D. General Principles of International Contract Law

D. General Principles of International Contract Law

Set forth below is the beginning of a comparative analysis of substantive international contract law. With respect to the various subjects examined, mention is made of the rules of law developed by the various sources of contract law and international contract law including UNIDROIT’s Principles of International Commercial Contracts (the PICC”) and the official Comments thereon, the Lando Commission’s Principles of European Contract Law (the “PECL”), the United Nations Convention On Contracts For The International Sale Of Goods (the « CISG »), the Uniform Commercial Code (the “UCC”) and national laws, particularly American and English common law and French law. Reference is also made to standard contractual provisions set forth in international contracts with respect to the various subject matters.

1. Freedom of Contract and Mandatory Law

The laws of most of the major trading countries in the world recognize the principle of freedom of contract in the context of international trade. The principle of freedom of contract is recognized by the Unidroit principles (Art. 1.1) and the European principles (Art. 1.102 (1) which, however, subjects this freedom to the requirements of good faith and fair dealing and the mandatory rules in the principles).

2. 
   Good Faith and Fair Dealing
   

The requirement for parties to a contract to act in good faith is a standard of behavior of a mandatory character under most domestic laws.

3. 
   Confidentiality
   

Each party to a contractual negotiation is bound by a general duty of confidentiality not to disclose or use for its own personal interest confidential information, trade secrets or the like which may have been communicated to it during such negotiation. This obligation exists whether or not a contract is concluded and even after the end of a contract. See also PICC Art. 2.16 and PECL 2.302.¹⁷

4. 
   Pre-Contractual Stage
   

Some important ideas to remember:

1. 
   Once all the material elements of a contract are determined and there is an intent to contract, a pre-contractual situation may become a contract, so beware. If a material element is missing, there is no contract.
   

2. 
   To exclude contractual liability, state so in the document in question. If you are not sure or you want some contractual liability, it may be best to say nothing.
   

3. 
   Pre-contractual liability is usually in tort (responsabilité délictuelle). See Art 1382 of the French Civil Code: “Tout fait quelconque de l’homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrive à le réparer.” A party which abusively breaks off contractual negotiations can be held liable for the resulting harm to its co-contractor. (See Comm., 7 avril 1997, Banque franco-allemande c/ Banque Eurolactique; Com., 22 avril 1997, Sté Iveco France c/ Sté Mabo; Com., 7 avril 1998, Sté Laboratoires Sandoz c/ Sté Poleval.) French law has evolved notions like the obligation to inform, the duty to cooperate and abuse of law (abus de droit).
   

4. 
   German law and Italian law have the notion of culpa in contrahendo which sanctions blameworthy conduct during negotiations.
   

5. 
   Parties must at all times act in good faith, even during the negotiation of contracts
   

6. 
   There is also a duty of confidentially during the pre-contractual phase.
   

7. 
   Terms: deal memorandum, gentleman’s agreement, agreement to agree, letter of intent (protocole d’accord), promise to contract, heads of agreement, pacte de preference, confidentiality agreement, non-competition and non solicitation agreements, options, etc.
   

8. 
   Certain provisions will survive the failure of negotiations (confidentiality, non-disclosure, dispute resolution clause, etc.)
   

9. 
   Comfort letters. Two kinds – best efforts and “insure that (faire en sorte que) (obligation de moyens et obligation de résultat).
   

9. 
   As to the necessity of having a price, see 8 below.
   

9. 
   Remember the document for signing up players for the professional rugby organization (“I hereby confirm my intent (and agreement) to …”).
   

9. 
   Examples:
   

- Pennzoil v. Texaco (memorandum of understanding signed, but subject to final contract, held to constitute a contract, damages of over $10 billion awarded):

"In Rose & Frank v. Crompton, 2 K.B. 261, at p. 293 [1923], a written

agreement regulating the commercial relations of the parties to it contained the following clause: 'This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts either in the United States or England, but it is only a definite expression and record of the purpose and intention of the three parties concerned to which they each honourably pledge themselves with the fullest confidence, based on past business with each other, that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation.’/The Court of Appeal (Bankes, Scrutton and Atkin, L. JJ.) held that the document did not constitute a binding contract, and this decision was afterwards affirmed in the House of Lords- see [1925] A.C. 445. . . . Atkin, L. J., at p. 293, said: I have never seen such a clause before, but I see nothing necessarily absurd in businessmen seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of honour or self-interest, or perhaps both.’” Sol.L.J. 769 (1932).

McDonald signed an acknowledgment of indebtedness to Smith for $5,000, the instrument stipulating that "it is part and parcel of this acknowledgment . . . that it shall be void should legal steps of any kind be taken to force payment". Smith sued McDonald on the instrument. Held: For defendant. The promise to pay constituted only a moral obligation. Smith v. McDonald, 37 Cal.App. 503, 174 P. 80 (1918). See Corbin, § 34; Parry, The Changing Conception of Contracts in English Law (1958).

