ These are:
■ The agreement of the parties (usually consists of an offer made by
one party and an acceptance by the other)
● E.g. you want to buy a bicycle and look on Marktplaats for one
- someone offers it for €80,- and if you’re satisfied with the
offer, you can contact the seller and purchase it
● You both have reached a consensus
■ An intention to create legal relations
● Do keep in mind the additional requirements such as
consideration (England) and causa
■ Legal capacity of the parties
➢ Offer & Acceptance
○ Before offer & acceptance, no-one is bound yet to a contract
➢ What is an Offer?
○ A proposal needs to fulfil the following cumulative requirements to be
considered an offer:
1. An intention of offerer to be bound and
2. The terms under which the offeror is willing to be bound (they need to
be sufficiently defined, all the essential elements need to be present
by which the parties are willing to be bound)
 ○
E.g. the bike example; the bike owner placed an ad with the intention to sell
the bike and he was willing to be bound to €80
■ If the seller would sell the bike but didn’t indicate a price (i.e. people
can bid on it instead), this would qualify as an invitation - other
parties could enter into negotiations ⇒ seller could either accept or
reject it
○ See Article 2:201(1) PECL ⇒ general definition of ‘offer’
➢ What is an Acceptance?
○ Agreement to unconditionally agree with the terms of the offer
○ Can be made: orally or in writing
■ In principle, it doesn’t have to meet any requirements - e.g. if the
parties are in each other’s presence (physically or digitally)
○ It needs to be clear that the offeree makes clear to the offeror that the terms
of the offer are unconditionally agreed to
○ What happens when the acceptance of the offeree does not correspond to
the terms of the offer?
➢ Where do we go next?
○ Additional matters to discuss:
■ Revocation of an offer
■ Validity of an offer
■ Requirements of acceptance
■ Moment of conclusion of a contract

KC: Offers to the Public

➢ Offer & Acceptance Model
○ Model of offer & acceptance: universally applied
○ Not all civil systems use these two terms, despite the universal use of the
model by courts & scholars
■ French Civil Code only from 2016
■ Dutch Civil Code
○ No difficulties as to their encounter for bystanders
○ Become indispensable when parties are away from each other & time
difference exists between the two
➢ Offer to the Public:
○ Offer does not have to be directed towards a specific person (it’s not
required)
○ Can be address to a general audience e.g. via an advertisement, on the
internet, in a magazine)
○ Only amounts to offer if offeree could reasonably believe an offer was made
■ The person who e.g. purchases the product has the impression that
an offer had been made
■ Whether the advertisement was considered an offer or not depends on
the jurisdiction
○ NB: outcome of this test differs per jurisdiction offer or invitation to treat
➢ French & Dutch v English & German
○ French & Dutch
■ Offer to the public is binding ⇒ the effects are identical to the offer
which is made to a particular person
 ○ The rule protects customers from sellers who could try
to lure customers in with their ads or refuse to sell the
product etc.
■ French case Maltzkorn v Braquet [1969] binds the first person
who accepts it
● Braquet was the owner of a piece of land and was advertising
it in a local newspaper for +.- €30.000
● Maltzkorn saw the ad and accepted the offer, but the owner
denied being bound to it since it was an advertisement
● The court of cassation couldn’t find any legal basis for this rule
⇒ it was considered that an advertisement could be seen
as a binding offer to the public & the offeror is bound to
the first person who accepts it
■ However, not every advertisement is an offer
■ See situation of contracts that are usually intuitu personae - e.g.
labour agreements, loan agreements
● Dutch case: Hofland v Hennis [1981] ⇒ houses were being
put up in the local newspaper for sale - advertisement
contained the address, details and price of the properties
● When Hennis visited the house, he told the owner that he
accepted the offer but when the sale was to be concluded, the
seller refused to transfer the ownership of the house
● He claimed that the contract did not come about yet
● The court ruled that the advertisement should be observed as
an ‘invitation to enter negotiation’
■ Q: What are intuitu personae contracts?
○ English & German
■ Advertisement does not amount to an offer it invites potential
customers to make an offer to seller to by the good
● Advertisements can be written by anyone and the advertiser
cannot expect to sell his good to everyone (stock is limited)
■ English case: Partridge v Crittenden [1968] 1 WLR 1204
advertisements are construed as invitation to treat
● Patridge put some of his birds up for sale and the Royal
Society for the Prevention of Cruelty to Animals (RSPCA)
couldn’t charge him for an unlawful offer because the
advertisement was only considered as an invitation to treat
■ German law adopts same position
➢ Issue of Unilateral Contract
○ French & Dutch law
■ Offer is accepted when other party performs the act for which a
product was offered (e.g. reward for information to police, paying park
ticket, buying a train ticket at the machine)
■ Advertisers: if they convey a serious intention to be bound to potential
respondents
○ English & German law
■ Practical difficulty
■ English law ⇒ offers for a unilateral contract
 ● Thornton v Shoe Lane Parking [1971] 2 QB 163
○ About a parking claim, when money has been given to
the parking machine, that is the moment when
acceptance has taken place (it was parking at your own
risk)
● Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
○ Flu pandemic, killed almost 1 million people - the
company (Carbolic Smoke Ball) sold a product which
claimed that it could protect people from a potential
lethal virus
○ They advertised 100 pounds to anyone who would
contract the cold/virus after having taken their product 3
times a day for two weeks
○ Ms Carla bought the product and used it accordingly,
but still caught influenza, so she decided to claim the
100 pounds
○ Company refused to pay, claiming that it was a mere
advertisement
○ Court claimed that the offer can become liable to any
person who performed the condition ⇒ limited
portion of the public, the ones who fulfilled the
conditions from the advertisement
■ German law (§ 657 BGB) - independent juridical act (≠ contract) ⇒
offer for reward by public announcement obliges to payment, but
advertiser may withdraw offer before the necessary act is performed
(§ 658(1) BGB)
➢ Website Offers:
○ Rules or unilateral contracts are relevant for this type of offer
○ European Directives concerning online selling and duty to inform consumers
■ Consumer may withdraw from the contract 14 days after delivery
■ Many websites provide for consumers specific rules to order ⇒ they
follow a procedure
○ German & English law: non binding invitation to treat
○ French & Dutch law: offers
■ Stichting Postwanorder v Otto BV [2008]
➢ Goods on Display in a Shop:
○ Goods on display or in a window of the shop
■ Can a customer claim the good is/was sold to him if the price is
indicated?
○ Different national approaches
○ French & Dutch law: display of goods in shop = offer
■ French case: Exploding lemonade bottle [1964]
● The bottle that was taken out of the plastic at a checkpoint -
the customer could get damages because the sale took place
when the customer placed the item in the basket
● Acceptance takes place by taking the good with the
intention to buy it
○ English & German law: in principle ≠ offer
 ■ Pharmaceutical Society v Boots [1953] 1 QB 401
● A displayed regulated medicine for clients to pick off shelves
and pay at a counter. B sued A for not supervising sale of
drugs
● Is the display of goods on shelves an offer? No, it’s in
invitation to treat
Ppt: Offer & acceptance
➢ Some questions for consideration:
○ What happens when the acceptance of the offeree does not correspond to
the terms of the offer?
■ Counter offer
■ Refusal of the offer
○ What are intuitu personae contracts
■ The characteristics of the person/the person him/herself is essential
for the contract
■ E.g. a musician in an orchestra; their qualities are desired to perform
the contract, otherwise
○ For goods that are displayed in a shop can the customer claim the good
is/was sold to him if price is indicated?
➢ Revocation (I)
○ Means offeror is no longer bound by his offer
○ Different jurisdictions weight the interests of the offeror & offeree
○ German law (& countries of German tradition: Austria, Switzerland & Greece)
- para 145 BGB ⇒ offeror cannot revoke his offer
■ Offer to be made available for a reasonable period of time
■ If during this period offeror does not hear from offeree ⇒ offeror can
make an offer to someone else
■ Offeror can limit the validity of the offer & reserve a right to revoke it
➢ Revocation (II)
○ English law: revocation is always allowed ⇒ reason: consideration
■ At any time before it has been accepted
■ Even if offeror included in the offer a deadline for acceptance
■ US approach is not the same in Uniform Commercial Code (UCC) ss
2-205 ⇒ ‘firm offers’
○ French law (& other jurisdictions of French tradition e.g. Belgium)
■ Cour de Cassation case law since 1919 (Révocation offre case): any
offer is revocable before acceptance, but is deemed abuse (tort
under Art. 1240 Code civile) if it frustrates the legitimate
expectation of the offeree
■ Offer contains a period within which it has to be accepted or the
offeree could reasonably believe the offer would remain open for a
reasonable time ⇒ revocation leads to a duty of offeror to compensate
for damage the offeree suffers as result of revocation (see Art. 1116
Code civile)
➢ Revocation (III)
○ Dutch law: offer may be revoked (see art 6:219 BW)
■ revocation is possible unless it contains a time period for
acceptance or its
 ■ irrevocability results from offer is possible as long as offer has not
been accepted or statement of acceptance sent
○ CISG (see art 16)
■ offer can be revoked if revocation reaches offeree before he
dispatched an acceptance
■ cannot be revoked if it indicates a period for acceptance
■ reasonable for offeree to rely on offer as being irremovable & acted in
reliance of offer
➢ Withdrawn of Offer
○ Offer does not need to be revoked - German law & other jurisdictions when
offeree does know of the offer ⇒ no harm is done if offer is withdrawn
○ Generally accepted that an offer can be retracted if withdrawal reaches the
offeree before or at the same time as the offer
○ Withdrawal ‘overhauls’ the offer
■ As if it was never made
○ See Art. 1115 Code civile, Article 3:37(5) Dutch Civil Code (BW), § 130(1)
BGB
○ Soft law: see Article 1:303(5) PECL
➢ Period for which an Offer lasts - Lapse of an Offer
○ Offer ceases to exist if:
■ Is rejected or time for acceptance expires
○ Rejection; once rejected an offeree cannot come back and accept the offer
⇒ when rejection reaches the offeror, offer lapses
○ Counter-offer terminates original offer ⇒ no difference if time for acceptance
did not expire
■ Hyde v Wrench [1840] 3 Bea 334
➢ Time for Acceptance Expires
○ Offer lapses if time set by offeror for acceptance expires
○ No fixed time set ⇒ acceptance within a reasonable time
○ Reasonable time depends on circumstances of the case (e.g. face to face,
distance inter absentes, subject matter)
○ German law: §§ 146-148 BGB
■ if a refusal is made to offeror
■ no acceptance is made in good times
■ offer to a present person (or on telephone/other technical facility) may
only be accepted immediately
■ if offeror set a period of time for acceptance ⇒ acceptance only within
this period
➢ Requirements of acceptance:
○ Usually written or orally
○ No specific requirements as long as it makes clear to offeror that offeree
unconditionally accepts the terms of offer
■ Why does acceptance have to be unconditional?
○ If the offeror specifies the method of acceptance ⇒ is this exclusive or not?
What happens if it is not followed?
■ Tinn v Hoffman [1873] 29 LT 271
■ Yates Building Co Ltd v R.J. Pulleyn & Sons (York) Ltd [1975] 237
EG 183
➢ Is silence acceptance?
○ In general, silence in itself does not suffice as acceptance
○ Reason: law is suspicious of tactics where inertia is considered acceptance
○ Inertia selling is prohibited by EU Directive on Consumer Rights (Directive
2011/83)
■ Art. 27: unsolicited supply of goods, water, gas, electricity, district
heating, digital content or provision of services - absence of a
response from consumer does not constitute consent
○ Silence is acceptance in certain cases (e.g. commercial relationships)
○ Court de Cassation (1988) court found that silence amounted to acceptance
(Amusement park attraction case) ⇒ see Art 1120 Code civile
○ Confirmatory notes - German law
○ Conduct: no formal acceptance by offeree, but acts as if it accepted it
➢ Time of conclusion of contract: Upon Acceptance
○ Different views on the moment acceptance took effect
○ Concerns situations when parties are not in each others presence or using
instantaneous means of communication ⇒ various moments in time are
relevant for forming the acceptance
○ Relevance:
■ from this moment onwards offeror can no longer revoke his offer
■ parties need to know as of when they have to perform the contract
■ transfer of property is dependent on conclusion of contract in some
jurisdictions (e.g. France, Belgium, England, Poland)
➢ Theories on Moment of Acceptance
○ 4 theories
I. externalisation theory - the moment the message containing the
acceptance is written
II. expedition or dispatch theory - the moment the message is sent or
posted
III. receipt theory - the moment the message is received by the offeror
IV. actual notice theory - the moment the offeror reads the message
■ 1 & 4 lack of practicability
○ Economically viable ⇒ all jurisdictions adopt either the expedition or receipt
theory (German law § 130(1) BGB, French law Art. 1121 Code civile & Dutch
law Art. 3:37(3) BW)
○ English law: makes sharp distinction between instantaneous communication
⇒ receipt theory & non instantaneous communication ⇒ expedition theory
➢ Postal Rule:
○ Adams v Lindsell [1818] EWHC KB J59
○ Byrne & Co v Leon van Tienhoven & Co [1879 80] LR 5 CPD 344
○ New applications of the rule: telemessaging, e-mail, texting
○ No rulings of highest court to rule on these new non instantaneous means in
England

Week 4: Legal capacity

❖ Readings:
 ➢ EU Directive 2011/83 on consumer rights (glance through); available at:
[Link]
3&from=EN
➢ Chapter 5: legal capacity of the parties (pp. 91–100)
➢ Chapter 6: formalities (pp. 101–118)
Chapter 5: legal capacity of the parties
❖ A contract (or any other juridical act) can only be validly concluded by
someone who has the legal capacity to do so
➢ The law does not consider everyone fit to have this capacity. Two
categories of people qualify for not being legally capable: certain
minors (in particular young children) and people with mental
disorders
➢ Legal capacity = the ability of a natural person to enter into a valid
legal transaction
❖ Legal incapacity (incapacité de contracter, Geschäftsunfähigkeit,
handelingsonbekwaamheid) is an instrument to protect parties who are
presumed not to be able to take care of their own interests
❖ Second, the law has to balance the interests of the incapacitated person
with those with whom they deal
➢ In particular in the case of mentally ill persons, it is not always
apparent to the outside world that a party is not capable of making a
rational decision
➢ Each jurisdiction balances these interests in its own way, but the
starting point is the same everywhere: every natural person has the
legal capacity to perform legal transactions
■ France: art 1145 Cc
❖ Minors: All European jurisdictions set the age of legal capacity at 18
➢ English law: allows a minor to validly enter into a ‘contract for
necessaries’
■ See section 3(3) of the Sale of Goods Act 1979:
● ‘goods suitable to the condition in life of the minor or
other person concerned and to his actual
requirements at the time of the sale and delivery’.
■ English law also considers employment, apprenticeship and
training contracts as binding on the minor provided that they
are on the whole to the minor’s benefit
● See Proform Sports Management Ltd v Proactive
Sports Management Ltd, 2006
■ English law lacks the institution of a statutory representative
who can represent a minor when making a contract
● Court usually appoints the parent for a specific purpose
to act in the name of his or her children
➢ French law: contracts entered into by minors can be invalidated (see
arts. 388, 1145 and 1146 Cc)
■ However, the administrateur légal (usually a parent) acts on
behalf of the minor (art. 388-1-1 Cc)
■ Two exceptions:
 ● Art. 1148 CC indicates, minors do have capacity if law
or usage says so (capacité usuelle)
◆ In case of normal transactions of which it is
customary that a minor of a certain age
performs them alone
◆ Art. 1149: even a day-to-day act can be
annulled in case it brings an economic
disadvantage (lésion) to the minor
● Cour de Cassation decided that the minor is not
allowed to damage his own position
◆ The minor (or his statutory representative) can
therefore only invalidate the contract if he
proves that he would otherwise suffer an
economic disadvantage (lésion) ⇒ see Art.
1151 Cc
➢ German law: the relevant provisions
■ §§ 104-108, 110, 113
■ German code distinguishes here between minors below 7
years old (deemed wholly incapable of making rational
decisions) and minors from 7-18 who still have some
possibilities to enter into a valid contract by themselves
■ German law applies this exception in a very strict way: the
minor must not incur any obligation
● E.g. Even if a plot of land is donated to a minor,
German courts tend to hold that this is a void contract
because obligations will follow from this (such as the
duty to pay property tax)
■ Without consent of the parent or other legal representative,
either given before (Einwilligung: § 107) or after
(Genehmigung: § 108), the transaction can be invalidated
➢ Dutch law: mix of German, French-English approach
■ Art 1:234 BW
■ A minor needs parental consent in order to perform a valid
juridical act under all circumstances
■ But consent is presumed to have been granted (a presumption
that cannot be rebutted by the parents) if a minor performs a
juridical act ‘of which it is generally accepted practice that it is
performed independently by minors of his age’.
❖ Adults in need of protection: legally incapacitated adults
➢ They usually suffer from a mental disability (either because of a
psychiatric illness or because of a mental handicap) and are therefore
formally declared incapable of entering into valid legal
transactions
■ = curatelle (curatele, sometimes translated as wardship)
➢ NL & France: The decision to declare someone incapable (Art. 428,
440 CC and Art. 1:378 BW) can only be taken by an independent
court and must meet strict requirements in order not to violate the
right to respect for private and family life as protected by Art. 8 ECHR
 ■ France: sauvegarde de justice - it doesn’t take away the
legal capacity, but it allows a court to invalidate lesionary
transactions
➢ Germany: German law does so by way of Betreuung (§ 1896 BGB),
meaning that a custodian (Betreuer) is appointed by the court to take
care of the affairs of the person in so far as this is necessary
■ The court can decide that a person can validly perform
certain types of juridical acts with the consent of the
custodian
■ § 1903 BGB
➢ English law: special legislation ⇒ Mental Health Act 1983 and the
Mental Capacity Act 2005
➢ All lead to the same conclusion: the contract entered into can be
avoided (set aside) by the legal representative or is even regarded
as void
■ Exceptions: § 1903 BGB; see also Art. 1148 CC and Art. 1:381
(3) BW
❖ Other adults:
➢ Depression: temporary, Alzheimer, not yet diagnosed, you also have
psychosis or blackout ⇒ in the cases dealt with here, the other party
is not able to check a public register
➢ The German solution is clearly stated in § 105 (2) BGB: ‘Also void is a
declaration of intent that is made in a state of unconsciousness or
temporary mental disturbance.’
■ German law protects any person who suffers from a disorder
against the other party even if they have no reason to doubt
that person’s mental abilities
■ Exception: § 105a BGB
➢ French law: usually do not find a valid transaction in case of a
mental disorder (trouble mental)
➢ English law: Hart v O’Connor, 1985 ⇒ Only if the other party knew
that its counterpart was not able to appreciate the nature and effect of
the transaction, the latter can decide not to be bound by it
■ Irrespective of whether the other party knew of the disability, a
contract for necessaries is valid and will be converted into a
contract for a reasonable price
➢ Dutch law:
■ Art. 3:34 of the Dutch Civil Code states that in cases where the
juridical act is disadvantageous for the mentally disturbed
person, he is presumed to have acted under the influence of
the mental disturbance
■ On the other hand, the other party can always invoke his
reasonable reliance on the basis of Art. 3:35 BW
Chapter 6: Formalities
❖ Principle of informality: contracts can be concluded in any form
➢ But some contracts do require a certain form in order to be valid or prove their
existence
 ➢ There is a very good reason for the principle of informality: it makes it easy to
conclude a contract
❖ Reasons for formalities:
➢ First, requiring some kind of formality can be useful to warn a party (or both
parties) that it is entering into an important or financially dangerous
transaction.
■ This can be called the cautionary (or warning) function
➢ Second, a formality can be motivated by the wish to provide a party with legal
advice or information before it is bound
■ This is the information function
➢ Third, a form can be required to secure evidence of the contract. This is
called the evidentiary function
■ An example from English law is suretyship (in England usually called
‘guarantee’) ⇒ the contract itself does not have to be written but the
claimant must be able to prove the existence of the contract through
written evidence (e.g. e-mail or letter signed by the defendant)
● English Statute of Frauds 1677 = a guarantee must be
‘evidenced in writing’
■ ‘Holographic testament’. In civil law countries (see e.g. Art. 970 CC,
2247 BGB, Art. 4:94 ff. BW) the testator is able to dispose of at least
some of his goods by way of a completely handwritten document
➢ Even if the written form is not legally required, many parties will still put their
contract into writing
■ E.g. English case of Hadley v Kemp (1999)
❖ Contracts to be made by notarial deed:
➢ French, German and Dutch law require certain contracts to be made by
notarial deed (acte authentique, Beurkundung, authentieke akte)
■ It requires not only that a deed is drafted by the notary and signed by
the parties, but also that the notary establishes that the parties
indeed intend to be bound after having been warned about the legal
consequences of their action
■ But this is mostly for complicated acts
■ Exception: If one presents someone with a birthday present or hands
over goods with the intention to benefit the donee, this is a binding
contract despite the absence of a notarial deed
● § 518 BGB
➢ E.g. German law: German law requires that both the sale of a plot of land (§
311b BGB) and the later separate transfer of ownership (§ 925 BGB) take
place through intervention of a notary
➢ Civil law: The main activity of a notary as a public (and therefore independent)
official lies in conveyancing (such as transferring property and creating
servitudes and mortgages) and in drafting matrimonial contracts,
testaments and corporate charters
■ Although notaries are public officials, they do work in private practice
and are paid by the parties on a fee basis
➢ Common law: The common law lacks an official assigned with the tasks of a
civil law notary, but England does have a group of legal professionals called
notaries public (public notaries)
❖ Contracts to be made in writing:
➢ There is a whole range of contracts (or clauses therein) that need to be made
in writing in order to be valid ⇒ it should make a party think twice before
agreeing to the contract
➢ But many national laws also require a contract to be in writing - Examples:
■ Under English law a gratuitous promise can be made binding by
way of a deed (a document signed by the maker and attested by a
witness)
● Lease of property for more than 3 years also requires a deed
● Sale of land don’t require a deed, but must be made in writing
■ German law requires the written form (Schriftform) for example in case
of consumer suretyship
■ See for more on p. 107 book
❖ Contracts to be evidenced in writing
➢ A formality is not always a requirement for the validity of the contract ⇒
it could also be the legislator introduces a formality as a form of evidence
➢ One speaks of contracts that need to be evidenced in writing, or of a form that
is required probationis causa (with an eye to proof), as contrary to forms that
are required in order to make the contract valid (solemnitatis causa)
■ E.g. English law; suretyship
■ Although both German and Dutch law allow the court the freedom to
decide about proof and therefore about whether a binding contract
exists or not, there are exceptions to this rule
➢ French law: ‘evidentiary formalism’ - prioritises written evidence
■ Art. 1359 Cc & Art. 1361 Cc
■ Restrictions on this;
● The provision (art. 1359) does not apply to commercial
transactions (Art. L 110-3 Code de Commerce)
● Art 1461 allows that proof by witnesses is allowed if there is
so-called ‘prima facie’ written evidence
❖ Contracts requiring pre-contractual information duties
➢ Other type of ‘formality’ must be mentioned ⇒ the duty of a professional
seller or service provider to supply information to the consumer
➢ There are clear indications that with each new European directive the number
of information duties grows
➢ EU law: Interestingly, European directives typically leave this to the Member
States and only require that the imposed sanction is effective, proportionate
and dissuasive
❖ What type of writing is required? On internet shopping
➢ The question relevant to the law is whether these means of communication in
electronic form also satisfy the need for ‘writing’ ⇒ but two problems
■ Warning function of having to sign a piece of paper may be watered
down if it it’s just as easy to click on a few buttons
■ A paper signature is still seen as more reliable than an e-mail
containing one’s name (a typed name is not that unique)
➢ EU: It regards contracts concluded over the internet as the jewel in the crown
of cross-border shopping, and therefore of the European internal market
 ■ Two Directives; but the Member States have implemented these
provisions in their national laws
● Directive 2000/31 on Electronic Commerce, art 9(1)
● Directive 1999/31 on Electronic Signatures, art 5(1)
➢ Electronic contracts; may not ‘warn’ an interested party of the dangers
of the transaction
■ Therefore, the European legislature requires e-sellers to give
information to the consumer
■ Directive 2011/83 on Consumer Rights ⇒ also states that the trader
must provide information (e.g. identity, address of the trader, the price
and the mode of delivery, etc.)
■ Rights of withdrawal: for the most important contracts in which the right
exists are distance contracts (such as those concluded over the
internet), off-premises contracts (such as doorstep selling), consumer
credit and timeshare
● In each of these contracts the consumer has 14 days after
delivery or the day of conclusion to end the contract without
giving any reason
● A withdrawal right can then be used to remedy the information
asymmetry
● Withdrawal rights thus help consumers to better exercise their
freedom of contract: their consent is presumably more free and
informed
● These statutory rights of withdrawal must be distinguished from
so-called rights to return
❖ Sanctions if a contract lacks the required form - Voidness and avoidability of
the contract
➢ When it comes to a violation of a European information requirement each
Member State decides for itself how it wants to sanction this
■ If the written form is not met, does this mean that the contract is not
valid?
● Germany - § 125 BGB
● France - Art. 3:39 BW
● English law - adopts practically the same approach by holding
the contract ‘unenforceable’
❖ Curing a lack of form:
➢ Even in cases where a formality was not observed one could think of
circumstances under which the defect is cured ⇒ 3 basic situations:
I. It could be that the statute itself indicates that an invalid contract is
converted into a valid one in the interest of the party for whose
protection the formality was introduced
II. Second, it may happen that one party or both parties actually carry out
the intended contract without worrying about any formalities
A. In such a case the performance itself could cure the defect
III. Third, one party could make its counterpart intentionally or negligently
believe that no formalities are needed while in fact this is not true
A. England: proprietary estoppel
B. France: abus de droit (abuse of right)
 ➢ One is not allowed to go against one’s own previous behaviour; as e.g. seen
in the English case Pascoe v Turner (1979)
Podcast: Legal capacity
➢ Requirements for Formation of Contract
1. Agreement of the parties (an offer & acceptance)
2. Intention to create legal relations (including consideration in English law, or
causa in French law-based legal systems, but not in France)
3. Legal capacity of the parties
4. (Certain Formalities, sometimes required)
a. E.g. gratuitous promises under English law, drawing of a deed needed
➢ Legal Capacity of the Parties Requirement
○ Only someone having legal capacity can validly conclude a contract
■ In principle, every natural person has the legal capacity to create a
transaction, but there are some limitations
○ What is a legal capacity? = ability of a natural person to enter into a valid
legal transaction
■ E.g. an eight-year old kid is fond of cars and despite his young age, he
wants to own a car. Is he able to buy the latest model of a car or does
he need his parents agreement to enter into a contract?
○ In the eye of the law, some people lack the legal understanding, experience
or judgment to enter into a contract - limitations (generally accepted):
■ Minors
■ People with mental disorders
➢ Consequences of Lack of Legal Capacity
○ Legal incapacity ⇒ legal representative of incapacitated person can
request the invalidation of the concluded contract
○ Not all transactions can be invalidated ⇒ balance the interests - the law
protects the objective reliance of a party
○ Legal capacity = instrument to protect parties who are presumed cannot
protect their own interest
➢ Legal Capacity: other points to address
○ Types of valid contracts concluded by minors & persons with mental
disorders; &
○ Adults in need of protection
➢ Main principles of contract law:

➢ Formalities related to contract formation:

○ Principle of informality - contracts can be concluded in any form
■ This makes it easy to conclude a contract
○ … but certain contracts require a certain form for their validity or to prove their
existence
 ■
E.g. notarial deed/common law deeds gratuitous contracts such as
donations, marriage contracts
○ Reasons:
■ Cautionary function - prevent a party for taking inconsiderate actions
● E.g. consumer contract
■ Information function - wish to provide a party with information or legal
advice
● E.g. legal deed for a piece of land, notary needs to inform the
other party of any legal consequences
■ Evidentiary function - seeking evidence of the contract, putting it into
writing for any future disputes
○ Hadley and others v Kemp and another [1999] All ER 450
➢ To follow:
○ Types of formalities
○ Required type of writing
○ Consumer contracts
○ Sanctions for lack of required form

