Docstoc

Formation of

Document Sample
Formation of Powered By Docstoc
					Formation of

    (International) Contracts
Content
   Precontractual stage
       Gathering information
       First contacts
       Letter of Intent
       Comfort letter
       Liability for breaking up the negotiations
   Conclusion of a contract
       Offer
       Revocation of an offer
       Acceptance
        Acceptance and counteroffer
Content
   Specific problems relating to general
    conditions
       Buyer's agreement to the seller's standard
        terms
       General conditions vs. verbal agreement
       Battle of forms
    Contract


First               conclusion           Performance
contacts
 Preconctractual stage       Contractual stage
Gathering information
   About the country
       Country risk reports
   About potential contractual partners
First contacts
   Inquiries
   Sending catalogues
   advertisement
   Invitations to contract
   Invitations to submit tenders
   Letters of intent
   Comfort letters
Nature of statements
   Not contractual statements
   Can have legal effect
   Contract
       Misrepresentation
   Non contractual liability
       Misuse of confidential info
       Liability for breaking up the negotiations
Offer: CISG, Art. 14(1)
 A proposal for concluding a contract
 addressed to one or more specific
 persons constitutes an offer if it is
 sufficiently definite and indicates
 the intention of the offeror to be
 bound in case of acceptance.
No intention to be bound
   Advertisement
       Newspapers, radio, TV
       WWW
       Sending catalogues
   Tenders?
   May be an offer where the invitee binds
    himself to accept the best tender
Exceptions
   Carlill v. Carbolic Smoke Ball Co. 1893
   EU Principles, Art. 2.201 (3)
EU Principles, Art. 2.201 (3):
 A proposal to supply goods or services
 at stated prices made by a professional
 supplier in a public advertisement or a
 catalogue, or by a display of goods, is
 presumed to be an offer to sell or supply
 at that price until the stock of goods, or
 the supplier's capacity to supply the
 service, is exhausted.
Liability for breaking up the
negotiations
   The party has got a better offer from a third party,
   The party sees that it is impossible to reach an
    agreement
   The party sees, that the business proposals of the
    other party are not feasible,
   The party sees, that itself would not be able to
    perform under the terms of the future contract
   The party loses its confidence in the skills and
    abilities of the other party, …
                            Good faith
Freedom of contract   (Reliance protection)
Liability for breaking up the
negotiations

   Transatlantic Recruitment Services v.
    Aruba 1993 …
   Legislation?
       Unidroit Principles Art. 2.15, “negotiating in
        bad faith”
       Slovenian Code of Obligations 2002, Art.
        20
       Project of the Dutch Civil Code, Art. 6.5.2.8
Unidroit P. Art. 2.15
   (1) A party is free to negotiate and is not
    liable for failure to reach an agreement.
   (2) However, a party who negotiates or
    breaks off negotiations in bad faith is liable for
    the losses caused to the other party.
   (3) It is bad faith, in particular, for a party to
    enter into or continue negotiations when
    intending not to reach an agreement with the
    other party
Slovenian law – Art. 30
   A party is at all times entitled to break-off the
    negotiations
   Is liable for damages:
       If negotiating without a serious intention to conclude a
        contract
       If abandoned this intention without a justified reason
Dutch case law
 Baris Riezenkamp 1956
Supreme Court:
  “By starting negotiations, parties enter
  into a legal relationship where they have
  the duty to observe the requirements of
  good faith (redelijkheid en billijkheid).”
 Project of the Civil Code
Dutch case law
    Plas v. Valburg 1982
    3 stages
    1. No liability
    2. Liability for (additional) expenses
    3. Expenses and compensation of lost profit:
     “where a party could justifiably expect that
     agreement would be reached”
Which stage?
   Normal expenses (branch)
   Additional expenses
   Required by the other party
Transatlantic Recruitment
Services v. Aruba 1993
   Decided by the Court of Justice of the
    Netherlands Antilles and Aruba
   No cassation by the Supreme Court
    (Hoge Raad)
       The legal rules were correctly applied
       The facts were misjudged
   Bad lawyer for the government
English law
   British Steel Corp. v. Cleveland Bridge
    Co.)
   Letter of intent of CB to BSC
       Terms of the proposed contract
       Request to begin production immediately
   BSC manufactured and delivered
   No contract concluded
   Quantum meruit (unjust enrichment)
Exclusion of liability
   “This letter is only a part of preliminary
    negotiations. We intend to be bound only
    upon the execution of a contract in writing.”
Conditional statements
   Without prejudice
   Subject to contract
   Subject to satisfactory survey
Unclear drafting
   “It is further mutually understood and agreed by and
    between the parties to this agreement that the
    validity of said proposed agreement is subject and
    conditioned upon the parties agreeing upon and
    reducing to writing all terms and conditions
    necessary and incidental to the validity of said
    proposed agreement.”
   “To be enforceable, an agreement between the
    parties must be written and signed by both parties.”
   “This letter of intent does not bind either of us and
    creates no rights or obligations.”
Letter of intent
   Not a contractual statement
   Sender wants the recipient to rely on it,
    on order to make preparations
   Preparations are normally at party´s
    own expense
   Not if made in reliance upon a letter of
    intent
         Comfort letter
   Only moral, not legal obligations
                   Comfort letter
       Parent

