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A Posteriori – A reasoning or assertion based on proven experience.
A Priori – A form of reasoning not based on factual observation or experience, but on formal logic or on theoretical assumptions unsupported by facts.
Abstract or Independent Obligation or Promise – An obligation or promise whose enforcement depends on terms and conditions incorporated into a reliable medium of communication. Thus, its enforcement is not dependent on equities or defenses derived from underlying and unincorporated transactions. A United States treasury bill endowed with legal tender is a promise at the highest level of abstraction. A banker’s acceptance of his or her client’s or third party’s bill of exchange drawn on him is a notch below the treasury bill in its abstraction. This is because it is subject to defenses such as fraud in its inception or ad factum. An ordinary contractual promise lacks abstraction because, in principle, it is subject to all the defenses and equities of the present and underlying contractual relationships.
Acceptance of a Negotiable Promise – The act of assuming a primary and abstract liability by an acceptor of a bill of exchange by signing his name in the acceptor’s column. When the acceptor is a banker, his acceptance is known as a banker’s acceptance and as an abstract promise is negotiable in numerous financial markets.
Acte Authentique – A formal document executed before a French Notary or Government Official empowered to authenticate its enforcement.
Actes de Commerce (Acts of Commerce) – The transactions that are listed as part of the scope provisions in commercial codes of civil law countries that were influenced by the French Code de Commerce of 1807. Their purpose is to indicate that the listed transactions will be governed by the commercial code, although commonly civil code provisions will also be applied where there are gaps in the coverage of the commercial code.
Actio Empti, Actio Venditi – Roman law actions associated with sale and purchase agreements (Emptio-Venditio). The former action was brought by the buyer to recover the thing he bought and paid for, but had not been delivered or was defective. The latter was brought by the seller to recover the price of what he sold but was still not paid for by the buyer.
Actio Pignoraticia (Action on the Pledge) – The Roman law action brought by the secured creditor (pledgee) to foreclose on the pledged thing.
Ad Probationem and Ad Solemnitatem – Expressions used mostly in civil law countries to characterize the type of formality required in different contracts and their effects upon the enforcement of those promises. Those contracts that are enforceable despite the absence of formalities, such as the sale of goods, are deemed to rely on formalities only for evidentiary purposes (ad probationem) and to facilitate proving the parties’ intent. In contrast, those contracts whose absence of specified formalities renders them null and void, as is the case with the sale (or in some jurisdictions the mortgage) of real 1270property, are deemed to be contracts ad solemnitatem; they are null and void without their solemnity.
Aleatory Contracts – Contracts in which one of the parties assumes the risk that a specified act, event or performance will or will not take place. Insurance and credit default swaps are typical aleatory contracts.
Amparo Appeal – Amparo appeals are the most common in Mexican law. They are present in most of the Mexican decisions discussed in this book. In a so called Direct Amparo, the appellant complains that his constitutional right to a due process of law was violated by the lower court when it ignored or misapplied the law. The Mexican Amparo (unlike other Latin American amparos) shares with the French Cassation appeal the allegation that the lower court erred when applying the law to the facts of the case, and for this reason it is a strictly a legal (non-factual) appeal. It differs from the French Cassation in that French appellants do not claim that their constitutional rights of due process were violated by the alleged judicial mistaken application of the law.
Archetypal Merchant – A merchant whose behavior is representative of the group or sector in which he does his regular business. This behavior could be morally exemplary such as that of Justice Cardozo’s entrusted fiduciary who behaved with the punctilio “the most honorable,” or it could be reprehensible such as that of the “picaresque” (tricky and deceitful) merchant. He could also be could also be crassly utilitarian, such as Justice Holme’s “bad man” of contracts.
“Bad Man” of Contracts – Justice Oliver Wendell Holmes Jr.’s archetypal contracting party who would not hesitate to breach his contractual promise when he calculates that he would be economically better off by breaching it and paying damages than by performing it.
Bonus Paterfamilias – The most commonly used archetypal standard of contractual diligence in the Code Civil and in its progeny. Literally it refers to the diligence of a good father of a family, but it has remained an excessively vague standard and has been extended by French courts and commentators with equal vagueness to the diligence of a good ship captain, restaurant owner, travel agent and other merchants.
Bonus Vir – A Roman law designation for an upright, honest and knowledgeable merchant, or a “man of affairs” to whom disputed issues of contract interpretation are submitted for his usually decisive opinion.
