Comparative Law and
Economics of Contracts
Cases slides Topic 2
Fernando Gomez
Universitat Pompeu Fabra, Barcelona
NYU School of Law
NYU School of Law, Fall term
Wood v. Lucy, Lady Duff-Gordon
•
Facts:
– Contract between Lady Duff-Gordon, defendant, and Otis
Wood, plaintiff
– Plaintiff would have exclusive rights to place defendant’s
endorsements on products, and sale defendant’s designs
to others
– Defendant will get ½ of all revenues from contracts entered
by Wood with 3rd parties
– Contract duration: 1 year renewable for same term except
termination notice of 90 days
– Defendant places endorsements on certain products
independently of any efforts from Wood, and keeps profits
for her
Wood v. Lucy, Lady Duff-Gordon
•
•
•
Issues:
– Consideration?
– Definiteness? Intention to undertake obligations
– Implied term for effort
– Legal obligation requires specific expression?
Outcome
– Plaintiff wins appeal
Grounds
– Defendant had granted an exclusive “privilege” to plaintiff,
and the acceptance of such an exclusive agency shows
undertaking of obligations
– Effort from the plaintiff was self-enforcing: no effort, no
income
– The lack of words amounting to a promise to act and
promote does not preclude existence of obligations
– Implied efforts term to be inferred from terms agreed about
mode of compensation, and other duties (account for
profits, apply for copyrights)
Wood v. Lucy, Lady Duff-Gordon
•
Analysis
– Exclusive distribution contract: are they regularly detailed
as to actions?

Much depends on type: in practice, some are quite detailed
(franchising) others are not
– Completing the contract: reading an implied term of efforts
and thus making the contract binding reflects the
existence and distribution of increased surplus from
contract for the parties?
– Effort and expense in drafting as evidence of intent to be
bound?
– Were
there
alternative
enforcement
mechanisms
(reputation,
self-sustaining
cooperation)
to
legal
enforcement in this scenario?
– Should the outcome be the same if evidence was presented
that in a similar contract Wood had agreed to an explicit
best efforts clause?
Wood v. Lucy, Lady Duff-Gordon
•
Analysis
– Is it reconcilable with what the complete contract would
have foreseen that Wood gets 50% of income not obtained
through his efforts?
– Moving to more general matters, how definite or indefinite
contract actions may be in order for the court to find a
binding contract and complete the agreement?
– May Courts complete a contract when there is
indefiniteness surrounding these terms





Price
Nature of goods or services
Quantity
Quality
Time
– Is the consideration doctrine reconcilable with the
complete contract notion?
Wood v. Lucy, Lady Duff-Gordon
•
Analysis
– What should count as admissible consideration –to make a
contract enforceable- under the economic perspective on
contract?






Exchange of good or service
A different act, or forbearing some negative circumstance
Altering an existing legal situation
Satisfaction of moral duty (obligatio naturalis in Civil Law
tradition)
Detrimental reliance
Non detrimental reliance
– Why and when should gratuitous contracts be enforced?
CESL on implying terms
•
Article 68: Contract terms which may be implied
– 1. Where it is necessary to provide for a matter which is not
explicitly regulated by the agreement of the parties, any usage or
practice or any rule of the Common European Sales Law, an
additional contract term may be implied, having regard in
particular to:



(a) the nature and purpose of the contract;
(b) the circumstances in which the contract was concluded; and
(c) good faith and fair dealing.
– 2. Any contract term implied under paragraph 1 is, as far as
possible, to be such as to give effect to what the parties would
probably have agreed, had they provided for the matter.
– 3. Paragraph 1 does not apply if the parties have deliberately left
a matter unregulated, accepting that one or other party would
bear the risk.
Restatement of Contracts on implying
terms
•
§ 204. Supplying an Omitted Essential Term
•
When the parties to a bargain sufficiently defined to
be a contract have not agreed with respect to a term
which is essential to a determination of their rights
and duties, a term which is reasonable in the
circumstances is supplied by the court.
CESL and UCC on indefiniteness
•
Article 73: Determination of price
– Where the amount of the price payable under a contract cannot
be otherwise determined, the price payable is, in the absence of
any indication to the contrary, the price normally charged in
comparable circumstances at the time of the conclusion of the
contract or, if no such price is available, a reasonable price.
•
§ 2-305 UCC. Open Price Term
– (1) The parties if they so intend may conclude a contract of sale
even if the price is not settled. In such a case the price is a
reasonable price at the time for delivery if:



