Prof. Avv. Bruno Tassone Docente di Principles of Civil

Prof. Avv. Bruno Tassone Docente di Principles of Civil Law LUISS Guido Carli

Notion of Contract

Although the statement could be taken for granted, in Common Law systems there is nothing like the doctrine of “negozio giuridico” or even of “atto giuridico”. Indeed, because of the case law reasoning, those systems tend not to build-up very broad and abstract categories. For a variety of reasons (to be mainly looked for in the existence of the old English writs and of the courts of equity) common lawyers think more in terms of “remedies” than in terms of rights.

Notion of Contract (II)

Pursuant to § 1 of the Restatement 2nd “A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty”. Then, the first element belonging to the notion of contract is the “promise”, which brings about several consequences considering the different notion widely used in Civil Law systems, based on the idea of “agreement” or “meeting of the minds”.

Notion of Contract (III)

After grounding the notion of contract on the promise, the very first problem is to answer the following question: when are promises enforceable (i.e., when are they assisted by a remedy in case of breach)? The very first answer to the question is that a promise is enforceable when the promisee paid a price for it (in the broad sense). So, the promise is binding if it is part of a deal or – to introduce the element of “consideration” – is given in exchange of a promise or an act made by the promisee.

Promise and Consideration

The consideration is then a promise to do or not to do something (forbearance) or a counter-performance (payment or another act useful for the promisor) given in return of the original promise. The consideration basically expresses the idea of “sinallagma” and implies that – in principle – unilateral promises are not (themselves) binding and enforceable. How does consideration restrict the notion of contract if compared to the Italian one?

Exceptions There are few exceptions to the requirement of consideration, the most important regarding promises under seal, which are binding if: in writing, the document containing the promise is delivered to the promisee, and the promisor and the promisee are named in the document (or so described) as to be capable of identification when the document is delivered.

Exceptions (II)

In such cases (unless the promise state differently), neither acceptance by the promisee nor his knowledge of the existence of the promise is essential to the formation of the contract. Nevertheless, a promisee who has not manifested assent to a written promise may, within a reasonable time after learning of its existence and terms, render it inoperative by disclaimer. Finally, other exceptions concern commercial law promises, such as the ones incorporated in negotiable instruments and letters of credit.

Promise

Case 1: A telephones to his grocer and says “Send me a ten-pound bag of flour”. The grocer acts accordingly. Is there a contract? If so, for what price? Case 2: A, passing by a market where he has an account, sees a box of apples marked “25 cts. each”. A picks up an apple, holds it up so that a clerk of the establishment sees the act. The clerk nods and A passes on. Is there a contract? A promise may be stated in words either oral or written or may be inferred wholly or partly from conduct (and in this regard differences between Civil Law and Common Law systems are slight).

Promise (II)

Where all the parties (to what would otherwise be a bargain) manifest an intention that the transaction is not to be taken seriously, there is no such manifestation of assent to the exchange. In some cases the setting makes it clear that there is no contract, as where a business transaction is simulated on the stage of a drama or during a contract law course. But in other cases there may be doubt as to whether there is a joke or one of the parties may take the joke seriously: If one party is deceived and has no reason to know of the joke, the law takes the joker at his word.

Promise (III)

Case 3: A offers to sell B his library at a stated price, forgetting that his favourite Shakespeare, which he did not intend to sell, is in the library. B accepts the offer. Is there is a contract including the Shakespeare? In interpreting the promise, the reliance principle offers important guidelines: Even though the intentional conduct of a party creates an appearance of assent on his part, she is responsible for that appearance if she knows or has reason to know that her conduct may cause the other party to understand that she assents.

Promise (IV)

Nevertheless, the promise must be always accompanied by the intention to be bound (and even though the same rule stands in Civil Law countries, common lawyers probably pay much more attention in the related ascertainment). Case 4: A invites his friend B to dinner in his home and B accepts. Is there a contract? Case 5: A is willing to sell his house and publishes an advertisement on the local newspaper. B is interested in the house for the offered price and writes a letter to A accepting the terms. Is there a contract? Case 6: A writes B a letter saying “I am eager to sell my house. I would consider $20,000 for it”. B promptly answers “I will buy your house for $20,000 cash”. Is there a contract?