Breach of Warranty – A generic action against a seller of goods who has either failed to fulfill an express promise with respect to the quality of the goods sold, or who has failed to fulfill his duties with respect to two major implied warranties or representations of quality: a) merchantability, or fitness of the goods, for the purposes ascribed to them in the usages of the trade in question (U.C.C. § 2–314) or fitness for the particular purpose implied in the contract in question (U.C.C. § 2–315).
“Brotherly” Standard of Fairness – A standard of fairness that requires that a contracting party treat the other in an altruistic enough manner so that his own contractual interests are subordinated to those of the entrusting party. This standard is usually applied to fiduciaries entrusted with the assets of the other contracting party. This standard was common during the early middle ages among Jewish 1271merchants engaged in long distance Mediterranean trade, especially those entrusted with goods or money by their religious “brethren.”
Cadastral Survey – A detailed metes and bounds description of property for preponderantly fiscal purposes which usually includes a physical representation of the property either by aerial photography or computerized images of parcels and sub-divisions.
Casuistry – A method of drafting and interpreting statutory, administrative or judicial rules which narrowly and exclusively circumscribe their application to the proven facts that prompted the drafting or interpretation. At its most extreme, casuistry rejects an analogical and reasonable application of rules.
Causa – A term common in civil law countries whose codes have been modeled after the Code Civil. At its most basic, it is the reason why the parties enter into their contracts and thus it is a requirement for their validity. This validity presupposes that its causa does not violate the law, public policy and morality.
Causa Data – The actual performance of a contractual obligation commonly consisting of the giving of something to the other party that entitles the performing party to demand the counter-party/s performance.
Caveat Emptor – A medieval English law doctrine whose literal meaning was “Buyer beware.” It assumed that in the absence of express statements or representations with respect to the quality of the goods purchased, the buyer assumed the risk of the seller’s lesser quality and patent, as well as latent defects of the goods purchased. Gradually, this doctrine was replaced by the actions for implied warranties of merchantability and fitness for the particular contract purposes. See Breach of Warranty.
Commercial Letter of Credit – A banking instrument for the payment and financing of mostly international sales. It is usually payable against the presentation of documents indicating the shipment of specified goods, their price, quantity, quality and origin, as well as their insurance coverage. This letter of credit is most frequently referred to as a “documentary letter of credit.”
Commercial Transaction – In addition to its lay meeting which connotes a for-profit contract, it is also used in this book as a technical legal term that encompasses three contractual relationships: One is the traditional two party relationship in which the contracting parties are bound to each other as a result of simultaneous or successive exchanges of promises, acts, goods or things. Another is a contemporary version which involves multiple parties and a series of promises and performances by them, although not in a “synallagmatic” (or direct and sequential exchange of promises or performances) fashion. As parties to a “Master Agreement,” promises and performances depend upon the promises and performances by third (non-synallagmatic) parties. For example, even though a freight forwarder was contacted by a seller to obtain shipping space for his goods, what triggers his request for space to the carrier was a notification that the buyer electronically procured the issuance of an irrevocable confirmed letter of credit by a third party bank. Thus a computer-generated program of purchase of inventory may start out by a buyer’s request to his bank to issue a letter of credit to a seller beneficiary, and at the same time trigger a request to the seller’s freight forwarder to procure shipping space, and will proceed with a request by that freight forwarder to an insurer to issue a maritime policy, etc. The third type of commercial transaction frequently discussed in this book refers to a “firm” or irrevocable promise 1272that cannot be revoked by its issuer during a specified or reasonable time of enforcement. Depending upon the legal system, this promise is binding on the promisor from the moment of its issuance regardless of whether it was or was not accepted by the promisee or offeree during that time.
Compadrazgo – See Guanxi.
Consensual Contracts – In Roman law as well as in the Code Civil, the term consensual contract refers to a type of contract that is enforceable despite its lack of formality. Thus the parties’ agreement on its subject matter and price in a sale of goods sufficed to bind the parties. This practice supported the principle that the parties’ mere consent binds them (solus consensus obligat). U.S. contract and secured transactions legal literature often uses the terms consensual and contractual interchangeably. Thus, even though the contract in question may have to fulfill formal requirements, such as those set forth in the statute of frauds for sale agreements (U.C.C. § 2–201) or in the “attachment” or requirements for the creation of security agreements (U.C.C. § 9–203), the term consensual is still applied to such agreements.
Constitutum Possessorium – A classical Roman law agreement, under which a debtor owner of property agreed to hold the property as an authorized user or usufructuary for the benefit of his secured creditor. The latter could become its fee simple owner if the debtor defaulted in his repayment obligation.
