Comparative Contract Law

Exam: about interpreting a contract or drafting a contract. No books allowed.

Final grade: 2 points for participation

14/09

Civil law
• Civil law has to be codified!
• It is a legal system based on a comprehensive legal code, based on Roman law.
• In Roman law originally laws came from advice by jurists consultants. The legal
rules written progressively from these pieces of advice.
Common law
• England: had to develop a system common to all
• Common law in Ireland, most of UK, India, Pakistan, South Africa, Canada (except
Quebec), US (except Louisiana, big influence of France) etc.
Others: mixed systems, like Nigeria (common law + religious law)
Law of aboriginals
• Aboriginals = People who live ecological lives in close harmony with the Earth
• Transmitted orally
• Big focus on environmental law and how to respect the environment
• Canada → reserves with only aboriginals. Special laws for them, for instance they
have no taxes, special prices for gas, and many things work accordingly to
aboriginal law (e.g. going to court, electing the mayor)
Islamic Legal Tradition
• Built upon the broader ethic of the Quran
• Sharia
Talmudic tradition
• Talmud → central text of Judaism
• Lots of specific contracts
Hinduism tradition
Asian legal tradition
• All different communities and sources of law
• China → confucianism
• Contract must look for harmony, to last long term
Catholization in contract law: difficult to talk about it because contract law =
freedom of contract
• Separation not as obvious
US: Louisiana → French, English and African influence

Economic analysis
• Relation between economics and contact law
• Economical power influence
• “Contracts are necessarily incomplete”
• Contracts are means to allocate recources among competing uses by negotiation
among interested parties
• If you negotiate a contract for a sale of a house, for instance, you have to compete
uses and allocate the house to a buyer
• Some contracts, when you are doing partnerships, have a recital
• Economic functions of contract → allocate resources → to make sense how the
contract is set and how the contract allows parties to behave in the future
• If there’s nothing in the contract, you have to refer to contract law

22/09

Freedom of contract
Definition in common law (Black Law Dictionary): The doctrine that people have the
right to bind themselves legally. It’s also a judicial concept that contracts are based on
mutual agreement and free choice and thus should not be hampered by external
control such as governmental interference.
→ Three elements in this definition:
(1) individual right,
(2) based on mutual agreement and free choice and
(3) with no State interference.
What if a partnership is imbalanced? Under US common law, the Government cannot
interfere with this imbalance.
History of freedom of contract
- English model → freedom of contract means the economic freedom to engage in
economic transaction without any risk of statutory interference with the
exception of paying taxes to the Crown. Statutory intervention is possible if
there is a political need to solve a contract.
 - French model → deeply grounded in French history, especially French
Revolution with the principles proclaimed in the Declaration of HRs and in the
Constitution and then codified in the French Civil Code. Freedom of contract =
democratic process. Commitment to a contract = product of reasonable decision
by an individual. Freedom has limits via statutory intervention.
- German model → Law-making in Germany in early 19th century = academic
exercise. A contract to be valid has to be written according to some rules. You
have to go to a professional because it has specific rules.
Freedom of contract in the legislation
Under French Law freedom of contract = Art. 1101 French Civil Code. “A contract is
a concordance of wills of two or more persons intended to create, modify, transfer or
extinguish obligations.” Art. 1102 French Civil Code “Everyone is free to contract or
not to contract to choose the person with whom to contract and to determine the
content and form of the contract within the limits imposed by legislation.”
Contractual freedoms do not allow derogation from rules of public policy.
Art. 1108 French Civil Code “Contracts which are lawfully formed have the binding
force of legislation for those who have made them.”
Limitations to freedom of contract: public policy, morals, equity, legislation (e.g.
competition law).
Council Constitutionelle → freedom of contract derives from Art. 4 French
Declaration of HRs → individual able to do anything that does not harm others →
liberty consists in doing anything that does not harm others
Italian court → Art. 1322 of Italian Civil Code
Contractual autonomy: parties can determine form and content of contracts with
limits imposed by the law. Parties can make contracts that are not of type particularly
regulated provided they are directed to an interest worthy o protection of legal order.
Article 5.1 Greek Constitution → All persons should have the right to develop free
personality and participate in social, economic and political life of the country in so
far as they do not infringe the rights of others and violate the constitution and good
usages.
Very close to German Constitution (Art. 1) → Every person should have the right to
free personality in so far as it does not violate others or the moral law.
Proposal → Common European Sales Law → Art. 1 would have been about freedom
of contract (Parties are free to conclude a contract and determine its content subject to
applicable mandatory rules) Art. 2 (Parties may exclude the application of any of the
provisions of the Common European Sales Law or derogate from its effects unless
otherwise stated in the provisions)
REVIEW OF CASES
1. FACTS
2. PROCEDURAL HISTORY
3. ISSUES PRESENTED
4. ANALYSIS
5. CONCLUSION
Freedom of contract before the court
Lochner v NY
Dissenting opinion: right to contract is limited by state power and limitations promote
health, safety and general welfare which are valid concerns in a bakery. Bakers are a
class of weaker workers.
West Coast Hotel v Parrish
Guest House case
Association similar to Airbnb → possibility to renew for members without providing
a motivation. Court Cassation said that you do not have to provide justification to
stop the contract.
Sales contract → governed by supply and demand.
Economic freedoms→ you can participate in the economy with minimal intervention
by State. When doing a sale you should be free to set a price and the conditions.
Because you are free to enter a contract or not, the market will regulate the price.
(The competition will set the price)
Political side of sales contract is important because freedom of contract = personal
right.
Applicable law (and court)
Depending on the law you have different rights, conditions, duties etc…
Court: one which is fair and not too expensive (not US or Canada!)
Law: the one that is most advantageous for you.
Art. 3 Convention of Rome: contract is governed by the law chosen by the parties and
parties choice can be expressed or implied by terms of contract and circumstances of
the case.
In practice you choose the applicable law in common jurisdiction (e.g. both parties
work in France = French law, if you cannot agree you can choose arbitration).
Choice of law cannot deprive consumer of protection go mandatory rules that would
have applied. For instance, think about labour law. Company = Swiss, work = in
France. French law has more protection, so you (as an employee) can decide to
choose French law.
Incoterms
Vienna Convention (CISG) → purpose: provide uniform modern and fair regime for
contracts of international sales of goods. Rules apply whenever a contract is between
parties in a contracting State and it would void rules of private int. law unless
expressly excluded.
Pre-contractual phase: balance between creating the framework without binding
effects. Why? to explore the options as free as possible and get to know the counter-
party
In French Civil Code this is article 1112: The commencement continuation and
breaking off of pre-contractual negotiation are free of control. They must mandatorily
satisfy the requirement of good faith.
Duties during negotiation phase
A. Freedom to negotiate
B. Duties during negotiation phase:
A. Information duties: when you contract with somebody you have to share
information because person must enter contract fully informed. Art. 1121: (1)
the parties who know information of decisive importance fo rthe consent of
the other must inform him of it where the other legitimately does know the
information or relies on the contracting party. / (3) Information is of decisive
importance if it has direct and necessarily relationship with the content of the
contract or the status of the party. Limit to this obligation: value of the
product. “This duty to inform does not apply to an assessment of the value of
the act of performance”. Special duty to inform for notaries
B. Good faith and fair dealing: draft coming framework of reference, proposal
project by EU commission to provide rules for EU contract law. CESL 2015:
Common European Sales Law. Proposal never formally withdrawn but also
never discussed. Then new piece focused on digital content and online/
distance sales of goods. In this proposal talk about freedom to negotiation:
person not liable for failure to reach agreement. He has to negotiate in good
faith though.
WALFORD V MILES
FACTS: Miles (defendant) was selling his company. Walford (appellant) offered him
2£ millions for it. Walford and Miles agreed by phone conversation that Miles would
not accept other offers and stop negotiations with third parties if Walford provided
them a letter by his banker confirming a loan of the decided amount. This was
provided. But then Miles sold to another party stating “they were concerned that their
staff would not get on with the appellants and that a loss of staff would put the
warranted £300,000 profit in jeopardy”.
PROCEDURAL HISTORY: Walford brought action against Miles and the Court
found that Walford was right in claiming that Miles had not acted in good faith and
that he had breached the lock-out agreement. However the Court fo Appeal held that
the collateral agreement was no more than an agreement to negotiate and was
therefore unenforceable. So Walford appealed to the House of Lords.
ISSUES: Is a collateral agreement (“lock-out agreement”) enforceable? Does the
defendant have an obligation to negotiate?
ANALYSIS: Agreement was not binding because it was too uncertain. Agreement to
negotiate is not binding. Obligation to negotiate not required. Agreement to negotiate
in good faith is not an enforceable agreement.
C. PRELIMINARY AGREEMENTS: written statement detailing preliminary
understanding of parties who plant to enter an agreement. Non-committal
writing preliminary to a contract. Also called: letter of intent. Purpose: make a
draft for your final agreement and make negotiation easier. You can bring this
in court to help the judge decide, but remember this is not binding. Tou can
decide on the law, promise to negotiate in good faith and decide on date for
closing the contract.
D. TERM SHEET: who are the parties, that they want to negotiate, bullet points /
table with name of the parties, price, roles of the parties, etc. Applicable law,
confidentiality, etc.
E. MEMORANDUM OF UNDERSTANDING: less formal than partnership
agreements, less detailed, details efforts and resources of parties.
F. CONFIDENTIALITY AGREEMENT / NON DISCLOSURE AGREEMENT.
One-way or two-ways NDA possible. French Law Art. 1112(2): Person who,
without permission, makes use of or discloses confidential information
obtained in the course of negotiations incurs liability under the conditions set
out by the general law. Important to define what is the object/purpose of the
contract (=why you are sharing confidential information)
In case you don’t reach an agreement there can be some consequences.
One of the big failed negotiations was Brexit.
LIABILITY AND REMEDIES
If two parties decide to enter a negotiation in relation to a proposed transaction they
have no obligation to conclude the transaction. Only obligations are loyalty and good
faith. One party can terminate the negotiation at any stage with no liability unless it is
against good faith/loyalty. Then you may incur damages. This is subject to a case-by-
case analysis by the court.
French law: If you want to enter a preliminary agreement you must decide on the
termination of negotiation → that you can terminate negotiation whenever with no
liability. Usually each party bears his/her cost incurred in negotiation.
Common law: Promissory estopped → principle that a promise made without
consideration may nonetheless be enforced to prevent injustice if the promisor should
have reasonably expected the promisee to rely on the promise and if the promisee did
actually rely on the promise to his or her detriment
Baird Textile Holdings Ltd v Marks&Spencer
Long commercial relationship between Baird and M&S. M&S determined the
termination of all supply arrangement without warning.
Issue: has claim a reasonable prospect of succeeding based on contract or estoppel? If
not, are there other possibilities?
Analysis: there is no implied contract.
Estoppel? Baird relied on M&S's promise