                                        Bank

      Subsidiary
                         Loan
Kleinworth Benson v. Malaysian Mining
Co. 1989
   Subsidiary borrows money, parent Co. gives
    “assurance”, not guarantee to the bank
   “It is our policy to ensure that the business of …… is
    at all times in a position to meet its liabilities to you
    under the above arrangement.”
   Subsidiary goes bancrupt
   1st instance: liability
   Appeal: only moral obligation
Commonwealth Bank of Australia v. TLI
Management, 1990

   : »We confirm that the company will
    complete takeover arrangements …«
   Takeover did not take place
   No legal obligation
Denmark (Supreme Court)
    “In view of the fact, that the Bank has placed
    credit facilities at the disposal of the
    subsidiary, the undersigned parent company
    hereby declares, that … we shall if required
    transfer to the subsidiary sufficient liquid
    funds to make sure, that the subsidiary will at
    all times be able to fulfil it’s obligations
    towards the bank”.
   Clear and unconditional promise
Conclusion of a contract
   Offer an d acceptance
   Agreement on essential points
   Conclusion by conduct (performance)
   Unidroit P. Art. 2.1:
    “A contract may be concluded either by
    the acceptance of an offer or by conduct
    of the parties that is sufficient to show
    agreement.”
CISG, Art. 23
 “A contract is concluded at the moment
 when an acceptance of an offer
 becomes effective in accordance with
 the provisions of this Convention.”
Offer
   Sufficiently definite
   Intention to be bound
   Who is who?
Sale of goods
   the goods ordered which should be
    described without ambiguity;
   the purchase price and the terms of
    payment; and
   the terms of delivery, including
    instructions for packing and invoicing;
    transportation and insurance.
EU P., Art. 2.1
(1)A proposal amounts to an offer if:
  a. it is intended to result in a contract if the
    other party accepts it, and
  b. it contains sufficiently definite terms to
    form a contract.
(2)An offer may be made to one or more
  specific persons or to the public.
Unidroit P., Art. 2.2
   A proposal for concluding a contract
    constitutes an offer if it is sufficiently
    definite and indicates the intention of
    the offeror to be bound in case of
    acceptance.
CISG, Art. 14
 A proposal for concluding a contract
 addressed to one or more specific persons
 constitutes an offer if it is sufficiently definite
 and indicates the intention of the offeror to be
 bound in case of acceptance. A proposal is
 sufficiently definite if it indicates the goods
 and expressly or implicitly fixes or makes
 provision for determining the quantity and the
 price.
Revocability
 In principle irrevocable (firm)
 Revocable (consideration)