Contra Proferentem – A principle of contractual interpretation commonly resorted to by courts in the United States. It posits that an ambiguous contractual clause should be interpreted against its draftsman or against the party that provided the wording.
Culpa in Contrahendo – Actionable tortious or bad faith behavior during the period of the negotiation of the contract or prior to its formation.
Customs – The set of practices (standard and best) generally observed in a trading center or by a given sector of the economy.
Derivatives and Swaps – Derivatives and swap transactions are aleatory, or risk, assuming as well as hedging transactions. In one type of derivative transaction, one party guarantees to the other that all or part of the latter’s investment securities will retain a fixed value over a certain period of time. Thus, under a price swap derivative, when the value of the guaranteed assets decreases, the counterparty must deliver stock or other collateral to offset any losses.
Doctrine – The writings by commentators who are sufficiently respected by their legal peers to be quoted as reliable versions of the state of the law or as advocates of a given theory of interpretation, or as authors of concepts, principles or rules eventually adopted by legislators and judges.
Doctrine of the Estates – An English feudal legal institution that made it possible for land-users who were not fee simple absolute owners of the land to hold fragmented possessory rights for a specified period of time. However, unlike with the Roman law rights in the property of others (iura in re aliena) these estates in the land could be transferred and encumbered as rights of “time in the land” of others.
Documentary Credit – A term often used interchangeably with commercial letters of credit.
Documentary Sales – Sales payable against the presentation of documents and not upon the inspection of goods by the buyer. Among the most common documents associated with documentary sales are: invoices, negotiable ocean bills of lading, sea waybills, air waybills, insurance policies and certificates of insurance, brokers and cover notes, certificates of quality, quantity, weight and origin of the goods. The International Chamber of Commerce’s International Commercial Terms (INCOTERMS), which are the most widely observed compilation of international sale terms, classified these sales on the basis of the rights and duties of buyers and sellers. Among the most prominent of these terms are CIF, where the seller’s invoice bills include the price of the goods and the cost of insurance and freight, and F.O.B., where the invoice bills the buyer for the price of the goods but the buyer assumes the cost of transportation as well as of the insurance of the goods.
Eusociality – The ability of certain animals and human beings to form groups that include multiple generations who cooperate with each other and who are capable of performing altruistic deeds as well as selfish acts. The right combination of such altruism and selfishness is responsible for the viability of standard and best commercial practices.
Executory Promise – A promise to perform a contractual duty or duties at a future time. Firm executory promises, especially in credit or financial transactions, bind their issuer during their specified or reasonable period of duration.
Extra-Contractual Liability – A term used in many civil law countries, especially in Latin America, to refer to tortious, including negligent conduct.
Foral Law – As used in the principal text, the term “foral law” is mostly applicable to Spanish medieval provincial sources of law. The term “fuero” referred to the authority to enact laws granted to a province, region, community or group of communities, including those governed by the Roman Catholic Church.
Guanxi – A long-standing Chinese informal relationship in which the participants are expected to perform reciprocal services, many of which are contractual or relate to contracts. The Chinese Guanxi has a close counterpart in the Mexican compadrazgo in which close friends become “compadre,” or part of a “dense” relationship for their own and their families’ benefits.
Innominate Contracts – Contracts that are not typified or generically described contracts in which some parties give something or issue promises in exchange for a counterpart giving or issuances of promises by the others.
Inter Absentes – Transactions between parties who deal at a distance from their counter-parties and consequently require reliable means of communications for their promises, especially for those that can be categorized as offers and acceptances.
Inter Praesentes – Face to face transactions in which oral or other informal means of communication can perfect contracts or contractual relationships.
“Invertebrate” legal system – A legal system whose rules are unpredictable because they are arbitrarily fashioned and applied by administrative or judicial officials at each level of decision-making and adjudication without regard for pre-existing rules or principles, except those (mostly in the form of slogans) attributable to officials at very top of the normative pyramid. This type of legal system is, paradoxically, common in authoritarian societies.
Ius Distrahendi – The right to foreclose or repossess on the collateral of a secured transaction either as a result of the parties’ security agreement or of statutory or judicial liens.
Laesio Enormis or Lesion in the Code Civil – The ability of a seller of immovable property to rescind a sale if the price paid for the property is less than a statutorily specified percentage of its market value at the time of the sale.
Legal Culture: The set of attitudes and values that determine the manner in which a nation or region formulates and applies or interprets its positive and living law legal institutions.
