Pre-contractual Liability &

Contract
Interpretation

Session 4
Contract Law

Master in Management (MiM)

29/08/2023 1
 Today’s Program
• Recap
• Pre-contractual liability
– Tennor
– Manoukian 
• Quiz!
• Contract Interpretation
– UBS v Red Zone
– Haviltex
– Bear Sterns

29/08/2023 2
 Recap

• Lawyers
• Freedom of contract 
• Legal capacity & issues of validity 
• Uber 
• Formation: offer & acceptance 
• In-class exercises 

29/08/2023 3
 Pre-contractual Liability
• General principle
during negotiations:
Freedom
• Limit: Good faith
• Jurisdictional variation
• Art. 2.1.15 UNIDR.
• Contract v tort law
• Confidentiality 

29/08/2023 4
 Pre-contracts

• Agreement to negotiate 
• Preliminary agreement 
         - terms left open
- fallback agreement 
• Called: letter of intent, agreement in principle,
memorandum of understanding

29/08/2023 5
 Tennor Exercise
Briefing the case: facts – issue – holding – rationale 

1. How did the court build the argument that signing th
e TA was necessary for its validity?
2. What are the implications for the “share the pain”
doctrine for ongoing M&A transactions in the face
of the Covid-19 pandemic?
3. What if after signing the contract the value of the
target company decreases dramatically because of
Covid-19? How could the parties regulate this risk?
29/08/2023 6
 Tennor Simulation
1. Class will be divided in two groups

2. Prepare arguments on behalf of one party in the dispute

regarding: 1) whether the contract was concluded; 2)
whether the break-up fee is valid (10 minutes)

3. Defend your client in a “moot” court

29/08/2023 7
 Manoukian

o Let’s brief the case: 

o The facts 
o The procedural history 
o The Supreme Court’s ruling 
o The follow-up

29/08/2023 8
 Break!

29/08/2023 9
29/08/2023 10
 Performance
• Default rules! (often in contract law)
• Specific result v best efforts 

• When? (Art. 6.1.1 UNI)

• Earlier performance (Art. 6.1.5 UNI)
29/08/2023 11
  Interpretation of
Contracts
• Arts. 4.1-4.5 UNIDR. Also, Art. 5.1.1!
• Interpreting a contract v statement/conduct
• Relevant circumstances 
• Relation of contractual terms to the whole
contract 

29/08/2023 12
 UBS v. Red Zone

Brief: facts – issue – holding – rationale

• Pacta sunt servanda: need for interpretation

• Advisory agreement: acquisition transaction
• What is the interpretation method?

29/08/2023 13
 Haviltex
Briefing: facts – issue – holding – rationale 

• Interpretation standards: objective v. subjective

• Reasonable meaning 
• Social context 
• How does this compare
to UNIDROIT?

29/08/2023 14
 Bear Stearns/JP Morgan
• 2008: Bear  
• JPMorgan steps in
• Share purchase agreement (SPA)
• 'Inadvertently included’ phrase
• JPMorgan’s error?
• How did Bear's shareholder use
this to their benefit?

29/08/2023 15
 Recommendations

29/08/2023 16
 Thank you!

29/08/2023 17