UNIT 3 (2014)Apunte Inglés
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UNIT 3: CONTRACT FORMATION. PRECONTRACTUAL LIABILITY.
3.1. Contract formation A contact is concluded, without any further requirement, if the parties intend to enter into a binding legal relationship and there is a concurrence between offer and acceptance (art. 1262 CC).
Consent as basis of the contract is completed from a legal point of view with the meeting of the minds, of offer and acceptance.
Preliminary negotiations - A person is free to negotiate and is not liable for failure to reach and agreement if we not reach an agreement, there isn’t a contract.
- A person who is engaged in negotiations has a duty (deure) to negotiate in accordance with good faith (bona fe) and not to break off negotiations contrary to good faith (This duty may not be exclude or limited by contract mandatory rule).
- A person who is in breach (incompliment) of this duty is liable (responsible) for any loss (pèrdua) caused to the other party by the breach Precontractual liability.
- It is contrary to good faith, in particular, for a person to enter into or continue negotiations with no real intention of reaching an agreement with the other party.
Precontractual liability: Example: Supreme Court Judgment of May 16th, 1988: the case of the employee at BBVA Bank.
Facts: 1. An employee at BBVA and the bank started negotiations that resulted in a preliminary agreement according to which the employee would be transferred to the bank’s office in Miami (USA).
2. The promise was not binding, but repeated efforts by the employee to get a transfer had occurred in the past and they finally were well received by senior managers at the Bank.
3. The employee was induced to believe that the transfer to the Miami office was already agreed and that it would be imminent.
4. Faced with the imminent transfer, the couple sold their house, their car, and the employee’s wife applied for a voluntary leave of her job as a nurse in a public hospital.
5. Finally, the Bank broke off negotiations.
6. The couple suffered some economic losses as a consequence of the breach of negotiations.
The Supreme Court held the Bank partially liable for the losses suffered by the plaintiffs in the case (damages award: €24,000).
If during preliminary negotiations one party conveys to the other party a reasonable expectation that the contract being negotiated will be effective in the future and later breaks off negotiations without justification, the party will be held liable and will have an obligation to compensate damages to the other party.
- Legal requirements: o Creation of a reliance situation: reasonable expectation, trust.
o Unjustified breach of negotiations. Malice or intent to harm the other party is not required. The other party needs to prove a violation of good faith.
o Harm (dany, perjudici).
o Causation link between the created expectation and the harm.
- Damages: o An amount that intends to restore the injured party to the situation of utility that was enjoyed before the beginning of negotiations (reliance damages): Expenses for the injured party derived from negotiations or aimed at concluding the contract.
Specific investments that the injured party has made in reliance (confiança) of performance of the contract by the other party.
Before the closing, before we have a concurrence between offer and acceptance, there are many documents. One of the problems is that if they decide to breach one of the parts, maybe it will seem to continue having effect in a whole.
1st - Offer From a general point of view, a proposal amounts to an offer if: o it is intended to result in a contract if the other party accepts it; and o it contains sufficiently definite terms to form a contract.
[“A” offeror (propose an offer) “B” offeree (receive the offer)] Article 14 (1) CISG (Vienna Convention): “A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price”.
- If it does not include the former requirements, the proposal shall be deemed (es considerarà) an invitation to make offers (invitation ad offerendum invitation to make offers. E.g.: products in a supermarket are an invitation to make offers, the offer is made in the moment you put the product in the cash register): Article 14 (2) CISG: “A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal”.
However, in the case of CISG one must take into account article 55: “Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned”.
Sometimes offer may not include the criteria to fix a price. The price is an essential element, but if we don’t include the price in the proposal, the Vienna Convention have an interpretation rule to indicate the price.
- An offer becomes effective when it reaches the offeree. It would have legal effects, before reaching the offeree, the offeror can withdrawal the offer and it will have no legal effects. Offers can be revocable or irrevocable (they can be also withdrawal before reaching the offeree).
- Offers may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Withdrawal (retirar) also is effective for irrevocable offers.
- Offers are terminated when a rejection by the offeree reaches the offeror.
2nd Acceptance - From a general point of view, any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer.
o it is intended to result in a contract by way of acceptance; o it has to mirror the terms of the offer; no significant modifications are allowed (if not, it will be deemed a counter-offer); o it has to be made before the offer’s expiration or revocation by the other party.
o silence or inactivity does not in itself amount to acceptance.
Article 18 CISG “(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph”.