28/09
To prepare before class:
Longergan v Scolnick
FACTS: The defendant had placed an ad in a newspaper to sell some property. The
plaintiff inquired and the defendant thus sent him a letter describing the property and
giving directions to the property. He also indicated the lowest price he would accept.
Plaintiff wrote defendant to request a legal description of the property and to suggest
an escrow agent “should I desire to purchase the land”. Defendant approved the
escrow agent but wanted plaintiff he expected to have a buyer soon.
The defendant sold to a third party. After the land was sold, the plaintiff received the
defendant’s last letter. Plaintiff brought the present cause of action to compel specific
performance or, alternatively, to recover damages.
PROCEDURE: Action brought for specific performance or for damages. The matter
was submitted to the Court of first instance, which considered that the
correspondence between the buyer and defendant constituted an offer of sale
qualified and conditioned upon prompt acceptance by the plaintiff. However, the
acceptance of the plaintiff had delated and that, since the plaintiff was aware of the
necessity of promptly communicating his acceptance, the sale to a third party was
justified. Therefore, it was found that they had not entered into a contract as alleged
in the complaint.
The plaintiff brought at appeal, arguing that the evidence shows that an offer was
made to the plaintiff.
ISSUES: Did the plaintiff and defendant enter into a valid contract?
ANALYSIS: There can be no contract unless the minds of the parties have met and
mutually agreed upon some specific thing. The language used by the defendant in his
letters discloses the letters were not intended as an expression of fixed purpose to
make a definite offer. The advertisement in the newspaper was just a request for an
offer, and the letters exchanged do not contain a definite offer by the defendant
(seller).
Therefore, no contract was entered into.
→ If, from a promise or manifestation of intention, or from the circumstances
existing at the time, the person to whom the promise is addressed knows or has
 reason to know that the person making it does not intend it as an expression of
his quite fixed purpose until he has given a further expression of assent, he has
not made an offer.

Kirksey v Kirksey
FACTS: The plaintiff was residing in Alabama. She received a letter from the brother
of her deceased husband which said that, if she would come see him, he would let her
have a place to raise her family. Within a month, the plaintiff moved with her family
to the residence of his, where he put them in a c comfortable home. Two years later
he moved them to another, uncomfortable home, which afterwards they had to leave.
ISSUES: Is there a valid contract? Is the condition “if you will come down and see
me” enough to sustain the promise to find a home?
ANALYSIS: For a contract to enforceable, there must be adequate consideration,
which means that the parties exchange things of equal value. In this case, the plaintiff
did not offer enough in return for there to be consideration.

Mills v Wyman
FACTS: Son of defendant was sick and was brought to the Hartford, where the
plaintiff lived and where he took care of him until he died. The father wrote a letter to
the plaintiff, promising him to pay the expenses back. The plaintiff is bringing an
action for compensation.
ISSUE: Is the defendant’s promise enforceable? Did he make an enforceable
promise?
ANALYSIS: Promise was not enforceable, because it lacks consideration. The
services had already been performed, so there was nothing for him to gain, and thus
there wasn’t consideration. Moreover, he did not have any moral obligation to pay for
his son because the son was not part of the family anymore: he was not an infant and
thus was considered separate from the father.
→ Also there was no material benefit here.

