CONTRACT LAW

Lebanese Law
 I. Definition:

• A contract is an "agreement by which one or more persons bind

themselves in favor of other persons to give, to do or not to do
something".

• It follows from the terms of this definition that a contract is a:

•legally binding agreement

•between two or more persons

•which creates rights and obligations for them.

• - Article 165 COC ‘’A covenant is any agreement of intents
designed to produce judicial effects; when this agreement tends
to create obligatory relations, it takes the name of contract’’.
 II. Characteristics

1. Legal binding promise (agreement)

• Moral promise.
• Binding promise.
• A contract is not an engagement purely based on the moral sense
of the obligor, like a "gentleman's agreement".
• It is legally binding for the parties and enforceable by public
authorities.
• if the debtor in a contract refuses to execute its obligations
willingly, the creditor may ask the authorities of the state
(Judge and enforcement authorities) to force the debtor to
execute.
Article /221/ COC, ‘Contracts concluded according to regulations are binding on
those who are party to it. They must be understood, interpreted and carried out
in conformity with good faith, equity and usage
• A contract is a personal norm, only binding for the persons
who consented to it (principle of relativity of contracts),
while a general rule is binding for a category of persons;
that's why we say that the contract is the law of the
parties

• Article 225 COC, In principle, contracts are not operative in

relation to third parties, at least in that they cannot have
them acquire rights nor set them up as debtors; they have
a relative value, limited to the parties and their rightful
claimants on a universal basis.
 • 2. Obligations and Rights
• A contract Creates a duty:
• Obligations.
• Rights.
• An obligation (which can be positive or negative) is defined
as a bond of legal necessity which binds together two or
more persons.
• It is what a person has promised to perform in a contract
concluded with another party (eg. paying the price,
delivering goods, guaranteeing someone else...etc).
• The other party to the contract will have a right to the
performance of that obligation.
• Therefore, for each obligation corresponds a right.
 3. Intention to be bound

• When a person concludes a contract with another

person, they are both supposed to want to be
bound by it.

• Contracts are not necessarily written, but writings

are a good proof of the intention to be bound.
 4. Meeting of minds

• The meeting of minds between the parties, upon the

same object and the same nature of the contractual
relationship is very important
• The meeting of minds supposes that the essential
characteristics of the contract are accepted by both
parties.
• They must not speak about two different objects
(different car, or a motorcycle...) or two different kinds
of contracts (sales, lease, donation...).
 5. Contractual freedom
• Free will.
• Restriction (public policy).
• The principle in general is that persons are free to contract as
they want;
• they can conclude:
• the contract that they want
• with the persons that they want (article 166 of the
Lebanese code of obligations and contracts).
• However, nowadays, the main principle of contractual freedom
is far from being absolute. During the twentieth century, many
legislators recognized that contractual freedom should be
limited in certain cases when required by public policy.
• PUBLIC POLICY was used more and more extensively by courts
because it was a flexible concept that they used when they
considered that the contract was harmful for the society,
• But in some situations no general rule explicitly prohibits it (eg,
prohibition of drugs, immoral behaviors, slavery, human organs
traffic...etc)
• or when necessary for the protection of the week parties (workers,
insurance and banking customers, airlines passengers etc...).
• Also, the modern states have adopted more and more mandatory
rules. which are general rules promulgated by legislators, that
apply to contractual relations even if unwanted by the parties.
 II. Types of Contracts

1. Expressed and implied contracts

a. The expressed contract is the one formed by

language (oral or written).

b. The implied contract is the one formed by a way of

behavior, other than oral or written language (eg,
when somebody uses public transportation such as
buses).
2. Unilateral and Bilateral Contracts:
• Unilateral contracts are those where only one party at the
contract is obliged to the other parties, with no reciprocity,
in a way that one of the parties is only a creditor and the
others are only debtors (eg., contract of donation...ete).

• Bilateral contracts are contracts where all the parties to a

contract are obliged to each other with reciprocity (eg, sales
contract, where one of the parties the buyer" receives the
object and pays the price, while the other party "the seller
delivers the object and receives the price).
3. Remunerated and non-remunerated contracts
• The remunerated contract is the contract by which all the parties receive
equitable advantages (eg, sales, lease, borrowing money with interest,
employment contract...ele).
• Non-remunerated contracts are made for the sake of one party, without
the other parties being capable of having some advantages which are
equitable with the sacrifices they gave (eg, donation, borrowing money
without interest etc...).
• It must be noted that remunerated contracts are divided into:
• commutative contracts where all the advantages and disadvantages
are known at the time of signature (sale contract)
• aleatory (risky) contracts where the advantages and disadvantages of
the contract depend upon a future and uncertain event (eg. insurance
contract, income for life).
 4. Formal and simple contracts
• Simple contracts are those in which formation is not bound
by any external condition concerning the form or any
particular act.