Acceptance

An offeree's power of acceptance is terminated at the time specified in the offer or, if no time is specified, at the end of a reasonable time. What is a reasonable time is a question of fact, depending on all the circumstances, such as the nature of the proposed contract, the purposes of the parties and any relevant usages of trade. In general, the question is what time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree.

Acceptance (II)

Case 7: While A and B are engaged in conversation, A makes an offer to which B makes no reply, but on meeting A again a few hours later B states that he accepts the offer. Is there a contract? Case 8: A sends B an offer by mail to sell at a fixed price corporate stock not listed on an exchange. B waits two days after receiving the offer and then sends a telegraphic acceptance after learning of a sharp rise in the price bid over-the-counter. Is there a contract?

Mailbox Rule

Case 9: A makes B an offer, inviting acceptance by mail and B acts accordingly. A purports to revoke the offer in person or by telephone or telegraph, but the attempted revocation is received by B after the letter of acceptance is dispatched. Is there a contract? Unless the offer expressly provides otherwise,an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession. That happens without regard to whether the acceptance ever reaches the offeror (but an acceptance under an option contract is not operative until received).

Mailbox Rule (II)

It is often said that an offeror who sends an offer by mail makes the post office his agent to receive the acceptance or that the mailing of a letter of acceptance puts it irrevocably out of the offeree’s control. However, a better explanation is that the offeree needs a dependable basis for his decision whether to accept: In many legal systems such a basis is provided by a general rule that an offer is irrevocable unless it provides otherwise. The rule has been extended to cases where an acceptance is lost or delayed in the course of transmission, even though the convenience of the rule is less clear in such cases than in cases of attempted revocation of the offer.

Mailbox Rule (III)

The offer language is often interpreted as making the offeror's duty of performance conditional upon receipt of the acceptance and where the receipt of notice is essential to enable the offeror to perform, such a condition is normally implied. Case 10: A mails to B an offer to lease a land stating “Telegraph me Yes or No. If I do not hear from you by noon on Friday, I shall conclude No”. B duly telegraphs “Yes”, but the telegram is not delivered until after noon on Friday. Is there a contract? Case 11: A offers to buy a cattle for B on an understanding that if B telegraphs “Yes” A will notify B of the amount of money needed and B will supply it. B's “Yes” telegram does not arrive within a reasonable time. Is there a contract?

Mailbox Rule (IV)

The fact that the offeree has the power to reclaim his acceptance from the post office or telegraph company does not prevent the acceptance from taking effect on dispatch; nor does the actual recapture of the acceptance deprive it of legal effect. A purported revocation of acceptance may, however, affect the rights of the parties: It may amount to an offer to rescind the contract or it may bar the offeree by estoppel from enforcing it.

Mailbox Rule (V)

An acceptance is not operative when dispatched unless it is properly addressed and such other precautions are ordinarily observed to insure safe transmission (the offeree should for example use the return address indicated in the offer, whether in a letterhead or otherwise). The other precautions to be taken depend on what is ordinarily observed to insure safe transmission of similar messages. In cases of acceptance by mail, the postal regulations are ordinarily controlling on such matters. In unusual circumstances, however, as when the mails are stopped by war, reasonable diligence may require more than compliance with postal regulations. An acceptance is not effective on dispatch if the offeree knows or has reason to know that it will not reach the offeror.

Revocation

A written revocation or rejection (as well as acceptance) is received when the writing comes into the possession of the person addressed or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him. Case 12: A sends B by mail an offer but later, desiring to revoke the offer, telegraphs B. The messenger boy carrying the telegram from the receiving office meets C, B's neighbour, who volunteers to carry the telegram to B. C forgets to deliver it to B until the following morning. An acceptance by B mailed prior to this time creates a contract.

Consideration

A detailed definition of consideration is contained in § 71 of the Restatement 2nd: (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

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Prof. Avv. Bruno Tassone Docente di Principles of Civil Law LUISS Guido Carli