Contract Law I

Acknowlegements

The slides are a slightly redacted version of the orignial slides created
by Gianni Gröhlich, lic. iur, Attorney-at-Law, who also wrote the script.

I wish to extend my thanks to Gianni Fröhlich-Bleuler for giving me the

permission to use his material.

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Subjects covered in Contract Law

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What is a Contract?
Contract:
An agreement between two
private parties•that creates
mutual legal obligations.
• Two or more parties exchange a
promise
• Enforceable by the Court
→Not all promises/agreements
are enforceable by the Court

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Types of Contracts (1/2)
• Bilateral v. Unilateral Contracts • Offeror: A person who makes an
• Bilateral: A contract that includes the offer
exchange of a promise for a promise.
• Unilateral: A contract that includes
the exchange of a promise for an act. • Offeree: A person to whom an offer
• Express v. Implied Contracts is made
• Express Contract: A contract that is
oral and/r written (as opposed to an
implied contract)
• Implied Contract: A contract formed
in whole or in part from the conduct
of the parties (as opposed to an
implied contract)

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 6
Case Moore
v Kuehn
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Types of Contracts (2/2)
• Quasi Contract
• An obligation or contract imposed by law in the absence of agreement, to
prevent unjust enrichment.
• Formal v. Informal Contract
• Formal contract: Agreements or contracts that by law require their validity a
specific form.
• Informal Contracts: Contracts that do not require a specified form or formality
for their validity.

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• Video 1: https://www.youtube.com/watch?v=ogq9TNe9l_4

• Video 2: https://www.youtube.com/watch?v=CaJ4Ay1KyMU

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• Worksheet 1: Definitions

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Contract Formation

Usually offeror Usually offeree

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General requirement: Offer
• Offer/Offeror/Offeree

• The offer is the manifestation of the wilingness to enter into a contract.

1. Offer must be a serious, objective intention by the offeror

2. Offer must be manifested and communicated to the offeree
3. The terms of the offer must be reasonably certain or definite (so that the parties and the
court can ascertain the terms of the contract)→ contain all material elements
Material elements: E.g. price, payment, quality, quantity

• Is the offer binding?

• Acceptance will create the contract

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Examples

• Buying a ticket at a ticket machine: The machine itself makes the offer.
• Auction: Each bid is an offer
• Expression of Opinion ≠ Offer
• Statements of Intention ≠ Offer
• Advertisements in a magazine: Usually no offers but invitation to treat

Rule of Thumb:

•
As a rule of thumb, the offer must be definite and reasonable enough for the receiving party to believe
that it is indeed an offer. If the offer includes terms such as quantity, price, quality, and place and time
of delivery, the court may find that this an offer.
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• Read the document on MSTeams: «When is an Ad an Offer?»

• Please anwer the question: When is an advertisment an offer?

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Rejection
• An offeree may reject an offer at anytime . When they reject the offer,
the offer is immediately ended. There are two types of rejection:

• Express rejection: This is where the offeree clearly indicates their rejection
of the offer by some form of firm action. This may be orally, in writing etc.
• Once the offeree has rejected the offer, the offerer is no longer bound by his decision

• Implied rejection:
• No explicit rejection is needed
• If any material (main) terms of the offer are changed then it is considered to be a
counteroffer.

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Counteroffer
• A counter offer is made when the offeree makes a change to
the 'material subject' of the offer. When a counter offer is made
by the offeree the original offer is automatically ended.
• Material elements: E.g. price, payment, quality, quantity

• Case Hyde v. Wrench:

• Video 3: https://www.youtube.com/watch?v=W3pf5_eV_xI

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General requirement: Acceptance
• The acceptance is the offeree’s manifestation of assent to the offer
• The acceptance results in the conclusion of the contract.
• Basically, the acceptance includes the same elements as the offer.
1. Acceptance must be manifested and communicated
2. Acceptance must manifest the willingness to enter into a contract and
outline the essential elements of the contract to be concluded
3. Acceptance will create the contract