• On the contrary, formal contracts (known as authentic

contracts) are those in which formation depends upon the
accomplishment of certain requirements imposed by law,
such as the ratification of a Notary public.
• (eg, the contract for the establishment of a Joint Stock
company. or real-estate contracts
 5. Discussed and submitted contract

• Discussed contracts are those in which the conditions and the

terms of the contract are freely discussed and established
between all parties (eg, ordinary sale, lease ctc...).

• Submitted contracts (join or leave) are those in which the

conditions and terms of the contract are imposed by one party
on the other one, who may accept or refuse the contract
without having the ability to discuss its conditions and its terms
(eg, insurance contract, airline ticket, bank loans...etc). (take it
or leave it contract).
 6. Collective and individual contracts
• Individual contracts are those in which the consent of all
parties is required for the formation of the contract, even
though there is a big number of persons, (eg. companies who
have the form of an Unlimited Partnership).

• Collective contracts are those in which the consent of the

majority overrides the consent of the minority (eg. collective
labor contracts and contracts concluded by the General
Assembly of a Joint Stock Company...ete).
7. Nominated and non-nominated contract
• Nominated contract is regulated by special provisions and
terms (the law gives it a name, sale, lease, contracting
agreement).
• Non-nominated contract is regulated by the general rules of
law.
 III. Formation of Contracts

• A contract is formed by an agreement between two or

more parties, and the said agreement must appear in
their declarations
• Thus, every contract must include three major elements
which are the consent, the object and the cause.
Another major element, which is special for sales
contracts, is the price.
 Formation of Contracts.
A. The Consent
1. Offer & Acceptance.
a. The Offer
b. The Acceptance
2. Vices of Consent
a. Mistake
b. Fraud
c. Duress
d. Lesion.
e. Incapacity
B. The Object
3. The Object must Exist
4. The Object must be Legal
C. The Cause
D. The Price
 A. Consent
 The process by which the parties reach the meeting of minds is
generally a negotiation, which either proceeds piece by piece,
or through an exchange of a global offer and an acceptance of
the other party, which may also lead to the piece by piece"
negotiation process.
 The consent is formed between two or more persons or legal
entities, who are qualified to do it and who have their legal
capacity
 a. The Offer:
 The offer is a proposal to make a contract.
 It is an undertaking by the offeror to be contractually bound in
the event of a proper acceptance being made by the offeree.
 An offer creates a power of acceptance in the offeree and a
corresponding liability on the part of the offeror.
 The offer could be:
 oral or written,
 expressed or implied.
 In all circumstances, the offer must be:
 definite,
 complete
 and precise not vague or illusory
 it should include the:
 object of the proposed contract,
 the price
 and all relevant details.
• It must be a final proposal that is to say with a view of
acceptance.

• Therefore, the offer must be distinguished from the mere

invitation to negotiate in which the offer is not precise enough
(eg, an advertisement in a newspaper which does not contain
a reward).

• The offer remains valid as long as it has not been rejected by

the offeree or withdrawn by the offeror.
• Such rejection should be expressed clearly: otherwise, it
could be considered as a counteroffer.

• The offer can sometimes be open for a limited period of time.

In such a case, the offeror cannot withdraw it before the end
of the specified period. At the end of the specified period, if
the offeree has not accepted it the offer falls automatically,
and the offeror becomes free.

• Sometimes, in this type of offer, the offeree pays an amount

of money to the offeror as a compensation for waiting for his
answer during that period of time. (option USA).
 b. The Acceptance
• Acceptance is a manifestation of assent according to the terms
of an offer, in the manners prescribed or authorized in the offer.

• In accordance, acceptance must correspond in every detail with

the details of the offer.

• If the offeror did not specify how the acceptance should be

expressed, it is usually considered that the acceptance should
then be expressed in the same way the offer was itself
expressed.

• If the offeree makes any changes to the terms of the offer

instead of simply accepting it, his act will be considered as a
counteroffer an offer made by the offeree to the offeror by
changing one of the terms of the offer).
• Acceptance is ineffective unless and until it is communicated to the
offeror.

• That's why, as a rule, silence does not constitute acceptance.

• But there are some cases in which silence may imply acceptance and
consent.

• These cases are found when there is a previous similar relation

between the parties, especially in commercial activities (eg, like
when an industrialist delivers ink every week to a printing company),
or when the usages and the norms of the profession imply such
acceptance (eg. when a general distributor delivers merchandise to a
supermarket with an invoice to the director who takes it with no
comment, or when a newspaper is delivered every day at the door of
your house and an invoice is sent to you at the end of the month).
 2. Vices of Consent
• Those are the factors which make the consent ill and weak.

• These factors are

• Mistake (or Error),

• Fraud (or Misrepresentation).

