Appunti esame Comparative Contract Law

THE DECISION OF THE SUPREME COURT

When examined in that way, Mr Cobbe's case seems to me to fail on the simple but fundamental point that, as

persons experienced in the property world, both parties knew that there was no legally binding contract and that

either was therefore free to discontinue the negotiations without legal liability—that is liability in equity as well

as at law, to echo the words of Lord Cranworth quoted in para 53 above. Mr Cobbe was therefore running a

risk, but he stood to make a handsome profit if the deal went ahead, and the market stayed favourable.

He may have thought that any attempt to get Mrs Lisle-Mainwaring (the seller) to enter into a written contract

before the grant of planning permission would be counter-productive.

Why did he act in this way? Probably because he was expecting that the seller would not immediately sign a

contract. Therefore he accepted this risk. His calculation of risk was a business activity.

Whatever his reasons for doing so, the fact is that he ran a commercial risk, with his eyes open, and the

outcome has proved unfortunate for him. It is true that he did not expressly state, at the time, that he was relying

solely on Mrs Lisle-Mainwaring's sense of honour, but to draw that sort of distinction in a commercial context

would be as unrealistic, in my opinion, as to draw a firm distinction depending on whether the formula "subject

to contract" had or had not actually been used.

British Steel Corporation v Cleveland Bridge and Engineering Company (18)

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English law’s rejection to recur to the concept of good faith, does not always mean that parties have no

possibility to be relief

There are other rules helping a relief, as shown by British Steel Corporation v Cleveland Bridge and

Engineering Company

Steel nodes were delivered to the defendants after a letter of intent to buy, but no formal contract had been

concluded because the claimants refused to use the defendants’ terms, and negotiations took so long. No

agreement was reached on progress payments and liability for late delivery, and defendants refused to pay

because of lateness and nodes coming out of sequence. British Steel Corp sued to recover the money, and

Cleveland Bridge sought damages for the late payment.

Judgment

Robert Goff J's judgment accepted that a letter of intent could amount to an executory contract, but it did not in

this case due to the negotiations being ongoing. The court considered but rejected the submission that the

defendants' terms could have amounted to a standing offer that could be accepted by starting the work. Instead,

the court decided that no contract had been entered into, and only allowed the claimants to get restitutionary

recovery on a quantum meruit basis for the value of the work done. The conclusion that no contract existed

meant the defendants could not recover the damages for late performance as no terms had been agreed to that

extent.

This case shows that restitution can be a valid alternative to good faith in order to give relief in case of

pre-contractual liability. This is true only for cases where a party delivers goods in absence of contract.

The refusal to admit a pre-contractual duty of good faith is typical of English law. But it tends not to be accepted

also by other common law countries.

In other common law countries breaking off negotiations may prove to give rise to liability

Australia: Waltons Store v. Maher

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Waltons negotiated with Maher for the lease of property owned by Maher. The parties understood Maher would

demolish an existing building and erect a new one which Waltons would occupy. Agreement was reached on

terms and rent.

Waltons' solicitors sent a draft lease to Maher's solicitors in October and some changes were discussed. A

revised lease was then sent to Waltons by Maher. In November Maher informed Waltons that demolition had

commenced and it was therefore important to conclude the lase quickly. Later that month Waltons started to

have reservations about the lease and instructed its solicitors to 'go slow'. In January Maher commenced

building. Later that month, when approximately 40% of building work was completed, Waltons informed Maher

it did not wish to proceed. Maher brought action to enforce the agreement.

Summary of finding

The majority held that, although formal contracts had not been exchanged, Maher was entitled to assume the

exchange was a mere formality. Maher could rely on promissory estoppel which extends to representations or

promises as to future conduct. In Australia promissory estoppel can be used both as a 'sword and a shield'. It will

apply to provide a promisee with a cause of action where:

●​ Promisor makes a promise

●​ Promisor creates or encourages an assumption that a contract will come into existence or a promise will

be performed

●​ Promisee relies on this to his/her detriment; and

●​ (arguably) it is unconscionable, having regard to the promisor's conduct, for the promisor to ignore the

promise.

In these circumstances equity intervenes because it would be unconscionable conduct on Waltons’ part to ignore

the assumption.