KC: Other requirements for contract formation: legal capacity of the parties
➢ Requirements:
I. Agreement of the parties (an offer & an acceptance)
II. Intention to create legal relations (incl. Consideration in English law, or
causa in French law-based systems, but not in France)
III. Legal capacity of the parties
IV. (Certain formalities)
➢ Guiding questions:
○ Who is/is not legally capable of entering into a contract?
○ What are the consequences of entering into a contract with an incapacitated
party?
○ What contracts remain valid?
➢ Legal capacity = ability of a natural person to enter into a valid legal
transaction
○ Limitations (generally accepted) - these parties are entitled to special
protection
■ Minors
■ People with mental disorders
➢ Minors:
○ All European jurisdictions set age of legal capacity at 18
○ Principle: contract with a minor is not binding upon the minor ⇒ adult party
cannot claim enforcement
○ Exceptions
➢ Minors: validly entered into contracts
○ English law
■ Contracts for necessaries allowed ⇒ see Section 3(3) Sales of
Goods Act 1979
● i.e. food, clothing, accommodation & anything that minor
requires in view of his ‘condition in life’ income & position
consideration
 ● When a contract for necessaries is binding, the minor is only
bound to pay a reasonable price so excessive prices would
be reduced to a reasonable price
■ Employment, apprenticeship training contracts = binding on the minor
- if on the whole of benefit
○ German law
■ Parental consent is necessary for validity of contract ⇒ given
before § 107 BGB) or after (§ 108 BGB) distinguishes between minors
below 7 (deemed unable to make decision) and between 7-18 years
old (some possibilities to enter into a contract) ⇒ §104(1) & 105(1)
BGB
■ Valid if performance with means given for this purpose or for free
disposal by legal representative (§ 110 BGB)
■ Contracts that only lead to legal benefit for minor (§ 107 BGB)
■ Exception: Minor must not incur any legal obligation, otherwise
contract will be void
○ French law
■ Common transactions authorised by law or custom (Art. 1148 1149
Code civile)
● i.e. contracts of daily life, e.g. food, clothing
■ Contract is useful to minor and does not bring him an economic
disadvantage (Article 1151 Code)
○ Dutch law
■ Parental consent is necessary under all circumstances (Art. 1:234
BW)
■ Consent is presumed to have been granted for generally accepted
acts that are independently performed by minors of a certain age
● I.e. food, clothing, necessary items (benefits that the act brings
are important)
➢ Minors: consequences of lack of legal capacity
○ English law
■ No legal representative institution ⇒ court appoints parents to act in
name of their children
■ Contract could be voidable / voidable by minor attaining majority or not
binding on him unless he ratifies them (when he turns of legal age)
after majority (except contracts for necessaries)
○ German law
■ Declaration of intent is void (§ 105(1) BGB)
■ Transaction can be invalidated
■ But contract can be subject subsequent ratification by the legal
representative (§ 108(1) BGB)
● Especially if this is of benefit to the minor
○ French law
■ Contracts can be invalidated (Arts. 388, 1145 & 1146 Code civile)
■ Ratio: minor not allowed to damage his own position (Cour de
Cassation)
○ Dutch law
 ■ Invalidation - unless presumption for generally acts performed
independently by minors of a specific age
➢ Adults in Need of Protection (1)
○ Mental disability: psychiatric illness, mental handicap
○ Art. 8 ECHR - right to respect for private life & family life, home and
correspondence
■ Several decisions from the ECHR held that the deprivation of legal
capacity constitutes a serious interference with respect to a person’s
private life
■ Therefore, incapacitation proceedings, decisions regarding
placements in secure facilities, proceedings involving children in
certain circumstances - states must provide adequate safeguards
to ensure that mentally ill individuals are able to participate in the
process & the process is sufficiently individualised to meet their
unique needs
○ Curatelle (wardship) - far reaching measure (present in some states)
■ ⇒ Declaring someone incapable (art. 428 & 440 Code civile, art.
1:378 BW) - to prevent abuse
■ Only the court
■ Meet strict requirements
■ Court will appoint a legal representative ⇒ perform judicial acts for
protected person (curateur, curator)
➢ Adults in Need of Protection (2)
○ Betreuung (§ 1896 BGB) - custodian is appointed by court to take care of
the affairs of the person in need of protection in so far as this is necessary
○ Court can decide that adult can validly perform certain type of juridical acts
without consent of the custodian ⇒ reservation of consent
○ Bound anyway by transactions that only confer legal advantages or regard
trivial matters (§ 1903 BGB)
○ England - special legislation: Mental Health Act 1983 & Mental Capacity
Act 2005
○ Sauvegarde de justice: temporary measure, less intrusive; does not take
away legal capacity, but allows court to invalidate lesionary transactions
➢ Adults in need for protection: contracts
○ Same effects as for minors
○ Contracts entered into can be set aside by legal representative
○ Or sometimes considered void
○ Exception: transactions that are beneficial to adult (for protection) or concern
contracts of daily life (Art 1148 Code civile, Art 1:381 BW, § 1903 BGB)
■ It’s only for the incapacitated adult who’s in need of protection that can
rely on this to prevent the binding force of a contract
○ Other party is bound
➢ Other Adults:
○ People who are not formally declared incapable or in need of custodian,
but suffer from some mental disorder
■ Temporary: depression
■ Not yet diagnosedL Alzheimer
■ Psychosis
 ■ Blackout
■ Influence of certain substances: alcohol, drugs
■ Stressed
■ Tired
○ Weighted differently in various national systems
➢ Other Adults: validity of contracts
○ English law
■ More lenient in protecting other party ‘in good faith’
■ Only if the party knew the counterparty was not able to appreciate
nature & effect of transaction counterparty can decide not to be bound
(Hart v O’Connor [1985])
■ Contracts for necessities are valid; converted if needed in contracts
for reasonable price (Sale of Goods Act 1979, s. 3 & Mental Capacity
Act 2005, s. 7)
○ German law
■ Declaration of intent is void when made in state of
unconsciousness or temporary mental disturbance § 105(2) BGB
■ Strict requirement developed by case law ⇒ disorder must be so
serious that it negates ability to forms one’s will ⇒ expert opinion on
state of mind
■ Everyday transactions ⇒ valid (§ 105a BGB)
○ French law
■ Declaration of intent is void if no soundness of mind (Art. 414-1
Code civile)
■ Courts take Art 414-1 literally and usually do not find a transaction
valid in case of mental disorder
○ Dutch law
■ Protecting other party ‘in good faith’ reasonable reliance (Art. 3:35
BW)
■ Easier for person of unsound mind to prove he did not intend to be
bound (Art. 3:34 BW) presumption when juridical act is
disadvantageous for mentally disturbed person

Ppt: Formalities
● Formalities as Requirements for Contract Formation
○ Principle of informality (see Main Principles of Contract Law) ⇒ easy to
conclude a contract
○ … but certain contracts require a certain form for their validity or to prove their
existence
○ Why is that? Reasons:
■ cautionary function
■ information function
■ evidentiary function
● Cautionary Function:
○ Warning a party that is entering into an important or financially dangerous
transaction
○ Prevent inconsiderate actions
○ E.g. consumer credit, consumer suretyship
● Information Function:
○ Provide party with legal advice or information before being bound
○ Notary warning the parties of legal consequences of their actions
■ E.g. notarial deed for transfer of immovable property
○ See European directives: consumer credit, distance selling contracts
containing specific requirements on information consumer has to be provided
with at various stages of contract
● Evidentiary Function:
○ Secure evidence of the contract ⇒ see example of Hadley v Kemp [1999] All
ER 450
○ Certainty about its existence & contents of obligations
■ E.g suretyship, holographic testament
● Type of Formalities:
○ Notarial deed
○ To be made in writing
○ To be evidenced in writing
○ Pre-contractual information duties
● Formality: Notarial Deed
○ Most strict formality in civil law
○ French, German & Dutch law require a notarial deed for certain type of
contracts
○ Deed has to be:
1. drafted by notary
2. signed by the parties &
3. notary establishes that indeed parties intend to be bound by it after
having warned them of legal consequences of their actions
■ E.g. gifts, donations, sale & transfer of immovable property
○ Exception: giving something away on the spot ⇒ immediate donation, don
manuel (gift van hand tot hand (NL), handschenkung (DE)
● Formality: To be made in writing
○ Need to be made in writing to be valid ⇒ solemnitatis causa
○ Usually requirement concerns the obligor’s signature
○ Cautionary function
○ E.g European directive protecting consumers
○ Type of contracts differ per country:
■ English law: gratuitous promise (deed), lease for ≥ 3 years, sales of
land
■ German law: consumer suretyship, lease ≥ 1 year, ending
employment contract
■ French law: employment contract, build of residential house, life
insurance
■ Dutch law: hire purchase, ending residential lease, build residential
house, employment contract
● Formality: To be evidenced in writing
○ Not for validity of contract but as a form of evidence ⇒ probationis causa
○ Evidence can be derived from any written document (e.g. correspondence,
emails, durable recordings)
○ Essential: writing is from the party against whom the claim is brought
 ○ Various approaches:
■ English law: suretyship (personal security) claimant must be able to
prove the existence of contract by referring to written evidence
(Section 4, Statute of Frauds 1677)
■ French law: over formalistic, restrictive, prioritises written evidence
over other (Art. 1356 & 1361 Code)
■ Dutch law: suretyship to be proved against the guarantor only by
document signed by him (Art 7:859 BW)
● Formality: Contracts requiring pre-contractual information - in all jurisdictions
○ Result of European directives: B2C contracts
○ Duty of professional seller/service provider to (1) offer information to
consumers
■ concerning characteristics of goods or services
■ characteristics of trader
■ rights of consumer under the contract
○ E.g. timeshare, package travel, doorstep sales, distance selling, consumer
credit
○ (2) Accompanied by withdrawal right for consumer for set period of time -
generally 7 or 14 days
○ Sanctions: left to MS but should be effective, proportionate & dissuasive
● Internet concluded contracts (1)
○ Electronic form for communication satisfies the ‘writing’ requirement?
■ EU approach ⇒ some dedicated legislation: Directive on Electronic
Commerce (2000/31) & Regulation 910/2014 ( eIDAS Regulation)
○ Art 3 eIDAS:
■ (10) ‘electronic signature’ means data in electronic form which is
attached to or logically associated with other data in electronic form
and which is used by the signatory to sign;
■ (11) ‘advanced electronic signature’ means an electronic signature
which meets the requirements set out in Article 26 [Requirements for
advanced electronic signature’];
■ (12) ‘qualified electronic signature’ means an advanced electronic
signature that is created by a qualified electronic signature creation
device, and which is based on a qualified certificate for electronic
signatures
○ Art 46: An electronic document shall not be denied legal effect and
admissibility as evidence in legal proceedings solely on the grounds that it
is in electronic form
● Internet concluded contracts (2)
○ Warning as to the consequences or dangers of the electronic transaction to
be concluded for consumer ⇒ Directive 2011/83 on consumer rights
○ Distance contracts ⇒ trader must provide specific information:
■ Art 6: main characteristics of goods/services, identity & address of
trader, price, mode of delivery
■ Art 6a: additional specific info for contracts concluded on online
marketplaces: general info of offers presented as result of search
queries, whether third party offering the goods/services is a trader or
 not, not rights of consumer protection not applicable, obligations
related to contract are shared
■ Art 8(7): trader must provide consumer with confirmation of contract
on durable medium at latest at time of delivery
■ Art 9(1): after delivery consumer has 14 days to withdraw from
contract without having to give any reason
● Sanctions for lack of required form:
○ Voidness & Avoidability of Contract:
■ Contracts to be evidenced in writing: contract is valid, but claimant
must prove the existence of the contract by written documents
■ Contracts to be made in writing requirement not met:
● German law: contract is void § 125 BGB)
● Dutch law: null and void (Art 3:39 BW)
● English law: unenforceable;
■ Practice: void if formality not complied with serves interest of both
parties or general interest
■ Court must note this ex officio
■ If formality aims to protect one party ⇒ often contract is held to be
avoidable
● Curing Lack of Form:
○ 3 situations:
I. Statute indicates an invalid contract can be converted into a valid
one in interest of party whose protection the formality was introduced
for
II. One party or both actually carry out the intended contract without
worrying about any formalities performance cures defect
III. One party makes counterparty intentionally or negligently believe no
formalities are needed while not true
○ Kaufmannsehrenwort [1967]
■ buyer could not invoke lack of notarial deed defect as the buyer acted
in reliance on seller’s promise principle - of not allowed to go
against one’s own previous behaviour
○ Pascoe v Turner [1979] 1 WLR 431
■ Despite absence of consideration or promise put in a deed - court
found that house should be conveyed to Mrs Turner - assurances, her
detriment in reliance thereon, saw her spend her money without
protesting against it ⇒ sufficient to estoppel - proprietary estoppel

Week 5: Interpretation and Good faith

❖ Readings;
➢ Liverpool City Council v Irwin [1977] AC 239, available at:
[Link]
➢ Chapter 7: the party agreement: interpretation and gap filling (pp. 121–135)
➢ Chapter 8: the principle of good faith and unfair contract terms (pp. 136–155)
Chapter 7: The party agreement - Interpretation and gap filling
❖ Practice shows that parties frequently dispute what it is that they actually agreed
upon ⇒ the law therefore shares with literature and theology the characteristic that it
 is an interpretative discipline: contracts need to be given a meaning by the reader
or listener
➢ Can be implicit but it may also happen that parties differ explicitly about the
contents of their agreement
➢ The process of establishing one single meaning to the works explicitly used in
the party agreement = interpretation
➢ But the mere interpretation is almost never enough ⇒ also other factors:
1. Because the great majority of parties cannot conceive of all possible
contingencies that could happen during the course of the contract
2. Because in most cases it is not efficient to negotiate and draft
contracts that aim to foresee all possible contingencies
3. The law provides solutions to deal with incomplete contracts. In
each jurisdiction this so-called gap filling or supplementation of the
party agreement takes place in two different ways
■ Two different ways:
I. It can happen that parties did not provide for a certain
contingency because it is such an obvious part of the
contract that they did not believe it necessary to spell it out
A. Some jurisdictions see this as a type interpretation ⇒
Supplementary or constructive interpretation
B. The court fills this gap in the party agreement by
speaking for the parties
C. Ad hoc gap filling: the party agreement is
supplemented with terms that follow from the
hypothetical will of the parties in the circumstances of
the case.
II. Supplementation is not sufficient to establish all the rights and
obligations of the contracting parties
A. Gap filling through default rules ⇒ provide standard
solutions for problems that typically arise in certain
types of contracts
B. England: they are called terms implied in law and are
more frequently developed by the courts
❖ Subjective and objective interpretation of the party agreement:
➢ Interpretation of a contract is to search for the common intention of the parties
■ Subjective interpretation = is to give preference to the ‘real’ intention
of the parties
■ The opposite view is to give priority to the declaration and therefore to
the external expression of the intention, this being the only thing
that can be apparent to the other part = objective interpretation
■ Hotchkiss v National City Bank of New York (1911)
● ‘A contract is an obligation attached by the mere force of law to
certain acts of the parties, usually words, which ordinarily
accompany and represent a known intent’
➢ France: art 1188 Cc requires the court to find the ‘common intention of the
parties’
 ■ If the intention cannot be discerned, the contract must be interpreted
in the sense which a reasonable person placed in the same situation
would give to it
➢ Germany: §133 BGB
■ The aim of interpretation must be ‘to ascertain the real intention’,
■ But §157: Interpretation should take place ‘in accordance with
fairness and reasonableness taking into account general practice’
➢ England: interpret a contract according to its literal meaning
■ Lovell & Christmas Ltd v Wall (1911)
● ‘it is the duty of the court (…) to construe the document
according to the ordinary grammatical meaning of the words
used therein’
● BUT this has been abandoned
■ Investors Compensation Scheme Ltd v West Bromwich Building
Society (1998)
● ‘the ascertainment of the meaning which the document would
convey to a reasonable person having all the background
knowledge which would reasonably have been available to
the parties in the situation which they were at the time of the
contract’
■ Objective meaning test under this case:
I. What a reasonable person with all the background information
would understand
II. Where the background includes anything that could affect the
language’s meaning (analysis of the facts surrounding the
conclusion of the contract)
III. Excluding prior negotiations (so cannot take into account
negotiations that took place before the contract was
concluded)
IV. The meaning of the words to be decided contextually not
literally
V. Presumption that people do not make easily linguistic mistakes
➢ Civil v Common law: Interpretation is always directed at finding the common
intention of the parties
■ The only practical difference is that in civil law jurisdictions this
reasonable meaning is primarily found by taking the understanding
of the contracting parties as the starting point,
■ while English law adopts the perspective of a reasonable person in
the position of the contracting parties
➢ Dutch: Haviltex (1981) case ⇒ ‘it is inter alia of relevance what the parties
societal position is and what knowledge of the law can be expected of such
parties’
➢ English: Lord Napier and Ettrick v R F Kershaw Ltd (1999) ⇒ defining a
reasonable person:
■ ‘Words ought therefore to be interpreted in the way in which a
reasonable commercial person would construe them’
➢ Both for civil and common law: Arts 8 CISG, 4.1 PICC and II-8:101 DCFR
convey the same message as Art. 5:101 PECL
 ■ (1) A contract is to be interpreted according to the common intention
of the parties even if this differs from the literal meaning of the words.
■ (2) If it is established that one party intended the contract to have a
particular meaning, and at the time of the conclusion of the contract
the other party could not have been unaware of the first party’s
intention, the contract is to be interpreted in the way intended by the
first party
■ (3) If an intention cannot be established according to (1) or (2), the
contract is to be interpreted according to the meaning that reasonable
persons of the same kind as the parties would give to it in the
same circumstances
❖ Factors relevant to interpretation: How a court applies these criteria
➢ In cases where both parties are mistaken about what a term means
■ Having the common intention of the parties (one could say: their
shared subjective understanding) prevail over the objective meaning
of the contract
■ Falsa demonstratio non nocet (‘a wrong description does no harm’);
it would fall under section 1 of the just quoted Art. 5:101 PECL.
■ Parties are mistaken in their common understanding of a word - it
differs from its usual meaning ⇒ see Article 5:101 s. 2 PECL
➢ Civil law: if parties use truly ambiguous clauses ⇒ Art. 5:102 PECL
(reasonable person test) - use in case of interpretation of clauses
■ In interpreting the contract, regard shall be had, in particular, to:
a. the circumstances in which it was concluded, including the
preliminary negotiations;
b. the conduct of the parties, even subsequent to the
conclusion of the contract;
c. the nature and purpose of the contract;
d. the interpretation which has already been given to similar
clauses by the parties and the practices they have established
between themselves;
e. the meaning commonly given to terms and expressions in
the branch of activity concerned and the interpretation similar
clauses may already have received;
f. usages; and
g. good faith and fair dealing
➢ Bürgschaft auf erstes Anfordern (1992) case ⇒ ‘first demand guarantee’
■ The creditor to obtain immediately from the surety the promised sum
■ The proper interpretation of the guarantee was therefore that it was
only a ‘simple’ guarantee and not a demand guarantee
■ The surety could validly invoke the reasons why she did not want to
pay the creditor
■ Also see Art. 5:102 sub a PECL
➢ English approach: parol evidence rule
■ In a written contract evidence extrinsic to the express terms of the
contract cannot be taken into account
 ■ Draft contracts, letters, statements by witnesses or documentation
from the pre-contractual negotiations between the parties cannot play
a role in ascertaining what the contract terms ‘actually’ say
■ In other words, statements of party intentions prior to the
conclusion of the contract are never taken into account
❖ Maxims of interpretation: contra proferentem rule
➢ In French Civil Code these maxims of interpretation are for example laid
down in the Arts. 1189-1192
■ The interpretation is preferred that gives an ambiguous clause some
effect rather than none at all (Art. 1191 CC)
■ Clauses must also be interpreted in the light of the entire contract
(Art. 1189)
■ Clauses claires et précises: If the lower court give it a meaning other
than the ‘clear’ objective one, the Cour de Cassation can quash the
decision for distorting the intention of the parties
➢ Contra proferentem rule: ambiguity in a written contract must be interpreted
against the person who drafted it
■ The rule cannot only be found in some national codes, but it’s also laid
down in European Directive 93/13 on Unfair Terms in Consumer
Contracts ⇒ Art 5(2)
● In the case of contracts where all or certain terms offered to
the consumer are in writing, these terms must always be
drafted in plain, intelligible language. Where there is doubt
about the meaning of a term, the interpretation most
favourable to the consumer shall prevail
■ National legislation: § 305c (2) BGB, Art. L 211-1 French Consumer
Code, s. 69 Consumer Rights Act 2015 and Art. 6:238 (2) BW
❖ Ad hoc gap filling:
➢ The two specific parties is filled with terms that are necessary for the working
of the contract and that the parties would have agreed upon if they had
thought about it
➢ Their ‘hypothetical will’ i.e. the presumed intention serves as the basis ⇒
see Art. II-9:101 DCFR puts it like this (Arts. 6:102 PECL and 4.8 PICC
provide similar provisions)
■ (1) The terms of a contract may be derived from the express or tacit
agreement of the parties, from rules of law or from practices
established between the parties or usages.
■ (2) Where it is necessary to provide for a matter which the parties
have not foreseen or provided for, a court may imply an additional
term, having regard in particular to:
■ (a) the nature and purpose of the contract;
■ (b) the circumstances in which the contract was concluded; and
■ (c) the requirements of good faith and fair dealing.
■ (3) Any term implied under paragraph (2) should, where possible, be
such as to give effect to what the parties, had they provided for the
matter, would probably have agreed.(…)
➢ All jurisdictions accept this ad hoc gap filling to give meaning to the
contract, albeit under different names
 ■ Germany: § 157 BGB + Swapping doctors case
■ France: interprétation créatrice (constructive interpretation), art 1194
Cc
● ‘Contracts are binding not only as to what is therein expressed,
but also as to all the consequences which equity, usage or
statute give to the contract.’
➢ In civil law jurisdictions there is a close relationship between interpretation, ad
hoc gap filling and the so-called principle of good faith (reasonableness and
fairness)
➢ English law does not regard ad hoc gap filling as a means of
interpretation. Instead it speaks of terms implied in fact - 2 tests for ad hoc
■ MacKinnon LJ in Shirlaw v Southern Foundries (1939): ‘officious
bystander test’
● If parties were making their bargain, an officious bystander
were to suggest some express provision for it in the
agreement, they would testily suppress him with a common
“Oh, of course!”
■ ‘Business efficacy’ test: Moorcock (1889)
● Parties had entered into a contract that allowed the plaintiff to
unlead his boat at the wharf of the defendant
● The defendant should have warned the plaintiff of the
unevenness of the riverbed
❖ Gap filling through default rules:
➢ Default rules exist for all contracts regulated in civil codes, such as contracts
of sale, employment and lease
■ In common law comparable standards exist under the heading of
terms implied in law ⇒ sometimes derived from statutes e.g. Sale of
Goods Act 1979 but are more often developed by the courts
➢ Each system of national contract law typically had hundreds of such default
provisions
➢ Difference between statutory default terms typical to civil law jurisdictions and
‘terms implied in law’ by the English courts: Liverpool City Council v Irwin
(1977)
■ Relationship between landlord and tenant: ‘such obligation should
be read into the contract as the nature of the contract itself implicitly
requires, no more, no less: a test in other words of necessity’
● if the parties have not considered something when drafting the
contract, then the court will construe what they would have
said if they had considered it
■ France: this would be obligation de moyens
➢ French, German and Dutch courts:
■ Art. 1719 CC
■ § 536 (1) BGB
■ Art. 7:204 (2) and Art. 7:206 (1) Dutch Civil Code