Sydney

Dear Sirs:

undertaken to create an international organization for

professional Rugby Union football comprised of at least three

Conferences - Northern, Central and Southern - with a minimum

of ten regional teams in each Conference. You have further

indicated that in order to finalize the financing and

establishment of the worldwide network, it is essential for ABC

to obtain the commitment of a total minimum of 900 players for

thirty teams (including 90 players for three French teams) to

participate in national, regional and international

championships and other special events to be conducted by, or

in conjunction with, ABC.

to become a player for one of the three professional Rugby

Union football teams to be created in France, subject only to:

ABC having funds available to it in excess of US$ 100 million

by October 31, 1995; or ABC having executed contracts with

commercial enterprises such as for television rights,

sponsorship or other commitments to the competition sufficient

for ABC to meet its contractual obligations. An employment

agreement shall be signed no later than such date with ABC or

an entity which ABC shall create or cause to be created to

manage the French team for which I shall play. Such agreement

shall, of course, be in full compliance with all applicable

laws and regulations including, in particular, with respect to

social security.

conform to ABC's standard terms and conditions of employment

which are based on the exclusivity provisions used in high

level worldwide professional sports.

and be for a minimum of three playing seasons (approximately

March - October), ending at the close of the 1998 season.

During such period, I shall not enter into any other agreement

inconsistent with my obligations to the ABC. However, I shall

not be prevented from following any other occupation or

business, provided such shall not interfere with my obligations

to the ABC.

described above, I shall be entitled to receive a gross

remuneration to be calculated on the basis of $US ____

which sum shall include all social and other charges due by the

employer with respect to my status as a salaried employee

("Charges"). Such remuneration shall consist of: (a) a contract

fee of US$ (- social charges) ; and (b) a playing fee of

US$ _____ (- social charges) during each of the three years.

(10%) on or before November 1, 1995; (b) ten percent (10%) on

or before March 1, 1996; and the balance in equal monthly

installments, in arrears, over the remainder of the period of

employment.

(b) The playing fee shall be paid as follows: ten percent

(10%) of the Year 1 fee on or before November 7, 1995; a

further ten percent (10%) of the Year 1 fee on or before March

1, 1996; the balance of the Year 1 fee in equal monthly

installments, in arrears, over Year 1; the Year 2 fee in equal

monthly installments, in arrears, over Year 2; and the Year 3 fee in equal monthly installments over the remainder of the period of

employment.

Unless the condition referred to in the second paragraph of

page 1 hereof shall be met, ABC shall have no contractual

obligation whatsoever to make any payment envisioned herein. A

letter from the accounting firm of Ernst & Young certifying

that such condition has been met will be sufficient evidence of

the meeting of such condition.

the date of the signing of the employment agreement, I shall be

fully free and able to perform all my obligations envisioned

herein and in the employment agreement.

I expressly agree that until November 7, 1995 I shall not enter

into any letter of intent, agreement, understanding or

arrangement of any nature whatsoever with any other party to

play Rugby Union, Rugby League or any similar football game.

shall not be disclosed by either party without the prior

written consent of the other, except that ABC may disclose the

existence of such letters (without mentioning the players

involved) to prospective investors, sponsors, licensees of ABC

rights, etc., in order to secure the necessary financing and

sponsoring for the ABC organization.
ABC shall have the right to substitute any third party of its

choice with respect to the execution hereof.

in the space indicated below.

Sincerely,

Agreed to and accepted:

______________ ABC Pty Limited

Questions: If you were the company in the above situation, what more would you want to do to be sure you had the strongest possible “contract”? If you were a player, how would you want to limit your obligations?

5. 
   Formation of Contract - Offer, Withdrawal, Revocation
   

There are essentially two requirements for the existence of an offer – that it be sufficiently definite and that it indicate an intent to be bound.

(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

6. 
   Formation of contract – acceptance, rejection of offer, counter-offer
   

“Mirror image rule” in US case law. Remember that under common law, an acceptance had to be unequivocal and unconditional; if it contained different or additional terms, it constituted a counter-offer.

7. 
   Consideration
   

See American law above. Historically, consideration related more to rules of procedure to determine the existence of a contract, is now a substantive rule of American contract law. Consideration is a detriment to the promisee or benefit to the promisor, bargained for and given in exchange for a promise.

8. 
   Price
   

1. 
   French law: Normally a price has to be déterminé ou déterminable.
   

Article 1591:

2. 
   US law: It is possible to have a contract even in the absence of a price if it appears that the parties have the intent to be bound and the price can be fixed objectively and in good faith, even by one of the parties. (See also UCC 2-305.)
   

3. 
   CISG (Art. 14): 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.
   

4. 
   PICC (Art. 5.7): If there is no price, reference is made to:
   

to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price.

9. 
   Interpretation
   

a. American law

10. 
    Performance
    

The PICC and PECL contain rules relating to the time of performance (as stated in the contract, or, if not, within a reasonable time), partial performance (a party may object unless it has no interest to object), order of performance (simultaneous performance to be made when possible; exception where performance of one party requires a period of time, he is usually to perform first), earlier performance (a party may object unless he has no legitimate interest to do so) and place of performance (general rule that a party performs at its place of business, re monetary obligations, obligor performs at obliges business. To avoid application of these rules, specify all relevant performance matters in the contract.

11. 
    Non-Performance, Termination of Contract (Including Anticipatory Breach and Restitution)
    

A material breach or, in the words of the PICC and the PECL, fundamental non-performance by one party allows the other party to terminate the contract and seek remedies including damages.