Legal Institution – A concept, principle or rule (substantive, procedural or remedial, whether embedded in a nation’s positive or living law), that makes it possible for that nation to allocate public or private rights, duties, powers and privileges among its physical persons or legal entities.
Legal Positivism – A school of legal thought distinguishable from legal realism. Some of the most influential legal positivists view the law as nothing more than “the command of the sovereign” in the famous expression by the 19th century “Analytical” legal philosopher John Austin. Others, such as the Austrian born Hans Kelsen, require that the sovereign’s command’s coerciveness be supported by a hierarchical set of norms at whose base lies a hypothetical norm (grundnorm) which justifies the enforcement of all the other norms.
Legal System (effective) – The sum of a nation’s or region’s legal institutions, including those that allocate the ranking (or hierarchy), scope and method of the application of its laws. From a developmental standpoint, the effectiveness of a legal system and its institutions is best measured by their success in attaining the developmental goals assigned to them.
Living Law – A non-official law that is nonetheless observed by market participants as the law that shapes and governs their day-to-day transactions.
Market Standard of Fairness – According to this standard of interpretation of contracts and adjudication of contractual dispute, each participant in a market transaction is expected to treat the other as an archetypal market participant would reasonably expect to the treated by the counterparty.
Nachfrist – Notice of termination of performance which is due under a bilateral contract when the obligee reasonably believes that the obligor is not likely to perform. It is presently described in BGB article 321.
Negotiable Instrument – A transferable, signed document that promises to pay the holder or bearer a sum of money at a future date or on demand and that can be endorsed “to the order of” the endorsee or to “bearer.”
Nuda Pacta–An unenforceable promise or bargain as a result of the absence of an essential (ad solemnitatem) formality or of a substantive element of the contract such as its causa or consideration.
Numerus Clausus – A doctrine that prevails mostly in civil law countries which posits that certain transactions or rights are limited in number. Accordingly, some civil codes apply this doctrine to the rights in rem and only allow those rights listed to be recorded in the land registry and enforced against the property in question. Similarly, some 1275commercial codes are interpreted as limiting the transactions governed by the code as those listed in the Actes de Commerce (Acts of Commerce) See Actes de Commerce.
Obiter Dictum or Dicta – A fundamental principle of Anglo-American judicial interpretation that dictates that the only judicial pronouncements entitled to precedential value are those made by courts with respect to the factual and legal issues before them. Other statements made by the court (obiter dictum or dicta) are entitled only to persuasive but not precedential or binding value.
Pandectists – German Roman law scholars who regarded the Roman Corpus Iuris Civilis (also referred to as the Pandects) as the supreme manifestation of legal science and as the primary inspiration for German private legal institutions. They were especially active and influential during Germany’s 19th century pre-codification and codification periods. While their precision and thoroughness was legendary, presently they are regarded as “dogmatic” or unconcerned with the here and now of German law, and especially with its living law.
Picaresque Behavior – A “take advantage of the stranger” method of doing business in medieval Europe, Imperial Spain, colonial Latin America and Imperial China, which results in a view of commerce as a “zero sum game.”
Pollicitation – An unaccepted and thus revocable executory promise in the Code Civil. This legal institution was heavily influenced by Hugo Grotius’s view of contracts, and is also a result of the will of the contracting parties and the meeting of their minds that held sway in Code Civil France for two centuries. However, it is beginning to disappear from the French law of commercial transactions.
Positive, Written, or Official Law – Law which is governmentally enacted and enforced or is subject of enforcement. It includes not only a county’s constitution, statutes, administrative and court decisions, but also, depending upon the jurisdiction, its “customs and practices,” and its “general principles.”
Praetor – A high administrative or judicial official in the Roman Empire who fashioned many innovative and equitable procedures and rules of interpretation of contracts.
Principle – A summary of standard and best practices expressed in a normative and at times didactic manner (as is done by legal maxims or proverbs) and whose purpose is to justify and induce the observance of rules derived from or consistent with it.
Promissory Estoppel and Preclusion – An equitable doctrine that provides that when a party to a contractual or pre-contractual relationship changes his position to his significant detriment by acting or failing to act in a beneficial manner to his own interest when relying on the counter-party’s promise, he can enforce that promise. And this enforcement is possible even though other elements of the contract may not be present, or in the case of “strict” preclusion where he cannot prove that he experienced serious damages. The Roman law doctrine that approximates this Anglo-American equitable doctrine is the doctrine of Venire Contra Factum Proprium (or contradicting one’s own conduct). A companion Anglo-American equitable doctrine of preclusion forbids a negligent contracting party from invoking a defect in the counter-party’s performance if his diligent conduct would have enabled the counterparty to cure the defect in a timely manner.