Webb v McGowin
FACTS: Plaintiff and defendant were both employed at the same lumber mill.
Plaintiff was dropping large blocks from the upper floor to the ground, as was usually
done. Just as Plaintiff was about to drop a block, he saw Defendant and to save him
from serious harm, he fell with the block to divert it, suffering from serious bodily
harm. Defendant recognized plaintiff’s sacrifice and agreed to pay him 15 dollars
every two weeks to sustain him for the rest of his life. After defendant died, the
executors of his estate refused to continue making payment to Plaintiff.
ISSUE: Did the material benefit (=life) obtained by the defendant make the defendant
bound to compensate the plaintiff for the services rendered? IS there consideration?
ANALYSIS: Yes. Life is measurable in money. A moral obligation is sufficient
consideration to support a subsequent promise to pay. The promisor (the defendant)
received a material benefit constituting a valid consideration for his promise.
•
Contract formation
How is a contract born?
Offer, acceptance, consideration, intention to be bound.
Offer-acceptance may occur orally → Gentlemen’s agreement: not
legally enforceable (because it’s not documented in writing and therefore
there is no proof), but secured by good faith and loyalty.
Contract = an agreement between two or more parties creating obligations
that are enforceable or otherwise recognized at law.
It is a voluntary expression of trust.
Contract law imposes a standard of loyalty.
Enforcement can come from two different forces = freely or by law
enforcement procedure.
Contracts have a transaction cost (lawyer services, staff time, concession costs).
Offer and acceptance
Art. 1114 French Civil Code: The contract is formed by the meeting of an offer and
acceptance by which the parties demonstrate their will to be bound.
… the will of the offeror to be bound in case of acceptance.
The offer must be precise (what’s the good and what’s the price) and firm (it’s not an
offer if it’s not binding) but accompanied by reserves (e.g. availability of stock). If
it’s not firm or precise, it is an invitation to enter into negotiation.
The acceptance must be identical to the offer and mirror its essential elements
(otherwise it is a counteroffer or a new offer).
French Civil Code Art. 1118: Acceptance is manifestation fo will by offeree to be
bound by the terms of the offer.
Silence does not count as acceptance except where so provided by legislation, usage,
business dealing or other particular circumstances.
Art. 1788 French Civil Code: If landlord lets tenant in the apartment after the end of
the contract, than it means it is okay to continue the contract.
Business contracts are also automatically renewed unless the party sends a notice.
Terms and conditions of sale
Must say “the terms and conditions apply to [this contract]”.
France → A contract is concluded without any further requirement if the parties
intend to enter into a binding legal relationship or bring about some other legal effects
and reach the sufficient agreement.
US Law → The contract results from the meeting of the mind (offer and acceptance
makes a contract). Offer is a promise to do or refrain from doing specific things in the
future
Acceptance in common law must mirror the offer. The terms of the acceptance must
conform exactly with the terms of the offer. In the US they were trying to achieve a
uniform commercial code, published in 1952, with the goal to uniform the law of sale
across the US. Was Accepted by most except Louisiana and Puerto Rico.
Art. 2 UCC (Unfirom Cmmecial Code) → change in terms does not prevent
acceptance. Acceptance is an offeree’s assent of consent either by expressed act or by
implication from conduct to the terms of an offer in a manner authorized or requested
by the offeror so that a binding contract is formed.
Consideration = return for a promise = essential component for validity of a contract
→ No contract unless parties give something in exchange.
In most continental systems based on civil law the requirement of giusta causa
generally suffices to enter a promise and deliver it.
Contract is void if, at moment of formation, what is agreed is irrisory or derisory.
Art. French Civil Code: any contract which deprives a debit essential obligation of its
substance is deemed not written
Bargain
Once you have consideration, the contract is formed, no matter the consideration of
the money exchanged.
Moral obligation can be a substitute if it is to prevent injustice.

Formal requirements
Writing is not a condition for a contract. A contract can be oral (the problem then is
enforcement). However, some contracts needs writing, such as will.
In the US law the Statute of Frauds refers to the requirement of certain kinds of
contracts to be documented in writing, signed by the parties and with sufficient
evidence. Example of such contracts: contracts of consideration of marriage, real
estate, guarantors for debts.
Every State, except Lousiaina, has adopted an additional Statute of Fraud that refers ti
the sale of goods.
Contract interpretation and validity
Invalidity of a contract
Frustration of a contract → anticipated termination
Change in circumstances
Breach → Remedy (damages or specific performance)
Two types of rule governing the validity of contract: 1) to protect the general public
interest, e.g. public order, morality 2) to protect private interest, e.g. consent, fraud,
use of force and violence
Invalidity occurs when one party argues that the contract was not validly formed
e.g. Roman law: volition had to be expressly manifested and clearly enough that
does not create confusion. If manifestation was missing and not matching intent of
the party = vis of consent, altering the free will to contract.
Violence and error can be source of invalidity.
Error = also having no knowledge of something.
Dolus malus = makes the other person fall in error about one of the aspects of the
legal act which otherwise would have not caused them to enter the contract).
French law
Art 1128 French civil code:
"The following are necessary for the validity of a contract: the consent of the parties;
their capacity to contract; content which is lawful and certain."
Frustration of a contract: lead to anticipated termination of contract. i.e. if one of the
parties is frustrated by an unexpected change, then the contract is deemed as
terminated (e.g. anticipated rise in price of raw materials). Force majeure is another
example.
Change in circumstances: one party wants to review the contract. i.e., modification of
the economic context leading to the need of one party to modify its obligations under
the contract.
Breach: it leads to remedies (damages or specific performance).
CONSENT:
Three possible defects:
• Mistake: belief that it's not in accordance with the facts. That mistake was decisive
in the consent of the party: without that, thy would not have
entered the contract. Mistake must be on quality that alters the scope of the
contract. Mistake must not be excused: it must not result from gross negligence
from the party.
• Dolus or deceit: lying. It's an unfair practice that pushes or influences the other
party to enter into the contract by hiding the truth. It's the expression of lack of
loyalty at the time of conclusion of contract. Court of cassation case.
• Violence: it can be physical or psychological and it could also constitute a criminal
offence (illegitimate and threat or constraint). i.e. threat to pursue legal proceeding
or economic violence.
CAPACITY: Minors have no capacity; mental illness it a case of incapacity as well.
 Content or cause: a counterpart to the obligation must exist. It cannot be irrisory or
derisory.
US Law
• Incapacity is for minors and mental illness.
• Mutual mistake → made by both parties at the time that the contract was made. In
this case, the contract cannot be valid unless both parties are willing to take a risk.
Unilateral mistake: in this case, rescission of contract can be made.
Misrepresentation: not in accordance with the facts. Someone did not share
information on present things like they were. It has to be a material
misrepresentation that induced consent and recipient was allowed to rely on this
misrepresentation. If it's deliberate, it's fraudulent.
• Duress: violence. This can also make the contract voidable.
• Unconscionability: Extreme Unfairness. The principle that the Court may refuse to
enforce a contract that is unfair or oppressive because of procedural abuses during
contract formation or because of overreaching contractual terms, especially terms
that are unreasonably favourable to one party
Contract interpretation
Contracts are necessarily incomplete. To fill the gaps you have to use interpretation.
You use interpretation where there is ambiguity. A clause is not considered
ambiguous merely by the fact that the parties disagree on its interpretation. If a clause
is clear and non-ambiguous, the best evidence of intent is the text of the contract.
If a clause is ambiguous, the court is likely to adopt the interpretation that better
reflects common sense, as long as it does not conflict with the natural words used.
Principle for interpretation → intent of the parties at the time the contract was made
• Art. 1188 French Civil Code → common intent of the parties prevails over the
literal meaning. Clear and unambiguous terms are not subject to interpretation.
What matters is the consistency of the contract as a whole.
• Art. 1192: "Clear and unambiguous terms are not subject to interpretation as
doing so risks their distortion.
Art 1189: "All the terms of a contract are to be interpreted in relation to each
other, giving to each the meaning which respects the consistency of the contract
as a whole." what maters is consistency of contract as a whole.
• California Civil Code → Detailed rules of interpretation → Art. 1646 → contract
must be so interpreted as to give effect to the mutual intention of the parties
existing at the time of contracting
Art. 1638 → Language of contract prevails
Art. 1639 → When a contract is reduced to writing the intention of the parties is to be
ascertained from the writing alone.
Art. 1641 → The whole of the contract must be taken together
Art. 1642 → several contracts relating to the same matter between the same parties
and made substantially as part of the same production have to be taken together
Art. 1645 → technical words have to be interpreted as usually understood by persons
in the profession of business to which they relate
Art. 1664 → In case of uncertainty not removed by the precedent rules the language
of the contract should be interpreted most strongly against the party who caused the
uncertainty to exist

