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Formation of a contract
BUSINESS CONTRACTS
Lectures 1-2
Margit RCZ dr.jur., LL.M.

maracz@ibs-b.hu

USEFUL INFORMATION
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teachers? (Intranet)
content? (module description - Intranet)
assessment? (mid-term paper (80%; - 40 % minimum required)
+ class work (20%); pass mark: 40%, together - Intranet)
attendance?
questions?
learning materials? (G. Andrsi - T. Madarassy: General +
International Business Law for IBS students; downloadable
from the Readings page)

WHAT LAW TO STUDY?

1. The law of obligation in the legal system

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LAW
I. PUBLIC LAW

Law of personal
relations

Tax law

Family
law

III: MIXED
LAW

Finance
law, etc

(public law +
private law
elements)

Labour
law
Land
law

Commercial
law

Civil law

Administ
rative
law

Constituti
onal law
Crimin
al law

II. PRIVATE LAW

Law of
persons

Law of property
relations

Law of
succession

Law of
property

Law of
obligations
Company
law

Competition
law, etc.

Unilateral
deal(rewards)
Unjust
enrishment

Acts of
public
authorities

Tort

Contracts

Civil law
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Law of personal
relationships

Law of property
relationships

Law of
persons

Law of
property
Law of
obligations
CONTRACTS

Acts of public authorities

(e.g.expropriation)

Unjust enrichment (quasi contracts)

Torts (unintentional
damage)

Unilateral contracts
(e.g. rewards)

WHAT IS A CONTRACT?
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DEFINITION: Mutual and unanimous expression of the parties will aiming to

produce legal effect; Legally enforceable promise or set of promises

COMPULSORY ELEMENTS of a contract:

1. agreement (offer + acceptance + intention) existence
2. supported by consideration validity or enforceability
3. voluntarily entered into validity
4. by parties having capacity to contract validity
5. to do a legal act (not illegal ) validity

Governing principle: Good faith and fair dealing

WHY HAVE and WHAT CONTRACTS?

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Why have contracts?

Agreements calling for future performance:
need to plan business purchase of raw material manufacturing sale of
finished product
need for a means to force people to honour their promises enforcement by
state authorities
What contracts?
18th/19th c.:courts task is not to releive fools of the consequences of their folly
20th c.: mass production, market economy STANDARD FORM CONTRACTS:
parties unequal bargaining power recognised
state interference with contractual relations through legislation
protection against disproportionate contracts before the courts

Types of contracts
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Bilateral contract: promise for promise

Unilateral contract: promise for act
Executed contract: fully performed by all parties
Executory contract: not fully performed yet
Express v. implied contracts
Quasi contract: legal fiction cretaed by the court to avoid
injustice, e.g.: when unjust enrichment

Doctrine of promissory estoppel: prevents promisors to raise legal

defense to execution of their promises

1. AGREEMENT: OFFER
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Definition: Manifestation of willingness to enter into a bargain

Elements:
- intent (objective!) to make a binding offer
- definite + sufficiently clear offer (not just inquiry!)
- communicated to specific offeree
- terms of the offer form part of the contract; (material terms = goods, price, quality,quantity)
Effective: on receipt by offeree
Invitation to (make) offer/treat:

advertisement/ catalogue/ price list / goods on shop shelves or in shop window

auction (seller = invites to make offers; bidder = offeror)

tender (tender issuer = invites to make offers; bidder = offeror; tender issuer = acceptor)

Unilateral contracts (e.g. "I'll pay you $1,000 if you cross the Brooklyn Bridge):

promise for act (executed contract)

revocation (only before full performance, by payment of the value of performance already
done)

1. AGREEMENT: OFFER (cont.)

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Termination of offer by:

1. withdrawal (before offer reaches offeree)
2. revocation (before acceptance is dispatched)
- effective: on receipt by offeree
3. rejection (express) or counteroffer (implied)
4. lapse of time (after the stated time or a reasonable time; EXCEPTION =
OPTION)
5. death or insanity of a party
6. destruction of the subject matter
7. intervening illegality (e.g. meanwhile new law passed declaring the
planned deal illegal)

1. AGREEMENT: ACCEPTANCE
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Is made in reliance of the offer

Is absolute and unqualified
Exactness (according to the offer) - NOT a cross-offer or a counteroffer
Express vs implied (by performance, e.g. by shipment)
Silence or inactivity
Battle of form contracts: subject to contract stipulation
Effective:
1. on receipt by offeror
2.
UK/some US states, in case of mail: on dispatch by offeree (postal rule!)
Acceptance of unilateral contracts (rewards): by fully performing the requested
act

NON-ACCEPTANCE
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1. Rejection of offer (express)

2. Counteroffer (implied):
terminates the offer
constittutes new offer
requires acceptance

2. CONSIDERATION
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Aim of contract law = to enforce bargains

UK/US: consideartion is valid if there is:
a bargained-for exchange
of a promise, act or forbearance
that has legal value sufficient but not necessarily adequate

UK/US: free promises (e.g promise to give a gift) not enforceable

3. VOLUNTARY ASSENT (meeting of minds)

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Grounds for invalidity (voidness or voidability):

Mistake (mutual or unilateral)
Misrepresentation (allegation of an an untrue fact with the
intention of inducing the other party to enter the contract)
Fraud (deception)
Duress (wrongful threat)
Undue influence (against weak/ timid party)

4. CAPACITY (to contract)

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Rule: persons full capacity (ability to make rational decisions!)

Exception: Limitation of capacity
Grounds for limiting capacity:
1.
age (minor, major)
2.
mental impairment (permanent / periodic,/ temporary; full/ partial)
Capacity / Incapacity
Hungary: Full (18+) / Restricted (14-18, or majors restricted) / Excluded (under 14 or majors excluded)
disposing capacity
How to sign a contract? 1. Parents sign; 2. Person lacking full capacity sign + Parent/guardian
approves; 3. Guardianship authorittys permission needed
Consequences of capacity faults on contracts = Invalidity (voidness or voidability) signed contract:
1.
relative nullity/voidness, by the force of law; or
2.
can be disaffirmed/cancelled (voidable)
Exceptions from the above rule:
1.
Contract of necessaries (small shoppings of persons lacking (full) capacity)
2.
Personal statements (e.g. marriage, last will and testament)
3.
Beneficial contracts
4.
Contracts where minors consideration is covered from his own earning (NOT from gambling!)

FORCE/EFFECT(IVENESS)
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Effective date
Date of termination (fixed term contract)
Condition precedent = contract will enter into force when an
uncertain event takes place sometimes in the future
Condition subsequent = contract will terminate when an uncertain
event takes place sometimes in the future

For a contract to be ENFORCEABLE:

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