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Meeting of the Minds
• Parties must agree with regard to all essential/material points of a contract
• Material: «Of such a nature that knowledge of the item would
affect a person’s decision-making; significant; essential”

• E.g. In a sales contract parties must agree on:

• the item to be sold
• Price
• Ancillary points which have been declared as essential
• Place of performance
• Payment terms

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Example
• Peter (the offeror): «I’ll paint your fence for $500» (→ This is the
original offer)
• Anne (the offeree): «How about $450?» (→ The original offer has
been rejected and has ended now)
• Anne now becomes the offeror as she has made a counter offer at a
lower price of $450.
• Peter is now the offeree and has the option to accept or reject the
revised offer from Anne.
• Peter (Now the offeree accepts Anne’s revised offer): «Ok, I’ll start
after lunch.

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Capacity to contract
• Rule: Everyone is initially presumed to have capacity
• Exceptions:
1. Minors
a) Exception 1: Contracts for necessaries can be concluded by a child
b) Exception 2: A child is allowed to spend his pocket money

2. Mental incapacity (Contracts are voidable if the other party knew or should
have known of the incapacity)
a) Exception 1: Contracts for necessaries can be concluded by a person with a mental
incapacity
b) Exception 2: A person with a mental incapacity is allowed to spend his pocket money

3. Intoxication
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Foundations of Business Law 20
Application: Checklist for the Salesperson
✓ Determine the legal age of majority in your country.
✓When in doubt about the age of a customer to whom you are about
to sell major consumer durable goods or anything other than
necessities, require proof of legal age. If such proof is not
forthcoming, require that a parent or guardian sign the contract.
✓Do not sign contracts with intoxicated customers.

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Exercise on MS Teams: Introduction to Contract Law

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Foundations of Business Law 23
Types of Agency Relationships
• Principal – Agent
• Principal has no control over the
details of their physical performance
• E.g. Real estate broker
• Employer – Employee
• Physical conduct of the employee is
controlled by the employer
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• Agency: A relationship between
two persons in which, by
agreement or otherwise, one (the
principal) is bound by the words
and acts of the other (the agent)
• Agent: A person authorized by
another to act for or in place of
him or her.
• Principal: In agency law, a person
who, by agreement or otherwise,
authorizes an agent to act on his or
her behalf in such a way that the
acts of the agent become binding
on the prinipal.
24
Consortium
• A consortium is a group of entities • A consortium is an association of two
that collaborate to achieve a common or more individuals, companies,
objective. organizations or governments (or any
• Consortiums are common among combination of these entities) with
educational institutions that pool the objective of participating in a
resources so that students can benefit common activity or pooling their
from a broader range of assets. resources for achieving a common
goal.
• Examples of for-profit consortiums are
Airbus Industrie GIE, composed of the
companies British Aerospace,
Aérospatiale, Construcciones
Aeronáuticas SA, and Hulu, composed
of Comcast, Time Warner, the Walt
Disney Company, and 21st Century
Fox.

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Application: Checklist for Oral Contracts
✓When feasible, use written contracts.
✓If you enter into an oral contract over the telephone, send a written
confirmation outlining your understanding of the oral contract.
✓If you receive the other party’s written memorandum or
confirmation, read it carefully to make sure that its terms agree with
what you believed was already agreed on the oral contract.
✓If you have any objections, put them in writing within ten days.

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Signatory Power
• Empowerment to conclude contracts:
• Employees can be grated signing authority (published in the commercial
register)
• Types of signatory powers
• Single signatory
• Joint signatur
• Certain representatives of the company may only or may not sign together
with certain other representatives
• Apparent power (not in the commercial register)
• Example: Galliker Transport AG (chregister.ch)