12/10

Change of circumstances is regulated by French Civil Code. The Court recognizes

the right of the parties to ask for renegotiation of the contract.
In 2016 Art. 1195 was introduced: If a change of circumstances that was
unforeseeable at the time of conclusion of the contract renders the performance
excessively onerous for parties who have not accepted the risk of such change the
party may ask the other contracting party to renegotiate the contract. The first party
must continue to perform his obligations during renegotiation.
In case of refusal or failure of negotiations the parties may agree to terminate the
contract from the date and on the conditions which they determine or, by common
agreement, ask the court to set about its adaptation. In the absence of an agreement
within a reasonable time the Court may, on request of the party, revise the contract or
put an end to it from the date and subject to such conditions as the Court decides.
Changes must be unforeseeable, performance must be → excessively onerous for one
party and party did not accept the risk of the change.
Force majeure is different as it concerns acts that nobody could predict and that are
outside of parties' control. It does not only affect the parties but the whole world /
area.
Historical consideration
One of the oldest, Roman law: Pacta sunt servanda rebus sic standibus (Agreements
will be observed as long as the conditions at which they were made remain the same)
→ Obviously the important thin is good faith of the parties and, against the
adaptation, there is freedom of will and legal security. This was inspired by religious
principles (making of the contract bound in solemn religion formulas, contracts were
considered under divine protection).
In Islamic tradition: religious basis as well, Muslims must abide by the stipulations as
expressed in the Qaran "be true to obligations which you have undertaken in the sight
of Allah as Allah is your weakness".
ii. In 19th century codifications :more liberal, well regulated trade was possible only
is contracts were kept. Refusal of principle of "rebus sic stantibus".
In 20th century, raise of welfare state: acceptance of rebus sic stantibus. Pre- existing
duty rule → an aspect of consideration within the law of contract; this rule declares
that performance of a pre-existing duty does not amount to good consideration to
support a valid contract. (rule that if a party does or promises to do what it is already
legally obliged to do or refrain from doing, the party has not incurred in detriment; if
there are no damages in change of circumstances, no need to renegotiate).
Economical considerations
Different between ex ante incentive (no sunk costs) and ex-post resolutions (contract
is already happening, early expenditures may become sunk costs) → economic
aspect. Economic aspect of the contract is very important so it is important to accept
the change of circumstances. There are three exceptions to that:
• If the superior risk bearer cannot be identified at the start of the contract
• Risk may have been to small at the time to worry about it (parties did not
include insurance as part of the contract)
No risk that enforcing modifications would encourage opportunistic risks (shift of
balance); In this case court can safely allow parties to adapt to unforeseen or trivial
risk.
• Impossible for the promissor to bear the risk.
i. Pre-existing duty rule
ii. Enforcing mutually agreed contract modifications

Comparative Analysis

France
Rebus sic stantibus rule: you need a cause/consideration + good faith principle. Art
1195 CC.
Germany
Wegfall der Geschaftgrundlage: "collapse of foundation of the contract".
Disappearance or nom existence of the basis of the transaction (price and object).
Both parties assume that certain facts existed which induced them to make the
contract but in reality such facts did not exist.
Either party is entitled to get his obligations modified or excused if it would be unfair
to hold him to his original obligations.
Rule of good faith.
Italy
The general obligations of good faith in the execution of the contract and fair dealing
could lead to a substantial obligation to mitigate loss where possible.
Art 1265 ICC: "In contracts for continuous or periodic performance or for deferred
performance, if extraordinary and unforeseeable events make the performance of one
of the parties excessively burdensome, the party who owes such performance can
demand termination of the contract". Party may not request termination if the
hardship does not exceed the normal risk of the contract. Parties may prevent
termination by offering adjustment.".
British Common Law
Duty to perform is absolute, yet consideration can be provided for the promise to pay
more for an existing duty if the promissor obtained a practical benefit from paying
more.
Frustration doctrine: if a party's principle purpose is substantially frustrated y
anticipated change of circumstances, that party's duties are discharged and the
contract is considered terminated.

Brian Construction and Development Company, Inc. v. Brighenti - 176 Conn.

162, 405 A.2d 72 (1978)
FACTS:
The general contractor, Brian Construction, agreed to construct a post office, and the
subcontractor, Brighenti, agreed to do the excavation work. While doing the work,
Brighenti discovered substantial debris that was unanticipated by the parties. All
parties agreed that removal of the debris was necessary, but no one gave written
authorization to spend the additional money required for removing the debris. The
general contractor entered into another contract with the subcontractor, which
included debris removal. It was an oral agreement that the subcontractor did not
confirm in writing. The subcontractor began to work for a few weeks, but then
stopped and refused to finish the job. As a result, the general contractor undertook the
work himself and incurred substantial damages. One of the general contractor's
claims on appeal was that the oral agreement was valid and obligated the
subcontractor to remove the debris. Plaintiff general contractor filed suit against
defendant subcontractor in the Superior Court of Hartford County (Connecticut). The
subcontractor filed a counterclaim. Judgment was entered in favor of the
subcontractor on the general contractor's claim and for the general contractor on the
subcontractor's counterclaim. The general contractor sought review of the judgment
for the subcontractor.

ISSUE:
Did the oral agreement constitute a valid agreement obligating the defendant to
remove the unexpected rubble?
ANSWER:
Yes.
CONCLUSION:
When an unforeseen, burdensome condition arises during the performance of a
contract, the promise of additional compensation in return for the promise to do the
additional work is a separate, valid agreement. The parties’ mutual promises
constitute valid consideration as each party is subjected to legal benefit and detriment
on account of the promises. In this case, the rubble was unforeseen by both parties at
the time of the contract, and it would have been a substantial burden to the defendant
to remove it. These facts, combined with the defendant’s promise to remove the
rubble in exchange for greater compensation, constitute valid consideration for the
subsequent agreement between the parties. The agreement is legally binding and the
defendant’s failure to perform under the agreement constitutes a breach of contract.