Chapter 8: the principle of good faith and unfair contract terms

❖ All civil codes adopt the principle of good faith:
 ➢ France: Art. 1104 (1) CC: ‘Contracts must be negotiated, formed and
performed in good faith.
➢ Germany: § 242 BGB: ‘The debtor is obliged to perform in such a manner as
good faith requires, regard being had to general practice.’
➢ NL: Art. 6:248 BW
➢ PECL:
■ Art. 1:102 (1) PECL: ‘Parties are free to enter into a contract and to
determine its contents, subject to the requirements of good faith and
fair dealing, and the mandatory rules established by these Principles.’
■ Art. 1:201 PECL:
● ‘(1) Each party must act in accordance with good faith and fair
dealing.
● (2) The parties may not exclude or limit this duty.
➢ English law: doesn’t recognise a general principle of good faith
❖ Understanding good faith in the civil law:
➢ English case: Interfoto Library Ltd v Stiletto Ltd (1988) - Lord Bingham:
■ ‘its effect is perhaps most aptly conveyed by such metaphorical
colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards
face upwards on the table’. It is in essence a principle of fair and open
dealing’
■ = ‘objective’ good faith vs a subjective state of mind of a person who
does not know nor has reason to know of a certain fact, and
therefore acts ‘in good faith’
➢ Germany: reasonableness and fairness is a norm for the contracting parties:
it sets a standard of conduct that requires each party to take the interests of
the other party into account
➢ Functions of good faith in civil law:
■ The supplementing function: allows a court to fill gaps in the party
agreement
● The underlying rationale is that parties are in the same boat
when they conclude a contract, calling for reasonable
behaviour from them both
■ Second, parties are also bound by the principle of good faith
when they interpret their contract
● The rule that interpretation must be line with how reasonable
parties would construe the contract, also follows from the
standard of good faith
■ The third function of good faith is to restrict the exercise of contractual
rights. This restrictive or limiting function
➢ French and German courts: in both jurisdictions one speaks of protective
duties - an obligation to protect the other party
■ E.g. art 1112-1 Cc - imposes a general obligation to give
information
● ‘The party who has information which is of decisive importance
for the consent of the other, must inform the other of it where
the latter legitimately does not know the information or relies
on his fellow contracting party.’
 ■ It allows a party to escape from a binding contract. E.g. In the NL:
the court will only intervene in extreme cases (otherwise abuse of
rights)
● ‘Depended on the assessment of several factors, such as ‘the
gravity of the fault, the nature and other contents of the
contract, the societal position of the parties and their mutual
relationship, the way in which the term came into existence,
and the extent to which the other party was aware of the aim of
the term’
➢ Doctrine of unforeseen circumstances or hardship
■ Only in highly exceptional circumstances do some jurisdictions allow a
party to escape from the contract in cases where its performance
would be excessively onerous because of an unforeseen and
unforeseeable change of circumstances
■ Art 6:111 PECL adopts it as a ‘European’ principle ⇒ can only be
applied in exceptional cases and that the result is not that the contract
is invalid, but that it must be adapted to meet the changed
circumstances
❖ English law: no general principle of good faith
➢ English law regards the need to take into account the interests of the other
party in any type of contract as contrary to the very nature of contracting
➢ Walford v Miles (1992):
■ “A duty to negotiate in good faith is as unworkable in practice as it is
inherently inconsistent with the position of the negotiating parties. (…)”
➢ Contracting parties, in particular if they are involved in commercial
transactions, are generally considered to contract ‘at arm’s length’
➢ Chapman v Honig (1963) ⇒ ‘a person who has a right under a contract or
other instrument is entitled to exercise it and can effectively exercise it for a
good reason or a bad reason or no reason at all’.
➢ English law is more morally insensitive than civil law jurisdictions ⇒ English
law is designed in the interests of economic efficiency, while the civil law
ranks solidarity higher
■ Roy Goode: The predictability of the legal outcome of a case is more
important than absolute justice
➢ Roger Brownsword: why no good faith
■ Good faith requires the parties to take into account the legitimate
interests of one another, which would go against the individualistic
and liberal ethic of English contract law
■ Good faith would be too vague: it is not clear how far the restrictions
on the pursuit of this self-interest should go
■ Even objective good faith sometimes still requires an inquiry into
the state of mind of the parties because it is dependent on the
reasons why a party acted in a certain way
■ English law has little sympathy for good faith because it fails to
recognise that contracting contexts are not all alike
➢ There are three different ways through which good faith enters English
contract law
 I. Several doctrines in English law fulfil a similar function as in the civil
law
II. Good faith is explicitly recognised as an important norm in some
special contracts and relationships. E.g. contract that are considered
‘uberrimae fidei’
III. There are also certain relationships that are considered as being
governed by good faith ⇒ fiduciary relationships
A. The fiduciary owes a duty to disclose important information
to the other party
■ Also: the UK has adopted the notion of good faith in consumer
contracts ⇒ The Consumer Rights Act 2015 closely follows the EU
Directive on Unfair Terms in Consumer Contracts
● Contractual terms, which ‘contrary to the requirement of good
faith’ cause a significant imbalance in the contract to the
detriment of the consumer, are not binding on the consumer,
regardless of whether they were individually negotiated or not
➢ English case: Yam Seng Pte Ltd v International Trade Corp Ltd (2013)
■ The court found that a general duty of good faith must be implied
into a long-term distribution agreement
■ The defendant shipped products too late and refused to supply all the
ordered products.
■ To substantiate his claim, the claimant asserted that there was an
implied term in the agreement that the parties would deal with each
other in good faith
■ Court: the agreement contained an enforceable implied obligation on
the parties to act in good faith ⇒ defendant breached this obligation
by knowingly concealing from the claimant the true situation
➢ The doctrine of iustum pretium:
■ In the past with Canon law, natural law, it was seen as immoral not to
pay a just price (iustum pretium)
■ The consequence of this was that a contract could be avoided for
laesio enormis
■ Some of the early Civil Codes did codify the doctrine even though it’s
difficult to establish what a ‘just’ price is in some situations
❖ Policing unfair contract terms:
➢ No legal system regards a contract as invalid simply because there is an
imbalance between performance and counter performance
■ In order to invalidate a seemingly unfair contract, one always needs
sth extra e.g. can’t make up your mind ‘defect of consent’
➢ It is much more frequent that someone seeks to invalidate a specific clause in
the contract that is disadvantageous to him
■ Limitation or exemption clauses are typically found in general
conditions that the buyer probably did not read before entering into the
contract
● Limits or excludes the buyer the possibility of claiming
damages
➢ General controls:
 ■ General conditions are used in almost any consumer contract and
are also very common in commercial transactions
■ Three problems:
I. It’s not evident how a set of rules drafted by one party can
become part of an individual contract with sb else who was not
involved in the drafting (incorporation problem)
II. How to interpret general conditions (the interpretation
problem)
III. The conditions may be unbalanced and unfairly favour the
party who drafted them (the fairness problem)
■ Take it or leave it contract: to speak of a contract of adhesion well
reflects this phenomenon
■ (I) A court can tackle the incorporation problem by holding that the
general conditions did not become part of the contract, and that the
ensuing gap simply has to be filled with the statutory and judicial
default rules
■ (II) General contract law can also assist in addressing the
interpretation and fairness problems
● E.g. the court can choose to interpret the conditions to the
detriment of the drafter (contra proferentem, art 5(2) of the
Directive on Unfair Contract Terms)
● E.g. see art 8:109 PECL
➢ Specific control: needed because general terms were not enough
■ Germany: incorporation problem ⇒ § 305 BGB(2) and § 305c (1)
BGB
● Striking down an unfair term: § 307(1) BGB
● §§ 308 and 309 BGB provide two lists of unfair terms that can
be relied upon by consumer
◆ Also in French and Dutch law: Arts. R 212-1 and R
212-2 Consumer Code & Arts. 6:236 and 6:237 BW
■ English law: require the user of general conditions to take reasonable
steps to bring them to the notice of the recipient
● What is reasonable depends on the contents of the terms
● Spurling Ltd v Bradshaw (1956) (red hand rule started)
■ Red hand rule was applied (English law): Interfoto Picture Library v
Stiletto Ltd (1988)
● Stiletto had not read the conditions and returned the photos
after a month (had to pay a high fee as a result from Interfoto)
● Notify the other party more explicitly, just assuming that
the other party reads the delivery note is not enough
● Stiletto was not liable
■ France: fairness problem ⇒ the Loi Scrivener created a government
committee that is empowered to prohibit certain unfair terms in
B2C-contracts by decree
● But now: art 1171 Cc
■ UK Unfair contract terms 1977: exemption clauses for (i) ineffective
as such clauses and (ii) ineffective if they do not meet the requirement
of reasonableness
 ● Ineffective as such are e.g. clauses that limit the liability of a
business for death or personal injury caused by negligence (s.
2(1))
● Clauses that exclude or limit liability for non-performance or for
performance which is substantially different from what was
agreed upon, unless it is reasonable to do so (s. 3)
➢ EU Directive 93/13 on Unfair Terms in Consumer Contracts ⇒ arts 3, 4 and
6(1)
➢ Public bodies ⇒ can look into judicial review for policing unfair terms (but
this is often time-consuming and expensive) whilst (private) consumer
associations can pursue ‘collective action’
■ In a collective action the consumer association asks on behalf of the
consumers it unites for an injunction to prohibit the continued use of
an abusive clause
■ See German Unterlassungsklagengesetz (Act on Actions for
Injunctions), the French Consumer Code (Art. 621-7), the UK
Competition Act 1998 and in Art. 6:240 BW
Liverpool City Council v Irwin [1977] AC 239
❖ See [Link]

Podcast: Formalities
➢ Content of Contract: Parties’ Agreement & Good Faith Principle
➢ Once there’s an agreement of the parties, they have the intention to form a contract,
have legal capacity and fulfil the formalities ⇒ the contract is concluded
○ Second stage: parties have to perform their promises, the terms of the
contract, its content
➢ Interpretation of Agreement & Performance:
○ Interpretation = process of establishing one single meaning to the words
explicitly used by the parties in the agreement
■ Implicit ⇒ common understanding (all parties are satisfied)
■ Disagreement as to the terms, what they agreed to ⇒ establish a
common meaning of terms since conflicts can arise due to difference
in background, knowledge, experience ⇒ different interpretations as a
result
○ For performance - interpretation is often not sufficient because agreement is
not enough
○ Reasons:
■ Parties cannot conceive all possible contingencies
■ Not efficient to negotiate and draft all possible contingencies
■ Law provides for solutions when contract is incomplete (gap fill)
➢ Filling in the Gaps:
○ When parties did not provide a certain type of contingency ⇒ they need to
rely on some sort of interpretation / supplementary ⇒ supplementary or
constructive interpretation
○ Parties’ agreement is supplemented with terms that follow from their
hypothetical will given the circumstances ⇒ ad hoc gap filling
 ○
If interpretation & supplementary ad hoc gap filling is not sufficient ⇒ gap
filling through default rules (automatic rules if the parties didn’t specifically
agree on something)
➢ Good Faith Principle:
○ What were the main principles of contract law? Also important in performance
■ Freedom of contract
■ Binding force
■ Informality
■ Contractual fairness
○ Principle of good faith; central role at all stages of contract in civil law
countries
○ Standard of conduct that requires each party to take into account the interests
of the other party
○ English law does not recognise it
■ Morally insensitive

KC: Interpretation of Party Agreement & Good Faith Principle

➢ Interpretation of Party Agreement
○ Interpretation = process of establishing one single meaning to the words
explicitly used by the parties in the agreement, what did the parties intent
■ Implicit ⇒ common understanding (all parties are satisfied)
■ Disagreement as to the terms ⇒ establish a common meaning of
terms
○ Ascertain what the parties intended with the contract ⇒ search for the
common intention of the parties
○ This can be done from 2 perspectives:
■ Subjective interpretation
■ Objective interpretation
➢ Subjective interpretation:
○ Gives preference to the ‘real’ intention of the parties
○ Difficulty: ‘actual’ intention of a party can never be established - impossible to
uncover historical internal intention exercised
➢ Objective interpretation:
○ Gives priority to the declarations made, to the external expression of the
intention as only thing apparent to the other party
○ Protects party’s reliance on words actually used
○ See Hotchkiss v National City Bank of New York [1911] - US
➢ National approaches towards interpretive perspective:
○ French law: Art. 1188 Code civile
■ court (of first instance) to find ‘common intention’ of parties
■ if it cannot be discerned ⇒ interpretation in sense of a reasonable
person placed in same situation
○ German law: § 133 BGB
■ Court must ascertain ‘the real intention’
■ but interpretation to be carried out ‘in accordance with fairness and
reasonableness taking into account general practice - §157
○ English law
 ■ ascertaining ‘the meaning which the document would convey to a
reasonable person having all the background knowledge which would
reasonably have been available to parties’ at the time they contracted
● Interpret the contract as it is stated literally in words
■ See Investors Compensation Scheme Ltd v West Bromwich Building
Society [1998] 1 WLR 896
➢ Reasonable Meaning:
○ All European jurisdictions ⇒ form of compromise
○ Not fundamentally different between civil law & common law
○ Practically difference:
■ civil law: reasonable meaning primarily as the understanding of
contracting parties at starting point
■ common law: position of reasonable person in the position of the
contracting parties
○ Always directed at finding the common intention of parties
○ Parties differ about what is common intention ⇒ reasonable meaning in the
circumstances of the case
➢ Good Faith as principle of contract law:
○ Central role relevant for whole life of a contract
○ Overriding principle - Interfoto Library Ltd v Stiletto Ltd [1988] 2 WLR 615
○ All civil codes
○ Civil courts give provisions a wide application
○ Approaches:
■ Subjective good faith - subjective state of mind
● Does not know/doesn’t need to have reason to know a certain
fact which is needed to align with the other party to be legally
bound
■ Objective good faith - reasonableness & fairness sets a standard of
conduct requiring each party to take into account the interests of the
other party
➢ Interpretation by Courts:
○ Open ended norm ⇒ depends on circumstances of case how it is applied
○ Discretionary power to courts
○ Developments of new fields of law e.g. pre-contractual duties, control general
conditions)
○ Danger: threat to legal certainty & predictability
➢ English law & good faith:
○ Not accepted as general principle
○ ≠ other common law jurisdictions e.g. US, Australia
○ Taking into account the interests of the other party in any type of contract
contrary to very nature of contracting ⇒ Walford v Miles [1992] 1 All ER 453
■ So doesn’t need to take into account the interests of other parties
○ English law is designed in interest of economic efficiency
○ Lack abuse of rights theory - if party has a right it must be able to exercise it
at all times ⇒ Chapman v Honig [1963] 2 QB 502
■ If a party has a right, it must be able to exercise it at all time
 ○
…but general duty of good faith must be implied into long term
distribution agreement sometimes ⇒ Yam Seng Pte Ltd v International
Trade Corp Ltd [2013] EWHC 111
➢ Functional Equivalents of good faith (civil v common law)
○ Contracts uberrimae fidei (contracts ‘of the utmost good faith’)
■ Special contracts, e.g. insurance contracts, you get notified
○ Fiduciary relationships
■ Good faith is needed
○ Unfair terms
■ Result of European law and interpretation

Ppt: interpretation and gap filling

● Interpretation of the Party Agreement
○ What does interpretation mean?
○ What approaches to interpretation do we use?
○ Why ‘reasonable meaning’?
● Relevant factors for interpretation:
○ Falsa demonstratio
○ Common understanding
○ Ambiguous clauses
● Range of elements for interpreting ambiguous clauses:
○ Art 5:102 PECL
■ In interpreting the contract, regard shall be had, in particular, to
(a) the circumstances in which it was concluded, including the
preliminary
(b) the conduct of the parties, even subsequent to the
conclusion of the contract;
(c) the nature and purpose of the contract
(d) the interpretation which has already been given to similar
clauses by the parties and the practices they have
established between themselves
(e) the meaning commonly given to terms and expressions in
the branch of activity concerned and the interpretation similar
clauses may already have received;
(f) usages; and
(g) good faith and fair dealing
● Other elements used for interpretation
○ Position of the parties &
○ Their knowledge & expertise ⇒ see Dutch Haviltex case (1981) & German
Bürgschaft auf erstes Anfordern case (1992)
○ Parol evidence (English law)
○ Contra proferentem rule
○ Maxims of interpretation - not so much use in practice
○ Clauses claires et précises
● Gap filling:
○ Parties’ agreement is supplemented with terms that follow from their
hypothetical will given the circumstances ⇒ ad hoc gap filling
 ○ If interpretation & supplementary ad hoc gap filling is not sufficient ⇒ gap
filling through default rules
● Ad hoc gap filling (1)
○ Provides solutions that are tailor made for the specific contract of the parties
○ German law: supplementing interpretation of the contract ergänzende
Vertragsauslegung) - § 157 BGB (+ Swapping doctors case)
○ French law: constructive interpretation (interpretation créatrice) Art 1194
Code civil
○ Close relationship between interpretation, ad hoc gap filling & principle of
good faith
● Ad hoc gap filling (2)
○ English law: terms implied in fact
○ Tests to find the unexpressed intention:
1. ‘Officious bystander’ test
a. Shirlaw v Southern Foundries [1939] 2 KB 206
2. ‘Business efficacy’ test
a. The Moorcock [1889] LR 14 PD 64
○ Strict criteria ⇒ only lead to inclusion of terms if really necessary
● Gap filling through default rules
○ Provides standard solutions for problems typical for a certain type of contract
○ Exist for all contracts regulated in civil codes e.g. employment, lease, sale)
○ Common law comparable standards in terms implied in law ⇒ statutes ( e.g.
Sale of Goods Act 1979) or developed by courts (most often)
○ Ratio: saves parties time and money to negotiate terms they would have
relied on anyway
○ Liverpool City Council v Irwin [1977] AC 239
● Good faith:
○ Principle of good faith: central role
○ Civil law courts give it a wide application
○ Objective & subjective good faith
○ Open ended norm ⇒ its interpretation depends on circumstances of the case
○ Not accepted as general principle in English law
○ …but general duty of good faith must be implied into long term distribution
agreement ⇒ Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC
111
● Functions of Good Faith: (doesn’t exist in English law)
○ Supplementing
○ Interpretation
○ Restricting or limiting
○ Hardship
● Functional Equivalents in English law:
○ Interpret a contract how a reasonable party would understand it
○ Contracts uberrimae fidei (‘of the utmost good faith’)
○ Fiduciary relationships
○ Unfair terms
● Unfair Contract Terms - Invalidation of Contract
○ Not invalid if imbalance between performance & counter performance
○ Need of something extra:
 ■ party incapacity
■ defect of consent
○ Rare entire contract is unfair ⇒ often invalidation of specific clause is sought
■ E.g. limitations or exemption clause
● General Controls:
○ Use of general conditions is not without problem
■ Incorporation problem
■ Interpretation problem
■ Fairness problem
● Specific controls:
○ Specific legislation was introduced from ‘70s on the general conditions used
○ in B2C transactions - general controls were not sufficient to protect
consumers
○ Incorporation problem
○ Red hand rule
○ Fairness
■ Grey & black list
■ Unfair Contract Terms Act 1977 & Consumer Rights Act 2015 (UK)
■ EU: Directive 93/13 Unfair Terms in Consumer contracts
■ Collective action (by (private) consumer associations)

Week 6: Vitiating Factors

❖ Readings:
➢ Chapter 9: defects of consent and misrepresentation (pp. 159-176)
➢ Chapter 10: prohibited contracts (pp. 177-189)
Chapter 9: defects of consent and misrepresentation (pp. 159–176)
❖ Anyone concluding a contract does so on the basis of certain assumptions,
motives and expectations ⇒ these assumptions and expectations are in principle
of no relevance to the law
❖ The civil law usually approaches these questions from the perspective of the party
in error
➢ A party must be able to invalidate the contract in cases where the defect is
serious enough ⇒ 3 types of defects of consent
I. Mistake
II. Fraud
III. Threat
IV. (Undue influence) - some jurisdictions
➢ English law: starts with the party who caused the error ⇒ misrepresentation
❖ Mistake:
➢ Rules on the avoidance of a contract for mistake can be found in civil codes
and soft law instruments
■ Art. 1130 (1) CC: ‘Mistake, fraud and duress vitiate the consent where
they are of such a nature that, without them, one of the parties would
not have contracted or would have contracted on substantially
different terms.
■ Art. 1132 CC: ‘Mistake of law or of fact, as long as it is not
inexcusable, is a ground for avoidance of the contract where it bears
 on the essential qualities of the performance owed or of the other
contracting party.’
■ § 119 BGB:
‘(1) A person who, when making a declaration of intent, was mistaken
about its contents or had no intention whatsoever of making a
declaration with this content, may avoid the declaration if it is to be
assumed that he would not have made the declaration with
knowledge of the factual position and with a sensible
understanding of the case.
(2) A mistake about such characteristics of a person or a thing as are
customarily regarded as essential is also regarded as a mistake
about the content of the declaration.’
■ § 122 BGB:
‘(1) If a declaration of intent is (…) avoided under §§ 119 and 120, the
person declaring must, if the declaration was to be made to another
person, pay damages to this person, or failing this to any third party,
for the damage that the other or the third party suffers as a result of
his relying on the validity of the declaration; but not in excess of the
total amount of the interest which the other or the third party has in
the validity of the declaration.
(2) A duty to pay damages does not arise if the injured person knew
the reason for the voidness or the voidability or did not know it as a
result of his negligence (ought to have known it).’
■ Art. 6:228 BW
■ Art. 4:103 PECL
➢ Some common requirements that any legally relevant mistake must meet
(in civil law): see tutorial 3 assignment (follow that structure, not this
one!)
■ The first requirement is that there must be a contract that can be
avoided
● E.g. lack of consent (dissensus, mutual mistake)
■ Second, there must be a misapprehension of the correct situation by
one party or by both parties (the actual ‘mistake’)
● What matters in any jurisdiction is that a party is mistaken
about a fundamental characteristic of the good or about an
essential quality of a person
■ Third, the contract would not have been concluded under the same
conditions on a correct assessment of the facts
■ Fourth, it must be clear to the other party that the mistaken party, had
it known the truth, would not have entered into the contract (or at
least not on the same terms)
■ Fifth, the mistake must fall under one of three categories
● See below 1-3
■ Sixth, the mistake should not be done at the risk of the mistaken party
(excusability)
● E.g. you’re at the flea market and you want to buy a retro
camera; you ask someone who sells it whether it works
 properly or not ⇒ the seller says that they don’t know since
they haven’t tested it, they just say that it seems okay
● You buy it anyway but it turns out that it doesn’t work
● Still able to make a claim for mistake? No, you bought it at
your own risk
❖ (1) The mistake is caused by incorrect information given by the other party
➢ A party cannot rely on just any information ⇒ if a seller says that the
product is fit for a certain use (‘the crane is allowed to drive on public roads’)
or has a certain quality (a ‘gold’ ring), there is no reason to bring in the rules
on mistake (and some jurisdictions even prohibit this)
■ The buyer can simply bring a contractual remedy, such as a claim for
performance, damages or termination
➢ English law: a false statement as discussed here does not qualify as
mistake, but may constitute a case of misrepresentation
❖ (2) The mistake is caused by non-disclosure by the other party
➢ The principle of good faith necessitates that a party sometimes has to meet
a pre-contractual duty of disclosure
➢ It is decisive as to whether a party can reasonably expect to be informed
about certain matters before entering into the contract
■ Art. II-3:101 (1) DCFR
■ Art. 4:107 (3) PECL
➢ The starting point in any jurisdiction must be that people do not have to
share the information that they have on the qualities or saleability of a good
or service
➢ Although English law does not allow a claim for mistake for non-disclosure, it
is exceptionally possible that non-disclosure qualifies as
misrepresentation
❖ (3) Common mistake:
➢ In this ‘shared’ mistake, both parties have the same misapprehension of
reality ⇒ both parties are allowed to avoid the contract
■ This calls for an assessment of who should bear the risk of the wrong
assumption
➢ The mistake must not come at the risk of the mistaken party
■ A seller may have explicitly stipulated that he is not liable for defects in
goods, for instance
■ It also depends on whether the other party has a duty to disclose
❖ Fraud:
➢ The law qualifies such wilful deception, regardless of whether it comes in the
form of an explicit lie or unpermitted silence, as fraud (sometimes also called
deceit)
➢ All civil codes & international instruments make clear that fraud is a ground for
avoidance of the contract or other juridical act
■ Art. 1137 CC: ‘Fraud is an act of a party in obtaining the consent of
the other by scheming or [Link] intentional concealment by one
party of information, where he knows its decisive character for the
other party, is also fraud.’
■ § 123 (1) BGB: ‘Whoever has been induced to make a declaration of
will by fraud or unlawfully by threats may rescind the declaration.’
 ■ Art. 3:44 BW
■ Art. 4:107 PECL
➢ In practice a party who believes itself to be the victim of fraud will base its
claim on both mistake and fraud
■ If the victim can indeed prove that the other party had the intention to
deceive, this allows not only the avoidance of the contract, but also a
claim for damages (in tort, or art 4:117 PECL)
➢ The situations that qualify as fraud in civil law systems are likely to fall under
fraudulent misrepresentation in English law, but only if based on a party’s
statement: keeping silent usually will not qualify as misrepresentation
❖ Threat:
➢ Only truly, freely exercised autonomy is a source of binding obligations
➢ A threat is not only recognised as a ground for avoidance of a contract in
English law (where it is often called duress), but is also accepted as a defect
of consent in civil codes and international instrument
➢ Specific provisions:
■ Art 1140 CC
■ Art. 3:44 (2) BW
■ Art. 4:108 PECL
➢ There is a thin line between the illegitimate threat that allows a party to avoid
the contract and claim damages on the one hand, and legally accepted
pressure or acting in line with social & economic circumstances on the other
■ One is allowed to file for someone’s bankruptcy or to report a crime to
the police, but only to ensure a fair insolvency or criminal prosecution,
not to achieve a low price on a contract ⇒ the threat is unrelated to
the obligation of the other party
❖ Undue influence:
➢ This was motivated by the wish to give relief to a vulnerable party that, to its
great economic disadvantage, is exploited by somebody else
■ This fourth ground for avoidance allows a party to escape the
contract if an excessive disparity is caused by undue influence
➢ Specific provisions:
■ § 138 BGB:
(1) A juridical act which violates good morals is void.
(2) In particular, a juridical act is void by which a person, by exploiting
the predicament, inexperience, lack of sound judgement or
considerable weakness of will of another, causes himself or a third
party, in exchange for an act of performance, to be promised or
granted pecuniary advantages which are strikingly disproportionate to
the performance.
■ Art. 4:109 PECL
■ Art. 3:44 (4) BW
■ Art. 3.2.7 PICC ⇒ Principles of International Commercial Contracts
(PICC): only requires an excessive disadvantage in its provision on
gross disparity
➢ Both provisions require not only the deliberate exploitation of the vulnerable
position of one party, but also an excessive advantage resulting from this
for the other
 ■ Tests for procedural and substantive fairness are thus combined
➢ English law lacks a general doctrine of wrongful exploitation. Such a
case may qualify as duress, but it is more likely that the court will avoid the
contract by applying the equitable doctrine of undue influence
■ This requires not only a manifest disadvantage, but also that the
parties have been in a special relationship of trust
■ If such trust is abused, it is open to the court to avoid the contract
● See Lloyd’s Bank Ltd v Bundy (1975):
● ‘The English law gives relief to one who, without independent
advice, enters into a contract on terms which are very unfair or
transfers property for a consideration which is grossly
inadequate, when his bargaining power is grievously impaired
by reason of his own needs or desires, or by his own
ignorance or infirmity, coupled with undue influences or
pressures brought to bear on him by or for the benefit of the
other.’
❖ Misrepresentation: no general duty to disclose information
➢ Leading case: Smith v Hughes (1871) - also reasonable person test
■ The seller knew that the buyer (a racehorse trainer) wanted to buy a
quantity of old oats, but still sold him new ones (green oats that
horses do not eat). The buyer was bound to the contract
■ Judge: ‘The buyer persuaded himself they were old oats, when they
were not so; but the seller neither said nor did anything to contribute to
his deception. He has himself to blame. The question is not what a
man of scrupulous morality or nice honour would do under such
circumstances. (…) Whatever may be the case in a court of morals,
there is no legal obligation on the vendor to inform the purchaser
that he is under a mistake, not induced by the act of the vendor’
■ Caveat emptor = a purchaser must ask questions, or investigate
himself, in the absence of a duty of the seller to volunteer information
➢ Also see Misrepresentation Act - 3 criteria
I. False/incorrect information must have been communicated to the
purchaser
II. This must have induced the purchaser to enter into the transaction
III. The other party relied on the statement
➢ In contracts of the utmost good faith and in fiduciary relationships, a
sometimes far-reaching duty to disclose could arise
■ Can also follow from a European rule or statute
➢ Misrepresentation: can be defined as a spoken or written untrue
statement of fact which induces a party to conclude a contract - 3 types:
I. Fraudulent misrepresentation exists if a party knows it is making a
false statement
II. Negligent misrepresentation exists if a party carelessly makes a
representation while having no reasonable basis to believe it to be
true. This party does not lie, but is careless in saying what it says
A. See Spice Girls Ltd v Aprilia World Service BV (2002)
 III.
Innocent misrepresentation exists if an incorrect statement is made
without fault, meaning that a party believed its statement to be true
and could also reasonably believe this to be the case
➢ Terms, representations and misrepresentations:
■ A representation is a statement which asserts the truth of a given
state of facts
● It may encourage a party to make the contract but is not part of
the contract itself
■ Misrepresentation is an untrue statement of fact (not a mere
opinion) which induces a party to conclude a contract
● It is dependent on the parties’ intentions whether a statement
is a term or a (mis)representation
■ One practical rule is that if a contract is put into writing, the written
contract is usually regarded as containing terms while any previously
made oral statements are representations
■ Another rule of thumb: a party with special knowledge or expertise is
more likely to state terms ⇒ See Dick Bentley Productions Ltd v
Harold Smith (Motors) Ltd (1965)
● Innocent misrepresentation

Chapter 10: prohibited contracts (pp. 177–189)

❖ Every legal system puts limits on the freedom of contracting parties by declaring
contracts void or unenforceable if they are contrary to mandatory law, public
policy or good morals (bonos mores)
➢ All jurisdictions concur in declaring a contract unenforceable if it infringes a
statute or public policy or good moral:
■ Art. 6 CC: ‘Statutes relating to public policy and morals may not be
derogated from by private agreements.’
■ Art. 1162 CC: ‘A contract cannot derogate from public policy either by
its stipulations or by its purpose, regardless of whether the latter was
known to all the parties or not.’
■ § 134 BGB: ‘A juridical act which violates a statutory prohibition is
void, unless the statute leads to a different conclusion.’
■ § 138 (1) BGB: ‘A juridical act which violates good morals is void.’
■ Art. 3:40 BW
➢ But it can be difficult for a court to decide what public policy or good morals
requires & public policy or good morals are open-ended clauses that leave
much discretion to the court
■ Art. 15:101 PECL has thus only a very shallow provision on prohibited
contracts
➢ Also, what must be the effect of a prohibited contract if it has already been
performed?
❖ When is a contract prohibited? ⇒ Statutory illegality
➢ All jurisdictions contain statutory provisions that prohibit the conclusion of
certain types of contracts
■ Such statutory illegality can often also be categorised as being against
public policy or good morals
➢ Not all contracts violating a statutory rule will be declared void
 ■ Sometimes a provision only aims to protect one party to the contract
■ E.g. Art. 3:40 (2) BW
➢ Statutory illegality following from European law can be found in Art. 101 TFEU
⇒ prohibition between competitors that restrict competition on the EU market
➢ The formation of the agreement itself is prohibited. But it can also be that
a contract is legally concluded, with illegality only arising at the time of
performance
➢ It is not always apparent to the other party that the contract is concluded to
engage in an illegal activity
■ Most jurisdictions: if both parties are aware of the illegality (either in
formation or performance of the contract), neither party can enforce it
■ But if the other party did not know about the illegal performance, the
innocent party can still enforce the contract
❖ Contracts against public policy or good morals
➢ Contracts unduly restricting personal, artistic or economic freedom:
■ Contracts that unduly restrict a party’s personal, artistic or economic
freedom are contrary to public policy or good morals
■ A party could also be tempted to waive one of its fundamental rights
■ Contracts in restraint of trade: these are contracts in which a party
agrees to restrict his economic freedom, particularly his freedom to
trade or to conduct his profession or business
➢ Contracts against moral views believed to be held in society
■ Usually one-sided contracts in the sense that one party clearly
benefits from the contract
■ In each of these cases, one could also ask whether the other party
would really have accepted the conditions of the contract if it had been
completely free to design it in accordance with its own desires
■ For cases like surrogacy: see p. 185 for more information
● France: art 16-7 Cc
● Germany; § 1591 BGB
● England: Surrogacy Arrangements Act 1985
➢ Other contracts
❖ The effect of a prohibited contract; recovery of money or goods
➢ If the contract is void or avoided for illegality, the consequence is that no
party can sue for performance or for damages resulting from breach of
contract
➢ In pari delicto rule: in cases where both parties have unclean hands
because they willingly acted against a statute or against public policy or good
morals, they cannot recover anything
■ If only one of the parties is primarily responsible for the illegality, and
the other party is relatively innocent, the latter’s claim for restitution is
allowed
■ Germany: § 817 BGB
■ Rule is accepted in most other jurisdictions as well
➢ The extent to which both parties were at fault or intended to infringe upon
statutory or fundamental norms is not the only factor that plays a role in
deciding whether or not restitution should be granted
■ Another factor is the purpose of the rule
 ■ See Art. 15:104 PECL and 15:102(3) ⇒ The provision no longer starts
from the in pari delicto rule, but states instead that a claim for
restitution must be available if this is appropriate, which is made
dependent on six factors to be weighed in the circumstances of the
case

Podcast: Vitiating Factors

➢ Overarching questions: this needs to be done to see if it’s possible to make the
contract no longer binding
○ Can a contract validly be formed by ‘avoided’ or set aside?
○ If so, for what reason?
➢ Vitiating Factors: can make the concluded contract no longer binding on the parties

○ Misrepresentation doctrine = English law

➢ Void or Avoidable?
○ Depending on:
■ Vitiating factor
■ Jurisdiction involved
○ Avoidable = party not in breach can decide if it wants to end the contract or
not
■ Situation will then be as if the contract was void
○ Void = no contract has come into being
■ Consequence; if performance has not been carried out, it is no
longer due
■ And alternatively if performance has already taken place, it has to be
reversed (e.g. returned to the seller)
➢ Defects of consent & misrepresentation:
○ Defects of consent - present in multiple jurisdictions
■ Mistake (not mistake of meeting in minds)
■ Fraud (what the law qualifies as wilful deception)
■ Threat (contract concluded out of fear - physical or mental)
■ Undue influence
○ Misrepresentation (English law)
○ (Self-induced misapprehension) - limited, English law rarely allows remedies
for a party’s own mistake
■ Mistake has to be fundamental e.g. someone who’s going to
perform with an orchestra is not a professional but just a beginner
○ Civil v common law:
 ■Civil: approach this question usually from the perspective of the party
in error
● To invalidate the contract, the defect must be serious enough -
mistake, fraud and threat are traditionally accepted as as
serious enough
■ Some jurisdictions also allow for avoidance under influence e.g.
exploiting of a party’s weaknesses or existing disparities between
parties to conclude a contract
➢ Prohibited Contract:
○ Freedom of contract - limited by mandatory law, public policy & good morals
■ E.g. contract concluded to kill someone for a sum of money, sell arms
to terrorist groups
○ Contract is void or unenforceable 2 main questions:
■ When exactly does a contract go against a statutory prohibition, public
policy or good morals?
■ What has to be the effect of a prohibited contract if already
performed?