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General Terms and Conditions (GTC)
General Terms and Conditions,
short GTC, are contractual clauses
that a party formulates and
applies generally to all its business
relationships or at least to a
specific business area.
Script p 24 Foundations of Business Law
• Pre-formulated provision
• Usually imposed to the other party
by a powerful party
• Written or electronic form
• Validity limits:
• Provisions that include unexpected
and unbalanced clauses are not
enforceable if the party accepting the
GTC was not able to take note of the
provisions (= rule of unusualness)
• Ambiguities of the provisions will be
interpreted against the party using
the GTC
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 Battle of the Forms
• = one company makes an offer including ist GTC and the offeree
accepts the offer, stating in the acceptance that its own GTC would be
part of the contract.
• Which GTC should be applicable in this case? Three theories
1. Counter offer→no acceptance→ contract is not validly concluded; or
2. Theory of the last word («last shot fired») → contract is valid; or
3. No consent between the parties concerning GTC→ contract is valid

Battle of the Forms

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Script p. 25
Interpretation of the Contract

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 Interpretation of the Contract
• Civil law countries
1. Common understanding of the parties→ natural consensus
2. Principle of good faith→ normative consensus
1. How would a reasonable person placed in the same circumstances would understand such a consent?
• E.g. preliminary negotiations
• Common practices of the parties
• Conduct of the parties after the conclusion of the contract or trade ussage

• Common law countries

1. Objective Test: «How would a reasonable bystander, after taking into account all the
circumstances of the case, thinks that the parties intended to be bound»

If the diverging interpretation of both parties are equally admissible, there is no consent but
rather dissent and therefore no contract has ever come into legal existance.

Script p 23 Foundations of Business Law 31

Definitions
• Valid contract: A properly constituted contract having legal strength
and force

• Void contract: A contract having no legal force or binding effect.

• Voidable contract: A contract that may be legally annuled at the

option of one of the parties.

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Defects of Contract Formation

See extra script: Outline Contract

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Defects
 Defects of Contract Formation
• Error in fact
• Error in fact, a party considered in good faith smth. to be a necessary basis of
the contract

• Mistake in declaration
• One party fails to express what it intended to.
• «what the party actually expressed» is not «»what the party really meant»

See extra script: Contract Foundations of Business Law 34

Defects; Script p 17-18
 Fundamental Error/Material Error
Material Error is an error which is
so severe that a contract can be
disaffirmed by the court on the
request of one party.

See extra script: Contract Defects Foundations of Business Law 35

Exercise on MS Teams: Contract Law I

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Contract Law II
 Obligations in Contract Law
The obligations is a legal duty to do or not to do something

Script p. 4-5 Foundations of Business Law 38

 Performance of Obligations

Performance of Obligation Foundations of Business Law 39

Script p. 26-28
 Breach of Contract

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Script 29-36
Legal Consequences of a Breach of Contract
• Damage
• Non-performance of the contract
• «Parties must only refund damages which were reasonably foreseable at the
moment the contract was concluded.»
• Applicable rule: Art. 97 para. 1 CO
• Termination of Contract
• Specific Performance

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 Legal Consequences of a Breach of Contract: Default

Script 34-36
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Statute of Limitations

• Script 38-39
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Contract Law III
Special Types

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 Sales Contract: Sources of Law

Code of Obligation CISG

(CO)
• Swiss Law • =Contract for
• Code of Obligation • Contains the articles international sale of
• United Nations Convention on about contract and
tort law
goods
• If a country has
Contracts for the International • Art. 1-183 cover ratified the CISG,
Sale of Goods (CISG) general rules then its rules apply
• Art. 184- contains
special rules for
diffrent types of
contracts

Script p. 50

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 Sales Contract

Art. 184 CO
A contract of sale is a contract wherby the seller undertakes to deliver the item sold
and transfer ownership to the buyer in return for the sale price, which the buyer
undertakes to pay to the seller.

Art. 30 CISG
The seller must deliver the goods, hand over any documents relating to them and
transfer the property in the goods, as required by the contract and this Convention.

Art. 53 CISG
The buyer must pay the price for the goods and take delivery of them as required by
the contract and this Convention.