Williams v Roffey Bros - 1991

FACTS
The appellants Roffey Bros, were builders who were contracted to refurbish 27 flats
belonging to a housing corporation. The contract had a penalty clause for late
completion. The appellants subcontracted some work to Williams, a carpenter. When
Williams fell behind with his work the appellants offered him bonus payment to
finish on time. Williams carried on working until the payments stopped. He sued the
appellants for breach of contract.
ISSUES
The appellants argued that the agreement to pay extra was unenforceable as Williams
had provided no consideration; the appellants only received the practical benefit of
avoiding the penalty clause. They did not receive any benefit in law. Williams was
only agreeing to do what he was already bound to do. The appellants relied on Stilk v
Myrick (1809) 2 Camp 317 where it was held that performance of an existing duty
was not good consideration.
DECISION
The Court of Appeal held that the doctrine in Stilk v Myrick had been refined since
then. Gildwell LJ said a promise to make bonus payments to complete work on time
was enforceable if the promisor obtained a practical benefit and the promise was not
given under duress of by fraud. It was the appellants’ own idea to offer the extra
payment. Therefore, there was no duress. The appellants also gained a practical
benefit by avoiding the penalty clause. Russel LJ said (at 19) that the court would
take ‘a pragmatic approach to the true relationship between the parties’.
→ Consequently, the promise for extra pay was enforceable.

Eastern Lines v USA - 1953

FACTS:
The United States chartered the Steamship Acadia from the plaintiff ship owner. The
charter provided that the United States would return the ship in the same condition as
on the date of delivery, ordinary wear and tear excepted, and would either make all
necessary repairs, or would return the unrepaired ship and pay the ship owner a
reasonable amount for repairs. The United States returned the ship unrepaired. It was
determined that the cost of repairs would have been $4 million while the ship's value
after restoration would be $2 million. The United States refused to pay the estimated
cost of repairing the ship, asserting that it would pay the ship owner just
compensation for the value of the restored ship. Plaintiff and United States filed
cross-motions for summary judgment on the plaintiff’s claim to recover the estimated
cost of repair.
ISSUE:
Should either party's motion for summary judgment be granted? ANSWER:
No.
CONCLUSION:
The Court denied both parties' motions for summary judgment because neither party
offered a reasonable interpretation of the charter. The Court held that it would be
uneconomical for the United States to pay the estimated value of the repairs when the
ship owner did not intend to repair the ship. The Court found that it would be
unconscionable to require the ship owner to restore the ship for $4 million and then
pay the ship owner only $2 million for the value of the restored ship.
RULE:
When one is under a contract to become obligated to pay money after the other party
has performed, and he advises the other party that even after he has performed, the
payment will not be made in the amount agreed upon, except possibly after a lawsuit,
the party so notified has the right, if his interpretation of the contract is correct, to
treat the contract as breached, and recover his damages resulting therefrom.
→ efficient breach.

——————————————————————————————————

Remedies
1. Renegotiation
2. Contract adaptation (by Courts. Possible in FR and DE)
3. Contract termination (possible in Italy)

Consequences for contract drafting

Index clause
You adjust a price or benefit to compensate with inflation.
The most common one is rental; some loan contracts.
Review clause
Term in the contract which lets the parties revisit the term of the deal.
e.g. Supply agreements. Annex: price list. Every year this price list is changed.
Hardship clause
A provision which provides for the contract to be changed when circumstances
have changed and one of the contracting parties is unduly burdened.
Rebus sic standibus clause
Usually in international conventions, it provides for the unenforceability of a
treaty due to fundamental changes of circumstances. E.g. Art. 62 Vienna Convention:
A fundamental change of circumstances which has occurred etc. find online

Breaches and remedies

Breach of contract
Breach could be seen as foul in the French legal system. It can be a non-
excused performance or any non-performance in the Nordic countries.
Blacklaw: Violation of contractual obligation by failing to perform once on premise
by repudiating it or by interfering with another party’s performance.
In common law material breach would be, for example, someone who did not respect
a notification letter to inform; or the breach of a core obligation to distribute a
product.
Material breach is significant enough that the parties may elect to
Partial breach = less significant. They give the other party a right of damages but
doesn’t excuse the other party from performance.
Remedies
Termination for default→ complete or partial termination of a contract bc of
the contractor’s actual or anticipated failure to meet his contractual obligation
Witholding performance → party’s right to withhold some or all his obligations until
the other performs his own (e.g. you dont pay until the performance is done)
No contractual clause: just common sense. Principle of proportionality.
Goal: protect your own interests and encourage the other party to perform.
Possibility of withholding performance and terminating for default
Specific performance as opposed to damages
It can involve higher costs of monitoring performance, so it depends on the
contracts
Economical view → “Efficient breach of contract” notion
An efficient breach is an intentional breach of contract and
payment of damages by the party who would incur greater
economic loss by performing under the contract
Efficient breach theory → A party should be allowed to breach contract and
pay damages if doing so would be more economically efficient o perform
under the contract
Liquidated damages
See Eastern SS Lines Inc v USA, US Court of Claims 1953: breach of contract
was more efficient

Specific performance
Specific performance is the rendering of the legal or contractual information
when monetary damages are inappropriate or inadequate.
In common law jurisdiction it was developed as a remedy of equity but it’s an
exceptional remedy. In civil law jurisdiction it is seen as a remedy exercisable at the
option of the creditor. The plaintiff can ask for damages.
Elements:
1. must be justified by the uniqueness of the goods (e.g. sale of the house bc land =
unique good, only one location)
2. may be the only way to enforce negative covenants. usually highly specific and
show duration (e.g. confidentiality agreement)
3. cannot be used for performance of services. (?) you may not force a lawyer to
represent a client. no more trust between the parties.

Parties-designated remedies
Liquidated damages = amount contractually stipulated as a reasonable
estimating of actual damages to be recovered by one party if the other party breaches
Penalty clause = contractual provision that assesses against a defaulting party an
excessive monetary charge unrelated to actual harm. Generally unforeseeable
How to differentiate between pre-estimate of damages and penalty clause? It is set in
the UK case-law.
Cavendish Square Holding Bu. v. Talal El Makdessi (2015)
Packingeye Ltd. v Beavis (2015)
New test to determine whether or not contractual provision would be considered
penal and so enforceable
If it’s too big and not fair = not enforceable
First test:
1. The provision will be considered penal if the sum stipulated for is extravagant
and uncosnscionable in amount in comparison with the greatest loss that could
conceivably be proved to have followed from the breach
2. Provision will be penal if the breakh consists only in the non-payment of money
and will provide for the payment of the large sum
3. A presumption, but not more, that it will be penal in a number of events of
varying gravity
4. Not penal by reason only of the impossibility of precisely pre-estimating the true
loss

Court will look at primary v secondary obligations proportionality, legitimacy of

deterrents, and the stances in which the parties entered into the contract

20/10

Under common law you have different types of damages.