KC: Prohibited Contracts

➢ Questions:
○ When do jurisdictions consider a contract to be prohibited?
○ What is the effect of a prohibited contract?
➢ Freedom to Contract:
○ Main Principles of Contract Law
■ Freedom of contract - freedom to:
● Freedom to contract at all
● Choice of contents
● Freedom to choose the other party
■ Binding force (pacta sunt servanda)
■ Absence of formalities
■ Contractual fairness
○ Is the Freedom Absolute?
■ No, there are limitations
■ Every legal system imposes some limitations on the freedom to
contract based on
● Mandatory law
● Public policy
● Good morals (bonos mores)
➢ When is a Contract prohibited?
 ○Statutory illegality:
■ Statutory provisions prohibit a conclusion of a certain type of contract
● E.g. selling body parts, buying stolen property, restricting
■ Or its performance is illegal
● E.g. importing goods from a country where the government
imposed a prohibition on the import
● E.g. taxi services, driver doesn’t have a driver's license for
offering such services
○ Public Policy:
■ = fundamental principles of society
■ These type of contracts are typically one-sided
■ E.g. musician promising all his work to a record company - was
considered unacceptable bc it limits the artistic, financial (and more)
freedom of the artist
■ E.g. consumer waived its right to initiate court proceedings in case of
a dispute ⇒ goes against art 6 of the ECHR and access to fair trial
■ E.g. non-competitive clauses are considered valid if they’re restricted
in scope ⇒ only apply to certain types of activities
○ Good morals:
■ Contracts going against good morals are deemed to threaten the
community at large
■ E.g. surrogacy is still controversial around the world and within
legislation
● France: would be void in contract
● India: commercial surrogacy is present
➢ What are the effects of prohibited contracts?
○ If contract was not performed:
■ Void
■ Avoidable
■ Unenforceable
○ If performance already took place:
■ Administrative sanction
■ In pari delicto rule = two (or more) people are all at fault - if the fault is
more or less equal then neither party can claim breach of the contract
by the other
■ Exception: if one party is primarily responsible & the other relatively
innocent ⇒ claim for restitution is allowed

Ppt: Defects of consent & misrepresentation

● Parties forming intention in a wrong way
○ Civil law:
■ Perspective of party in error
■ Intention to be bound - wrong assumption
■ Invalidate contract when defect is serious enough
■ Defects of consent
● Mistake
● Fraud
● Threat
 ■ Undue influence
○ English law:
■ Perspective of the party who created the error by false statement or
remaining silent
■ Misrepresentation
■ Self-induced misapprehension - limited possibility
● Mistake:
○ Dedicated provision often included in civil codes & soft instruments on
contract law (e.g. PECL)
○ Common requirements any legally relevant mistake must meet:
■ there is a contract
■ misapprehension of the correct situation by one or both parties
this has to be about fundamental characteristic or essential
characteristic of a person
■ there is a causal link between the mistake & conclusion of the
contract
■ other party must know/ought to have know about the fact the
mistaken party regarded a certain quality as vital
■ mistake is cause by incorrect info given by the other party/ mistake is
cause by non-disclosure by the other party/common mistake
■ should not come at the risk of the mistaken party/at party’s risk if
inexcusable
● Mistake caused by incorrect information
○ Most important reason why legally relevant mistakes occur in civil law
jurisdictions
○ Does not matter if the party believed that the information it provided to
the other party was (in)correct (if it knows it is incorrect fraud)
○ No reliance on any info ⇒ sales talk does not usually contain statements
from which rights arise (e.g. ‘the best product’, ‘the Concrete statements can
become part of the contract (e.g. product is appropriate for a certain use, is of
a certain quality)
■ Buyer can bring claim for contractual remedy: performance, damages,
termination
○ English law: false statement ≠ mistake
● Mistake caused by non-disclosure
○ Not the case if contracting at arm’s length & no need to disclose any info
○ Principle of good faith ⇒ pre-contractual duty of disclosure
○ Illustrative list of factors that play a role in determining whether good faith
required disclosure of particular info (Art 4:107(3))
■ whether a party had special expertise;
■ the cost to it to acquire the relevant information
■ whether the other party could reasonably acquire the information for
itself, and
■ the apparent importance of the information to the other party
○ Difference between knowledge acquired based on one’s efforts, by costly
research, by training & expertise vs. knowledge that is result of chance &
expensive for the other party to obtain the same info
● Common mistake:
 ○ Both parties have the same misapprehension of reality
○ Both parties are allowed to avoid the contract
○ Who should bear the risk of the wrong assumption?
■ German case: Matchfixing (1975) ⇒ BGH 13 November 1975, NJW
1976, 565
○ Only type of mistake recognised by English law
■ The Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
(The Great Peace) [2002] EWCA Civ 1407, [2003] QB 679
● Common mistake - English law
○ Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great
Peace) [2002] EWCA Civ 1407, [2003] QB 679
○ The test for the circumstances under which contract will be void for
common mistake:
(i) there must be a common assumption as to the existence of a state of
affairs
(ii) there must be no warranty by either party that the state of affair exists
(iii) the non-existence of the state of affairs must be non attributable to
the fault of either party
(iv) the nonexistence of the state of affairs must render the performance of
the contract impossible, &
(v) the state of affairs may be the existence, or a vital attribute, of the
consideration to be provided or circumstances which must subsist if
performance of the contract adventure is to be possible
● Mistake: Duty to investigate
○ Who bears the risk & duty to investigate depends on the whether the other
party has a duty to disclose
○ If seller must disclose info about characteristics of the goods ⇒ buyer need
not investigate
○ Duty to investigate exists depends on relative expertise & experience of the
parties & costs of investigation
○ Practical significance - fairly limited ⇒ easier to claim non performance due to
strict requirements to obtain avoidance of contract
● Fraud:
○ All civil codes and international instruments: fraud is ground for avoidance of
the contract or juridical act
○ Party deliberately deceives the other party ⇒ wilful deception
○ Form: explicit lie or unpermitted silence
■ Dutch law: Art 3:44(3) BW Endorsements in general terms, even if
untrue, do not as such constitute fraud
■ English law: fraudulent misrepresentation, but only if based on party’s
statement
■ Practice victim of fraud will base claim both on mistake & fraud; if it
can prove the other party had intention to deceive ⇒ avoidance of
contract & damage (in tort)
● Threat:
○ Not need to be physical
○ Party concludes a contract out of fear of harm for itself, its property, honour or
family members
 ○ Treat not necessarily related to the contract/obligation of the other party
○ Ground for avoidance of contract
○ English law: duress
○ Thin line between illegitimate threat & legally accepted pressure/ acting in line
with social & economic circumstances
● Undue influence:
○ Some jurisdiction introduced it last century
○ Relief to a vulnerable party that is exploited by another to its great economic
disadvantage
○ French law: special case of threat (Art 1143 Code civil)
○ German law: usury (§ 138(2) BGB)
■ Two criteria:
● there is a deliberate exploitation of a vulnerable position
● there is an excessive advantage enjoyed by the person
exploiting another
○ Dutch law: abuse of circumstances (Art 3:44(4) BW) no requirement of
disparities between mutual performance
○ Double test: procedural & substantive fairness
● Undue influence English law
○ English law: lacks general doctrine of wrongful exploitation ⇒ undue
influence
○ 2 requirements: manifest disadvantage & parties having a special relationship
of trust
■ Lloyd’s Bank Ltd v Bundy [1975] QB 326
● Misrepresentation: No General Duty to Disclose Information
○ No general duty, at least not in commercial transactions
■ Smith v Hughes [1871] LR 6 QB 597
○ Caveat emptor ⇒ purchaser must ask questions, investigate himself
○ Ratio: good thing for commercial parties to deal at arms’ length & disincentive
to acquisition of info if it is to be shared with counterparty
○ Need to inform other party in well defined situations: contracts of the utmost
good faith & fiduciary relationships
● Misrepresentation
○ Untrue statement other party may be able to avoid contract (recission) or
claim damages
○ Misrepresentation = a spoken or written untrue statement of fact which
induces a party to conclude a contract
○ Exceptionally, silence can constitute misrepresentation in case there is a duty
to speak
○ 3 types:
I. fraudulent misrepresentation
II. negligent misrepresentation
A. Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15
III. innocent misrepresentation
● Misrepresentation Act 1967:
○ Art 2(1);
■ reversal of burthen of proof for fraudulent & negligent
misrepresentation: if a party is induced to conclude a contract by
 another party’s misrepresentation, it can claim damages unless the
other party (the one that made use of misrepresentation) can prove
that at the time of concluding the contract it believed its statements to
be true & had reasonable grounds to believe this
○ Art 2(2):
■ Innocent misrepresentation

Week 7: Contractual Remedies 1

❖ Readings:
➢ Chapter 11: performance (pp. 193-208)
➢ Chapter 12: damages for non-performance (pp. 209-229)
➢ Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] AC
■ [Link]
[Link]
■ See
[Link]
➢ Directive 1999/44 on sale of consumer goods and associated guarantees,
available at:
[Link]
20111212 (applicable until 31December 2021)
➢ Directive 2019/771 on certain aspects concerning contracts for the sale of
goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC and
repealing Directive 1999/44/EC
■ [Link]
19L0771&from=EN (applicable from 1 January 2022)
Chapter 11: performance (pp. 193-208)
❖ There are two different ways in which one can reason about what it means to be
‘bound’ to a contract:
I. First, one can argue that this must mean that the creditor can go to court
and actually force the debtor to perform in natura
A. The position of the civil law is that binding force of the contract means
that in principle the creditor is allowed to claim performance in any
case
II. Second, one can argue that binding force means primarily that the creditor is
allowed to claim monetary compensation where the debtor does not
perform
A. This is the position of English law
B. If one assumes that a contract is concluded to make a profit, it is just
as good (and perhaps even better) to get the money value as it is to
obtain performance in natura
❖ Civil law: performance as the routine remedy - general
➢ In civil law jurisdictions it is self-evident that the contracting parties can claim
performance (exécution en nature, Erfüllung, nakoming) of the contract
■ Germany: § 241 (1) BGB
➢ The performance must in general entirely match with what the parties
agreed upon
■ NL: Multi Vastgoed v Nethou, 2001
 ■ French law: also used to allow a claim for performance in cases
where the creditor seemed to suffer only little harm or inconvenience
● Piscine, 1984
● Belhadj v Les Bâtisseurs du Grand Delta (2005)
● Art 1221 Cc (2016)
◆ Requires the court to deny a claim for performance if
there is a manifest disproportion between its cost to the
debtor and its interest for the creditor
■ German law: § 275 BGB also offers space for denying the claim in
case of a futile defect
❖ How to enforce performance?
➢ The creditor first needs to obtain a court order in which the debtor is ordered
to perform his obligations - relevant rules are to be found in the law of civil
procedure
➢ In cases where the claim is for the payment of money: a bailiff is able to
seize and sell the property of the debtor and give the proceeds of the sale to
the creditor
➢ English law regards the non-compliance with a court order as a case of
contempt of court, which can be penalised with imprisonment (committal) or
a fine
➢ Performance by a third party at the debtor’s expense comes is useful if
performance can easily be rendered by a party other than the debtor
❖ Impossibility of performance:
➢ The court will naturally deny the claim if performance is impossible - different
types:
Practical impossibility:
■ Absolute impossibility: the performance is objectively (‘logically’)
impossible
● E.g. a car dealer who promises to service a car that is wrecked
in a crash just before the agreed day on which the
maintenance would take place
● A contract can also require a party to do something that was
already achieved: I hire a plumber to unclog my sink, but
before she arrives a plunger has already done the job
● Rule of genus non perit ⇒ when generic goods are sold,
there can never be a case of absolute impossibility
● The impossibility of performance only exists if any type of
performance has become impossible
● Non-generic goods: e.g. you hire Armin van Buuren to play at
a festival
■ Relative impossibility:
● E.g. If Samantha’s ring slides off of her finger while on a boat
trip on the North Sea, the jeweller in Paris to whom she sold
the ring cannot claim delivery
◆ It may be that the loss of the ring was caused by her
careless behaviour, but this then only allows a claim for
damages and not for performance
 ●§ 275 (2) of the German BGB allows the debtor to refuse
performance if this requires expense and effort of the debtor
that is ‘grossly disproportionate’ to the interest of the
creditor in performance
● A purely financial reason does not amount to impossibility
Moral impossibility:
■ In a case of moral impossibility performance by the debtor is not
possible without unreasonable danger to his own (or another’s)
life, health or freedom
■ English law: also accepts impossibility as a valid excuse for
non-performance
● Liston v SS Carpathian (Owners) (1915).
■ German law: Wehrdienst im Ausland, 1983
Legal impossibility:
■ Performance of the contract is sometimes prohibited by statute, public
policy or good morals
■ Performance cannot reasonably be expected from the debtor
❖ Personal services:
➢ Sometimes contracts call for services to be delivered by a party who is the
only one able to provide them
➢ DCFR: Art. III-3:302 (3): ‘Specific performance cannot (…) be enforced
where: (…) c. performance would be of such a personal character that it
would be unreasonable to enforce it.’
➢ 3 reasons:
■ First, to force the debtor to perform personal services or work is seen
as a too-severe interference with the debtor’s personal liberty
■ Second, when compelled to perform such services, the debtor is not
likely to deliver high-quality work
■ Third, the court will find it difficult to determine whether the debtor
performed its obligations in the proper way
➢ Also, the court can help the creditor by issuing a so-called injunction (an
order not to do a particular thing), which forbids the debtor from performing a
similar obligation at the same time for somebody else
■ E.g. see Lumley v Wagner, 1852
❖ English law: specific performance as an exceptional remedy
➢ English law: such a claim doesn’t exist
➢ In equity, however, the court has the discretionary power in exceptional
cases to grant a claim for so-called specific performance
■ But if the creditor can easily find other goods that replace the
performance (as in the case of generic goods), no specific
performance can be claimed
➢ Section 52 of the Sale of Goods Act summarises the English position:
■ ‘In any action for breach of contract to deliver specific or ascertained
goods the court may, if it thinks fit, on the plaintiff’s application, by its
judgment or decree direct that the contract shall be performed
specifically.’
➢ English law also recognises that no claim lies in case of personal services
(such as a contract of employment) and if performance is impossible
 ➢ Impossibility is a case of frustration and exists if, after the contract was
concluded, an event occurs which makes performance of the contract
impossible
■ This doctrine also covers unforeseen circumstances
■ Taylor v Caldwell (1863)
➢ Similar to the civil law, the mere fact that performance has become more
onerous is not likely to amount to frustration because of practical impossibility
■ Tsakiroglou Co Ltd v Noblee Thorl GmbH (1962)
➢ Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (1997)
■ The court refused to compel a supermarket to carry on a tenancy
■ It found that an order for specific performance could not be granted
in order to compel someone to carry on a business as this would
require constant supervision by the court
❖ Unforeseen circumstances:
➢ = ‘Hardship’ or ‘supervening events’, unforeseen circumstances only
render it (much) more difficult or expensive (the market for gold unexpectedly
soars)
➢ English law usually lumps the two situations together under the heading of
frustration (because the purpose of the transaction is frustrated, both in case
of impossibility to perform and in case of excessive hardship)
➢ English courts are very hesitant to invoke the doctrine of frustration in
cases other than of impossibility. It is only allowed if the supervening event
radically or fundamentally changes the nature of the performance
➢ Case law regarding doctrine of frustration:
■ Krell v Henry (1903)
■ Davis Contractors Ltd v Fareham Urban District Council (1956)
● ‘It is not hardship or inconvenience or material loss itself which
calls the principle of frustration into play. There must be as well a
change in the significance of the obligation that the thing
undertaken would, if performed, be a different thing from that
contracted for.’
➢ The legal rules on impossibility, unforeseen circumstances and frustration are
all default rules that parties can set aside when concluding their contract
■ Most commercial contracts will include clauses for unexpected events
e.g. hardship clause (an obligation to renegotiate the contract to deal
with the hardship)
➢ Force majeure clause: ‘A party to this contract shall not be liable in the event
of non-performance of any obligation under this contract by reason of strikes,
fire, disease, Act of God, and any other incident of any nature beyond the
control of the relevant party.’
❖ French, German and Dutch law all accept unforeseen circumstances as a ground for
termination or adaptation of the contract next to the impossibility to perform
➢ Art 1995 Cc
➢ § 313 BGB
➢ Art. 6:258 BW
❖ The great advantage of the civil law approach is that it allows the court not only to
terminate, but also to amend the contract
 ➢ Frustration in English law automatically ends the contract, no matter
whether the parties want this or not
❖ Covid consequences - ‘share the burden’ approach was taken up by some
jurisdictions
➢ Germany: new provision § 240 EG BGB
➢ NL: Palace Hotel v Deka Immobilien (2020) ⇒ Art. 6:258 BW
❖ European principles and the Consumer Sales Directive
➢ It was seen that in the civil law, the claim for specific performance cannot
be brought in cases of impossibility or personal services
➢ If A sells B a number of ordinary chairs and A refuses to deliver, B cannot
require performance by A under English law, while this possibility does exist
in a civil law jurisdiction
➢ See Art 9:102 PECL, and Directives 2019/771, 2019/770
■ Article 6 of Directive 2019/771 – similar rules apply under Directive
2019/770 – stipulates that the seller must deliver the goods to the
consumer in conformity with the contract of sale

Chapter 12: damages for non-performance (pp. 209-229)

❖ If a party does not perform the contract in the way agreed upon, or not at all, the
creditor can exercise a contractual remedy.
➢ The creditor will, if the relevant criteria are met, be able to terminate the
contract (Chapter 13) or claim damages for non-performance (this
chapter).
➢ Jurisdictions differ in the extent to which they require that the
non-performance is not excused (‘attributable’), a notice needs to be sent, or
a second chance to perform needs to be given to the debtor.
❖ The action for damages for non-performance (this chapter) and the action for
termination of the contract (Chapter 13) have in common that they both require
non-performance: the debtor does not do what the contract requires ⇒ 3 different
ways:
➢ (1) On the basis of the type of non-performance
■ E.g. not performing at all or performing too late etc.
➢ (2) On the basis of the reason for non-performance
■ Why is it that the debtor does not perform? Was there e.g. force
majeure?
■ Non-excused (attributable) v excused (non-attributable)
non-performance
➢ (3) On the basis of the seriousness of the non-performance
■ E.g. if you deliver 5 out of the 300 laptops ordered, that’s sth different
than when you deliver 299 out of 300
❖ Attributability of the non-performance:
➢ It is clear that a contracting party can only claim damages from a debtor
who failed to do what he promised ⇒ but opinions differ on whether the
non-performance must be attributable to the debtor
➢ ‘Attributability’ means that the debtor is held liable for the non-performance,
either because he is to blame for it or because he must bear the risk even if
he was not at fault
 ■ This can also be expressed by saying that the non-performance must
be non-excused, or that there is no force majeure
■ Civil law: all pose this requirement v English law: generally finds
the fact of non-performance itself quite sufficient to bring a claim
for damages
❖ The civil law approach:
➢ Provisions:
■ French law: arts 1231-1 and 1218 Cc
■ German law: §§ 276, 280 BGB
■ Dutch law: arts 6:74 and 6:75 BW
■ These provisions allow the creditor to claim damages whenever the
non-performance is attributable to the debtor
➢ Under French law: art 1218 Cc
■ Force majeure requires that two conditions are satisfied: the obstacle
must be ‘imprévisible and inévitable’
■ This means that the event must have been unforeseeable at the time
of concluding the contract and must pose an irresistible obstacle for
performance
■ See La Concorde v Montagnani (1994)
■ Types of obligations:
● Obligation de moyens - the debtor only needs to show that
he carried out all best efforts that can be expected from a
reasonable party
● Obligation de résultat - the debtor must ensure that he
achieves what is agreed upon in the contract ⇒ It is
subsequently up to the debtor to show that force majeure
prevented him from performing
➢ Under German and Dutch law:
■ German law also excludes liability in damages in case the
non-performance (Pflichtverletzung) is not attributable to the debtor
● §§ 276 and 280 BGB make clear that non-performance
needs to be attributable to the debtor + this is the case if the
breach is intentional or negligent
■ Dutch law (Arts 6:74 and 6:75 BW) applies the same norm in order to
be able to claim damages for non-performance (tekortkoming)
➢ Attributability of the non-performance can also be based on other grounds:
■ A guarantee might have been exercised
■ Most jurisdictions hold the debtor responsible for the persons he uses
in performing the contract
■ The debtor is held liable for circumstances that are foreseeable or in
regard to him personally
■ Art. 8:108 (1) PECL aptly summarises the civil law position
❖ English law:
➢ Regards any contract as containing a guarantee ⇒ This means that the
debtor can in principle not escape liability in damages in cases where he
could not help his failure to perform
■ Doctrine of strict or ‘absolute’ liability ⇒ Paradine v Jane (1647)
■ Also Nicolene Ltd v Simmonds (1953):
 ● ‘What matters is the fact of performance. Has he performed or
not?’
➢ The only possible way of escaping liability is to invoke the doctrine of
frustration
■ Frustration exists in cases of impossibility of performance because of
● the destruction of an essential element of the contract
(Taylor v Caldwell)
● or bc of the death of a party who needs to perform personally
● Or when the performance is in principle possible, but
nevertheless pointless (Krell v Henry)
■ Criteria: Davis Contractors Ltd v Fareham Urban District Council
(1956)
● ‘It is not hardship or inconvenience or material loss itself which
calls the principle of frustration into play. There must be as well
a change in the significance of the obligation that the thing
undertaken would, if performed, be a different thing from that
contracted for.’
■ Because it is rare that a claim for frustration succeeds, parties often
allocate the risk themselves by including a force majeure clause in
their contract
➢ English law is happy to accept that the obligations of doctors, lawyers and
other advisers are only to use reasonable care and skill
❖ Types of damages and the mechanics of damage claims:
➢ Damages for delay: the basis for claiming these damages can be found in:
■ Arts. 1217 (that conveniently lists the available remedies) and 1231-1
CC
■ §§ 280, 286 BGB
■ Art. 6:74 BW
■ As well as in English common law
➢ If the debtor does not perform because he is unable or unwilling to do so, or if
the creditor is simply no longer interested in obtaining performance (and
therefore decides to terminate the contract), he will seek a different type of
damages = damages in lieu of performance replace the performance
■ Claiming these should put the creditor in the same position that he
would have been in had the contract been properly performed
(expectation interest)
■ See Arts 1231-1 CC and Art. 6:74 BW in French and Dutch law, while
German law bases these on § 280 in combination with §§ 281–283
BGB
➢ Collateral damage or consequential loss
■ This is damage caused in the course of performing the contract
■ The legal bases for claiming this harm caused by the defect are Art.
1231-1, § 280 BGB and Art. 6:74 BW
➢ The distinction between damages for delay, damages in lieu of performance
and collateral damages is highly relevant to the question at which point in
time a claim for damages can be brought
■ French law: a claim for damages can only be brought if the debtor is
in default (en demeure)
 ● Arts 1231 and 1344 Cc
■ German law: § 280 BGB makes a distinction between damages for
delay and damages in lieu of performance = Claiming these will lead
to loss of the right to performance
● Damages for delay are subject to the additional requirement of
§ 286 BGB
◆ The debtor must be in default (Verzug) before
damages for delay can be claimed
● § 283 BGB refers to the case in which performance is
impossible or where the debtor simply refuses to perform
● § 281 BGB sets an additional requirement for damages in
lieu of performance in case of delay or defective performance
= the creditor must first have fixed, without success, a
reasonable period for performance or for remedying the
defective one
● § 282 BGB allows the creditor to claim damages in lieu of
performance if the debtor has violated a so-called ancillary
duty and the creditor can no longer reasonably be expected to
accept performance
● Ancillary duty = the type of obligation that follows from the
contract although the parties have not explicitly discussed it
and that does not affect the performance as such. Example:
◆ the painter who paints the interior of a house in an
excellent way, but who damages all kinds of objects in
the house in the process. This is a good reason for the
creditor to lose all reliance on the painter’s ability to
continue work without causing further damage to his
property, which then allows him claim damages in
lieu of performance (and terminate the contract)
■ Dutch law: also requires that the debtor be in default before damages
can be claimed: art 6:82(1) BW
● If the debtor can still perform or repair his previous defective
performance the creditor is in principle obliged to send a notice
to the debtor giving him a reasonable period to perform
● A notice is not needed if a time for performance was fixed in
the contract (Art. 6:83 BW)
■ English law: doesn’t require a notice to put the debtor in default and
to exercise a remedy - the expiration of the time affixed for
performance is reason enough to be able to claim damage
➢ Relational contracts: e.g. employment contracts or franchise contracts
■ Only during the course of the relationship does it become clear what
the parties need to do exactly
❖ Limitations of claiming damages - Expectation and reliance interest
➢ Once it is established that the requirements for a damages claim are met, the
question must be asked whether any limitations exist to claiming damages
➢ ‘No damages without loss’ ⇒ the claimant can never claim more damages
than what he loses on the contract
 ■ Article 1231-2 CC, §§ 249 ff BGB, Arts 6:95 ff. BW and Art. 9:502
PECL all provide rules to this effect
➢ Two types of interest of the creditor: the expectation interest and the
reliance interest
■ A claim for damages in lieu of performance should put the creditor as
closely as possible to the position in which it would have been if the
contract had been duly performed (cf. Art. 9:502 PECL)
● This expectation interest (or ‘positive’ or ‘performance interest’)
protects the expectations the creditor had when he entered
into the contract ⇒ the expectation to make a profit out of the
contract
■ ‘Reliance interest’ (negative interest): the creditor’s interest is to be
put into the position he was in before the contract was made
● See p. 222 for concrete example
➢ Causation: the damage must have been caused by the non-performance
■ English law: Hadley v Baxendale (1854)
● ‘the usual course of things’ or that ‘may reasonably be
supposed to have been in the contemplation of the parties at
the time when they made the contract, as the probable result
of the breach of it’
■ Factors other than foreseeability are also likely to play a role when
establishing a causal link between the non-performance and the
damage
● Also see Art 9:503 PECL
❖ Non-pecuniary loss
➢ Non-pecuniary loss (or immaterial damage) cannot be undone with money
and is therefore difficult to quantify
➢ The type of contracts for which courts are often willing to recognise that
non-pecuniary damages must be paid in case of non-performance are
contracts of which the main purpose is pleasure, relaxation and peace of
mind
➢ English law: Farley v Skinner (2001)
➢ Non-pecuniary loss cases are mostly involved in holiday cases e.g. Simone
Leitner v Tui Deutschland (2002)
■ See Directive 2015/2302 = This directive states that the retailer of a
package travel is liable in damages to the consumer for the proper
performance of the contract
❖ Damages clauses:
➢ Parties can in principle agree on an amount of damages to be paid in case of
non-performance
➢ Two types of damages clauses can be distinguished:
■ The sum specified in the contract can be based on a real assessment
of what the likely damage will be in case of non-performance =
liquidated damages clause or agreed damages clause
● The creditor no longer needs to prove what its actual damage
is, but also that parties know in advance for which amount they
are liable in case of breach
 ■ Parties can agree on a specified sum to be paid in case of
non-performance as an inducement to a party not to breach the
contract = penalty clause
● Allows the parties to avoid the calculation of the real damages
& it serves as a way to pressure the debtor to perform
● But it can lead to excessive liability and must therefore be
looked at with some suspicion ⇒ the law is reluctant to accept
just any penalty clause as valid
■ Under English law, for example, only liquidated damage clauses
are valid
● But: a stipulated sum is not a penalty if it protects a legitimate
interest of the creditor in the performance of the contract and
the agreed sum is not out of all proportion to that interests
■ German law: § 343 BGB allows the court, at the request of the debtor,
to reduce a disproportionately high penalty to a reasonable amount
unless the debtor is a commercial party (§ 348 HGB)
● A commercial debtor may still be able to invoke the general §
242 BGB to escape the clause
■ French law: Article 1231-5 CC provides that the court can even out of
its own motion moderate or increase the agreed penalty if it is
obviously excessive or ridiculously low
■ Dutch law: Article 6:94 BW allows this if ‘fairness manifestly requires
this’
■ Art. 9:509 PECL also does not distinguish between penalty clauses
and liquidated damages clauses, but allows the court to reduce or
increase a grossly excessive agreed upon sum