Public Faith (Publica Fide) – A critical element of the Latin Notariat which vests notarial documents and acts with a rebuttable presumption of truthfulness and 1276legality. Thus, unless the facts and assertions contained in the notarial documents are effectively disproven, they must be taken as truthful and valid.
Reasonable and Fair Contract Behavior – A reasonable contractual behavior takes into account what an “archetypal other” contracting party would have done or expected to be done under the circumstances. A fair contractual behavior takes into account not only what an archetypal other contracting party’s behavior, but also the effects of the contract upon the interests of third parties.
Repudiation, Anticipatory and Final – Some civil codes and codes of civil procedure in civil law countries only allow actions for breach of contract to those parties who have performed their side of the agreement. In contrast, Anglo-American law allows a party who has suffered the other party’s breach or is certain that the other party will breach the contract in the immediate future to sue for anticipatory or final repudiation. Among the remedies provided for such an actual or suspected repudiation are: the demand for assurance of performance, an action for rescission and damages (without actually reselling to another party or purchasing the same goods from another party (cover), and specific performance. See Nachfrist for comparable German law.
Scholastic Logic – A method of reasoning which dominated the thinking and teaching of twelfth and thirteen century Catholic theologians, such as Saint Thomas Aquinas whose writings influenced many definitions and classifications of the Code Civil. Scholastic logic is a formal type of logic because it is concerned with the internal consistency of its premises, but not with the consistency of these premises with empirically verified facts. Thus, if the major premise of a formal logic syllogism stated that “All elephants are white,” scholastic reasoning could well conclude that any elephant must be white.
Secured Credit and Secured Transactions – An Anglo-American term that refers to loan agreements and functionally similar transactions whose repayment is guaranteed by the debtor’s providing the creditor personal or real property collateral capable of facilitating such a repayment. The United States Law on secured credits as governed by article 9 of the U.C.C. ranks as the most advanced, exhaustive and casuistic in the world.
Short Sale – A financial transaction involving investment securities, such as common stock, in which an investor-speculator borrows the stock from a dealer betting that the price of the borrowed stock will decline in value and that by buying them later at the lower value, he will be able to recover an equal number of the shares he borrowed and retain the remainder of the stock to realize a profit in their sale.
Simulation – A legal subterfuge used by contracting parties when attempting to evade the undesirable consequences of mandatory rules. The evasion would provide the appearance of the parties entering into a contract that does not bear such consequences. For example, “A” and “B” are interested in participating in a secured loan; however such a loan would have to be recorded in a public registry to be enforceable against third parties. Still, the registration may be too expensive or it may reveal information of interest to tax authorities which A and B would prefer remained secret. Accordingly, instead of entering into a secured loan, A and B would enter into a lease agreement in which B will also have an option to purchase the goods at a certain period and for a certain symbolic amount. In that jurisdiction, such a lease would not have to be recorded and would still protect A’s rights in the goods he was relying on as 1277collateral. Clearly, this evasion would be detrimental to third parties, such as B’s secured creditors who had recorded their security interests prior to the execution of the lease but whose rights would be inferior to those of A (the ostensible lessor) and as such owner of the leased goods. It would also prevent tax authorities from tracing the income generated by the hidden loan.
Stipulatio – One of the first binding Roman promises whose validity was made possible by its ritualistic formalities.
Third Parties – Third Parties are generally defined as parties who despite their not being participants in the transaction in question are likely to be affected by it, either as buyers of the same property rights or as creditors who relied on that property as security for their loans. Depending upon the transaction or legal issue involved, they are also referred to as “strangers” to the contracting parties, their families or close friends, clans or tribes.
Usufruct and Life Estate – The right to use land and appropriate its fruits without deteriorating that land. In Roman law, this right was part of a group of rights known as rights in the property of others (iura in re aliena). In Common law countries, this right or interest in land was part of the Doctrine of the Estates and when it was granted for the life of the grantee, it was referred to as a “Life Estate.”
Usury – The practice of charging interest above the allowable rate for the use of money, such as interest rates on loans. The medieval canonic definition of usury was absolute: any interest charged for the use of money was usurious. Following King Henry VIII’s definition of usury, the definition of usury gradually changed, especially in Northern European jurisdictions, to interest charged above the permissible rate.
Venire Contra Factum Proprium – See Promissory Estoppel and Preclusion.