Expectation loss
It is a lost gain that was anticipated from the contract. This is the most
common loss you can have and the aim is to place the victim of the breach in the
same situation as if the contract had been performed.
Reliance loss
The unavailable cost the victim of which incurred in reasonable anticipation of
completion of the contract. The victim of the breach must be in the situation as if the
contract had never taken place. It is not very common and not commonly awarded,
because the courts don’t want to encourage inefficient contracts. The compensation
will only cover sunk costs and any payment made in reasonable anticipation of
completion of the contract.
Anglia Television v Reed (1971)
Anglia Television made an arrangement to make a movie and wanted Reed to be cast
in it. However, the agency told them he wouldn’t do it because he was already cast in
something else. Anglia Television did not have time to find a replacement, losing
profits. The profits were too speculative to calculate, so they claimed a reliance loss
because of the money spent in anticipation of production and being unable to recast
the par tin time to meet production schedule.
Restitution damages
The breaching party has some profits from the breach. He has to restitute any
profit or payment received before the breach.
This is most commonly used when the seller has breached the contract but the
payment had been made in advance or where the contractor justifiably ceases
performance before the termination of the contract to claim the value of the work
already completed.
US v Algernon (1973)
Consequential loss
Indirect losses following a breach. Compensation from effect of the breach
and is usually not recoverable.
Indirect losses that follow from the breach. Generally not recoverable, unless there
were special circumstances unknown at the time the parties made the contract.
For example the promisee cannot use the promisor as the supplier for insurance
without the promisor’s consent.

Types of liabilities:
Joint liability
Liability shared by 2 or more parties; i.e. spouses are responsible one for the
other; same for some shareholders and partners in a partnership.
Several liability
Liability separate from another liability → parties are responsible each for their
one's respective obligations. i.e. in a corporation, each stakeholder is responsible for
what they did.
Joint and several liability
Joint and several liability is a legal term for a responsibility that is shared by
two or more parties to a lawsuit. A wronged party may sue any or all of them, and
collect the total damages awarded by a court from any or all of them. When two or
more parties are jointly and severally liable for a tortious act, each party is
independently liable for the full extent of the injuries stemming from the tortious act.

Limitation of liability / Exclusion of liability

- Penalty clause: clause assessing against a defaulting party an excessive monetary
charge, i.e. late penalty clause if you don't pay on time.
Liquidated damages: clause assessing against defaulting a party reasonable
estimate of actual damages to be recovered.
Exclusion of liability clause: no liability in certain cases, i.e. indirect damages,
guarantee
- Limitation of liability: i.e. CAP, you're cover for up to that amount, not more.
Every business owner is obviously afraid of liability, to protect their liability they
can:
• Insurance
• Incorporation: linked liability to your business, limiting the maximum capital
you can use
 • Shield business owner on liability on personal assets

You limit or exclude liability to limit your risks and to make a business plan.

Economic analysis:
Question relates to who is assuming the risks associated with the contract: i.e. interest
rate changes, currency floats, force majeure,.. All these factors have an impact on the
contract and on the parties.
You can:
- Allocate the risks between the parties → share the project's risks; each party
will accept the risk he can best manage or control. Parties have to find mutual
benefits: in a contract between private and government, the government will accept
risks connected to the public while the private will accept the ones connected to
performance and guarantee.
- Levy a risk premium: getting an extra insurance if you go over the maximum
of your standard insurance. To reduce the risk of uncertainty, the premium covers the
cost in case the event incurs. Contract is a mix between risk and premium: if the
contract is well balanced, it will allocate the risk in a way that minimizes the risk or
breaches in the objective to favour the full implementation of the contract.

Economic vs moral analysis:

Moral approach to limitation of liability.
Notion of breach of contract vs fault: In some jurisdiction, breach is seen as a fault
(i.e. French tradition; in England is a non excused performance; in other countries is a
non performance. Depending on the legal tradition, the judge will see it differently.)
Limitation can be done in the contract or statutory: in the US there's limitation of
liability Act, → → federal or state law limiting the type of damages that may be
recovered (i.e. indirect damages), the liability of certain persons of groups (i.e.
mentally ill, children..), or the time during which an action may be brought (after that
time you cannot sue anymore).
In the statute of imitation there would be temporal limitations to sue after an accident
and who you can sue.
French law → act of 11th June 2008: time during which you can sue is now 5 years
instead of 30 or 10.
Predictability from economic side and pragmatism → important.
Legal requirements for validity of limitations of liability clause:
- Limitation of remedy clause: contractual provision restricting the remedies
available to
the parties if a party defaults. Both parties agree in advance to limit the remedies
available. i.e. in case of breach, two parties meet to try and find a solution and if they
don't find it after 2 weeks they'll go before an arbitration.
Similar to limitation of liability clause in that it controls how much liability a contract
has under a contract; however, the limitation of remedy clause limits the types of
remedies that you can pursue (attorney's fees and costs, cure first provision, binding
arbitration, injective relief, monetary damages).
○ Cure first provision required the buyer to turn to the seller for a cure prior
attempting to mitigate damages with other vendors.
○ Mitigation of damages: obligation after a breach of contract by the other
party to make reasonable effort to alleviate the effects of the breach. i.e. in case of
breach, if the party doesn't remedy the breach in 2 weeks notice then the parties can
terminate the contract → give the other party a chance to fix it.
- Limitation of damages clause: contractual provision by which the parties
agree on maximum amount of damages recoverable for a future breach of agreement.
→ can you limit all types of contractual liability? No, i.e. fraud, dishonesty,
mandatory warranty...
- Texas "Civil Practice and Remedies Code, Section 16.070: "a contractual
statute of limitations shorter than 2 years is void".
- UK, "Unfair Contract Term Act, 1977": limit application of disclaimer of
liability; i.e. liability for death or personal injuries due to negligence can never be
excluded by a contractual provision".
- Same, parties cannot contractually limit liability for losses deriving from
defective goods ordinarily supplied for use or consumption.
D. Statutory limitations and enforceability of the clause:
Statutory prescriptions

Legal requirements for validity of limitation of liability clause

Enforceability of the clause

It depends on the breach (gross negligence or intentional breach) and the party will
have to implement the contract → i.e. US City of Dillingham v. CH2M Hill
Northwest, Inc., 873 P.2d 1271 (Alaska 1994).
The court concluded that limitation at liability clause were merely attempts to bargain
away liability and such were bared by the court.
The contract contained a standard limitation of liability cause that was seeking to
limit an engineer's liability to the owner to 50.000.000, or its fee, whichever was
greater, for liability arising out of the engineer's sole negligence of acts, errors or
omissions.
The court invalidated the provisions and held that it was violating the Alaska Anti-
Indemnity Act which prohibits as against public policy any contract that requires
another to hold a party harmless from their sole negligence.
Court considered the clause as a clause for Indemnity for those uncovered amount
under the cap which would result in a party indemnifying the other for the sole
negligence.
→ in the US prevails freedom of contract, same in the UK.
1996 French case: contractual clauses saying that every product should be delivered
in 48h BUT providing a limitation of liability saying that won't be any consequence if
they don't respect the 48h.
→ company entrusted in two occasions Chronoposte but they didn't respect the 48h
(essential commitment) → company initiated proceeding for the loss suffered but
Chronoposte opposed them the clause in the contract limiting the compensation for
the loss suffered to what they had paid.