- Counter-offers: Article 19 CSIG: “(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect.
If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially”.
- An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.
- In some cases, acceptance should be made within a time period established by the offeror. However, late acceptances may be effective if without delay the offeror so informs the offeree.
3rd Conclusion or perfection of contract: meeting of the minds, or concurrence of offer and acceptance.
Article 23 CISG “A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention”.
Article 1262.I CC: “El consentimiento se manifiesta por el concurso de la oferta y de la aceptación sobre la cosa y la causa que han de constituir el contrato”.
o - - A contract is not concluded if: The offer is effectively revoked by the offeror.
The offer is not known by the offeree and the offeror dies or is incapacitated (in Spanish law).
It is important to determine the time of the contract perfection because from this moment onwards the contract becomes effective and the different rights and obligations included therein can be enforced by the parties. Also, parties may begin investing in the contract with a lesser risk of losing their investments.
Also, it is important to know the time of the contract perfection because from this moment onwards a revocation by the offeror shall be deemed ineffective.
A contract exists from the moment the oferee accepts the offer. However, if before the reception of the offer, the offeror sends a revocation, this revocation will be effective if it reached the oferee before receiving the acceptance.
Article 16 CISG (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.
(2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.
Timing of perfection of contractual consent - Although in many cases the existence and timing of such an event concurrence is selfevident since both acts take place simultaneously (physical oral exchange, simultaneous signature of a written memorandum or document, or a public deed), there are certain cases where there is a gap between the issuance of the offer and its reception by the addressee and between the issuance of the acceptance and its reception by the addressee.
- Different theories or solutions (when is the contract concluded?): o Issuance theory (No used nowadays) A contract is perfected when the offeree issues (emet) his declaration of acceptance.
Pursuant to this rule, a revocation of the offer solely avoids the perfection of the contract if it reaches the offeree before he has actually accepted the contractual offer.
It creates problems of uncertainty and also of evidence in potential litigation.
o Sending theory (“mailbox rule”) (USA and Vienna Convention when revocation happens) A contract is perfected when the offeree sends his declaration of acceptance to the offeror.
From that moment, it is construed that the offeree has done everything which was under his control to make his acceptance known to the offeror.
Traditional rule in American Common Law Provide incentives to offeree to invest in the contract and maximize joint surplus. Most efficient rule in commercial transactions? o Reception theory (Spain and Vienna Convention general rule) A contract is perfected when the offeror receives the declaration of acceptance made and sent by the offeree.
According to this theory, the moment of perfection of the contracted is the moment the declaration of will of acceptance reaches the sphere of interests of the offeror (e.g., his place of business, his domicile...), regardless of the fact that the offeror has effective knowledge of it or not.
Article 1262.II CC: “Hallándose en lugares distintos el que hizo la oferta y el que la aceptó, hay consentimiento desde que el oferente conoce la aceptación o desde que, habiéndosela remitido el aceptante, no pueda ignorarla sin faltar a la buena fe”.
o Knowledge theory (Derogated in Spain) A contract is perfected when the offeror has actual knowledge of the declaration of acceptance made and sent by the offeree (problem: he can say he has never read the acceptance).
It was the traditional rule in many civil codes (for example, derogated article 1262 CC).
CISG sets forth a mixed system in which elements from the reception theory and the issuance theory are combined: o Article 18 “(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror…” o Article 16 “(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched (ha enviat) an acceptance”.
Exercise: 1. Mr. Albert and Mr. Ben began negotiations aimed at concluding a sales contract according to which Mr. Albert would buy a piece of artwork owned by Mr. Ben’s.
2. On April the 28th 2013, Mr. Albert received a letter from Mr. Ben according to which the latter offered to sell his artwork for a price of € 200,000.
3. On that same day, Mr. Ben was informed that Mr. Charles was also interested in buying the artwork and that he would be willing to pay a sum of € 300,000 for it. Accordingly, Mr. Ben decided to revoke the offer made to Mr. Albert and sent him a letter on that same day.
4. On April the 29th 2013, Mr. Albert sent a letter to Mr. Ben informing him of his acceptance to pay the € 200,000 price for the piece of art. This letter reached Mr. Ben on May the 5th 2013.
5. The revocation letter sent by Mr. Ben to Mr. Albert was received on May the 2nd 2013.
Questions: 1. According to the CISG regulations, has a contract been formed in the case between Mr.
Albert and Mr. Ben? - Yes, the contract has been formed.