Script p. 51-52 Foundations of Business Law 47

Obligations Sales Contract (1/2)

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 Obligation of the seller: Delivery of the item
• Default see slide 42

Obligation of the seller: Warranty of the Title

Obligations • Item sold free from any rights of third parties

in a Sales Obligation of the seller: Warranty of Quality

• Agreed specifications

Contract • Implied promises (qualities purchaser may assume in good

faith)

Co-operation Duties
(2/2) Obligations of the purchaser:
• Payment of the price
• Acceptance item sold
• Co-Operation Duties

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Script p. 52-54 Foundations of Business Law 50
Foundations of Business Law 51
 Warranty of Quality

Script p. 55
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 Warranty of Quality: Inspection an notice
requirements

Script p. 55 Foundations of Business Law 53

Foundations of Business Law 54
 What Remedies are available?
Code of Obligtion (CO)
• Reduction of the price
• Susbstitute perfomance
• Recission from the sales contract
• Refund of the damages suffered
• Warranty period is 24 month, starting
with the delivery of the good.
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Script p. 56-58
CISG
• Specific performance
• Reduction of the price
• Susbstitute perfomance
• Only if the lack of conformity constitutes
a fundamental breach of contract and the
purchaser observed certain requirements
• Remedy by repair
• Recission from the contract
• Refund of the damages suffered
• Warranty period is two years starting
with the delivery of the goods
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 Obligation
after
rescission
from contract
Take home message
• What are the three diffrent defects in contract formation?
• When is an error a «material» error? Why is it essential to a contract
formation if an error of a party was material?
• What are the different types of breach of contract?
• What are the legal consequences of a breach of contract?
• What are the remedies available in case of defects of the item sold?
• When passes the risk from the seller to purchaser?
• What are the obligations in a sales contract?
• What are the obligations of the contractual parties after recission from
contract?

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Special Types of Contractual
Relationships

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Contract for Work and Services (1/3)
Main Obligations

• Work result/effect
• Payment of the price
• Construction of house development of costomized software, composition of piece of music

Sources of Law

• Code of Obligations (art. 363 ss.)

• No international treaty

Anglo-American jurisdictions

• No staturory provisions for contract for work and services

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Contract for Work and Services (2/3)
Specifications

Delivery work result

Acceptance

• Payment of the price

• Contractor is deemed to have fulfilled (exc. remedy defects)
• Warranty period starts
• Risk for loss of the work result transferred to the customer

Contractual terms concerning acceptance

• Acceptance criteria
• Failure to pass acceptance tests
• Consequences customer does not conduct accept. tests

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Contract for Work and Services (3/3)
Warranty of quality

• Inspection and notifications requirements

• Warranty period (24 months)

Remedies in case of warranty

• Reduce the price

• Terminate the agreement in case of material defects
• Remedy of defects/time period available for the repair
• Refund of any damages suffered by defect provided supplier was at fault

Contractual terms concerning warranty

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 Obligations of
Customer
• Payment of price
• Fixed price
• No fixed price
• Cost ceiling
• Payment terms
• Cooperation duties
• Drafting of the specifications
• Appointment of a customer project manager
• Access (building, building lot, IT enviroment)
• Cooperation duties not enforceable (=no legal obligations)
• Contractor released from ist obligations as long as
customer is not fulfilling ist cooperation duties

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 Consulting Agreement in

• Medical treatment, client/attorney relationship

• Evaluation of quotes of suppliers
• Project management services
• Training

Mandate Sources of Law

(1/3) • Code of Obligations

• No international treaty

Services to be provided

• Careful execution of the service (state of the art)

• In person (no delegation)
• Safeguarding of interests of customer

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 Delivery of result of activity

• Results of the activity (such as project

management plan etc.)

Mandate Remedies in case of breach of contract

• Refund damage caused

(2/3) • Reduction of the fee

Payment fee

• Payment fee
• Reimbursement of expenses

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 Termination right
Mandate
(3/3) • May be terminated by either party at any time
• Fiduciary relationship
• Compensation of damages if termination at unreasonable
time

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