Podcast: Contractual remedies

➢ Performance v Non-performance
○ Normal situation: both parties perform in conformity with what they agreed
up ⇒ discharge of contract by performance
○ If If a party is in breach and does not perform the contractual obligation
agreed upon ⇒ actions for remedies
■ Payment should have been made within a fortnight but that didn’t
happen
➢ Type of contractual remedies: 5 types
○ Claim for performance
○ Claim for price reduction
■ E.g. quality was not as expected
○ Damages
■ For non-performance
○ Termination of contract
○ Withholding performance
➢ Claim for performance
○ Civil law
■ Court orders debtor to perform in natura (= in any case)
○ Common law
 ■ A claim as such does not exist ⇒ creditor can claim monetary
compensation if the debtor does not perform
■ Contract = economic device in common law to obtain profit
○ Equity
■ Courts have discretionary power in exceptional cases ⇒ specific
performance
■ Can grant a claim for a specific performance, e.g. related to buildings
or property (immovable objects)
➢ Impossible to perform?
○ Civil law: court will deny claim for performance if impossible
■ Practical impossibility
■ Moral impossibility
■ Legal impossibility
■ Personal service
● Service can only be delivered by a particular person
■ Unforeseen circumstances
⇒ Damages or termination of contract
○ Civil Law: non-performance must be attributable to the debtor
○ English law: doctrine of frustration ⇒ automatic cancellation of contract
■ For personal service or unforeseen circumstances
○ English law: doctrine of strict or ‘absolute’ liability (Paradine v Jane [1647] 4
KB)
■ Any contract is regarded as containing a guarantee: the debtor
cannot escape liability for damages in which he could not help his
failure to perform
○ Limitations for claiming damages based on:
■ Type of interest protected
■ Causation
■ Non-pecuniary loss
➢ Termination & withholding performance
○ To be addressed in week 8

KC: Remedies: Performance & alternatives to performance

➢ Remedies for Breach of Contract
○ If a party is in breach and does not perform the contractual obligation
agreed upon ⇒ actions for remedies:
■ E.g. in a sales of goods contract, the goods were not delivered ⇒
party will get opportunity to ask for remedies
■ Claim for performance
■ Alternative remedies ⇒ e.g. claims for price reduction, damages,
termination of contract
➢ Performance as General Remedy
○ Civil law jurisdictions: contracting parties can claim performance (this is the
natural procedure)
■ At what time this becomes possible depends on the contract and the
terms agreed upon by the parties
○ The performance must match what the parties agreed upon (pacta sum
servanta)
 ■ This is sometimes codified in the civil codes
○ In some jurisdictions, small defects may be sufficient to trigger claims for
performance
■ The NL: Multi Vastgoed v Nethou [2001]
● Small defects led to claims for performance
■ France: Piscine [1984] ⇒ Swimming pool had three instead of four
steps - contractor had to correct it
● (Belhadj v Les Bâtisseurs du Grand Delta [2005]) ⇒ a house
was 23 cm too short than agreed upon ⇒ house had to be
demolished and rebuild
● But this has changed with the introduction of art 1221 Cc ⇒ a
claim for performance can be denied by the court if there’s a
minor disproportion between the cause of the [..Idk…] debtor
and the interest of the creditor
■ Germany: opposite - denying claim for futile defect by the debtor (§
257 BGB)
➢ Impossibility of performance: court may deny claim of performance
○ Absolute impossibility ⇒ performance is objectively impossible ⇒ related
to specific goods (e.g. an artist that needs to perform at a concert but cannot
do so bc he got killed in a car accident) ≠ generic goods: genus non perit
■ ⇒ when generic goods are sold, there’s never an absolute
impossibility (they’re defined by quantity, quality or weight and the
seller is always expected to find similar goods)
■ E.g. apples, wood, bricks
○ Relative impossibility ⇒ although performance is in principle possible it is
so disproportionate in terms of value/costs that performance is not reasonably
expected
■ E.g. if a ship would sink in the middle of the Atlantic ocean, and on
board of it was a necklace that the owner had sold to the buyer, a
search may be arranged for the lost necklace but it would probably
cost more than the value of the necklace itself
○ Types of impossibilities:
■ Practical - performance has to be onerous, it’s no longer expected of
the debtor to perform
■ Moral - performance of the debtor is not possible without a reasonable
danger to his own life, health or freedom or that of another person
■ Legal - performances that are prohibited by law (e.g. statute, public
policy, good morals), the performance itself is not absolutely
impossible but it is prohibited
➢ Impossibility of Personal Service
○ Contracts for services to be delivered by a party who is the only one able to
perform them
■ E.g. if a photographer is hired to make a series of photographs, but
the client declines to agree with the service contract - this would be
difficult to take up to court
○ DCFR - Art. III 3:302(3) ‘Specific performance cannot (…) be enforce where:
(…) c. performance would be such a personal character that it would be
unreasonable to enforce it’
 ○Reasons for non performance:
■ force performance of personal service/work too severe interference
with person’s liberty
■ when compelled to perform debtor will likely not deliver high quality
work
■ court will find it difficult to determine if debtor performed in proper way
➢ Lumley v Wagner [1852] EWHC Ch J96
○ Facts: Johana Wagner (defendant) signed a contract to sing exclusively for
Benjamin Lumley’s (plaintiff) theatre for one season (3 months). Covent
Garden (competitor) convinced Wagner to break her contract with Lumley and
sing for them for a higher fee
○ Issue: may a court enforce a negative injunction against Johana Wagner
preventing her from carrying out something that she contracted not to do
○ Court: in equity, court is able to order breaching of personal service
party from offering her services to another
➢ Specific Performance in English Law
○ Common law: claim for specific performance does not exist
○ Equity: court has discretionary power in exceptional cases to grant a claim for
specific performance
○ Criterion: whether common law remedy (e.g. damages) would or wouldn’t be
an adequate remedy (e.g. would it be replaceable or not)
○ Section 52 Sale of Goods Act
○ No claims in case of personal services & if performance is impossible
doctrine of frustration?
■ Practical impossibility
■ Continuous duties - can also lead to non performance since constant
supervision by court might be needed

Ppt: Contractual remedies: Performance & Damages for Non-performance

● The life of the Contract: we’re now in Remedies for breach of contract
● Performance as remedy:
○ What type of contractual remedies does a creditor have in case the debtor
does not perform its contractual obligations?
○ How is practical impossibility of performance dealt with in civil law jurisdictions
compared to English law? Explain the reasons why
● Unforeseen circumstances:
○ Performance of contract is impossible
○ Performance of the contract possible but excessively onerous (hardship)
■ civil law: related to principle of good faith
○ The change should be truly fundamental (e.g. Germany in 1920s: 1 US
dollar = 4 billion German Mark)
○ Conflict between two principles and values:
1. Pacta sunt servanda = certainty
2. (Clausula) rebus sic stantibus (‘things thus standing’) = justice
○ Lack of consent - the parties have never agreed to be bound in a
fundamentally different situation
● Unforeseen change of circumstances
○ English law
 ■ Doctrine of frustration
● Krell v Henry [1903] 2 KB 740
● Davis Contractors Ltd v Fareham Urban District Council [1956]
AC 696
■ Courts are strict in application to other cases than impossibility
● Tsakiroglou Co Ltd v Noblee Thorl GmbH [1962] AC 93
● Canary Wharf v European Medicines Agency [2019] EWHC
335
■ Frustration ⇒ automatically ends contract
○ Civil law
■ Accept unforeseen circumstances as ground for termination /
adaptation of contract
■ French law: Art 1195 Code civil
■ German law: § 313 BGB
■ Dutch law: 6:258 BW
■ Advantage: civil law courts can not only terminate, but also amend
contract
● Davis Contractors Ltd v Fareham Urban District Council [1956]
○ Radcliff LJ: It is not hardship or inconvenience or material loss itself which
calls the principle of frustration into play. It must be well a change in
significance of obligation that the thing undertaken would, if performed, be
a different thing from that contracted for
● Covid-19 & contracts:
○ Does it qualify as unforeseen circumstances or force majeure?
○ Who should bear the risk?
○ Renegotiation & adaptation
○ Shared burden approach: dutch cases dealing with effect of covid-19
■ Palace Hotel v Deka Immobilien (2020): Art 6:258 BW
○ German law: special provisions: § 240 EG BGB allows consumers & small
businesses to refuse performance for long term contracts if necessary to
ensure adequate subsistence of consumer/economic basis for business
○ UK: Coronavirus Act 2020: special provisions to prevent landlords from
evicting tenants for non payment
● Consumer Sales Directive: Performance-Oriented Remedies
○ Directive (EU) No 2019/771 on sale of goods
○ Directive (EU) 2019/770 on contract for supply of digital content & digital
services
○ Enhance rights of consumers in case of non conformity of delivered products,
content or services in cross border shopping
■ Art 6: seller must deliver goods to consumer in conformity with the
sale contract ⇒ goods have to comply with description & be fit for
particular purpose consumer made known to seller & goods must be
of normal quality & that the consumer can reasonably expect
■ Art 13: rights of consumer in case of lack of conformity: goods be
brought into conformity, receive proportionate reduction in price or
terminate contract
 ■ Art 13: consumer can choose for bringing into conformity: reparation
or replacement, unless remedy chose is impossible or would impose
costs that would be disproportionate
○ Minimum harmonization - MS are allowed to offer their consumers more
protection
● Exercise of Remedies by Consumer
○ CJEU joined cases C-65/09 and C-87/09 Weber and Putz
■ Installation of goods
■ Replacement - which costs should be borne by the seller?
○ ‘Article 3(2) and (3) of Directive 1999/44/EC of the European Parliament and
of the Council of 25 May 1999 on certain aspects of the sale of consumer
goods and associated guarantees must be interpreted as meaning that,
where consumer goods not in conformity with the contract which were
installed in good faith by the consumer in a manner consistent with
their nature and purpose, before the defect became apparent , are
restored to conformity by way of replacement, the seller is obliged either to
remove the goods from where they were installed and to install the
replacement goods there or else to bear the cost of that removal and
installation of the replacement goods. That obligation on the seller exists
regardless of whether he was obliged under the contract of sale to install the
consumer goods originally purchased.’
● Damages for Non-performance - claiming damages:
○ Legal systems worldwide agree that non performance = main requirement
for claiming damages
○ Differences: extent of damages
○ Key questions:
1. Is non-performance attributable to the debtor?
2. Which type of damages can be claimed & how can these be
claimed?
3. Are there any limitations on the damages the creditor can claim?
4. Can the parties validly agree upon a damage clause?
● Attributability requirement:
○ Prerequisite: only claim damages from debtor who failed to do what he
promised
○ Differences: attributability requirement
○ What does attributability mean? = debtor is held liable for non-performance
because he is to blame, or he must bear the risk even if not at fault
○ No force majeure situation - civil law jurisdictions - breach attributable to
debtor: fault or risk
○ English law: non performance is sufficient to bring claim for damages = strict
liability
● Attributability: Civil law approach
○ Reversed burden of proof
○ German law:
■ § 280(1) BGB: ‘If the obligor breaches a duty arising from the
obligation, the obligee may demand damages for the damage caused
thereby. This does not apply if the obligor is not responsible for the
breach of duty
 ■ § 276 BGB ––‘the debtor is responsible for intention and negligence’;
‘a person acts negligently if he fails to exercise reasonable care.’
○ French law:
■ Art. 1231-1 Code civil: ‘The debtor is ordered, if applicable, to pay
damages for non performance or delayed performance of his
obligation, if he fails to show that his performance was prevented
by force majeure.’
○ Force majeure: in general, available in both civil & English law (but in English
law if agreed by parties) - freedom to contract
○ French law: Article 1218 Code civil ⇒ 3 conditions:
■ beyond the control of promisor,
■ obstacle must be unforeseen at the time of concluding the contract &
■ must pose an irresistible obstacle for performance
○ German & Dutch law: exclude liability in damages in case the non
performance is not attributable to the debtor (§ 276 & § 280 BGB; Art 6:74 &
6:75 BW)
● Attributability: English law approach
○ Strict liability ⇒ in principle, cannot escape liability
○ No requirement of attributability
■ Paradine v Jane [1647] 4 KB
■ Nicolene Ltd v Simmonds [1953] 1 ALL ER 822
○ What is the way available to escape liability in English law?
○ Only way to escape liability ⇒ doctrine of frustration
○ Force majeure clause - if the parties include one in their contract
● Attributability:
○ Difference between obligations to achieve a result & obligation to use
best efforts
○ Obligation to achieve a result: look to obtain the promised result (e.g. sale
of goods)
○ Obligation to use best efforts: promisor to show that the carried out the best
efforts that can be expected from a reasonable party (e.g. contract between
lawyer & client, doctor & patient
■ Greaves & Co v Baynham Meikle & Partners [1975] 3 All ER 99

Week 8: Contractual Remedies 2

❖ Readings:
➢ Chapter 12: damages for non-performance (pp. 209–228) (remaining part)
■ Has already been summarised in the previous week - see week 7
➢ Chapter 13: termination of the contract (pp. 229–242)
Chapter 13: termination of the contract (pp. 229-242)
❖ Contracting parties not only have the right to claim damages for non-performance of
the contract. If the relevant criteria are met, the creditor may also terminate a
bilateral contract
❖ In a bilateral contract such as sale of goods, provision of services, lease or credit,
each party only wants to perform because the other party is also to perform
❖ Contractual remedy of termination is based upon this ratio: if the other party does
not perform, this allows the creditor to bring the contract to an end
 ➢ each of the parties is no longer bound to perform and is usually able to
claim back what has already been rendered
➢ Hence, there is no need for attributability of the non-performance to the
debtor or loss to the creditor in order to bring a claim
❖ The following questions must be asked:
➢ (a) How to decide whether the non-performance allows termination?
➢ (b) What are the mechanics of the claim for termination?
➢ (c) Is it possible to terminate the contract before performance is due
(‘anticipatory breach’)?
➢ (d) What is the effect of termination?
➢ (e) Can the creditor withhold performance?
❖ (1) When is termination allowed?
➢ Different jurisdictions adopt different approaches to limit a claim for
termination
➢ PECL Art 8:103, 9:301 ⇒ non-performance must be ‘fundamental’ ⇒ the
notion of fundamental non-performance (which is inspired by the CISG)
makes termination only possible in case of a serious breach
■ In a commercial sale the time of delivery of goods is presumed to be
of the essence (subpara. a)
➢ English law allows termination (in England also referred to as rescission for
breach or repudiatory breach) only in case of breach of a ‘condition’
■ not all contractual terms are of equal importance
■ English law makes the explicit distinction between terms that are
‘essential’ and that, in case of breach, allow termination
(conditions) and terms that only allow a claim for damages
(warranties)
■ Parties can of course also explicitly agree that certain terms are of the
essence, turning them into conditions that allow termination in case of
breach
■ Hong Kong Fir Shipping Co. v Kawasaki Kisen Kaisha (1962)
● it is open to the parties to a contract to make it clear either
expressly or by necessary implication that a particular
stipulation is to be regarded as a condition which goes to the
root of the contract, so that it is clear that the parties
contemplate that any breach of it entitles the other party at
once to treat the contract as at an end.
➢ French law: arts 1224-1230 Cc form the basis for termination (résolution)
■ List of provisions:
● Art. 1224: Termination results either from the application of a
termination clause, or, where the non-performance is
sufficiently serious, from notice by the creditor to the debtor or
from a judicial decision.
● Art. 1225 (1): The termination clause must specify the
undertakings whose non-performance will lead to the
termination of the contract.
● Art. 1226: The creditor may, at his own risk, terminate the
contract by notice. Unless there is urgency, he must previously
have put the debtor in default to perform his undertaking within
 a reasonable time. (…) The debtor may at any time bring
proceedings to challenge such a termination. The creditor must
then prove the seriousness of the non-performance.
● Art. 1227: Termination may in any event be claimed in court
proceedings.
● Art. 1228: The court may, according to the circumstances,
recognise or declare the termination of the contract or order its
performance, with the possibility of allowing the debtor further
time to do so, or award only damages
■ Art. 1224 CC provides the disappointed creditor with three options to
part with the other contracting party
I. The parties can agree on a termination clause (Art. 1225 CC)
indicating the conditions that allow a party to terminate the
contract (for example: ‘any breach’) and preferably how to
realise this
II. A party can turn to the court (Art. 1227 CC) which will then
assess whether the non-performance is serious enough to
justify termination (also see Art. 1228 CC)
III. Art. 1226 CC also allows the creditor to terminate the contract
by way of notice ⇒ the breach must be sufficiently serious: if
not, the debtor can successfully challenge the termination in
court
A. See case Abonnement téléphonique/Pigranel (1987)
➢ German law: termination for non-performance (Rücktritt) can be found in §§
323–324 BGB
■ The most interesting aspect of these provisions lies in what they do
not say: a fundamental non-performance (as in the PECL) or breach
of a condition (as in English law) is not required.
■ Nor does § 323 BGB require intervention by the court
■ A minimum threshold (much lower than the one provided by the
PECL, English and French law) can be found in the second sentence
of paragraph (5): the breach may not be ‘trivial’
■ The real innovation that § 323 BGB brings, lies in the rule that
termination is allowed in case of any non-performance, provided
that the debtor is given a second chance to perform (para. (1))
● Also in Nachfrist case - A claim for damages in lieu of
performance can in German law only be brought if the debtor
was given a second chance to perform or to perform properly
■ § 323 mirrors § 281, albeit that in case a time was specified for
performance the creditor is allowed to terminate the contract on the
basis of § 323 (2)2
■ German law thus makes it possible for the creditor to terminate
the contract for any less than trivial breach by giving the debtor a
second chance to perform
➢ Dutch law: Art 6:265 BW
■ ‘1. Every non-performance of a party of one of its obligations gives the
other party the right to terminate the contract in full or in part, unless
 the non-performance, given its specific nature or trivial importance,
does not justify this termination and its consequences.
■ 2. In so far as performance is not permanently or temporarily
impossible, the right to terminate the contract only arises when the
debtor is in default’
■ Termination is a right of the creditor and it is for the debtor to show
that the non-performance does not justify the termination
➢ Efficient breach theory
■ This theory holds that a party should be allowed to breach
(‘terminate’) a contract and pay damages if doing so would be
economically more efficient than performing the obligations
under the contract
■ The rule that the creditor is in principle only entitled to damages (and
not to performance) is an incentive to breach the contract if this is
efficient
❖ (2) The mechanics of termination
➢ The law also allows unilateral termination by a party
➢ French & Dutch law: Articles 1226 CC and 6:267 BW state that the
terminating party must send a written declaration
■ French Arts. 1225 (2) and 1226 (1) CC require in principle that the
debtor is put in default by way of notice
■ The Dutch Art. 6:265 (2) BW requires default (consisting of a notice
unless a time was fixed for performance) in case performance is not
already impossible
➢ The PECL and German law provide that termination can be made by a
declaration in any form (Art. 9:303 (1) PECL, § 349 BGB)
■ In German law the Nachfrist will usually replace the notice (see,
however, § 323 (3) BGB)
➢ An English creditor who decides to terminate (in the terminology of English
law, the creditor’s acceptance of the repudiation by the debtor) must naturally
also communicate this to the defaulting debtor
❖ (3) Anticipatory breach
➢ German law: § 323 (4) BGB: ‘The creditor may already terminate the contract
before performance is due, if it is obvious that the requirements for
termination will be met.’
➢ Dutch law: Art. 6:80 (1) BW
➢ Art. 9:304 PECL: ‘Where prior to the time for performance by a party it is
clear that there will be a fundamental non-performance by it the other party
may terminate the contract.’
➢ E.g. Mary hires Yves to renovate her flat, and two months before the work is
to start Yves tells Mary that due to a busy schedule he will not be able to do
the work, Mary can immediately terminate the contract
■ English law adopts the same position
➢ French law, however, does not allow anticipatory breach
➢ It is noted that jurisdictions that allow anticipatory breach will not only permit a
premature claim for termination but also for damage
❖ (4) The effect of termination
 ➢ French law: art 1217(2) CC - ‘Remedies which are not incompatible may be
combined; damages may always be added to any of the others.’
➢ Effect of termination: it releases both parties from their obligations to effect
and to receive future performance (see e.g. Art. 9:305 PECL, which speaks
for all other jurisdictions
➢ The more difficult question is what is the effect if one or both parties have
already performed part of the contract before termination
■ If termination has retroactive effect (as in Italy, Spain, Bulgaria and
Belgium), this means that it is as if the contract has never been
concluded
■ If termination has no retroactive effect (as in France, Germany,
England, the Netherlands and under the PECL), the property in the
delivered goods remains with the party to whom the goods were
transferred
➢ In practice: commercial parties will agree upon a retention of title clause
■ the property in the goods remains with the seller as long as the buyer
has not paid the purchase price
➢ What if the parties have not included such a clause in their contract?
■ Both the German (§ 346 BGB) and the Dutch Civil Code (Art. 6:271
BW) as well as Art. 1229 CC and the PECL (Art. 9:308) contain a
specific provision according to which each of the parties is then
obliged to return the received performance
➢ It is sometimes not very practical, or even impossible, to return the received
performance
■ In such cases the law allows a party to claim back the value of the
performance. Article 9:309 PECL states what Art. 1352-8 CC, § 346
(2) BGB and Art. 6:272 BW also accept:
■ On termination of the contract a party which has rendered a
performance which cannot be returned and for which it has not
received payment or other counter-performance may recover a
reasonable amount for the value of the performance to the other party
❖ An extra statutory right for the unpaid seller?
➢ If termination has no retroactive effect, the seller’s claim to payment is only
one of many in the case of the buyer’s insolvency, meaning that the seller will
probably remain empty-handed
➢ Some jurisdictions have a special protection to the unpaid seller who has
already delivered movable goods
■ The remains of the old rule are still detectable in French and Dutch
law. Article 2332 CC, for example, allows the seller to ‘revendicate’
(claim back the property in) the good within eight days after delivery
■ Dutch law: recht van reclame (Art. 7:39 BW) provides the unpaid seller
with a highly practical remedy: if the requirements for the termination
of a contract are met, he can invoke this special right by way of a
written declaration
❖ Long-term contracts are characterised by the fact that mutual performances take
place over a longer period of time
➢ Termination in case of contracts providing for continuous performance is only
allowed for the future
 ➢ French law: this résiliation does thus not affect the period before the breach
➢ German Kündigung (§ 314); allows a party to terminate a contract for the
future in case of performance of a recurring obligation if there is a good cause
for doing so
➢ When termination is only partial:
■ A partial non-performance could justify a partial termination
❖ (5) Withholding performance
➢ Termination is an extreme remedy that a party will only bring if it is no longer
interested in the counterpart’s performance
➢ However, in a bilateral contract the mal-performing debtor is always also a
creditor and may ask for performance himself
➢ Withholding performance is in this sense not a true contractual remedy, but a
defence of the debtor to a claim for performance by the creditor
■ Withholding performance is often a prelude to termination: the tenant
and buyer will put an end to the contract if the landlord and seller end
up being unwilling or unable to perform
➢ Any jurisdiction accepts that withholding performance is a valid defence
against the creditor’s claim for performance
■ See Art 9:201 PECL:
■ ‘(1) A party who is to perform simultaneously with or after the other
party may withhold performance until the other has tendered
performance or has performed. The first party may withhold the whole
of its performance or a part of it as may be reasonable in the
circumstances
● Exceptio non adimpleti contractus ⇒ the exception of a
non-performed contract
■ (2) A party may similarly withhold performance for as long as it is clear
that there will be a non-performance by the other party when the other
party’s performance becomes due’
● Defence of uncertainty ⇒ prelude to anticipatory breach
➢ Both defences can also be found in the Arts. 1219 and 1220 CC, §§ 320 and
321 BGB and in the Arts. 6:262 and 6:263 BW while English law recognises
them in case law
❖ The right of retention
➢ This is a highly practical right: it allows a creditor to retain a good until the
owner has met his obligations that relate to it
■ E.g. a garage is allowed to keep a repaired car in its possession as
long as the owner does not pay the bill
➢ The right of retention is codified in the Arts. 1612 and 2286 CC (droit de
rétention), § 273 BGB and § 369 German Commercial Code and in Art. 3:290
BW
➢ English law enacts a right of retention for the unpaid seller (seller’s lien)
in Sale of Goods Act 1979, s. 41, but also recognises such a lien in common
law, equity and maritime law if further specific requirements are met
Podcast: Contractual remedies 2
➢ 5 Types of Contractual Remedies in case of non performance
○ Claim for performance
○ Claim for price reduction e.g. for quality insufficiency
 ○ Damages
○ Termination of contract
○ WIthholding performance
➢ Damages for Non-Performance
○ We’ll focus now on:
■ The type of damages that can be claimed
■ The limitations to claiming damages
■ Contractual clauses regarding damages
➢ Types of damages for breach of contract - creditor can go for:
○ Damages in lieu of performance
■ Creditor is no longer interested in a claim of performance, so wants
damages instead
○ Damages for delay
■ E.g. loss of profit due to delay, so you want damages
○ Collateral damages (consequential damages)
■ These are damages that are caused in the course of the performance
of the contract
➢ Limitations for damages claim
1. Type of interest being protected: expectation & reliance interest
2. Causation
3. Non-pecuniary loss
➢ Damage clauses
○ Parties can draw their own clauses on damages in case of non-performance
■ E.g. can agree on the amount of damages
○ Two types of clauses
1. Liquidated damages
a. Agreed damages clauses that specify the sum of damages for
non performance based on the likely assessment of the
damage (?)
2. Penalty clause
a. Usually higher amount than the potential damages and aims at
preventing a breach of contract
➢ Termination of the contract - remedy
○ Bilateral agreements: one party is unwilling or unable to perform
■ Often, more remedies are brought in
○ Ratio: allowing the creditor to bring the contract to an end - maintaining an
equilibrium between mutual performances
○ No need of attributability of non performance or loss to the creditor
○ …but allowed under certain circumstances
➢ Aspects of termination
○ Efficient breach
○ Mechanics of termination: claimed before the court, unilateral termination,
notice, putting debtor in default
○ Anticipatory breach
○ Effects of termination based on different contractual relationships & extent of
non performance
➢ Withholding performance
 ○ Not a ‘true’ contractual remedy , but a ‘defence’ of debtor to a claim for
performance by creditor
○ Usually, a postponement for termination
○ Two types:
1. exceptio non adimpleti contractus (exception of non performed
contract)
2. defence of uncertainty