(a) nothing is said as to price;
(b) the price is left to be agreed by the parties and they fail to
agree; or
(c) the price is to be fixed in terms of some agreed market or other
standard as set or recorded by a third person or agency and it is not
so set or recorded.
CESL and UCC on indefiniteness
– (2) A price to be fixed by the seller or by the buyer means a price
to be fixed in good faith.
– (3) If a price left to be fixed otherwise than by agreement of the
parties fails to be fixed through fault of one party the other may at
the party's option treat the contract as cancelled or the party may
fix a reasonable price.
– (4) If, however, the parties intend not to be bound unless the
price is fixed or agreed and it is not fixed or agreed there is no
contract. In such a case the buyer must return any goods
already received or if unable to do so must pay their reasonable
value at the time of delivery and the seller must return any
portion of the price paid on account.
CESL and UCC on indefiniteness
•
§ 2-306 UCC. Output, Requirements and
Exclusive Dealings.
– (1) A term which measures the quantity by the output of the seller
or the requirements of the buyer means such actual output or
requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any stated estimate or in the
absence of a stated estimate to any normal or otherwise
comparable prior output or requirements may be tendered or
demanded.
CESL and UCC on indefiniteness
•
Article 77: Contracts of indeterminate duration
•
1. Where, in a case involving continuous or repeated
performance of a contractual obligation, the contract
terms do not stipulate when the contractual
relationship is to end or provide for it to be terminated
upon giving notice to that effect, it may be terminated
by either party by giving a reasonable period of notice
not exceeding two months.
•
2. In relations between a trader and a consumer the
parties may not, to the detriment of the consumer,
exclude the application of this Article or derogate from
or vary its effects.
CESL and UCC on indefiniteness
•
§ 2-309 UCC Absence of Specific Time
Provisions; Notice of Termination.
– (1) The time for shipment or delivery or any other action under a
contract if not provided in this Article or agreed upon shall be a
reasonable time.
– (2) If the contract provides for successive performances but is
indefinite in duration, it is valid for a reasonable time but unless
otherwise agreed may be terminated at any time by either party.
– (3) Termination of a contract by one party except on the
happening of an agreed event requires that reasonable
notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be
unconscionable. A term specifying standards for the nature and
timing of notice is enforceable if the standards are not manifestly
unreasonable.
DCFR and PECL on quality indefiniteness
•
II. – 9:108 DCFR: Quality
– Where the quality of anything to be supplied or provided under
the contract cannot be determined from the terms agreed by
the parties, from any other applicable rule of law or from
usages or practices, the quality required is the quality
which the recipient could reasonably expect in the
circumstances.
•
Article 6:108 PECL: Quality of Performance
– If the contract does not specify the quality, a party must tender
performance of at least average quality.
Codes on quality indefiniteness
•
Art. 1246 French Civil Code
– Where a debt is of a thing determined only as to its kind, a debtor
is not obliged to give it in the best of its kind; but he may not offer
it in its worst.
•
Art 1178 Italian Civil Code:Obbligazione
generica
– Quando l'obbligazione ha per oggetto la prestazione di cose
determinate soltanto nel genere, il debitore deve prestare cose di
qualità non inferiore alla media
•
Article 1167 Spanish Civil Code
– Where the obligation consists of delivering an indeterminate or
generic thing, whose condition and circumstances have not been
expressed, the creditor may not demand that it be of the highest
quality, nor the debtor deliver it of the lowest.
German lottery case
•
Facts:
– Plaintiffs and defendant were a group of friends or
acquaintances placing wagers in German lottery
– They would agree on figures to wager and defendant would
place the bets and then they would settle the wins and
losses
– In a given day of bets, defendant failed to hand in the
agreed wager, due to unexpected delays at work
– Agreed figures won a prize of over DM 20,000
•
Issues:
– Are agreements to place wagers legally enforceable?
– If they are, what is the liability for breach of those
agreements?
German lottery case
•
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Outcome
– OLG (High Appeals Court) found that agreement was
unenforceable because falling within the ban on the
enforcement of illegal bets and betting debts
– BGH (Federal Supreme Court in Civil Matters) considered
that it was not unenforceable due to subject matter. It
should be considered as an informal partnership contract
with the specific goal of placing wagers
– In this case, though, a contract for the purpose of
presenting a lottery ticket is considered not to give rise to a
legally enforceable obligation requiring the party to
actually present the ticket or else face full contractual
liability
Grounds:
– Bets in this setting are not illegal, in fact they are
Government-sponsored
– The betting syndicate can legally be considered a valid
partnership with a specific goal
– Express and implied intentions of the contract parties
should rule the matter
German lottery case
•
Grounds (continued):
– Good faith and usages should be considered
– The outcome of being under a legal obligation to place the
precise wager every week would be disproportionately
burdensome on the defendant

Section 762 BGB: Gaming, betting
– (1)No obligation is established by gaming and betting. What has been
paid due to such gaming or betting may not be demanded back on the
basis that no obligation existed.
– (2)These provisions also apply to an agreement by which the losing
party, for the purpose of meeting a gaming or betting debt, enters into an
obligation in relation to the winning party, including without limitation the
acknowledgement of a debt.

