Contract Law: Validity, Discharge and Remedies

Question 1

Vitiating factors

Answer 1

Reasons to have a contract set aside. These include misinterpretations, duress, undue influence, and mistakes

Question 2

Void contract

Answer 2

A contract that has never been valid and has no rights or obligations as such

Question 3

Voidable contract

Answer 3

Can have legal effect but can be made void if the representee rescinds the voidable contract

In other words, it’s legally enforceable as long as the innocent party wants to continue with the contract

Question 4

If a contract is valid, it is terminated by…

Answer 4

1) Performance
2) Breach
3) Agreement
4) Frustration

Question 5

Representation

Answer 5

Induces the contract but is not a term of the contract, so it does not form a part of the contract. Is a representation is untrue, it is called misinterpretation.

Question 6

Misinterpretation. One cannot sue for breach since it’s not part of the contract, however, we can still take legal action as long as three requirements are met:

Answer 6

1) The statement made was not only an opinion, but a STATEMENT OF FACT
2) The statement must have been made BEFORE OR AT THE TIME of the contract
3) The representation must have INDUCED the other party to enter the contract

Question 7

In contracts uberrimae fidei (of the utmost faith) there is…

Answer 7

a duty of full disclosure

Question 8

Three types of misrepresentation

Answer 8

• INNOCENT misrepresentation:
  the maker had reasonable grounds for believing it to be true
• NEGLIGENT misrepresentation:
  no reasonable care was taken in making the statement
• FRAUDULENT misrepresentation:
  the person making the statement knew that is was untrue or was reckless whether it was true

Question 9

Remedies for misrepresentation?

Answer 9

Rescission (cancellation), which will restore both parties to the pre-contractual position. Since rescission is an equitable remedy, principles of fairness must apply.

Question 10

Rescission is not possible if:

Answer 10

• The contract has been affirmed
• It is impossible to go back to the original position (RESTITUTION IN INTEGRUM)
• Third party rights have intervened
• The party seeking rescission has breached the contract

Question 11

Indemnity

Answer 11

Vergoeding

Question 12

When is it possible to sue for damages in tort?

Answer 12

If the representee was induced into the contract by a negligent or fraudulent misstatement.

Tort of negligence –> negligent misstatement
Tort of deceit –> fraudulent misstatement

Question 13

When does ‘duress’ occurs?

Answer 13

When a person enters into a contract due to violence or threats of violence. Setting a contract aside would make it void.

Today, economic duress is also considered a coercion (dwang).

Question 14

Undue influence

Answer 14

Occurs when improper pressure is put on someone to enter into a contract

Question 15

For a contract to be set aside for mistake, it must be…

Answer 15

Fundamental in nature and not in error of judgement

Question 16

Four types of mistakes that can render a contract void:

Answer 16

(1) NON EST FACTUM
written contract fundamentally different from the one the signatory believes to be signing

(2) MISTAKEN IDENTITY
occurs when one party is mistaken as to the identity of the other party

(3) COMMON MISTAKE
both parties are mistaken about the same thing

(4) MUTUAL MISTAKE
parties have misunderstood each other

Question 17

When does ‘illegality’ occurs?

Answer 17

If the contract is for criminal purposes, prohibited by statue or on grounds of public policy, or if it promotes sexual immorality

Question 18

Prima facie void

Answer 18

A contract that restricts the freedom of trade

Question 19

Remedies for breach of contract

Answer 19

Common law:
- Damages

In equity:

• Quantum meruit (what one has earned)
• Specific performance
• Injunction

Question 20

The expenses incurred because the innocent party relied on the contract being performed

Answer 20

Reliance loss damages

Question 21

Occur when a claimant expected profit but did not incur it because the contract was not performed properly

Answer 21

Expectation damages

Question 22

Damage must be PROXIMITE, which is determined by two rules:

Answer 22

• DIRECT COST (harm suffered must arise naturally from the nature of the contract)
• INDIRECT COST (loss that can be reasonably foreseen by the contract breaker because at the time of the contract, he or she was aware of special circumstances which would lead to additional loss)

Question 23

Contra proferentem rule

Answer 23

Is an exclusion clause and must cover the exact circumstances in question. Any ambiguity in the clause is interpreted strictly against the one relying on it.

Question 24

Makes a proper, genuine estimate of the potential losses

Answer 24

Liquidated damages clause

Question 25

Punished the other party for breach. However, this is in principle unenforceable.

Answer 25

A penalty clause

Question 26

Quantum Meruit (remedies for breach of contract in equity)

Answer 26

A claim for reasonable remuneration (vergoeding, niet compensatie) and can be made if partial performance was voluntarily accepted by the other party

Question 27

Specific performance (remedies for breach of contract in equity)

Answer 27

An order to make a party perform his contractual obligations

Question 28

Injunction is used…

remedies for breach of contract in equity

Answer 28

to stop a party from breaking a negative stipulation in a contract

Question 29

Injunction can be in 2 forms:

Answer 29

• Prohibitory injunction
• Mandatory injunction

Other types are: freezing injunction, interim injunction and final injunction.

Question 30

A contract that restricts the freedom of trade

Answer 30

Prima facie void

Question 31

Is an exclusion clause and must cover the exact circumstances in question. Any ambiguity in the clause is interpreted strictly against the one relying on it.

Answer 31

Contra proferentem rule

Question 32

A claim for reasonable remuneration (vergoeding, niet compensatie) and can be made if partial performance was voluntarily accepted by the other party

Answer 32

Quantum Meruit

Question 33

Specific performance (remedies for breach of contract in equity)

Unlike civil law systems, common law recognizes no general principle allowing for the suspension of performance by any innocent party. Instead, suspension of performance will in turn be breach of contract. These circumstances are:

Answer 33

1) The subject of matter of the contract is UNIQUE
2) The court is able to SUPERVISE performance
3) It is EQUITABLE to grant the order (redelijk)