 In principle revocable
Examples
   Slovenian CO Art. 25:
       An offer is binding, unless the offeror has
        indicated the opposite or if the opposite
        can be derived from the circumstances.
   UCC, Art. 2-205:
       A firm offer for the purchase or sale of
        goods given by a merchant in a signed
        writing is not revocable for lack of
        consideration.
CISG, Art. 16
  (1) until a contract is concluded an offer
  may be revoked if the revocation reaches
  the offeree before or at the same time as
  the offer.
  (2) However, an offer cannot be revoked:
  if it indicates, whether by stating a fixed time
  for acceptance or otherwise, that it is
  irrevocable; or
  if it was reasonable for the offeree to rely on
  the offer as being irrevocable and the
  offeree has acted in reliance on the offer.
Acceptance
   Mirror image rule
   Offer and counteroffer
Northland Airliners Ltd. v. Dennis
Ferranti Meters Ltd.
   Seller: "Confirming sale to you GM aircraft … ,
    Please remit £5,000."
   Buyer: "This is to confirm your cable and my
    purchase GM aircraft terms set out your cable
    … £5,000 sterling forwarded to your bank to
    be held in trust for your account pending
    delivery … Please confirm delivery to be
    made thirty days within this date."
General conditions
   Most enterprises use them
   Mostly not agreed upon
   Mostly sufficient that the other party had
    a reasonable possibility to read them
Possibly problematic general
conditions
   Exoneration clauses
   Choice of forum clauses
   Choice of law clauses
EC Regulation 44/2001, Art.
23
   …such an agreement conferring jurisdiction shall be
    either:
   (a) in writing or evidenced in writing; or
    (b) in a form which accords with practices which the
    parties have established between themselves; or
    (c) in international trade or commerce, in a form
    which accords with a usage of which the parties are
    or ought to have been aware and which in such trade
    or commerce is widely known to, and regularly
    observed by, parties to contracts of the type involved
    in the particular trade or commerce concerned.
General conditions vs. verbal
agreement
   Specific agreement overrides general
    terms
   No problem, if written
   Verbal promise not to rely on a term in
    general conditions difficult to prove
Battle of forms - example
   Buyer: Any controversy or claim arising out
    or relating to this contract or the breach
    thereof, shall be settled by the ICC arbitration
    held in Vienna, Austria, in accordance with
    the rules of the ICC.
   Seller: Any controversy or claim arising out or
    relating to this contract or the breach thereof,
    shall resolved solely by recourse to the courts
    and not by arbitration.
Battle of forms
   Mirror image rule
   First shot or last shot
   Elimination of conflicting terms
Battle of forms
   B.R.S. v Crutchley, 1967
   Butler Machine Tools Co. Ltd. v. Ex-Cell-
    O Corp. 1979
   “… on the terms and conditions stated
    therein”
ORDER FORM:


…….
……
…….




                                Signed: the buyers


“we accept your order on the terms and conditions
                 stated therein”
                                 Signed: The sellers
Article 2-207(1) UCC
 A definite and seasonable expression of
 acceptance or a written confirmation
 …operates as an acceptance even
 though it states terms additional to or
 different from those offered or agreed
 upon, unless acceptance is expressly
 made conditional on assent to the
 additional or different terms.
Article 2-207(2) UCC
    The additional terms are to be construed as
     proposals for addition to the contract.
     Between “merchants" such terms become
     part of the contract unless:
1.   the offer expressly limits acceptance to the
     terms of the offer;
2.   they materially alter it; or
3.   notification of objection to them has already
     been given or is given within a reasonable
     time after notice of them is received.
Article 2-207(3) UCC
 Conduct by both parties which recognizes the
 existence of a contract is sufficient to
 establish a contract of sale although the
 writings of the parties do not otherwise
 establish a contract. In such case the terms
 of the particular contract consist of those
 terms on which the writings of the parties
 agree, together with any supplementary
 terms incorporated under any other
 provisions of this Act.
Dutch Civil Code Art. 6:225(3)
   Where offer and acceptance refer to
    different general conditions, the second
    reference is of no effect, unless it
    expressly rejects the general conditions
    in the first reference.
CISG, Art. 19
 (2) However, a reply to an offer which purports to be an
 acceptance but contains additional or different terms which do
 not materially alter the terms of the offer constitutes an
 acceptance, unless the offeror, without undue delay, objects
 orally to the discrepancy or dispatches a notice to that effect. If
 he does not so object, the terms of the contract are the terms of
 the offer with the modifications contained in the acceptance.
 (3) Additional or different terms relating, among other things, to
 the price, payment, quality and quantity of the goods, place and
 time of delivery, extent of one party's liability to other or the
 settlement of disputes are considered to alter the terms of the
 offer materially.
Battle of forms
   Buyer: Any controversy or claim arising out
    or relating to this contract or the breach
    thereof, shall be settled by the ICC arbitration
    held in Vienna, Austria, in accordance with
    the rules of the ICC.
   Seller: Any controversy or claim arising out or
    relating to this contract or the breach thereof,
    shall resolved solely by recourse to the courts
    and not by arbitration.

				
DOCUMENT INFO