Basic elements of commercial contracts

Objectives
Understand which principles govern negotiations
Identify the validity and enforceability of a concluded agreement
How to act in case of default
Identify the key legal implications of common commercial contract situations

I/ The parties to the contract and their legal capacity to create a bargain
1. What is the role of Law in Society & Economy?

● Protect basic human rights

● Promote fairness
● Helps resolve conflicts
● Promotes order and stability
● Promotes desirable social and economic behavior
● Represent the will of the majority
● Protect the right of the minorities
● Maintaining order

Lawrence Lessig's "Four Modalities of

Regulation" framework
Law:
-Norms: Laws shape societal norms by codifying certain behaviors as (il)legal
ex: laws against theft or fraud help establish norms against such behaviors.
-Markets: Legal regulations create (dis)incentives for certain market activities.
Tax laws, antitrust regulations, consumer protection laws are ex of how the legal
system influences markets.
-Architecture: Legal requirements can mandate specific features/ constraints
in architectural designs. Ex: building codes establish safety standards that architects
must adhere to.
Norms:
- Law: Social norms can influence the creation and modification of laws. When
society evolves and accepts new behaviors, laws may change to reflect these
shifts in normative behavior.
- Markets: Social norms can impact consumer preferences, which, in turn,
influence market behavior. ex: norms around environmental consciousness
can lead to increased demand for eco-friendly products
- Architecture: Architectural choices often reflect social norms. Ex: design of
public spaces may be influenced by norms of inclusivity and accessibility.
Markets:
- Law: Economic interests can shape the creation and modification of laws.
Lobbying by industries often leads to legislation that serves their interests.
- Norms: Markets can influence social norms by promoting certain behaviors or
lifestyles. Fixing competitive prices, control offer & demand, dictates the
availability/accessibility/value P&S. Ex: advertising can shape societal values
and desires.
- Architecture: Market forces can drive innovation and technological
development, which can, in turn, impact the design of physical and digital
environments.
Architecture:
- Law: Technological architecture can necessitate legal regulations. Ex: the
internet's architecture led to the need for laws regarding digital privacy and
cybersecurity.
- Norms: Technological design can shape user behavior and, thus, norms. Ex:
Social media platforms influence how people communicate and share
information.
- Markets: Technological infrastructure can create new markets and disrupt
existing ones. Ex: The rise of e-commerce platforms is a clear example of how
architecture can impact markets.
These modalities are interconnected and often reinforce each other. The balance and
interplay between them can significantly affect how society functions and evolves,
especially in the rapidly changing landscape of the digital age. Legal, normative,
economic, and architectural forces continually interact and adapt in response to
societal needs and technological advancements.

2. Why do we set up contracts (meeting of minds)?

Organize & regulate Socio Economic relationships:

↳ Regulate social life
↳ Satisfy interest
↳ Protect right
↳ Prevent unsolved dispute in CM

Properties:
↳ Gives private autonomy for the parties to get to decide
↳ Voluntarily assume obligation that arise from contract
↳ Can be binding & enforceable even if not in writing/ not signed

3. What are the elements of a valid and enforceable contract? (MCCL)

1. Mutual Assent
2. Consideration
3. Capacity
4. Legality

1. Agreement Requires an offer and an acceptance. There must be a mutual

assent by the parties

Red Bull is known for its marketing slogan, "Red Bull gives you
wings," implying that consuming their energy drink would
provide consumers with enhanced energy and performance.
Some consumers filed a class-action lawsuit against Red Bull,
alleging that the company's advertising was deceptive
because, in reality, the product did not give them literal wings
or any extraordinary superpowers.

In this case, the "offer" can be seen as Red Bull's marketing

campaign, including the slogan "Red Bull gives you wings"
and the various advertisements claiming enhanced energy.
Consumers who purchased Red Bull products relied on this
advertising as part of their decision to buy the product, which
 can be seen as their "acceptance" of the offer, relying on the
representations made by Red Bull in its marketing materials.

To settle the lawsuit, Red Bull agreed to pay a substantial

amount to consumers who had purchased their products
during a specified period. This settlement can be seen as Red
Bull acknowledging that their marketing campaign had
created a legally binding obligation based on the elements of
an offer and acceptance. Red Bull, in essence, accepted the
consumers' reliance on their advertising as a legitimate basis
for a contractual relationship.

2. Consideration The promise must be supported by a bargained-for consideration

that is sufficient. Consideration is something of value exchanged
between the parties. It can be money, goods, services, or a
promise to do something.

↳In a contract to purchase a product, the buyer's money and the

seller's delivery of the product constitute consideration.

3.Contractual (LX) Legal capacity

capacity Referring to the mental and legal ability of parties to enter into a
binding agreement. Consent is not vitiated.
Valid contract:
→ capacity to understand the terms of the contract
→ appreciate its consequences
→ legal ability to be bound by it

4. Lawful object Contracts to accomplish illegal objects or against public policy are
void. The concept of a lawful object ensures that contracts align
with legal principles and societal norms.

II/ Roles of Offer and Acceptance in the Formation of a Contract

Understanding the dynamics of offer and acceptance is crucial in contract law,
encompassing elements like intent, communication, and the evolving standards
influenced by legal rules and commercial practices
 ● When is an acceptance deemed valid? (IAC)
The key is to determine the circumstances under which the offeree accepted an
offer and created a valid & enforceable contract

In determining if an offeree accepted an offer and created a contract, a court will

look for evidence of 3 factors:
1. Offeree intended to enter the contract
2. Offeree accepted on the terms proposed by the offeror
3. Offeree communicated his acceptance to the offeror

1. How does the offeree intend to enter into a contract?

This intent is assessed objectively, focusing on whether the offeree's conduct and
statements demonstrate a genuine willingness to be legally bound by the terms of
the offer. The standard is not subjective; it's about what a reasonable person would
interpret from the offeree's actions.

The subjective, unexpressed intent of the offeree is generally not considered. It's not
about what the offeree personally intended internally but how their outward
behavior would be perceived by an objective third party.

2. How does the offeree accept on the terms proposed by the offeror?
Understanding of the traditional mirror image rule, its evolving application, and
the nuanced scenarios where exceptions, such as inquiries or grumbling
acceptances, may apply. The key factor remains the objective indication of the
offeree's intent to be bound by the offeror's terms.

Common Law: The “Mirror image” rule

→ Strict application
The traditional contract law rule is that an acceptance must be the mirror image of
the offer. Attempts by offerees to change the terms of the offeror to add new terms
to it are treated as counteroffers because they impliedly indicated an intent by the
offeree to reject the offer instead of being bound by its terms.
→ Liberal application
Over time, courts have shown a tendency to apply the mirror image rule more
liberally. Rather than insisting on exact conformity, recent jurisprudence suggests
that only material or significant variances between the offer and acceptance would
result in an implied rejection.

3. How does the communicate his acceptance to the offeror?

III/ Typology of contracts