KC: type of damages & limitation in damage claiming

➢ Claiming damages
○ Key questions:
1. Is non performance attributable to the debtor?
2. Which type of damages can be claimed & how can these be claimed?
3. Are there any limitations on the damages the creditor can claim?
4. Can the parties validly agree upon a damage clause?
➢ Types of Damages for breach of contract
○ 3 types: damages in lieu of performance, damages for delay and collateral
damages
○ Why is this distinction relevant between the different types?
■ Relevance: at which point in time claim for damages can be brought
➢ When can damages be claimed?
○ Civil law countries
■ there must be a breach of contract
■ if time for performance has not been indicated in contract ⇒ notice
is required (e.g. Art 1231 & 1344 French Civil Code; § 286 BGB)
■ Notice not required if promisor refuses to perform
■ If contract is not performed: German law - promisee must give the
promisor a second chance to perform (or cure defective performance):
§ 281 BGB
○ English law:
■ there must be a breach of contract
■ if exact time for performance is not indicated in contract ⇒ should
be performed within a reasonable time - no notice required if
performance does not take place
➢ Limitations of claiming damages - type of limitation
1. Type of interest being protected
2. Causation
3. Non-pecuniary loss
➢ Type of interest being protected
○ Only compensation claim for real loss & deprived profits party suffered ⇒
claimant cannot claim more damages than what he loses on the contract
○ Damages are compensatory, not punitive
○ ≠ with tort law
➢ Damages: Contract v Tort difference
 ○ Tort law: look at the past - what was the situation before the tort happened in
order to look for the damages to compensate
○ Contract law; have to consider the past, before conclusion of the contract as
well as the hypothetical future if there were no breach of contract
➢ Damages in lieu performance: protected interest
○ If the creditor is no longer interested in the performance or the debtor is not
going to perform - Two types of interests of creditor:
1. Expectation interest ––‘positive’ or ‘performance interest’ protects
the expectation creditor had when he entered the contract e.g. make
profit) ⇒ creditor put in the position as if contract was duly
performed (and profit was made)
2. Reliance interest ––‘negative’ interest creditor’s interest is to be put
into position he has in before contract was concluded
➢ Expectation & reliance interest - difference in value example
○ Example 1
■ Ryan sells a car to Mireille for €10,000 warranting it is a model from
2019. The price of contract is the same as the market price for such
car from 2019
■ In fact, model is from 2018 & market value is €2,000 less than value of
model from 2019
○ Example 2
■ Ryan sells a car to Mireille for €10,000, warranting it is a model from
2019
■ Market value for a car like that from 2019 is actually €11,000 . Mireille
did a good bargain
■ In fact, model is from 2018 for which market value is €2,000 less than
the value of model from 2019
○ Example 3:
■ Ryan sells a car to Mireille for €10,000, warranting it is a model from
2019
■ The market value of a car like that from 2019 is in fact € 9,000. Mireille
mad a bad bargain
■ In fact, model is from 2018 for which the market value is €8,000
➢ Amount of damages: English law
○ Two ways of calculating damages:
■ The cost of curing the defect (not available if unreasonable high)
■ The difference in value
➢ Amount of damages: English law - reliance test
○ Not allowed to claim reliance damages as to escape a bad bargain
○ Possible to claim reliance damages if expectation interest is too difficult to
calculate & at same time claimant is not trying to escape a bad bargain
○ E.g. Anglia Television Ltd v Reed [1972] 1 QB 60
■ Anglia TV made a contract with Robert Reed to play the leading role in
a television play
■ Reed subsequently withdrew just before filming was about to start
 ■ Anglia TV was not able to find a replacement and had to abandon the
play but incurred expense amounting to £2,750
■ Anglia TV could not prove the lost profit (= the expectation interest)
but if could easily prove wasted expenditure
■ Court of Appeal: in such case the claimant may elect to claim reliance
loss and recover the expenses incurred
➢ Amount of damages: German law
○ § 249(1) BGB: A person who is liable in damages must restore the position
that would exist if the circumstance obliging him to pay damages had not
occurred
○ Separate provision on lost profit: see § 252 BGB
○ ≠ tort law, in contract law pure economic loss is, in general, compensable
➢ Amount of damages: French law
○ Reliance and expectation interests are not recognized
○ Art 1231-2 Code civil: in general, the damages due to the debtor are for the
loss that has been incurred and the gain of which he was deprived
○ Distinction between damnum emergens: loss he has suffered; & lucrum
cessans: gain of which he has been deprived
■ Practical difference? Compare with Art-III 3.702 DCFR
■ General measure of damage for loss caused by non performance of
an obligation is such a sum that will put the promisee as possible
into the position in which the promiser would have been if the
obligation had been duly performed. Such damages cover loss
which the promise has suffered and gain of which the promise has
been deprived
➢ Causation (I)
○ Must be reasonable to hold debtor liable for the damage
○ Important factor: foreseeability ⇒ whether the loss was foreseeable by
debtor at the time of contracting
○ English law
■ Hadley v Baxendale [1854] EWHC J70 ⇒ defendant is liable only for
loss which he could have had in contemplation of the time of the
contract, either:
● because it is the normal kind of loss that any person in the
claimant’s position might be expected to suffer, or
● because it arises from special circumstances which the
claimant drew to the defendant’s attention before the
contract was concluded
➢ Causation (II)
○ French law:
■ Art 1231-3 Code civil: A promisor is bound only to damages which
were either foreseen or which could have been foreseen at the time
of conclusion of the contract, expect where non performance was due
to a gross fault or wrongful act
○ German law: 2 theories
■ adequate causation - such kinds of loss as occurs in the ordinary
course of things; no foreseeability requirement; experienced
observer
 ■loss suffered must be within the scope of protection of the
contractual duty breached
➢ Contributory negligence v duty to mitigate
○ Contributory negligence = claimant contributed to the cause of damage
○ Duty to mitigate = promisor cannot be liable for losses which would have
been avoided if the promisee had taken reasonable steps to do so
○ Consequence: reduction of the amount of damage
➢ Contributory negligence v duty to mitigate: National approaches
○ English law
■ contributory negligence = rarely applied, possible in the same
situations as in tort law (based on the Law Reform (Contributory
Negligence) Act 1945; rarely applied in contract
■ duty to mitigate = broadly applied (but the promisee is only required
to live up to the standard that can be expected from a reasonable
person in his position)
○ French law
■ contributory negligence = same as in tort law (based on case law)
■ no duty to mitigate
○ German law
■ contributory negligence: § 254(1)
■ duty to mitigate: § 254(2)
➢ Non-pecuniary Loss
○ Difficult to quantify
○ Often: non pecuniary loss cannot be undone with money
○ Reluctance of courts to award such loss in EU ≠ US
○ EU: limitedly allowed & not high
○ Pleasure contracts: pleasure, relaxation, peace of mind; holidays related
contracts ⇒ EU package travel Directive (Directive 2015/2302): retailer of
package travel is liable for damages to consumer for proper performance of
contract

Ppt: Contractual remedies 2

● Claiming damages
○ Legal systems worldwide agree that non-performance = requirement for
claiming damages
○ Differences: extent of damages
○ Key questions:
1. Is non-performance attributable to the debtor?
2. Which type of damages can be claimed & how can these be claimed?
3. Are there any limitations on the damages the creditor can claim?
4. Can the parties validly agree upon a damage clause?
● Causation: English law
○ Facts:
■ Claimants agreed to buy boiler from defendants. Defendants knew the
boiler was to be used immediately in the claimants’ laundry. They also
knew there was a big demand for general laundry services at the time.
Defendants delivered the boiler 20 weeks later than agreed.
 ■Claimants made two claims for damages: a claim of £1,600 a week
representing the extra profit they could have made by doing extra
laundry work with the new boiler & £ 30,000 which they lost on
account they could not use the boiler to fulfil a very profitable contract
to dye army uniforms.
■ What damages should the court award? Why?
○ Hadley v Baxendale [1854] EWHC J70 ⇒ defendant is liable only for loss
which he could have had in contemplation of the time of the contract
○ Also see Victoria Laundry v Newman Industries [1949] (Court of Appeal)
● Amount of damage, contributory negligence v duty to mitigate
○ Facts:
■ Jerry agrees to service Z L td’s oven for £1,000. Jerry knows that Z
needs the oven to operate their bakery. Z tells Jerry that the service
must be finished in time because otherwise Z will be in breach of a
profitable contract to do bakery for Y Ltd. Jerry performs the service
badly and Z’s oven does not work at all. Jerry cannot fix the problem.
■ Z has to find someone else to fix the over. The person they can find is
Tom who fixes the oven one week after Jerry should have fixed it. As
Z could not do the bakery for Y they are themselves in breach of
contract have to pay Y £2,000
■ What damages will Jerry have to pay to Z?
● Damage Clauses
○ Within limits of mandatory law parties can draw their own clauses ( e.g.
agreeing on an amount to be paid in case of non performance)
○ Two types:
■ liquidated damages clause (agreed damages clause)
● sum specified in contract can be based on real assessment of
likely damage
● creditor no longer needs to prove what its actual damage is &
parties know in advance the amount they are liable in case of
breach
● does not matter what the real loss turns out to be (higher or
lower)
■ penalty clause:
● specified sum to be paid in case of non performance as
inducement not to breach
● not a reasonable pre estimate of likely damage, but much
higher amount
● parties avoid difficult calculation of real damages & serves to
pressure debtor to perform
○ Example: damage clauses
■ Subject to Clause [x] (force majeure) and provided that the Purchaser
can show that he has suffered loss if delivery is delayed then the
Contractor shall pay to the Purchaser a sum calculated at the rate of
[x] (0.25%) of the Contract Price of goods in delay for each
[day][week] between the delivery date in the Contract for the relevant
goods and the actual date of their delivery up to a maximum of [5%] of
the Contract Price of the goods in delay. Such sum shall be paid as
 liquidated and ascertained damages by the Contractor to the
Purchaser
● Termination - when should termination be contemplated?
○ If promisor does not perform ⇒ promisee can bring contract to an end
○ Beneficial for the promisee because the promisor is unable or unwilling to
perform ⇒ promise will be able if he wants to find someone else to contract
with
○ May be detrimental to the promisor if he for example wasted some expenses
needed for performance or if there is no market elsewhere
● The seriousness of default
○ English law - termination is possible if:
■ either the term which has been broken is a ‘condition’ (sth essential
to the contract) regardless of whether or not the consequences of the
breach are serious, or
■ the breach is ‘fundamental’ = one which ‘has the effect of depriving
the other party of substantially the whole benefit which it was the
intention of the parties that he should obtain from the contract’
○ French law - termination is possible if the breach is ‘sufficiently serious’
(arts 1224-1230 Cc)
○ German law - termination is possible if the breach is ‘not trivial’ (§ 323(5)
BGB)
○ Dutch law - termination is possible for ‘any non-performance’ (art 6:265
BW)
○ Note: In English, Dutch and German law (not also in French law) termination
is possible also before performance is due, it it’s obvious that requirements
for termination will be met (anticipatory breach)
● Need to give notice or a second chance
○ Civil law countries - notice required
■ E.g. French law: Art 1225(2) & 1226 Code civil, German law: §§
323(3) and 324 BGB
○ German law: promise must give the promisor a second chance to perform
(or to cure defective performance) - §323(1) & (3) BGB
○ English law: there must be a breach of contract - if the exact time for
performance is not indicated in the contract ⇒ should be performanced within
a reasonable time - no notice is required
● Self-help remedy or intervention by a court?
○ German & English law: self-help remedy approach
■ Termination can be made by a declaration in any form § 349 BGB
○ French law: self-help in a written form (art 1226 Cc) or by a court order (art
1224 Cc)
○ Dutch law: self-help in written form (art 6:267 BW)
● Efficient Breach
○ Theory of micro economics
○ Holds that a party should be allowed to breach (‘terminate’) contract & pay
damages if doing so would be economically more efficient than performing the
contractual obligation
 ○ Common law is sympathetic: creditor is in principle only entitled to
damages (and not to performance) is an incentive to breach the contract if
this is efficient
○ ≠ binding force of the contract because of morality
○ Inconsistent with existing law on when a contract can be terminated
● Consequences of Termination:
○ Studied systems: consequences of termination are for the future ⇒ no
retroactive effect
○ However, parties can seek restitution:
■ German law - § 346 BGB: performance received is to be returned;
a party must provide restitution for value if return is excluded by the
nature of the performance or if the party has used up or disposed the
object
■ French law - Art 1229 Code civil: parties must restore the whole of
what they have obtained from each other unless the acts of
performance which were exchanged were useful to both parties
■ English law - much less favourable to the party seeking restitution
where money has been paid
■ Allows recovery only where there has been a ‘total failure of
consideration’ = the innocent party has received no part of what she
contracted for, or the other party has not performed any part of the
work
○ A claim for damages for breach of contract is possible
● Agreed remedies
○ Agreed damages
a. Liquidation damages clauses - allowed in all countries
b. Penalty clauses - allowed only in civil law countries; in extreme cases
court may reduce the agreed amount (§ 343 BGB, Art 1231 1 Code
civil)
○ Termination clauses regulating both when it is allowed and what will be the
consequences of exercising the right to terminate
● Withholding performance
○ English law: Kingston v Preston [1773]
○ French law: art 1217 & 1219-1220 Cc
○ German law: § 320 & § 321 BGB
○ Dutch law: art 6:262 & art 6:263 BW
○ A defence of the promisor to a claim for performance by the promisee
rather than a remedy
○ A party can refuse to perform some or all its obligations until the other party
has performed its obligations
○ Protects the withholding party from having to advance credit to the non
performer & gives the latter an inventive to perform in order to receive the
counter performance
● Right of Retention
○ English law: s 41 Sale of Goods Act
○ French law: art 1612 & 2286 Cc
○ German law: § 273 BGB
○ Dutch law: art 3:290 BW
 ○ A type of withholding performance
○ Promisee can retain a given good until the owner has met his obligations that
relate to the retained good
● How to structure an answer on the exam?
○ Damages:
1. Is there damage (in a natural sense; does it make sense to consider a
claim for damages at all)?
2. Attributability? (not for EN)
3. Notice or second chance? (not for EN)
4. Causation?
5. Contributory negligence or duty to mitigate?
6. The scope of loss for which damages can be claimed?
a. Expectation interest (positive/performance interest): the
expectations that the creditor had when he entered into the
contract will be protected (e.g. expectations to make profit)
b. Reliance interest (negative interest): the creditor’s interest will
be put into the position he was in before the contract was
made
○ Termination
1. Seriousness of the default
2. Need for giving a notice or second chance
3. Self-help remedy or the intervention by a court required?
4. Consequences of termination

Week 9: Contracts and third parties

❖ Reading
➢ Chapter 14: Contracts and third parties (pp. 245-258)
Chapter 14: Contracts and third parties (pp. 245-258)
❖ This chapter studies a number of situations in which a person is affected by a
contract although he is not a party to it
➢ This can be the case because he derives a right from other people’s contracts
(in case of so-called contracts for the benefit of a third party)
➢ because he relies on an exemption clause in a contract to which he is not a
party (third-party effect of exemption clauses) or
➢ because he can sue somebody other than his immediate party (in case of
linked contracts)
➢ Also focus on:
■ ‘Third party losers’ = suffer a loss as a result of a contract entered
into by other party
■ Agency = a third party is involved in the conclusion of a contract
■ Assignment = leads to the transfer of an existing right to a new
creditor
❖ Doctrine of privity or relativity of contracts: not only can contracting parties not
impose a burden on a third party, a third party is in principle also unable to derive
rights from other people’s contracts
➢ Art. 1199 s. 1 of the French Civil Code: ‘A contract creates obligations only as
between the parties.’
➢ There are 6 types of third party involvement
❖ (1) Contracts for the benefit of a third party
➢ The parties (A and B) agree that a third person (beneficiary C) obtains a
right that is enforceable against one of them
➢ Per jurisdiction:
■ French law: Art. 1205 CC: ‘A person may make a stipulation for
another person. One of the parties to a contract (the ‘stipulator’) may
require a promise from the other party (the ‘promisor’) to accomplish
an act of performance for the benefit of a third party (the ‘beneficiary’).
The third party may be a future person but must be exactly identified
or must be able to be determined at the time of the performance of the
promise.’
■ German law: § 328 (1) BGB: ‘Performance to a third party may be
agreed by contract with the effect that the third party acquires the right
to demand the performance directly.’
■ English law: S. 1 (1) Contracts (Rights of Third Parties) Act 1999:
‘Subject to the provisions of this Act, a person who is not a party to a
contract (a ‘third party’) may in his own right enforce a term of the
contract if –
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on
him
➢ One characteristic of a contract for the benefit of a third party is that the latter
obtains an independent right against the promisor, meaning he can claim
performance as well as damages in case of breach
➢ The promisor and promisee must have the intention to create a right for the
third party ⇒ see Art. 6:110 PECL. Also see:
■ German case: Denied passenger (1985)
■ French case: Centre National de Transfusion Sanguine v L (1954)
➢ The third party accepting the benefit - Art. 5.2.1 PICC and Art. II.-9:301
DCFR:
■ the third party obtains the right at the moment the contract is formed,
but he can renounce it if he wishes
● An explicit acceptance or notification is not needed
■ Dutch law is different: Art. 6:253 BW requires the third party to
accept the clause in his favour before it can be enforced (be it that this
acceptance can be implicit)
● Art. 6:254 BW states that after acceptance, the beneficiary is
considered a party to the contract
❖ (2) Third-party effect of exemption clauses
➢ Exemption clauses were first accepted under English law ⇒ these
contractual provisions are usually referred to as Himalaya clauses
➢ Third parties can also invoke an exemption clause even if they are not
explicitly mentioned in it - this is the case in most jurisdictions
■ See Dutch case Securicor (1979) ⇒ the shipper who accepts the
clause as part of his contract with the carrier must understand that the
carrier will make use of sub-contractors, as this is the common
situation
 ➢ A German doctrine: ‘contracts with protective effect for third parties’ =
Vegetable leaf decision
■ A girl went shopping with her mom at the local supermarket & the girl
was seriously injured when she slipped on a vegetable leaf on the
supermarket’s floor
■ it was not clear whether an employee or some other customer had
dropped the leaf
■ It was equally impossible to find liability on contract as only the mother
intended to contract with the supermarket and not the daughter
■ The court held: the daughter, as a third party, was drawn into the
contractual sphere in order to enjoy the same benefits as the
(pre-)contractual party itself ⇒ the supermarket was held liable
■ French, English and Dutch law would allow a claim in tort, but
German law regards the third party as being protected under the
contract
● E.g. for English slaw: White v Jones (1995)
❖ (3) Linked contracts
➢ = Different contracts among different parties that are economically or factually
connected
➢ Two questions may arise out of this:
■ (1) Whether a party to a contract can be held liable for a lack of
conformity by a party in another (linked) contract
■ (2) Whether a contract can share the fate of another contract in the
sense that the end of one (through termination or withdrawal)
automatically leads to the end of another
➢ (1) Whether a party can bring a claim against someone further up or down
the chain than his immediate contracting partner
■ French law: action directe ⇒ the final purchaser allows this against
the original manufacturer or subsequent seller for a lack of conformity
in the goods
■ Good policy: in favour of this direct liability of the manufacturer ⇒
see Art. 7:25 BW
■ A European variation of this direct action can be found in Art. 18 of
EU Directive 2019/771 on Sale of Goods
➢ (2) whether the end of one contract can automatically imply the end of
another contract
■ See Art. 15 s. 1 EU Directive 2008/48 on consumer credit:
● “Where the consumer has exercised a right of withdrawal,
based on Community law, concerning a contract for the supply
of goods or services, he shall no longer be bound by a linked
credit agreement”
❖ (4) Third-party losers
➢ = those who suffer a loss as a result of a contract entered into by other
people
➢ The law generally does not require parties to also take into account the
interest of third parties
 ■ The high threshold here is that of liability in tort: only the intentional or
negligent infringement of a party’s interest will merit a claim in
damages
➢ Doe v Wal-Mart Stores (2009) (US case)
■ the California Court of Appeal found it impossible to regard its foreign
suppliers’ employees as third-party beneficiaries of the standards
Wal-Mart obliged its suppliers to use
❖ (5) Agency
➢ Modern economic life requires that contracts be made with the help of others
■ Not all persons involved in the conclusion of a contract are in fact
considered contracting parties
➢ In the English language, the broad term ‘agency’ is used to refer to all cases
in which one person (the principal) agrees that another person (the agent)
contracts on his behalf with a third party
➢ Civil law: two different ways in which one can act on behalf of another
person
■ Indirect representation: One method is to simply ask an intermediary
(B) to contract himself (‘in his own name’) with a counterpart (C) and
then provide the principal (A) with the benefits of the contract
● Article 3:102 (2) PECL: ‘where an intermediary acts on
instructions and on behalf of, but not in the name of, a
principal’
■ Direct representation: the agent acts in the name of a principal and
is not bound towards the party he in fact deals with
● French law: Art 1154(1) CC
● German law: § 164 s. 1 BGB
➢ In civil law, the intermediary is not regarded as a real third party: he is
automatically eliminated from the relationship between the principal and his
counterpart
➢ When the agent will explicitly mention that he is not acting in his own name
but was given the explicit power to act in the name of somebody else
■ German law: Vollmacht (cf. § 166 (2) BGB)
■ French law: procuration (cf. Art. 1984 CC): the full power of the agent
to bind his principal
➢ The distinction between indirect and direct representation is alien to the
common law - English law is more lenient
■ As long as the agent acts within the scope of his authority (even when
contracting in his own name), he can bind his principal
■ the agent need not even tell his counterpart that he is acting for
somebody else
➢ A central problem in the law of agency is how to protect the counterpart
who deals with an unauthorised agent
■ Art. 3:201 (3) PECL = ‘A person is to be treated as having granted
authority to an apparent agent if the person’s statements or conduct
induce the third party reasonably and in good faith to believe that the
apparent agent has been granted authority for the act performed by it’
 ■ Agent cannot create apparent authority ⇒ The counterpart needs to
have acted in reasonable reliance on a declaration or conduct of the
principal
❖ (6) Assignment
➢ As long as a contract is seen as a personal relationship between the creditor
and the debtor (as it was in Roman law), it is unacceptable that the creditor
can unilaterally decide to change the person towards whom the debtor needs
to perform
➢ Although assignment is universally accepted (see e.g. Art. 1321 CC, § 398
BGB, Art. 3:94 BW and S. 136 Law of Property Act 1925), many jurisdictions
allow parties to include a non-assignability clause in their contract
■ Such a clause limits or even prohibits the creditor from transferring his
claim to somebody else
➢ At which point in time is the assignment complete?
■ (1) When the new creditor can claim from the debtor, and the
debtor will only be discharged of his obligation if he pays the new
creditor
● Written form for the contract between assignor and assignee in
French (Art. 1322 CC) and Dutch law (Art. 3:94 s. 1 BW)
● Notification of the debtor is a universally accepted
requirement for the assignment to be completed
◆ Art. 1324 CC, §§ 407, 409 BGB and Art. 3:94 BW as
well as in S. 136 of the English Law of Property Act
1925
■ (2) one can consider the assignment as completed when the right to
claim has left the assets of the assignor and the assignee is the new
‘owner’ of the claim
● Assignment is already complete between assignor and
assignee at the time of conclusion of the contract, without
the need for notification of the debtor (rule in many
jurisdictions)
● the main rule for assignment in German (§ 398 BGB) and
French (Art. 1323 CC) law, Dutch law accepts – next to the
assignment, with notification of the debtor – a so-called ‘silent
assignment’ (stille cessie) in Art. 3:94 s. 3 BW
● Only S. 136 of the English Law of Property Act 1925 still
requires a written notice sent to the debtor before the
assignment is valid between assignor and assignee
● Also see Art. 11:202 (1) PECL
➢ Factoring = a contract in which the assignor sells a large amount (or all) of
its claims to a factoring company (factor) at a discount. This allows a
company to obtain immediate cash
■ factoring allows the assignor to focus on his core business. He no
longer needs to worry about administration and credit control
■ The only requirement is that the future rights are identifiable as rights
to which the act of assignment relates (cf. Art. III.–5:106 DCFR and
Art. 5 of the 1988 UNIDROIT Convention on International Factoring
Podcast: Third parties
➢ What does it mean; a third party to a contract?
○ It concerns persons who are not party to the contract and have, in principle,
no rights or obligations due to the principle of privity or relativity
○ What is the principle of privity or relativity of the contract?
■ It can impose duties upon third parties ⇒ this party can derive rights
from the contract that other people concluded
➢ French Law: Principle of Relativity
○ Art. 1199 Civil 1199 Civil Code: Code: “A contract creates obligations only
between parties. A contract creates obligations only between parties. Third
Third parties may neither demand the performance of a contract nor be
obliged to perfume it (…)”
■ Hence, based on consent, only the contractual parties incur rights
and obligations from the contract that they concluded
➢ Type of Contracts involving third parties - 6 types
I. Contracts for the benefits of a third party
■ E.g. contract for life insurance - beneficiary is another person who will
receive an amount of money upon the death of an insured person
II. Third party effect of exemption clauses
■ In present in many commercial contracts
III. Linked contracts
■ Contract is part of a network of contracts e.g. contract for a car ⇒
many different
IV. Third party losers
■ Contracts can affect other people who are not involved in the contract
itself
■ E.g. bad working circumstances of employees, corporate liability
V. Agency
■ Contract is entered into with the help of others
VI. Assignment
■ Transfer of an already existing right to somebody else