• Duress (or Violence),

• Lesion (or Exploitation)

• and Incapacity

• In such cases, the victim of the vice, and only the victim, could ask the
court to void the contract. That's why we qualify contracts which have
some vices of consent as voidable.
• The nullity of such contracts is called relative nullity
opposed to the absolute nullity. Such contracts may be
annulled by the judge if the victim asks him to do it.

• It must be noticed that when the nullity of the contract is

motivated by the protection of one of the parties (eg. in
vices of consent), only the victim could ask the judge to
void the contract. This nullity is called relative nullity.

• But when the nullity of the contract is motivated by the

protection of society (eg. when there is an illegal object
or an illegal cause). anybody could ask the judge to void
the contract. This nullity is called absolute nullity
 a. Mistake
• The mistake could be related either to the:

• Substance of the object, when it is related to some qualities

which the parties showed that they regarded as essential
• (eg. when a person buys a ring thinking that it is made from gold,
but it turns out to be made from copper),

• The identity of the person with whom the contract was

signed. Mistakes about the person are rarely important to the
vices of consent in sales contracts: they may be taken into
consideration in contracts where the identity of the person is
very important
• (eg. donation, contract to form an artistic work etc...).
• Even for mistakes on the substance of the object of the
contract, and to be considered as a vice of consent, the mistake
should be essential for the consent of the victim in a way that
the gravity has attained a degree. such as without this mistake
the other party would not have contracted.

• We should also note here that there are two other kinds of
mistakes, making the contract inexistent.
• existence of the object (eg. when somebody buys a car
which he thought it had existed at the moment of
contracting)
• the nature of the contract (eg. when you sign a contract
thinking that it's a sales contract while the other party thinks
it's a lease contract)
 b. Fraud
• Fraud is a conduct of a contracting party which provokes intentionally
the mistake to the other party.

• It could be a lie relative to the object or to the identity of the person

(like when a merchant paints a piece of iron with a golden color and sells
it as if it is a piece of gold).

• It could be a little comedy, played to mislead the person. There must be

some maneuvers with the intention to mislead the other person.

• That's why the fraud must be determinant to the contract (where the
contract would not have been concluded if the other party knew about
the fraud); or, if the fraud committed is not determinant for the consent
of the other party, the contract would not be void, but the author of the
fraud would be condemned to pay damages. In this case, the victim of
the fraud must suffer from damages.
 c. Duress
• The contract is voidable because of duress if one of the parties has contracted
under founded fear which the other party would illegally inspire to him

• (eg. when you point your gun to somebody ordering him to sign a
contract).

• The fear is considered to be founded when the party who invokes it is pushed,
according to these circumstances, to believe that a serious and imminent
danger is going to threaten him, or others, in his life, his honor or his property.
It must be noted that violence does not need to be executed immediately,
threat is enough to do the job.

•Nevertheless, we must distinguish the above situation from the one in

which the contracting party would not have only signed because she is afraid,
but because she was materially obliged to do so (eg. her hand was taken by
force and was obliged to sign). In this case the contract is not only voidable but
inexistent, because the victim hasn't given her consent at all.
 d. Lesion
• Lesion is a disequilibrium between the obligations of the parties
(injustice imposed by one party on the other one).
• In other words, there is lesion when the obligations of one party
are not equivalent with the advantages that she has obtained
form the contract, or with the obligations of the other party.
• According to Article 214 of the Lebanese code of obligations and
contracts, we should differentiate between the cases when the
victim of lesion is a minor (less than 18 years) and when she is
an adult
• When the victim is a minor any difference between the real
price and the chosen price would render the contract voidable;
the victim has the right through her tutor or when she reaches
18. to ask the court to void the contract.
 • If the victim is an adult, three conditions are required to make
a contract voidable because of lesion:

1. The objective element: There must be a major disequilibrium

between the obligations (price less than half the price of the
market from the seller's point of view, or more than double the
price of the market from the buyer's point of view)
2. The subjective element: The weakness of the contracting party,
due to her inexperience, stupidity. Lachivness (frivolity) etc...
3. The exploitation of the weakness of the victim by the other
party (at least she must know about it).

• As a result of lesion, the victim could ask the judge either to

declare the contract void or to order the other contracting
party to pay the difference of the price.
 e. Incapacity
• Each person who has reached the age of 18 is considered capable
to be obliged and to conclude legal acts, unless stipulated
otherwise in a text of law
• (eg. voting rights in Lebanon).
• Legal acts made by incapable persons who are totally unable to
distinguish (persons below 16) are considered as inexistent
• Legal acts made by incapable persons but who are able to
distinguish (between 16 & 18) are simply voidable (if all the
formalities requested in the contract are respected, nullity cannot
be demanded unless with the proof of a lesion).
• Nullity could only be evoked by the incapable himself, by his legal
representative or by his heirs.
• There is incapacity also when the contracting party is insane,
prodigal. lunatic or a drunkard.
 B. The Object
• We must differentiate here between the object of the contract and the
object of the obligation.