2. If your answer is in the affirmative, from which date the contract is effective? - 28.4.2013? - 29.4.2013? - 2.5.2013? - 5.5.2013? 3. According to the Spanish Civil Code, has a contract been formed in the case between Mr.
Albert and Mr. Ben? - No, the contract isn’t formed, because the revocation arrived earlier than the acceptance.
4. If your answer is in the affirmative, from which date the contract is effective? - 28.4.2013? - 29.4.2013? - 2.5.2013? - 5.5.2013? Silence: - Silence or inactivity does not in itself amount to acceptance.
- The mere omission of conduct is not construed as an acceptance of the contract.
However, in certain circumstances, silence may be deemed relevant to indicate contractual consent.
- Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: o (a) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
o (b) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
- This happens typically when the contract is entered into by firms having regular business dealings, because we can reasonably assume that offers are typically welcome, since when two parties hold long-term or frequent contractual relationship, the probability that the contract has positive value for both parties is substantially high.
- In the field of distance consumer sales, for instance, in Spanish Law, art. 99 of RDL 1/2007, November 16th, on consumer protection, establishes that in distance sales, under no circumstances, will silence be interpreted as assent: in any case shall the lack of response to the distant sale offer be considered an acceptance to it”.
Browse-wrap agreements - - A browse-wrap agreement can be formed by use of a web page or a hyperlink or small disclaimer on the page. It may only be enforced if the browsing user assents to it. For assent to occur the browse-wrap agreement should be conspicuous, state that there is an agreement, and provide where it can be located. Courts examine the enforceability of browse-wrap agreements on a case-by-case basis, and there are no "bright-line" rules on whether a given agreement is sufficiently conspicuous.
Ryanair cases: Spanish Supreme Court Judgment num. 630/2012, October the 30th (RJ 2013\2273): o eDreams was taking information of the Ryanair web o The use of the webside can be not considered as a tacit acceptance o Ryanair brought a lawsuit against eDreams, an online travel agency, alleging that eDreams had used web scraping techniques with robots or other software to extracting information from Ryanair’s website, including basically flight times and prices.
o The Spanish Supreme Court held that the use or navigation of a website cannot be understood as valid consent to be bound by any provisions set in the TOUs. It would have been necessary for eDreams to assent by clicking an acceptance button or by any other similar means.
o Ryanair has brought similar cases against online travel agencies in Spain (RUMBO, Atrápalo) and in other jurisdictions. Some courts from other legal systems have held that use of a website can be construed as a form of valid consent.
Exception: cookies “By navigating and staying on this website you are consenting to the use made of the aforementioned cookies” Defects in consent: - - Contracts are based upon voluntary consent by the contracting parties.
There exist some rules and doctrines that control and monitor the expression of contractual consent explicitly attempting to ensure that such consent has been formed with an acceptable level of information about the relevant contractual parameters, and free from certain interfering events or undue influence.
Typically, most legal systems consider those anomalies under the following headings: violence, fraud, mistake and undue influence (or unconscionability, unfair exploitation).
a) Threats or violence A party may avoid a contract if the other party has induced the conclusion of the contract by the threat of wrongful, imminent and serious harm, or of a wrongful act.
b) Fraud A party may avoid a contract if the other party has induced the conclusion of the contract by fraudulent misrepresentation, whether by words or conduct, or fraudulent non-disclosure of any information which good faith and fair dealing, or any precontractual information duty, required that party to disclose.
- - Misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false, or recklessly as to whether it is true or false, and is intended to induce the recipient to make a mistake.
Non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake c) Mistake A party may avoid a contract for mistake existing when the contract was concluded if: - - The party, but for the mistake, would not have concluded the contract or would have done so only on fundamentally different contract terms and the other party knew or could be expected to have known this; and The other party: o caused the mistake; o o o caused the contract to be concluded in mistake by failing to comply with any required pre-contractual information duty; knew or could be expected to have known of the mistake and caused the contract to be concluded in mistake by not pointing out the relevant information, provided that good faith and fair dealing would have required a party aware of the mistake to point it out; or made the same mistake (mutual mistake).
d) Unfair exploitation A party may avoid a contract if, at the time of the conclusion of the contract: - - That party was dependent on, or had a relationship of trust with, the other party, was in economic distress or had urgent needs, was improvident, ignorant, or inexperienced; and The other party knew or could be expected to have known this and took an excessive benefit or unfair advantage.