KC: Contracts & third parties

➢ Type of Contracts involving third parties
○ Contracts for the benefits of a third party
○ Third party effect of exemption clauses
○ Linked contracts
○ Third party losers
○ Agency
○ Assignment
➢ Contract for the Benefit of a Third Party
○ Benefit conferred on the third party can take a variety of forms
■ Art 1205 CC, § 328(1) BGB, Section 1(1) Contracts (Rights of Third
Parties) Act 1999
○ Characteristics
■ inferred intention of the parties (promisor & promisee) to create right
for the third party) to create right for the third party
 ■ third party obtains an independent right against the promisor ⇒ can
claim performance & damages in case of breach
○ Does the third party need to accept the benefit before it becomes effective?
■ Most jurisdictions: third party obtains the right at the moment the
contract is formed, but he can renounce it
■ Dutch law: requires party to accept clause in his favour before it can
be enforced (Art 6:253 BW) - after acceptance, the beneficiary is
actually considered a party to the contract
➢ Third-party effect of exemption clauses
○ Allows third party actually performing the contract to defend itself against a
claim based on an exemption or limitation clause included by the parties in
their contract
■ E.g. Himalaya clauses - subcontractors can rely on
exemption/limitation clauses if the parties formulated it in such a way
that it shields third parties from liability
○ Can third parties invoke an exemption clause even if they are not explicitly
mentioned in it?
■ most jurisdictions accept it now for shipping/transport
■ reason: skipper who accepts clauses as part of contract with carrier
must understand carrier will make use of subcontractors (common
situation)
➢ Linked Contracts
○ Consist of different contracts among different parties that are economically or
factually connected
○ They are separate contracts, but sometimes interconnection is taken into
account
■ liability for lack of conformity by a party in another (linked) contract
■ termination or withdrawal from one contact automatically ending
another
○ Reasons: incentive minimising possible defects or allowing withdrawal in
case of major defects or non performance
➢ Third-Party losers
○ Contract law does not generally require parties to take into account the
interest of third parties ⇒ liability in tort, but high threshold
○ Policy question for legislators & courts in coming years in relation to:
■ gross violation of labour standards in supply chains
■ environmental threats
■ human rights
■ health
○ Corporate Social Responsibility (click here)
➢ Agency
○ Contracts in which one person (the principal) agrees that another person (the
agent) to contract on his behalf with a third party
○ Civil law: 2 forms
■ Indirect representation: intermediary contracts in his own name with
a counterparty and then provides the principal with the benefits of the
contract
 ■Direct representation: intermediary contracts on behalf of the
principle and is not bound towards the party he deals with
○ English law: no distinction; as long as agent acts within scope of his
authority he can bind the principal
■ Undisclosed agency is possible: counterpart can decide to hold also
the principal liable when knowing about him
➢ Assignment
○ Involves the transfer of an already existing contractual right by one
person (the assignor) to somebody else (the assignee), resulting in the
assignee being able to claim performance from the debtor debtor cessus
○ Universally accepted, but many jurisdictions allow parties to include limits
(e.g. non assignability clauses)
○ Duty to inform the debtor of the assignment
○ Differences across jurisdictions when assignment is complete

Ppt: Contractual Remedy - Unforeseen Circumstances (Review)

● Doctrine of Frustration
○ English courts hesitant to recognize doctrine of frustration other than for
cases of impossibility
○ Allowed only if supervening event radically or fundamentally changes the
nature of the performance
○ Canary Wharf v European Medicines Agency [2019]
■ Contract Governed by English law concluded on 21 October 2014 -
Agreement 5 August 2011
■ Supervening event was beyond the parties’ control or within it? 2018
Regulation ⇒ No
■ Parties’ expectation on 5 August 2011 foreseeability of UK withdrawal
parties’ knowledge, expectations, assumptions and contemplation of
risk ⇒ not foreseen by parties
■ Bespoken nature of the Property & the Premises pre let, but common
purpose never amounted to a mutual contemplation that one of the
purposes of the Lease was to provide a permanent headquarters for
the EMA for the next 25 years
■ Radically different test: common purpose between EMA & CW for
lease not the case ⇒ Parties approach lease from their own
commercial standpoint - different objectives - attempt for EMA to
include a break clause was resisted by CW
■ Foreseeable for long term lease contract that there might be
developments that would require EMA to involuntary leave the
premises due to circumstance beyond its control ⇒ alienation
provisions sub let thus, although more onerous such situations were
envisaged
■ Nature of supervening event - materially adverse change, but not
rendered continued occupation of premises impossible
■ ‘Para 258: Lease will not be frustrated on the withdrawal of the United
Kingdom from the European Union. This is neither a case of
frustration by supervening illegality nor one of frustration of common
purpose.’
● Contracts & Third Parties - Type of Contracts involving Third Parties
○ Contracts for the benefits of a third party
○ Third party effect of exemption clauses
○ Linked contracts
○ Third party losers
○ Agency
○ Assignment
● Contract for the benefit of a Third Party
○ Variety of forms
○ Intention to create a right for third party can be inferred from the purpose of
the contract
■ German: Denied passenger case (1985)
■ French: Centre National de Transfusion Sanguine v L (1954)
○ The third party may also be a future person, but must be exactly identified or
must be able to determine it at the time of performance ( e.g. Art 1205 Code
civil)
○ Third party obtains a right at the moment the contract is concluded ⇒ it is
not affected by the insolvency of the promisee as right is no longer part of the
promise’s assets
● Third-Party Effect of Exemption Clauses
○ Himalaya clauses - shield third parties from liability for loss or damage
resulting from an act or negligence while acting in the course of its
employment
■ Adler v Dickson (The Himalaya) [1954]
○ Dutch Securicor case (1979) - third parties can also invoke exemption
clause even if not explicitly mentioned in it
○ Doctrine of ‘contracts with protective effect for third parties’ (Verträge mit
Schultzwirkung für Dritte): German Vegetable leaf case (1976)
● Agency
○ Contracts in which one person - the principal - agrees that another
person - the agent - to contract on his behalf with a third party
○ Civil law: intermediary is not regarded as a real third party when eliminated
from contractual relationship
○ Agent is given full power to act to bind the principal (Vollmacht - § 166(2)
BGB; procuration - Art 1984 Code civil)
○ Unauthorised agent - apparent authority - falsus procurator
○ English law: as long as agent acts within the scope of his authority ⇒ binds
the principle, even in case of undisclosed agency
● Assignment
○ Transfer of an already existing contractual right by one person - the assignor -
to somebody else - the assignee, resulting in the assignee being able to claim
performance from the debtor - debtor cessus
○ Factoring
■ Often used to finance companies’ daily business
■ Involves selling bulk (present and/or future) claims to a factor below
their actual value
■ Future rights assigned have to be identifiable
■ Reason:
 ●
Obtain immediate cash when not willing or unable to borrow
from a bank
● Shift risk of defaulting debtors away from assignor
● Model Exam Questions: Answers
○ Part 1

○ Part 2

○ Part 3 (I)

○ Part 3 (II)
○ Part 4A

○ Part 4B (I)

○ Part 4B (II)

○ Additional assignment: Answer

 Tutorial notes: steps
Tutorial 1: Establishing contracts
Case 1
Mireille wants to install new glass doors separating her kitchen from the living room. She
asks for offers from several producing companies. All offers she receives range between €
7500 – 11,500. The last company she visits for an offer is Norman Steel. After discussing the
details of the project, the architect informs Mireille he will be able to send her an offer within
a week's time. A week later, Mireille receives an email stating that based on the details
discussed they are able to make her an offer to produce the desired door for € 1,050. The
dedicated offer is available for one week.

Mireille finds this offer exceptionally good, and immediately accepts the offer and pays the
requested price. One week later, she finds an email from Norman Steel explaining that there
has been an error in the offer that they sent earlier and the actual price for producing the
door is € 10,500. Thus, if Mireille is willing to purchase the door, she has to pay the
difference. Mireille is furious and argues that the contract had already been concluded.

1) Has a binding contract been concluded between Mireille and Norman Steel
according to French law?

IRAC method:
Legal issue: whether Norman Steel had an intention to be legally bound to their initial offer,
whether there was dissensus between Norman’s intent and declaration

Contract: needs Offer & Acceptance (week 3) + intent to be legally bound (weeks 1 & 2)
● Art. 1101 Cc ⇒ general provision
● Art. 1113 Cc ⇒ offer is needed for acceptance
● Art. 1114 Cc ⇒ offer can be made to a specific person or any person who expresses
the will to be bound
● Art. 1118 Cc ⇒ to accept the offer
● Art. 1121 Cc ⇒ for offer and acceptance

For dissensus in French law:

● Société v Tirat case ⇒ no contract can be concluded
● Reasonable reliance
○ If there is reasonable reliance, then the party who made the declaration must
pay damages to the other party in tort
■ Art. 1240 Cc
○ Assessment of reasonable reliance ⇒ 6 factors (see p. 66 Smith book)
○ Second factor is relevant here: whether the transaction would be beneficial for
one of the parties
○ Norman Steel was a professional party so it was assumed that his offer was
accurate (argument for Mireille’s side) ⇒ if Mireille would reasonably rely on
Norman Steel’s offer, then you assess the 6 factors
■ Counter argument: Mireille has researched a lot on this topic so she
already has some sort of knowledge
■ But a reasonable person would not expect such a low price
 ○ You don’t need to assess all the factors, just mention that there are a couple
of factors & just discuss the most relevant ones that the court would assess
● Dissensus stands in the way of contract formation (one party’s intention and
declaration are not in line)
○ One of the parties might not want to be legally bound (Société v Tirat case)
○ You need intention to be legally bound (Arts. 1101, 1128 Cc)
○ So contract never comes into existence basically if there is dissensus

2) What would be your answer to question 1 if German law would apply instead?

German law: how does Offer & Acceptance work here

● § 119(1) BGB
○ Mistake is void in contract, contract will not come into effect
○ ‘May avoid the …’
● § 122(1) BGB ⇒ she would be protected by damages claim
○ Same 6 factors need to be applied for reasonable reliance test (can be
applied in more jurisdictions)
○ You need to prove that your intent was not the same as your declaration

Difference between French and German: void vs avoidable contract

● French: no contract at all due to dissensus
● Avoidable contract: it did come into being but e.g. the weaker party can avoid it and
retroactively, it is seen as if it never happened
○ Mistake in declaration: they can avoid the contract - he can invoke the
mistake
● Structure is similar in German law: mistake in declaration means that the party who
made the mistake can avoid the contract, but if there was reasonable reliance, then
there may be damages

Case 2
Batman is looking to replace his Batmobile with a model that is respectful of the new more
environmentally friendly technologies. A strong electric Batmobile is what he needs. For this
reason he contacts The T manufacturer for his newest model of the electric engine car. The
model comes with over 600 km of autonomy electric engine, recycled interior tapestry, the
latest satellite navigation systems, night view, AI-investigation functions, and the possibility
for each user to customise features based on the use of the vehicle. Batman and The T
agree on the ordering of the model with all the customised features as the car on display in
the showroom. Batman pays 50% of the price when placing the order with The T, while the
remaining 50% is to be paid within two days from delivery.

The new e-Batmobile is delivered three months later. The first thing Batman notices about
his new e-Batmobile is that the colour is not the one agreed. Instead of black, the exterior is
blue-grey. Further, that evening when testing the e-Batmobile on the streets of Gotham City,
he finds out that the engine equipping the car is not what the parties agreed, the autonomy
of the car is only 400 km instead of 600 km and the model does not allow him to further
personalise it with other electronic features and software he usually uses to fight crime.
Batman contacts The T and requests that the car be brought to the standards agreed. The T
responds that as discussed it included all the features of the marketed model of the car, and
what he is requesting is only available for the prototype of the model, thus, they are not yet
available for production.

1) Has a binding contract been concluded between Batman and The T according
to English law and, if so, what is its content?

Legal issue:
● Whether Batman could receive the intended car, whether he could reasonably
receive the customised car

English law and intention:

● Offer & acceptance + additional requirement: consideration (quid pro quo)
○ Consideration is not the issue; there is a payment for the car
● Smith v Hughes case ⇒ reasonable person test, would a reasonable person rely on
this declaration
○ In this case, it would be reasonable for Batman to rely on The T’s declaration
since they discussed about the intended model
● Contract was indeed concluded: agreement was on show model car
○ It could be seen as a counter offer: the batmobile was sent in a different form
& with Batman’s payment, he could have agreed to this counter offer
● When you have a question, think about it well; you don’t need to go through every
single step thoroughly - you need to form the correct legal issue first to also help
yourself so you can mention the correct things in your answer

Suppose that Batman pays the remaining 50% of the price to The T once the car is
delivered. He does not object to the fact that some of the features are different than what the
parties discussed.

2) Does the payment change your assessment under 1)?

Suppose that Batman’s friend, Robin, says to Batman: ‘You can count on me to make the
changes to the e-Batmobile The T did not install. I know exactly what you need and how to
do this.’ Batman happily accepts the offer as he does not want to make a fuss and attract
attention from the press.

3) If needed, would Batman be able to enforce Robin’s promise based on French

law?

Legally binding or no?

● Batman’s side: gratuitous contract - could a person reasonably have relied on this
promise as a binding contract
● You can argue both ways in this question
○ Social contract: Robin just wanted to help Batman out, he just did it out of his
good heart so it was not binding
 ○ Gratuitous contract: can be binding, in French law as well, the other party had
already acted on reasonable reliance (you need to show this on this promise
to be legally binding tho)
■ He used this particular formulation e.g. ‘you can count on me’ etc.
■ Otherwise Batman could have already returned the batmobile, but he
didn’t, so he relied on Robin

4) Would your answer under 3) be different if English law is applicable?

Legally binding or no?

● Nope, coz consideration is missing ⇒ see Currie v Misa (1874) LR 10 Ex 153

Case 3
Mireille wants to sell her apartment because she is moving abroad to start a new job. She
places an advertisement online on a housing dedicated platform. The details of the
announcement read as follows: ‘Apartment for sale, 80m2, located close to the Central
Station and the city centre in a newly renovated building, large living room and open kitchen,
two bedrooms, refurbished bathroom, three balconies, garage. The asking price is €300,000.
For further information call: 043-6363220’.

Robin has been house hunting for some time, but everything is difficult to get due to the
crisis of the housing market. The advertisement of Mireille’s apartment seems perfect for his
needs. He calls Mireille and says he saw the advertisement and he agrees to buy the
apartment right away for the indicated price. Thus, they make an appointment for Robin to
see the apartment. After meeting him, Mireille is not very convinced about the honesty of
Robin and thinks he cannot actually afford to pay the price. Two days later, Mireille calls
Robin and tells him that she does not want to sell the apartment to him. Robin claims he
accepted the ‘offer’ Mireille made available to him and has to sell the apartment.
1) Is Mireille bound by her offer? Advise Mireille on her options related to the
selling based on French

Legal issue:
● Whether the advertisement is a legally binding offer (for the sale of Mireille’s
apartment)

French law here;

● Public advertisements are normally legally binding offers, but there can be certain
limitations such as intuitu personae
● Intuitu personae: when the personal characteristics of the other party are relevant for
the contract (can be invitation to treat)
○ Possible characteristics: income (whether he can actually afford it), legal
personality
● Maltzkorn v Braquet case + Art. 1114 Cc ⇒ public offer (such as a public
advertisement) will normally be legally binding
○ But exceptions; intuitu personae ⇒ asking of personal characteristics are
important and may prevent a binding offer to come into existence

2) Would the answer to question 1) be different based on German law.

German law here:
● No legally binding offer, it’s just an invitation to treat
○ Doctrinal principle, not specifically laid down in a provision

Tutorial 2: Legal capacity

Case 1
Schroeder is 12 years old and he is looking to buy a new piano for his music classes. He is a
very talented piano player and he finds that his current piano is no longer adequate for his
level. In a piano shop close to his school he sees a new Yamaha piano model with a silent
system. The silent system is very handy as he can practice as much as he wants without
disturbing his neighbours. The piano is priced at €3,990. He buys the piano with the money
he receives from his parents for study purposes and some of his savings. Two days later the
piano is delivered at Schroeder’s home. His parents are furious that he made the purchase
without their consent. They contact the shop where it was purchased by Schroeder and ask
the seller to take back the piano and return the money to Schroeder. The owner of the shop
– Duff, does not agree. He claims he concluded a valid sales contract with Schroeder.

1) Is Duff correct to think that the sales contract was validly concluded? For your
answer, consider that English law applies.

● Topic: Legal capacity of a minor

● To form a contract: offer & acceptance, intention & legal capacity
○ Intention: the boy wants to have the piano so yeah he kinda wants to bind
himself as well
● English law: s 3(3) of the Sales of Goods Act = defines what necessities are
○ What are the due criteria: suitable for condition in life of the minor (actual
need + suitable for condition in life basically - separate conditions) ⇒
subjective factor since it depends on the condition of the life
■ Condition of life = financial situation of the child ⇒ answer: it can be
either way, you can argue either way
● The child had quite some savings, he’s 12 years old, it’s not
that common to purchase sth like that but he has 2 sources
where his money comes from ⇒ it seems to fit his condition in
life, he really wants to study piano
● It’s still very expensive, he doesn’t really know how to deal with
the money, the savings account might have been a back-up for
his studies so then it should not be a condition in life
● Argue either way, but have a steady argumentation
■ Actual need
● For the exam: try to work with the facts of the case as much as
possible ⇒ i.e. does he need a piano or not
● Yeah he needs it since he outgrew his current piano, i.e.
‘current piano is no longer adequate for his level’
○ Extra criteria: minor needs to pay a reasonable price (for the good, the market
price)
■ It’s not a reasonable price for the minor but it is reasonable for a
regular piano
 ■ Piano was a reasonable price in general, yes
○ Conclusion: yes it is a valid contract if all requirements are met, but if you
argue that the condition of life was not met, then it was not a valid contract

2) Would your answer for question 1 be different if German law applies?

● German law:
○ If you’re 7 years or younger: no legal capacity at all (see §104 in conjunction
with §106)
○ For 12-18 year olds: You need a consent of a legal representative e.g. a
parent ⇒ §107 + §108(1) BGB
■ Consent of the parent is the starting point ⇒ can be before or after the
purchase
○ No consent from parents? Can still be valid due to:
■ Only legal benefit for the child (it has to be a pure benefit, e.g. a
laptop, cash, not a house or something since you’d need to pay tax)
⇒ §107 BGB
■ §110 BGB: if you get pocket money from your parents and you can do
whatever you want
■ §113 BGB: legal acts within employment ⇒ if you work at Jumbo as a
16 years old, you can work as a cashier ⇒ you are concluding
contracts on behalf of Jumbo then, you’re able to do this (contracts
within this company, within the employment)
● Not applicable here since we’re not dealing with a transaction
in employment
○ Application:
■ Consent from parents? Nope, not even a ratification since they don’t
approve of the purchase
■ Does the kid get a legal benefit? Nope, he needs to pay almost €4000
■ Pocket money exception? You can argue either way
● Piano purchase needed for study purposes ⇒ yes then he
could spend on it, his piano education falls under the general
study purposes
○ He got money from his parents for his studies
○ His savings: he’s free to spend that on whatever
● He did not use it for study purposes
○ Conclusion: you need to say which argument is better eventually, even though
you argued for both ⇒ bring both arguments is fine, but the conclusion must
be ‘it’s either valid bc of X, Y, Z or it was not valid bc of …’

Suppose that it is not Schroeder who purchased the piano, but his grandma Mrs Katharina.
She is a lovely person, but she suffers from psychosis.

3) Could Duff rely on the fact that he concluded a valid contract with Mrs
Katharina? Base your answer on English law.

● Grandma; she suffers from psychosis ⇒ has the contract been validly concluded?
● English law:
 ○ She’s not under guardianship (from the facts of the case)
○ Trying to protect Duff as the seller of the piano
○ The other party needs to be unaware of the mental state of the grandma if the
contract wants to be valid
■ Hart v O’Connor (1985)
○ Main rule: don’t have to mention Mental Capacity Act 2005 ⇒ exception:
necessities
■ S 7 of the Act in conjunction with s 3 of the Sales of Good Act
○ Conclusion: yes the contract would have been concluded
○ Necessity? Grandma wouldn’t need the piano, she buys it as a gift, she
doesn’t need it herself

4) Would your answer to question 3 be different if German law applies?

● German law:
○ §105(2) BGB is the main rule: the contract can be void if the declaration of
intent is made when the person had a ‘temporary mental disturbance’
○ Case law made clear that it needs to be a serious disturbance though, it
needs to be verified by (medical) experts
■ But we don’t know the situation here in this case, if it was very serious
then it would be void
○ If it wasn’t serious enough, the contract would be valid
○ Exception: §105a BGB - necessities, everyday transaction ⇒ but a piano
would not be an everyday transaction

5) Would certain formalities be necessary for the sales contract concluded

between Duff and Mrs Katharina based on English and German law?

● It’s a movable object; we don’t need any formalities in that sense here with this
situation
○ If it was sold online: pre-contratual formality
● It would just be handy to have the contract in writing, the starting point is informality,
we’re not managing a special contract here so it doesn’t need any special formalities

Case 2
Lately Batman has experienced issues with his mobile phone. His subscription contract
expired so he finds it a good opportunity to conclude a new subscription agreement with
Gotham Mobile for the new telephone. The contract is concluded for two years for a monthly
payment of €30 and includes a telephone, the iPhone 13 Pro Max. In the general conditions
at Article 30 it is mentioned that ‘Gotham Mobile is not to be held liable for defective products
or damages created by the device beyond the total price of the contract. The buyer
acknowledges and agrees to this limitation and binds himself not to seek to hold Gotham
Mobile liable for any additional amount’. Six months pass and Batman is very happy with his
acquisition. On a Saturday while drinking his coffee and reading the newspaper he notices
that his iPhone 13 Pro Max is in flames together with part of the kitchen cabinets. He
manages to extinguish the fire, but the telephone is completely damaged as well as one-third
of the kitchen cabinets doors.
Three days later, a hail storm affects Gotham City. Big pieces of ice rain create a lot of
damage to cars and buildings in the city. Bruce Wayne is among the persons who suffered
material casualties. His eBatmobile parked outside has a lot of damage. At first, Bruce
Wayne thinks that there is no problem, his insurance with Lloyds Gotham will cover the costs
of the reparations. He contacts Lloyds Gotham and asks for coverage, but the insurer
refuses and refers to Clause 7 in the insurance agreement that reads as follows: ‘Any loss
due to extraordinary weather events is excluded from coverage’.

Bruce had enough of all this and is contacting you because he wants to obtain compensation
for the damages he incurred.

1) Advise him in relation to the two contracts if French law is applicable

● Two cases here: the phone case and the car insurance case
○ Abonnement téléphonique/Pigranel case &
● General agreements: people don’t read them and they’re non-negotiable
● French law:
○ French Consumer Code L211-1 ⇒ the unfair contract terms
■ Consumer Code Art R212-1 = black list ⇒ subs 6, it is prohibited (p.
54 Maastricht Collection)
● L212-1 = Unfairness test
● L212-1(4) = black & grey list, will refer to R212-1 and R212-2
■ Art R212-2 = gray list
○ Art 1104 Cc = good faith
○ EU Directive on Unfair Terms in Consumer Contracts (1993) ⇒ Directive will
be implemented in the national legislation, refer to French Consumer Code
■ Art 1(1) conveys the scope of the Directive
■ Seller/supplier to consumer ⇒ see art 2 for definitions
■ Main provision: art 3(1) = ‘to the detriment of the consumer’, a
contractual term that has not been negotiated,
■ Art 4: take all circumstances into account ⇒ for assessment
■ In the Annex = list of possible unfair terms
○ National implementation in DE, NL, FR
■ Black list = contains clauses/provisions that are prohibited or
considered unfair, has examples of terms that are unfair
■ Gray list = provisions that might be unfair, other factors also need to
be considered
■ Germany: §§ 308, 309 BGB
■ UK: ss 65 and 31 Consumer Rights Act

● Contra preference rule ⇒ art 1190 Cc

● L211-1 Consumer Code
● S 69(1) Consumer Rights Act

2) What would your answer be if English law is applicable instead?

● S 62(1), (4) of the Consumer Rights Act (CRA) ⇒ implementation

● S 63 CRA ⇒ schedule 2, part 1
 ○ This has the gray list of unfair terms ⇒ implements the Annex of the EU
Directive
○ Section 2 of the schedule = a term that inappropriately … may be regarded as
unfair
■ A term which has the object or effect of inappropriately excluding or limiting
the legal rights of the consumer in relation to the trader or another party in the
event of total or partial non-performance or inadequate performance by the
trader of any of the contractual obligations, including the option of offsetting a
debt owed to the trader against any claim which the consumer may have
against the trader.
● S 31 of the CRA = you cannot exclude liability for the defective product (defective
product limitation)

Tutorial 3: Defects & prohibited contracts

Case 1
Keukenhof is one of the world's largest flower gardens. It is situated in Lisse, the
Netherlands and is also known as the ‘Garden of Europe’. In autumn Keukenhof is preparing
the bulb fields for the spring season when it is opened to the public. As the theme of the next
edition was ‘Dutch Characters’, one of the fields is to be planted to create a perfect copy of
Nijntje character Miffy. The design is to be made out of orange tulips, white hyacinths and
yellow daffodils.

For this, Keukenhof contacts its suppliers. One of the suppliers specialized in hyacinths is Le
Fleur Volante in Nancy (north of France). For making sure they are choosing the right
nuance of white, the acquisition team of Keukenhof goes to France to inspect the bulbs and
conclude the contract. The marketing director of Le Fleur Volante makes sure to provide
advice and takes the acquisition team around the warehouse to select the bulbs from the
dedicated white bulbs stacks. However, the director was not aware that his staff has
temporarily replaced some of the bulbs because of maintenance works being performed on
a part of the warehouse. The labels have not been replaced, so the bulbs appear to be from
white hyacinths. Keukenhof acquisition team buys the necessary quantity of bulbs for the
arrangement and takes them over to the Netherlands.

In spring, days before the inauguration in March the bulbs open up. All colours of the flowers
are correct, except for the white hyacinths that turn out to be purple. The arrangement is a
failure, but it cannot be changed in time for the opening.

1) Can Keukenhof successfully argue that there was a defect of consent in buying
the bulbs? If this is the case, what remedies are available? Rely for your
answer on German, French, and English law.
2) Would any alternative remedies be available to Keukenhof if his claim under
point 1) turns out to be unsuccessful?