• The object of the contract is the main purpose that the parties have
contracted for (eg. to build a hotel, to buy a car ete..). (article 186 of Co o.).

• On the other hand, each obligation in the contract should have an object,
which is the performance required from the debtor in favor of the creditor
(eg. in a sales contract, the object of the obligation of the buyer is to pay
the price while the object of the obligation of the seller is to transfer the
ownership and the possession of the object).

1. The Object must Exist: The existence of the object supposes two things: The
object must be possible to perform (flying) and it must be determined or able
to be determined.

2. -The Object must be Legal: Illegal objects are the ones that are against ethics,
laws and public policy (eg, contracts concerning the sale of drugs, killing or
kidnapping a person or facilitating illegal prostitution).
 C. The Cause:
• We must distinguish between the cause of the contract and the cause of the obligation.
• The cause of the contract is the real reason for what the parties have contracted (eg, you
sold your Porsche to buy a Ferrari, or you bought a ring to offer it to your wife etc.).
• The cause of the obligation is the direct result wanted from the contract (eg, to receive
the price of the car, to receive the ring etc...).
• In bilateral contracts, the cause of the obligation of one party is the object of the
obligation of the other party (eg. for the first party the object is to transfer the object,
and the cause is to receive the price, while for the other party the object is to pay the
price and the cause is to receive the object)
• The cause of the contract and the cause of the obligation must exist, or an obligation
without a cause does not have any legal value and the contract is then void. Even in
donation the cause of the contract exists, it is the will to give or the desire to be
generous with somebody.
• The cause of the contract should be legal, within the rules of law and public policy (eg,
you buy a house to transform it to a drug factory etc...). If the cause is illegal, the
contract is void with absolute nullity.
 D. The Price
• The price is considered one of the major elements in sales contracts it is
considered as the cause of the obligation of the seller and the object of the
obligation of the buyer.

• Lebanese law stipulates, in article 388 of the CO.C. that a sales contract cannot be
concluded without a determined or an able to be-determined price

• Concerning the price that is able to be determined, at least one objective

criterion must be set in the contract which would allow the price to be determined
later on. This criterion could be the price of the market, the common price used in
such sales, the price which had been used in previous relations between the
parties or even it could be left to a third party (a professional or an association
who will determine the price within a certain period of time.

• It should also be noted that the price should be a sum of money, otherwise the
contract won't be qualified as a sales contract but as an exchange contract another
type of non-nominated contracts.
 IV. Termination of Contract
A. Normal termination: This termination could be done either by:
o The full performance of the obligations (like in the contract of
sales).
o The end of the fixed term of the contract (like in employment
contracts and in commercial agency contracts etc..).
B. The Special Termination of Contracts: This termination could be
done by:
- voidance,
- resolution or,
- resiliation of the contract.
- It could also be done by an agreement between both parties to end
their contract or to replace it with a new one
 1. Voidance of Contracts:

o Voiding a contract is always determined by an original vice

incoming with the birth of the contract (like the vices of
consent) and didn't lead to an automatic voidance that is
equivalent to inexistence.

o This voidance is covered by the principle of relative nullity.

o It must be noted that the voidance of the contract cannot be

exercised if the vice has been accepted by the damaged party
(this acceptance is called confirmation).

o It must also be noted that voidance could only be pronounced by

court.
2. Resolution of Contracts:
o Resolution is the dissolution of a contract because of events
occurring after its formation.
o Contrary to resiliation resolution has a retroactive effect: it
erases the contract from the beginning, and things should be
returned, in principle, as they were before the conclusion of the
contract.
o There are different causes leading to the resolution of the
contract:
 Resolution might be related to a subsequent condition to the
free will of the parties, to an external event (like force
majeure) or to a decision of the court
 External Events: This is the case of "Force majeure".
 The Decision of Court: This is the case when one of the
parties asks the judge to pronounce the resolution of the
contract because of the non-execution of the obligation by
the other party
3. Resiliation of Contracts:
o The resiliation of a contract is the termination of this contract
for the future (it has no retroactive effect).
o This resiliation happens with the consent of all of the parties,
except in lease and mandate contracts and in partnerships where
it could be unilateral because of the element of intuitus
personae (A personal services contract, where the person of one
of the contracting parties is an essential term of the contract)
plays an important role .
o The other means of resiliation are:
 Resiliation could be realized when there is a clause in the
contract which allows the resiliation of the contract by one of
the parties (eg employment contract).
 Resiliation could also be realized in contracts of
undetermined duration. In this case, each party to the
contract could end the contract by its own free will, and
without the approval of the other party.
 When the parties have agreed, unanimously, to resiliate the
contract
 By the decision of Court.