1996 French case: contractual clauses saying that every product should be delivered
in 48h BUT providing a limitation of liability saying that won't be any consequence if
they don't respect the 48h.
→ company entrusted in two occasions Chronoposte but they didn't respect the 48h
(essential commitment) → company initiated proceeding for the loss suffered but
Chronoposte opposed them the clause in the contract limiting the compensation for
the loss suffered to what they had paid.
The Court de Cassation said that Chronoposte had committed to deliver the envelope
within 48h timeframe and because of their failure to fulfil this essential obligation the
limitation of liability clause has to be considered unwritten, void → element of good
faith.
→ art 1170 Civil Code: "Any contract term which deprives a debtor's essential
obligation of its substance is deemed not written".
Different contractual provisions to limit or exclude liability:
• Fees and costs: clause in the contract specifying that either both parties are
responsible for their
own attorney's fees or for the losing party to pay fees for both sides. → goal is to
discourage frivolous lawsuit. i.e. big companies abusing their position and suing
small companies just to get them to give up something.
Examples of clauses:
- "we agree that we will not be liable for i. loss or corruption of that data
system; ii. loss of profit, goodwill, business opportunities, anticipated saving of
benefits or; iii. indirect and consequential loss".
→ typically the damages will be expensive, too broad or difficult to predict.

- "your liability: or total liability (including interest) for all clams connected to
services of the contract (included but not limited to negligence) is limited to twice the
fees payable for the services or the actual damages, whichever is the lesser".
 - "limitation period: any claims must be brought no later than 2 years after the
date the claimant should have been aware of the potential claim and in any event no
later than 4 years after any alleged breach".
Drafting tips:
"in order for a client to obtain the benefit of the fee which includes a lesser allowance
for risk
funding, the client agrees to limit the architect's liability arising from the architect's
professional art, errors or omission such that the total liability of the architect shall
not exceed the architect's total fees for the services rendered on the project".
Courts refuse to enforce such provision when founding that:" i. provision was
ambiguous or unconscionable; ii. If the parties' intentions were not clearly expressed;
iii. Parties had unequal bargaining power or a higher level of sophistication; iv. If
there were a public policy or a statute prohibiting the enforcing of the provision".
→ When drafting a clause like this:

- be aware of the applicable statues, check the choice of law regulating the
contract

- make the clause conspicuous, do not hide it and make it in bold face front or
underlined.

- put it apart form the rest of the text to make sure that the other party is aware
of its
existence.

- be clear and consist and negotiate the clause.

9.. Contract performance and third-party’s problems

A. Contract Performance
There are three elements used to discharge: discharge by performance, discharge by
breach of contract; discharge by mutual agreement.
a. Long term / relational contracts:
When interpreting this contract the curt will take into account the business context of
the relationship between the parties.
i. Notion of relational contract
Relational contract is a contract whose effect is based upon a relationship on trust
between the parties to which it pertains.
The explicit terms are implicit terms and understanding determining the behaviour of
the parties. You cannot predict anything as it's long term.
Long term / relational contracts:
When interpreting this contract the curt will take into account the business context of
the relationship between the parties.
Notion of relational contract
Relational contract is a contract whose effect is based upon a relationship on trust
between the parties to which it pertains.
The explicit terms are implicit terms and understanding determining the behaviour of
the parties. You cannot predict anything as it's long term.

Performance of relational contract

Many aspects of the relationship may need to be sorted out as events unfold. In
practice, adjustment to changing economic circumstances may occur without explicit
reference to contract and rather be based on the long term value to the parties of
maintaining their long term relationship or partnership.

Disputes over relational contract

Court must look at the whole relationship as it has evolved over time rather than just
the original written contract.
If the relationship is complex and it involves very long association and frequent
interactions between the parties, the parties may even have an incentive to settle their
own governance system outside of the court system (i.e. arbitration).

Economic view of relational contract

Original contract offers returns from cooperation and the risk of it is that at any time
the parties stop trusting each other. If you play only once trust will not emerge but if
you play multiple times it will → court will also look at mistrust between the parties.

Limits of relational contract

Effective mechanism of relational contract is the need for the parties to go on doing
business together .i.e. Mark and Spencer → there also were some unwritten contracts
between them but when the company tried to put pressure on that relationship with a
view to maximise their revenue, it doesn't work anymore as it cannot be only one
party thinking at their one interest,

Third-party problems
Respect of the third party rights and obligations.
Privacy of a contract allows each party of the contract to sue each other but prevents
a third party from doing so. Contracts are the laws of the parties and no-one else;
however, the life of the business impacts on third parties as well.

i. Third Party Beneficiaries

When two parties enter into an agreement for the benefit of a third person who's not a
party to the contract; i.e. life insurance, wills.
Normally the general rule is that the contracts is only enforceable by the parties and
the third party has no eight to enforce it BUT there's a difference if the contract is
intended to benefit a third party.
→ can the third party enforce the agreement made for his agreement?
Since the recognition of third party beneficiary rights, courts have grappled with two
major problems.
First, third party beneficiary should be allowed equitable recovery without conferring
enforcement rights upon every party who might receive some benefit from a contract.
Second, it is important to preserve the rights of the original parties to modify their
contract without nullifying the protection of third party rights.
- Donee vs Creditor beneficiary:
▪ Donee beneficiary: done beneficiary receives the benefit of a contract
between two other parties as a gift from one of the parties to the contract. While
donee beneficiaries stand to benefit from the fulfilment of a contract, they are not
technically party to the contract.
It donates rights to a third party; rights an be transferred by gift, in this case the party
that got the party can enforce the right against the obliger as it got tis transfer of
rights but he cannot enforce it against the donor.

▪ Creditor beneficiary: transfer of value, it has the right to enforce the contract
against the obliger or the donor.
A creditor beneficiary can be defined as being owed or being believed to be owed a
legal obligation by a promisee that is provided upon a promisor's execution of his or
her portion of a contract or agreement. "Creditor beneficiary" is a term that refers to a
legal entity that will intentionally benefit from an agreement that has been put in
place to satisfy or reduce a debt.

one with some new elements.

It donates rights to a third party; rights an be transferred by gift, in this case
the party that got the party can enforce the right against the obliger as it got tis
transfer of rights but he cannot enforce it against the donor.
▪ Creditor beneficiary: transfer of value, it has the right to enforce the contract
against the obliger or the donor.
A creditor beneficiary can be defined as being owed or being believed to be
owed a legal obligation by a promisee that is provided upon a promisor's execution of
his or her portion of a contract or agreement. "Creditor beneficiary" is a term that
refers to a legal entity that will intentionally benefit from an agreement that has been
put in place to satisfy or reduce a debt. Creditor beneficiaries are not active parties in
the execution of the agreement they are to benefit from.
- Intented vs. incidental beneficiary:
▪ Intended beneficiary: i.e. life insurance, the spouse contracts a life insurance
nominating the other spouse as beneficiary. Unless otherwise agreed between the
promissor and the promisee, a beneficiary of the promise is an intended beneficiary if
recognition of the right to performance in the beneficiary is appropriate to effectuate
the intention of the parties and, either the performance of the promise will satisfy an
obligation of the promisee to pay money to the beneficiary, or circumstances indicate
that the promisee intends to give the beneficiary the benefits of the promised
performance.
→ can enforce the contract.