Section 763 BGB: Lottery contracts and gaming contracts
– A lottery contract or a gaming contract is binding if the lottery or the
gaming has state approval. Apart from this, the provisions of section 762
apply.
German lottery case
•
Analysis:
– Clearly the parties had entered into an incomplete contract
– Should this mean that because it is incomplete it should
be unenforceable?
– If the defendant had placed the wagers, could he refuse to
share the prize on the basis that the contract is
unenforceable?
– How would the complete contract have addressed the
unforeseen contingency (unexpected delay at work makes
presentation untimely): look for maximizing the joint
interest of all parties
Spanish lottery case
•
Facts:
– Two friends, after drinking, sign a “humorous” document
containing the sale of a share in a lottery ticket
– The ticket won the big prize in the Christmas National
Lottery
– The “buyer” seeks reimbursement in his share of the prize
•
Issues:
– Is an outwardly non-serious consent not valid as
expression of consent?
– Are friendly and humorous undertakings better left
without legal enforcement?
– Are there any formalities required to show the seriousness
of contractual consent?
Spanish lottery case
•
Outcome:
– First Instance Court rules for the defendant, due to lack of
certainty concerning the identity in signatures
– The Appeals Court reverses and finds for the plaintiff,
because the signature is considered unequivocal
– Spanish Supreme Court , Civil Chamber upholds
•
Grounds:
– There are no formalities imposed upon a contract, and
selling a share in a lottery ticket is typically a legally
enforceable contract
– The fact that consent has been expressed in a humorous
way, if the remaining conditions for a binding contract are
met would not justify making the contract unenforceable
Spanish lottery case
•
•
II. – 1:106 DCFR: Form
– (1) A contract or other juridical act need not be concluded,
made or evidenced in writing nor is it subject to any other
requirement as to form.
Article 2:101 PECL: Conditions for the
Conclusion of a Contract
– (2) A contract need not be concluded or evidenced in writing nor
is it subject to any other requirement as to form
•
Article 1,278 Spanish Civil Code
– Contracts shall be binding, whatever the form under which
they have been entered into, provided that they meet the
essential conditions for their validity
Spanish lottery case
•
On gambling and betting
•
Article 1,798 Spanish Civil Code
– The law does not provide any action to claim what has been won
in a game of luck, gambling or chance; but the person who has
lost money therein cannot recover what he has voluntarily paid,
unless it should have been obtained pursuant to fraudulent
misrepresentation, or such person should be a minor or should
have been incapacitated to administer his own property.
•
Article 1,799 Spanish Civil Code
– The provisions of the preceding article regarding gambling shall
apply to betting. Betting which bears any analogy with forbidden
gambling shall be deemed prohibited.
Spanish lottery case
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•
•
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On gambling and betting
Article 1,278 Spanish Civil Code
– Contracts shall be binding, whatever the form under which they
have been entered into provided that they meet the essential
conditions for their validity
Article 1,800 Spanish Civil Code
– Games which contribute to bodily exercise, such as those whose
purpose is training in the use of weapons, running or horse
racing, chariot races, ball games and other analogous games
shall not be deemed to be prohibited.
Article 1,801 Spanish Civil Code
–
A person who loses in any gambling or betting in respect of nonprohibited games shall be liable under civil law. The judicial
authority may, however, find against a claim where the amount
exchanged in the gamble or wager should have been excessive,
or reduce the obligation to the extent that it exceeds the custom
of an orderly paterfamilias.
Spanish lottery case
•
Analysis:
– Do we need to rely on binding contracts to enforce the sale
of lottery tickets? Are other mechanisms likely to be
effective?
– Should we introduce some kind of seriousness threshold
in the expression of contractual consent?
– Are the circumstances surrounding consent relevant for
deciding whether there is a binding contract?
– Would the decision had been different if there had been
more burdensome obligations imposed upon parties?
– Should we take an ex ante or an ex post perspective in
deciding
the
proportionality
circumstances of consent?
of
burden
to
the
Spanish lottery case
•
Analysis:
– Imagine the following setting, in which the circumstances
are similar to the Spanish case at hand, with some
modifications (facts are those of a US case, Lucy v. Zehmer)

Parties sign an informal document after a merry evening
containing the sale of real estate for an stipulated price

The following day, the “seller” goes to the buyer and denies
any intention of selling and requests the return of the
document
– What if the document had been signed also by the “seller”’ s wife?
– What if the “buyer” had already gone to a bank to inquire about a
loan to finance the price?
Spanish lottery case
•
Analysis:
– Is it legally possible to give differentiated responses as to
enforceability depending on the nature and amount of the
claim? Is this desirable?
– Are
there intermediate alternatives between zero
enforcement and full enforcement of contract in these
circumstances?
A German intermediate solution
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•
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Section 122 BGB: Liability in damages of the
person declaring avoidance
(1)If a declaration of intent is void under section 118,
or avoided under sections 119 and 120, the person
declaring must, if the declaration was to be made to
another person, pay damages to this person, or failing
this to any third party, for the damage that the other
or the third party suffers as a result of his relying on
the validity of the declaration; but not in excess of the
total amount of the interest which the other or the
third party has in the validity of the declaration.
(2)A duty to pay damages does not arise if the injured
person knew the reason for the voidness or the
voidability or did not know it as a result of his
negligence (ought to have known it)