In this case, while the mere exercise of legal right not to exchange contracts was not unconscionable, there were

two additional elements which made Waltons' conduct unconscionable:

(a) the element of urgency; and

(b) M executed and forwarded on 11/11 and assumed that execution by W was formality

In those circumstances Waltons was under obligation to communicate with Maher within reasonable time and

certainty when it heard of demolition. It did not and its inaction in the circumstances constituted clear

encouragement or inducement for Maher to continue. As a result, Waltons was estopped from retreating from its

implied promise to complete.

If a party induces the other party to believe that he is already bound and his freedom to withdraw has gone, it

could be unconscionable for him subsequently to assert that he is legally free to withdraw

INTERPRETATION OF CONTRACTS

«Words» are never so clear to avoid interpretation and they are not always understood as intended.

Two possible approaches:

●​ Subjective will of the parties: If we move from the idea that contract is an agreement and therefore that

two wills meet together, consensus ad idem. How to interpret the contract?

The guiding principle is what parties wanted, their will.

●​ External fact of the words in which the will has been objectively expressed: an objective approach

What prevails is what can be objectively ascertained.

It would be a mistake to address the first approach to the civil law countries and the second one to common law

countries, because they are mingled together.

However, it is true that civil law systems tend to give relevance to the subjective will of parties, whereas

common law countries to the will of parties as objectively ascertainable.

PECL: Article 5:101: General Rules of Interpretation

(1) A contract is to be interpreted according to the common intention of the parties even if this differs from the

literal meaning of the words.

If there is a contradiction between what is written and what the parties meant, wanted. What should prevail:

what parties wanted or what they expressed in the contract?

For the PECL, even if the common intention of parties differs from the literal meaning of the words, it shall not

be followed.

(2) If it is established that one party intended the contract to have a particular meaning, and at the time of the

conclusion of the contract the other party could not have been unaware of the first party's intention, the contract

is to be interpreted in the way intended by the first party.

The guiding rule is that: the literal meaning of the words comes second, as the common intention comes first.

However, if it is established that one party intended the contract to have a particular meaning, and at the time

of the conclusion of the contract the other party could not have been unaware of the first party's intention, the

contract is to be interpreted in the way intended by the first party

(3) If an intention cannot be established according to (1) or (2), the contract is to be interpreted according to the

meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

Intention is therefore the guiding reason provided for by PECL.

UNIDROIT PICC

Art. 4.1

(1) A contract shall be interpreted according to the common intention of the parties.

(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that

reasonable persons of the same kind as the parties would give to it in the same circumstances.

Subjective approach, but if intention can not be established, objective approach

Art. 4.2

(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the

other party knew or could not have been unaware of that intention.

(2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted

according to the meaning that a reasonable person of the same kind as the other party would give to it in the

same circumstances.

The Italian approach: Cass. 4/10/18 n. 24208

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In a contract of sale of a building, there was a term concerning the sale of some plots whereas it was clear that it

was a material mistake, because it was intended that their sale was only proquota.

After opposing the decision of the First Instance Court and the Court of Appeal, the Court of Cassation

concluded for the seller fixing some essential rule for the interpretation of contract:

When the content of contract, as it is materially written, does not correspond to the common and real intention

of the parties as a result of an erroneous drafting of reporting of material facts, there is a material mistake and

the judge can consider every evidence in order to reach the correct persuasion about the real and effective will

of the contract parties, i.e. what they meant

In this case, the real and common will of parties prevails on the words used.

There was a sale of a building. In the contract it was written that the seller sold the exclusive property also of

some plots, of the parts in common, such as stairs of the building, the green areas before the building and so on.

The principle provided by the Court: it does not matter what parties declared, but the intention prevails over the

writing. ENGLISH APPROACH

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The common law approach is very much different. Its approach to interpretation is radically objective.

This is what is shown by Arnold v. Britton UKSC 2015

From I974 the then owners of an area of land granted a number of 99-year leases of plots on which holiday

chalets were to be built, the preamble to each lease stating that it would be granted "upon terms similar in all

respects" to the other leases, the introductory words of clause 3 providing that each lessee's covenants as to use

and repair of chalets were, inter alia, for the benefit of other lessees,