Legal issue: A mistake has occurred

● English law: misrepresentation
● Civil law systems:
○ 1) There must be a meeting of the minds, if there’s a consensus then the
contract would not have taken place.
○ 2) Mistake must have been essential to the contract
■ Minor mistakes won’t be identified as an essential mistake
○ 3) Causal link between the mistake and the contract concluded
■ We look at the party who was mistaken, from the perspective of the
mistaken party ⇒ would that person have concluded the contract if
they knew the facts as they are
○ 4) Apparent importance ⇒ the other party must be aware of that causal
link, they wouldn’t have concluded the contract if that had known the
circumstances
■ Important for Keukenhof to have the white flowers; hence apparent
importance
○ 5) The mistake must fall under one of the three categories
■ Incorrect information ⇒ this can be correct here
● Doesn’t matter if the seller did or didn’t know about the false
statement, as long as there is a false statement
■ Non-disclosure by the other party
■ Common mistake (whereby both parties were mistaken) ⇒ this can
also be correct, we don’t know the specific content of the contract,
whether the contract was made for only the white flowers (we kinda
assume from the info of the case)
● E.g. concluding a contract to buy a famous painting, but later
on it turns out that it is not the authentic one, but both parties
didn’t know
● But who should bear the risk? Both parties were unaware of it -
assessing this:
○ Knowledge/experience of the parties could be
important
○ Which party is in the best position to find the flowers
(supplier knows best) - what is the cost of requiring the
info
○ Due diligence of the party - apparent importance of the
good from the party
○ Art 4:107(2) PECL (not a legal basis tho, it’s a
guideline)
○ 6) The mistake should not be done at the risk of the mistaken party
(excusability)
■ E.g. you’re at the flea market and you want to buy a retro camera; you
ask someone who sells it whether it works properly or not ⇒ the seller
says that they don’t know since they haven’t tested it, they just say
that it seems okay
■ You buy it anyway but it turns out that it doesn’t work
■ Still able to make a claim for mistake? No, you bought it at your own
risk
○ In this case, for arguing common mistake, it was easier for the supplier to find
out what kind of white flowers were necessary, they had the expertise to do so
as well, they were professionals and they should’ve known that they sold the
correct bulbs
 ■ Seller should bear the risk of the mistake - the mistake does not
come at the risk
○ Defect of consent is present, contract can be avoided by Keukenhof on the
basis of a mistake
● German law: § 119-120, 122 BGB
● French law: 1130(1), 1132-1135 Cc
● English law: Misrepresentation ⇒ false statement, you can
○ Misrepresentation Act 1967, ss 1-2
○ Negligent misrepresentation ⇒ careless false statement, see Spice Girls Ltd
v Aprilia World Service BV (2002) ⇒ it’s up to the seller’s case to prove that
they believed that it was true at the time and they had no reason to believe
otherwise (e.g. they believed that the bulbs were white)
○ Innocent misrepresentation ⇒ s2(2), (3) Misrepresentation Act ⇒ other party
can claim damages
■ Court can also intervene
○ Damages; for lost profit
● Damages claims in q 2; no specific sections

Case 2
Leonardo is a 20-year-old student at Florence University of the Arts (FUA). He aims to
become the greatest painter of the 21st century and in this work he combines different styles
of painting. Some of his professors at the FUA have described him as a promising student
whereas some other professors have thought that he is just wasting his time and money at
the FUA. In his free time, Leonardo goes to Mercato Vecchio Street to draw portraits of
tourists to earn some money to pay his bills.

Lisa is a 22-year-old art school student who needs to have a portrait painting to graduate
from the FUA and to start working at the FUA as a lecturer to receive €3,000 per month. She
has only one course left that prevents her from graduating. She has been accepted to the
job at the FUA on the condition that she passes the exam of her final course which requires
her to draw her own portrait. Her contract will be only for one year.

As she has only a few hours to complete the portrait and she has not started to draw it, she
approaches Leonardo. Leonardo introduces himself as the most talented painter of the
century who just stays on the street to be discovered by real-art-lovers and states that ‘Art is
never finished, only abandoned.’ She is very impressed by this expression and wants to
have her portrait to be drawn for €100. Leonardo finds the price too low and says that he
would not usually draw even a single line for that amount of money, but only for once, he
accepts to draw her portrait since in her smile he sees something more beautiful than the
stars.

While he is drawing the portrait, some real-art-lovers see the portrait and state that they are
ready to pay €1000 for it. When Leonardo has only completed the left side of the portrait, he
accepts their offer and tells Lisa that he would not sell the portrait to her anymore.
Discuss what remedies Lisa has and for what losses. Base your answer on English
and German Law.

● Prohibited contracts:
 ○ Would it be unenforceable?
○ German provision: § 138 BGB
○ English law: Hermann v Charlesworth
■ Says same thing as german provision, about going against good
morals
○ Lisa wanted to cheat, commit fraud which is against good morals ⇒ so her
employment contract would not enter into force - it’s unenforceable
■ She doesn’t have any remedies ⇒ but since the contract is
unenforceable, she doesn’t have any legal basis to claim remedies ⇒
hence she can’t do anything
■ Leonardo can sell it to someone else since his contract with Lisa is not
valid

Tutorial 4: Damages (remedies)

Case 1
Batman’s friend Robin is turning thirty-five. Batman wants to organize a surprise party for
him. He chooses for this purpose the club where they like to hang out – Above the Clouds.
He books the skyline terrace for the event 6 months in advance. For this, he pays €1,500 for
reserving the venue and another €3,000 for catering and drinks. The parties agreed that any
additional costs related to drinks will be paid by Batman after the party.

To make the event more exciting, Batman also hires Robin’s favourite local rock band – The
Crazy Lunettes - to perform for an hour for €8,000.

Everything goes according to plan, Batman and their friends manage to surprise Robin at the
club and they are starting to have a nice evening, the food is delicious, the drinks are of the
best quality.

While waiting for the entertainment, halfway through their party a heavy rain starts.
Hailstones are falling too and the storm does not appear to abate. It is impossible to remain
outside and guests have to run for protection inside the club. Due to applicable safety rules
in terms of space requirements, the owner of Above the Clouds needs to put an end to the
party and send away the guests.

Batman is disappointed and upset for the expense made given the circumstances.

Structure for damages: for any kind of system/jurisdiction

1. Is there damage (in a natural sense; does it make sense to consider a claim for
damages at all)?
2. Attributability? (not for EN)
3. Notice or second chance? (not for EN)
4. Causation/causal link?
5. Contributory negligence or duty to mitigate?
6. The scope of loss for which damages can be claimed?
a. Expectation interest (positive/performance interest): the expectations that the
creditor had when he entered into the contract will be protected (e.g. expectations
to make profit)
 b. Reliance interest (negative interest): the creditor’s interest will be put into the
position he was in before the contract was made (everything went wrong so you
want to be put in the position before everything went wrong)
England:
1) Is there non-performance that leads to damage?
2) Attributability not required ⇒ strict liability (Paradine v Jane)
a) If doctrine of frustration ⇒ no contract at all
3) Causal link?
a) Was the damage foreseeable and not too remote (a ‘normal loss’) - Hadley v
Baxendale
b) Remoteness of damage - the damage must not be too remote (Victorian
Laundry case) - in case for damages for delay
4) Contributory negligence or duty to mitigate?
5) Scope of loss which damages can be claimed
a) Again reliance interest or expectation interest

France:
1) Is there non-performance that leads to damage? 1217 Cc + 1231 Cc
2) Is it attributable 1231-1 + 1218 Cc
3) Notice/second chance? 1231 + 1344 Cc
a) Need to be in default (notice) art 1231 + 1344 Cc, unless the
non-performance is permanent (absolute impossibility)
4) Causal link? 1231-3 Cc, 1231-4 Cc
a) Foreseeability (1231-3 Cc)
b) Immediate consequence (1231-4 Cc)
5) Contributory negligence? (duty to mitigate doesn’t exist here)
6) Scope of loss for which damages can be claimed (1231-2 Cc)
a) Both expectation and reliance interest into one ⇒ damnum emergens and
lucrum cessans

Germany:
1) Is there non-performance that leads to damage? § 280
2) Is it attributable? § 276 (intentional or negligent), § 275(1) + 326(1) BGB impossibility
3) Notice/second chance?
a) Notice required § 323(3) and 324 BGB
b) Second chance §323(1) & (3) BGB
4) Causal link?
a) Adequate causation
b) The loss must be within the scope of protection of the contractual duty that
was breached
5) Contributory negligence or duty to mitigate? § 254(1) and (2) BGB
6) Scope of loss for which damages can be claimed § 249, 252, 253 BGB
a) Expectation or reliance interest again

Notice and default in German law

Types of damages
● Damages for delay: are subject to additional default - still possibility to claim
performance § 280(1), (2) + 286 BGB
 ○Default = notice
○There is usually a need for a warning notice (default) unless § 286 provides
otherwise. A notice is not needed if a time for performance was fixed in the
contract
● Damages in lieu § 280(1), (3), 281, 282, 283 BGB)
○ In principle: second chance to perform
When
1) In case of delay or defective performance, the creditor must have set a period for
performance before being able to claim damages § 281 - this is exceptional to
Germany (Nachfrist; second chance to perform)
2) Damages can be demanded if the creditor reasonably could not be expected to
accept the performance (ancillary duty) (the painter example) - § 282, 241(2)
3) Impossibility (absolute, concrete) or the right to refuse performance § 283 + 275
(absolute and practical impossibility as long as it is for the fault of the debtor,
personal services)
4) Collateral damages (consequential loss, loss for profit; § 280 BGB
Mangelfolgeschaden)
a) Without second chance requirement ⇒ you just want to replace the things
that got broken e.g. you have a shelf that fell and all your stuff on the shelf
broke ⇒ you want to claim damages for those extra stuff that have been
broken)

1) Can Batman claim compensation from the club’s owner for the costs that were
made for the party that went wrong? Discuss this from English, German, and
French law

England:
1) Is there non-performance that leads to damage?
a) The rain could have made it impossible for the people to stay outside:
non-performance since they got sent home because there was not enough
space inside
b) They got sent home: so not such a dangerous situation
i) Can argue both ways
ii) Elaborate as much as possible - apply everything
2) Attributability not required ⇒ strict liability (Paradine v Jane)
a) In this case: partial performance ⇒ will amount to non-performance here
b) Doctrine of frustration covers both (in civil law):
i) Unforeseen circumstances (separate category in civil law)
(1) Something that is essential ceases to exist (Krell v Henry case)
(2) Performance is fundamentally different/contract would be
fundamentally different (Davis Contractors Ltd v Fareham
Urban District Council case)
(a) In this case: argue for the hailstorm ⇒ therefore, the
performance was not fully performed and it was
fundamentally different (i.e. they first had to go inside
and then they were sent home)
ii) Impossibility (separate category in civil law) ⇒ only absolute
impossibility
 (3) Taylor v Caldwell - music hall burned down and thus the
performance could not take place
(a) In this case: no absolute impossibility (they could’ve
gone outside and set up tents or sth)
iii) You can also argue no frustration and then go on ⇒ look at whether
the contract would be completely the same
3) Causal link?
a) Remoteness of damage - the damage must not be too remote (Victorian
Laundry case)
i) Yes there is a causal link - if the owner didn’t send everyone home,
they would have the hours for the party, the guests could’ve stayed
and the band could’ve performed ⇒ foreseeable damage due to the
storm
4) Contributory negligence or duty to mitigate?
a) It’s not really applied here (mostly tort law)
5) Scope of loss which damages can be claimed
a) Reliance interest: you want the money for at least half of the venue back, the
money for the catering, the band etc.

Germany:
1) Is there non-performance that leads to damage? § 280
2) Is it attributable? § 276 (intentional or negligent), § 275(1) + 326(1) BGB impossibility
3) Notice/second chance?
a) § 275(2) + § 283 BGB ⇒ these are damages in lieu
4) Causal link?
a) Adequate causation
b) The loss must be within the scope of protection of the contractual duty that
was breached
i) It depends on the severity of the storm, you can also argue for
impossibility (e.g. you can’t send people out bc it’s so dangerous for
people to go out)
ii) See § 313 for unforeseeability ⇒ must be after the conclusion of the
contract
5) Contributory negligence or duty to mitigate? § 254(1) and (2) BGB
6) Scope of loss for which damages can be claimed § 249, 252, 253 BGB
a) Expectation or reliance interest again

France:
1) Is there non-performance that leads to damage? 1217 Cc + 1231 Cc
a) Yup
2) Is it attributable 1231-1 + 1218 Cc
a) Force majeure: irresistible and unforeseeable
i) How severe was the storm, how foreseeable was it (unforeseeability is
debatable)
ii) Irresistible: you can’t do anything about bad weather, but the club
could have taken measures in advance for potential bad weather
3) Notice/second chance? 1231 + 1344 Cc
 b) Need to be in default (notice required) art 1231 + 1344 Cc, unless the
non-performance is permanent (absolute impossibility)
4) Causal link? 1231-3 Cc, 1231-4 Cc
c) Foreseeability (1231-3 Cc)
i) See 1995 for unforeseeability ⇒ must be after the conclusion of the
contract
d) Immediate consequence (1231-4 Cc)
5) Contributory negligence? (duty to mitigate doesn’t exist here)
6) Scope of loss for which damages can be claimed (1231-2 Cc)

Assume that there was no weather problem, but the local rock band does not arrive. When
Batman calls them, the group leader tells him that they are at another concert and not up to
their agreement. Batman demands that they quit the other concert and come over
immediately to play at his party.

2) Can Batman successfully claim that the Crazy Lunettes quit the other concert
and perform at his party? Base your answer on English, German, and French
law.

In all jurisdictions, you can’t claim personal service since it goes against personal liberty
● Civil law: primary remedy - performance
● Common law: damages, unique goods, Directive on Consumer Sales (there is a
hierarchy for remedies)
○ Personal services: can never claim personal service

3) What other remedy or remedies would be available for Batman? Base your
answer on English, German, and French law.

Remedies: always name all the standards under the jurisdiction - but in most cases, your
arguments will be more or less the same
● Injunction: it’s possible but here not that relevant
● Damages: 8k + non-pecuniary losses (pleasure contract)
○ The band did not perform at al
● English law: strict liability (Paradine v Jane)
○ No notice
● DE law: 276 + 280 BGB - intention
○ Still need to give a second chance normally
○ Personal service: here, the band already refused to perform, no second
chance needed
■ Refusal (right to refuse)
■ No second chance
● FR law: 1231-1 + 1218 - intention
○ 1231 + 1344 - absolute impossibility (no use of the venue an performer
outside the party)
○ No notice if there is was a deadline in the contract of performance
● Causation is present in all cause
● No contributory negligence or duty to mitigate - Batman didn’t do anything wrong
● Claim expectation interest ⇒ can also claim non-pecuniary loss
Assume that the rock band arrives on time but after half an hour they decide to leave as they
find the party boring, and they are tired.

4) Can Batman claim any remedies for the breach of contract? Base your answer
on French, German, and English law.

Tutorial 5: Termination & third-parties

Case 1
Tom is a student and does his homework using a 15-year-old MacBook. As the MacBook
starts to have problems, he decides to buy a new computer and goes to a Technology Ideal
Ltd superstore and orders a new Dell laptop with an Intel CORE i7 processor. The agreed
delivery date is 1 November.

On 1 November, the courier delivers the laptop, but to Tom’s surprise, the computer has a
different processor, which is an Intel Core i3 processor. This processor is rather old which
makes the laptop slower in certain aspects. Tom contacts Technology Ideal Ltd and the
customer service informs him that there has been some misunderstanding in the delivery
process and that they will be able to deliver the laptop with the Intel CORE i7 processor, but
Tom will need to wait for 1,5 months for the laptop to arrive.

Tom is wondering if he can get out of this contract that he concluded with Technology Ideal
Ltd and buy another laptop from another store.

Advise Tom. Base your answer on German, French and English law.

Termination: general scheme

0. Non-performance (e.g. it’s late, it didn’t deliver etc.)
1. Seriousness of the default
2. Need for giving a notice or second chance
3. Self-help remedy or the intervention by a court required?
4. Consequences of termination

German law:
1. Seriousness of the default
a. Non-performance needs to be serious enough or if the debtor was given a
second chance to perform but did not perform (correctly)
b. Non-performance must in any case not be trivial (323(5) BGB)
2. Need for giving a notice or second chance - generally need second chance
a. 2.1 Second chance (323(1) BGB), unless (see para 323(2) and (3) BGB):
i. Deadline in contract (1st of November in this case)
ii. The debtor refuses to perform
iii. Special circumstances
b. 2.2 Impossibility or the right to refuse performance para 326 jo 275(1)-(3)
BGB
c. 2.3 Breach of an ancillary duty (painter example) para 324 jo 241(2) BGB
3. Self-help remedy or the intervention by a court required?
a. The debtor can terminate themselves (no need to go to court)
 4. Consequences of termination
a. Performance has to be returned (para 346(1) BGB) or monetary
compensation
i. It can be both but it depends on the situation
French law:
1. Seriousness of the default
a. ‘Sufficiently serious’ (1226, 1227 Cc)
b. Termination clause (1225 Cc)
2. Need for giving a notice or second chance
a. Based 1226 Cc ⇒ unilateral notice defaulting the debtor to perform within a
reasonable period of time
i. Is 1,5 months reasonable? Unless urgency or it depends on whether
the computer is in stock (then 1,5 months might still be reasonable)
3. Self-help remedy or the intervention by a court required?
a. 1226 Cc - debtor can terminate themselves
b. 1227 Cc - court order
4. Consequences of termination
a. 1229 Cc - end of contract & the benefits gained must be restored
b. Abonnement telephonique case can be used here

English law - B2C:

1. Seriousness of the default
a. Breach of a condition
i. S 13(1) jo 13(1A) of the Sales of Goods Act (SGA) ⇒ good should
correspond to the description of the good that was given; s 14(2) jo s
14(6) SGA
ii. S 15 (12)(a) jo 15(3) SGA
2. Need for giving a notice or second chance
a. Explicit communication to the debtor (s 20 Consumer Rights Act (CRA))
3. Self-help remedy or the intervention by a court required?
a. Debtor can terminate themselves (s 20 CRA)
4. Consequences of termination
a. Refund s 20 (2) jo (9) jo (10) CRA

Case 2
Marty is a huge fan of science fiction. His neighbor Dr. Brown is a retired physicist and
scientist and as a hobby, he works at his garage to invent tools that can make life easier.
One day Dr. Brown tells Marty about the project that he is working on – a time machine.
Marty is very excited by the fact that he will also be able to test the machine when it is done.
Yet there are certain issues to solve. Dr. Brown needs a certain amount of plutonium and
Biff, their common neighbor, has some. Dr. Brown asks Marty to buy it for him from Biff. At
the same time, Dr. Brown tells Marty that he should not mention his name to Biff when
buying the plutonium.

Dr. Brown also needs 20kg iron and he tells Marty that it can be bought from Dave, who is a
friend of Dr. Brown. Dr. Brown calls Dave and says that Marty is going to come and buy
some iron.
Marty receives the plutonium from Biff and tells him that he will pay in a week. Marty takes
20kg iron from Dave and tells him that Dr. Brown is going to pay for it. Marty comes back to
Dr. Brown’s garage but as Dr. Brown is not there, he checks how the project looks like. He
takes some pictures of the detailed plan of the project and goes back to his home. When Dr.
Brown visits Marty to get the iron and plutonium, he finds Marty working on a similar project.
Marty tells Dr. Brown that he does not want to give him the two elements as he is going to
use them for his own project.

Later on Biff, Dave and Dr. Brown get together for a dinner party. Dave asks Dr. Brown for
the payment of 20 kg iron. Dr. Brown says that he does not need the iron without the
plutonium and there Dr. Brown reveals that he was the person who was going to use the
plutonium sold to Marty. Then, Biff also asks for the payment for the plutonium. Dr. Brown
clarifies that as he did not receive any of those elements, Dave and Biff should ask Marty for
the payment.

a) Advise Dave and Biff. Base your answers on German, French, and English law.

Agency:
● French and German law: two ways
○ In the own name of the agent (indirect agency)
■ The agent is bound (para 166(2) BGB; art 1154 (2) CC)
■ Biff
○ Contracts in the name of the principal (direct agency)
■ Principal bound (para 164(2) BGB; art 1154 CC)
■ Dave - money should be received from Dr. Brown
● English law: as long as the agent acts within the scope of the authority, they can
bind the principal
○ Disclosed agency - principal who is bound
○ Undisclosed agency - agent is bound. But when it becomes clear that they
have acted as an agent for the principal, then the counterpart can also decide
to hold the principal liable
○ Biff: Mart or once Biff is aware of the agency also Dr Brown
○ Dave: Dr Brown is bound

Dr. Brown, later on, sells his incomplete machine to Jennifer for $15,000. Before he receives
the payment, he remembers that he has to pay $15,000 to Marvin, who financially supported
Dr. Brown at the beginning of the project. Thus, Dr. Brown and Marvin make a contract in
which it is stated that Marvin can claim $15,000 from Jennifer. When Marvin goes to
Jennifer, she states that she can only pay it to Dr. Brown.
b) Advise Marvin. Base your answers on German, French, and English law.

Assignment:
● German and French law:
○ Between assignor and assignee the assignment takes effect at the moment of
conclusion of the assignment - para 398 BGB, art 1323 CC
○ Whether the debtor can be released from the contractual duty via paying to
the assignor or the assignee is dependent on whether the debtor was
notified/taken notice/was made aware of the assignment - paras 407(1), 409
BGB; art 1324(1) CC
 ■ Jennifer had been notified/made aware/taken notice - who do they
need to pay to be released from their obligation ⇒ Marvin (assignee)
■ What if the debtor had not been made aware of this; Dr Brown
(assignor)
● English law:
○ S 136(1) Law of Property Act 1925: 3 requirements
■ Absolute (e.g. not conditional)
■ In writing
■ Have been made in express notice to the debtor
○ There was no express notice in this case to Jennifer so Marvin cannot claim
money from Jennifer directly
■ A notice needs to be made to Jennifer before the assignment can be
made enforceable

Other question formats

Question: is there an intention to create legal relations? (similar to tutorial 1)
● English law: follow the steps
I. What kind of agreement?
■ Commercial contracts: Balfour v. Balfour (1919) case - presumption
that parties are bound
■ Social/domestic contracts: generally no intention to be legally bound
■ Gratuitous transactions: a deed present? Or apply objective test
II. Yes, they are bound: analyse consideration, look at p. 17 in this document
■ Consideration must be sufficient but it need not be adequate
■ Past consideration is not good consideration
■ An existing duty does not amount to valid consideration
■ No good consideration for promise to accept part of payment of debt
● If there is a deed present, no need to analyse consideration
III. No deed & no consideration? Analyse criteria promissory estoppel (p. 14)
■ There must be a pre-existing contractual relationship between the
parties
■ A clear promise must have been made that the promisor will not
enforce his legal rights against the promisee
■ The promisee must have acted in reliance on the promise,
preferably to its own detriment (sometimes called detrimental reliance)
■ It must be inequitable for the promisor to go back on its promise
■ Promissory estoppel is ‘a shield but not a sword’ ⇒ it can only
prevent the enforcement of an existing right and cannot create a
new right
● No consideration? Currie v Misa (1874) LR 10 Ex 153
IV. Did the parties reach a sufficient agreement?
■ Objective test (Smith v. Hughes case) between parties when they're
not sure what they agreed upon ⇒ what would a reasonable person
think he is agreeing to
■ Assess reasonable reliance test (6 criteria) (p. 5 this document or p.
66 book)
● How easy it is for the addressee to investigate whether the
declaration was really intended to mean what it says
● Whether the transaction would be beneficial for one of the
parties
● What is customary in a certain branch or location
 ● The meaning of the disputed term in everyday speech
● The place of contracting
● The expertise and experience of the parties
V. Make a conclusion whether there was a meeting of minds or not -
subsequently, there was a contract or there was not a contract
● German law:
I. What kind of agreement?
■ Commercial agreement: presumption to be bound
■ Social/domestic agreement: presumption not legally binding
■ Gratuitous transaction: notaria form is needed or objective test
needs to be applied
II. Did the parties reach a sufficient agreement?
■ Did the parties have the ‘intention to create a legal commitment’?
● Refer to the K speditionsgesellschaft case (objective test)
○ ‘It is therefore a question of how the actions of the
person providing the service appear to the objective
observer.’
■ Apply the reasonable reliance test (6 factors) - assess all criteria
● How easy it is for the addressee to investigate whether the
declaration was really intended to mean what it says
● Whether the transaction would be beneficial for one of the
parties
● What is customary in a certain branch or location
● The meaning of the disputed term in everyday speech
● The place of contracting
● The expertise and experience of the parties
III. Make a conclusion - if yes, then legal commitment. If no, then 119 BGB
(mistake in the declaration)
■ Contract can be avoided
● French law:
I. What kind of agreement?
■ Commercial agreement: presumption to be bound
■ Social/domestic agreement: no presumption legally binding
■ Gratuitous transaction: notarial form needed or objective test
needed
II. Did the parties reach a sufficient agreement?
■ Normally subjective intentions but do also apply the 6 factor test of
reasonable reliance
III. Make a conclusion: if all requirements are met, yes there is a contract
■ If no meeting of minds, then no contract pursuant to Société Tirat et
Cie v Société Orazzi et Fils (1961) case

Offer & acceptance question:

I. Identity firstly whether there is an offer or a mere invitation to treat
A. Offer:
1. Do the parties show intention to be bound
2. What are the terms of the offeror and are they sufficient
3. Is the offer directed to the general public - if so, why?
B. Invitation to treat:
 1. Explain why with reference to the relevant provisions/case law
II. Acceptance of an offer analysis
A. Mirror image approach - what does this entail
B. Was this acceptance a unconditional consent to be bound
C. Time of conclusion of contract: which theory applies
III. Revocation before acceptance? Apply the relevant key points according to the
jurisdiction

For the exam:

❖ Practical matters:
➢ For each part of the exam, you should upload a separate document editable
in Microsoft Word (.doc/.docx or .txt) that includes your answer. So, please
do not upload PDF documents.
➢ Each uploaded document must be named using the following format: YOUR
SURNAME_YOUR FIRST GIVEN NAME_STUDENT NUMBER_RELEVANT
QUESTION OF THE EXAM CONCERNED.
➢ If you are unable or unwilling to answer a question of the exam, you must
nevertheless submit for that question a separate document editable in
Microsoft Word (.doc/.docx or .txt) following the format specified above.
➢ No submission is considered as a failure to submit
❖ Materials that you can use during the exam:
➢ Jan M. Smits, Contract Law: A Comparative Introduction, 3rd edition, 2021
➢ The Maastricht Collection (7th edition): Volume IV: Comparative Private Law
or The Maastricht Collection (6th edition): Volume IV: Comparative Private
Law
➢ EU Directive 2011/83 on consumer rights
➢ Directive 2019/771 on certain aspects concerning contracts for the sale of
goods
➢ Case law of the course
➢ Lectures, Videos and Podcasts slides
➢ Notes
➢ Reading materials not assigned for this course, including internet sources
can be used with two conditions
■ First the non-assigned materials must be supplemented by relevant
sections of legislation and case law.
■ Second, you must make reference to the non-assigned material as
specifically as possible, including at least the Author, Title and URL
web link to retrieve the source. Placing this reference in [brackets] or
in a footnote for the relevant part of your answer is sufficient. If you
do not correctly refer to materials used, you risk committing plagiarism
or another form of exam fraud
❖ When answering questions:
➢ Use sub-arguments to support your answer
➢ Do not cross reference to any answers in other parts or (sub)questions.
Answer each question in full.
➢ The exam can be found in quizzes under Canvas
■ You only have one attempt to access the exam
■ You CANNOT go back to the previous question once submitted(!)
 ➢ For technical difficulties:
■ Call/mail +31 (0)13-466 4663 or digitalexams@[Link]
❖ The exam consists of 4 questions ⇒ 40 points in total (22/40 = pass)
➢ The number of score points for each question is the following:
■ Question 1 (10 points)
■ Question 2 (4 points)
■ Question 3 (15 points)
■ Question 4 (11 points)
■ (There is also an additional question for some which is 4 points)

Citations
❖ Jan M. Smits, Contract Law: A Comparative Introduction (3rd edn, Edward Elgar
Publishing 2021) …(page number)...
❖ The Maastricht Collection: Selected National, European and International Provisions from
Public and Private Law, 6th ed., Groningen (Europa Law Publishing) 2019, volume IV:
Comparative Private Law, …(page number)
❖ Council Directive 2011/83/EU of 25 October 2011 on consumer rights, amending Council
Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council
and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European
Parliament and of the Council [2011] L 304/64, art …
❖ Council Directive 2019/771 of 20 May 2019 on certain aspects concerning contracts for
the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC, and
repealing Directive 1999/44/EC [2019] L 136/28, art …
❖ Principles of European Contract Law (PECL), retrieved from
<[Link] accessed 22 December 2021, art …
❖ French Civil Code [Link]
❖ German Civil Code BGB [Link]