▪ Incidental beneficiary:
The court will look at languages

ii. Assignment or delegation

Once a contract is formed, parties can decide to delegate its duties or assign them →
it happens after the conclusion of the contract.
- Assignment of contract rights: An assignment of contract occurs when one
party to an existing contract (the "assignor") hands off the contract's obligations and
benefits to another party (the "assignee"). Ideally, the assignor wants the assignee to
step into his shoes and assume all of his contractual obligations and rights.
This is possible unless it is explicitly prohibit or the assignment would materially
change the duties of the obligor or materially increase the burden or risk imposed on
him by this contract or materially impair his chance of richer performances or
materially reduce the value of it.

- Delegation of contractual duties: delegation only concerns duties, not the

rights. Delegation of duties exist when a party involved in a contract arranges to have
a third party execute some of the duties spelled out in the contract. It is a legally-
enforceable agreement.
The party who delegates the duties to the third party is considered the delegator.
In most states, it is required that the terms of the delegation of duties be clearly
spelled out in the contract
More of than not, delegation of duties are permissible. However, there are times when
it is not. Examples of times in which it may not be allowable to delegate duties to a
third party include:
If it would change the nature of the contract. For example, if you are hosting an art
auction in which you have promised the attendees a famous auctioneer will be
overseeing the event, you cannot (nor can the auctioneer) delegate those
auctioneering duties to another person.
Debt repayment. Unless specified in a situation where someone has co-signed a loan,
it is often not allowable to make the promise of someone else repaying a debt.

→ Delegation vs. assignment: What's the difference? Delegation occurs when a party
to a contract transfers the authority and responsibility for fulfilling a particular
contractual duty to another party. Delegation is not concerned with the transfer of
contractual rights. An assignment occurs when the original party to a contract
transfers the rights and duties of the contract to another party.
Example of contractual clauses:
"neither party may assign any of the rights or obligations set forth in this agreement
without the
prior written consent of the other provided that the distributor shall have the rights to
assign any portion of the agreement to its subsidiary and affiliated companies".
"a. this agreement will not be assigned by any party without the prior written consent
of the other party [assignment]; b. each party will be at liberty to entrust all or any of
its responsibility to any of his affiliates provided that it will remain liable to the other
party for th execution of any responsibilities so delegated [in delegation the parties
are still main parties to the contract]".
→ In both assignment or delegation if the delegate fails to perform, the promisee may
sue the original contractor on the basis of the contract for breach.
iii. Novation of contract
This is a transformation or evolution of a contract → kind of a new contract but it's
just the old
other party [assignment]; b. each party will be at liberty to entrust all or any of its
responsibility to any of his affiliates provided that it will remain liable to the other
party for th execution of any responsibilities so delegated [in delegation the parties
are still main parties to the contract]".
→ In both assignment or delegation if the delegate fails to perform, the promisee may
sue the original contractor on the basis of the contract for breach.
iii. Novation of contract
This is a transformation or evolution of a contract → kind of a new contract but it's
just the old one with some new elements.
B. Specific cases
Stipulation for another person
Direct right of action for payment
 26/10

Novation of the contract is the only way, except for contract termination, for the party
to be relieved from the original contract’s obligations. It requires a new contract
between the transferee and the other party to relieve the transferor from liability. All
parties to the original contract must consent for the contract to be valid.
Novation is a transfer of all duties and obligation from the former to the new obliger.
The obligee’s acceptance of the new obliger is needed, as well as the new obliger’s
acceptance of the liability and the old obliger’s acceptance of the new contract as full
performance of all contract.
➢ For example, is COMPANY A was contracting with COMPANY B, and
COMPANY B would later sell its core business to another company, this new
company (COMPANY C) would step in and take on B’s obligation. If B wants
to be discharged of all duties, COMPANY C would assume all the obligations.
A rule according to which a third party could not enforce a contract for which he had
not provided consideration had been wildly criticized in the UK. The Right of Third
Parties Act (1999) was thus enacted. It enables third parties, in certain cases, to
enforce terms in contracts made in their favour.
➢ A third party right will arise in a contract if the contract explicitly gives the
right to a third party or to a term purports to confer a benefit on a third party. In
this case, a right will not arise if it is clear the parties do not intend the term to
be enforceable by the third party.
➢ The Act grants the third party access to remedies if the terms of the contract
are breached.
➢ The Act limits the way in which a contract can be changed without the
permission of an involved third party, unless the contract explicitly provides
the right to cancel or vary without the third party’s consent.
➢ It would not be possible for the third party to simply agree to cancel the
contract if the third party had communicated his assent by words of conduct to
determine question or has otherwise relied on it. [?]
➢ The third party’s right can be made subject to conditions. The Act cannot be
used to place positive obligations on the third party (it does not bring new
obligations to the third parties).
➢ The Act provides protection to the promisor and the promisee in situations
where there is a dispute with a third party and allows parties to a contract to
specifically exclude the protection afforded by the Act if they want to limit the
involvement of third parties.

Why do we need to talk about the impact on third parties?

➢ It is because of certainty and predictability of contracts. We want to make
sure there is no third party’s right which is unintentionally created.
 ➢ In the UK Act 1999, you have the right of a third person who is not part of a
(insurance) contract to enforce the terms of the insurance and not have it
receded, varied or altered without his consent are excluded from the insurance.
➢ In French law Art. 1199, states that “A contract creates obligations only as
between the parties. Third parties may neither claim performance of the
contract nor be constrained to perform it (…). Third parties must respect the
legal situation created by a contract.” Third parties can rely on it as matter of
evidence. Parties must respect the legal situation created by a contract and rely
on it as fact.
➢ Under French law, the rules on insurance contracts state that a person may
make a stipulation for another person. One of the parties to the contract (the
stipulator) may require a promise from the other party (the promisor) to
accomplish an act for performance for the benefit of the third party (the
beneficiary) and the third party may be a person who is not defined already
(e.g. future spouse or future children). The third party must be identified,
however, or identifiable at the time of the performance, and the contract must
be valid. The promisor and the stipulator thus must be capable, but the
beneficiary does not need to be (e.g. children).
The beneficiary is invested with a direct right to the act of performance against
the promisor from the time of the stipulation. Nevertheless, the stipulator may
freely revoke the stipulation as long as the beneficiary has not accepted it. A
stipulation becomes irrevocable at the moment the acceptance reaches the
stipulation of the promisor.
Acceptance may come from the beneficiary or his heir (after his death). It may
be expressed or implied, it may even take place after the death of the promisee
or the promisor.
Another option is the direct right for action for payment: cases where the law
provides the right to obtain payment for a third party. This is only when the law
expressly provides it. This occurs, for instance, with rent, where you have to provide
a guarantor, or in construction:
Manager → Contractor → Sub-contractor

In US law, the seller has the option to cure if the time for performance has not
expired. Therefore you can ask to be paid as long as you are still in the agreement.
The buyer can reject if the tender is not considered perfect. He also has the right to
revoke acceptance if there is such a defect which impairs the value.
Only a material breach provides an excuse. In the case of a material breach, you can
go for an anticipatory repudation, frustration of purpose, impossibility, excuse
performance, failure of an express condition, novation.