Contract Law: Validity, Discharge and Remedies Flashcards
Vitiating factors
Reasons to have a contract set aside. These include misinterpretations, duress, undue influence, and mistakes
Void contract
A contract that has never been valid and has no rights or obligations as such
Voidable contract
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
If a contract is valid, it is terminated by…
1) Performance
2) Breach
3) Agreement
4) Frustration
Representation
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.
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:
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
In contracts uberrimae fidei (of the utmost faith) there is…
a duty of full disclosure
Three types of misrepresentation
- 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
Remedies for misrepresentation?
Rescission (cancellation), which will restore both parties to the pre-contractual position. Since rescission is an equitable remedy, principles of fairness must apply.
Rescission is not possible if:
- 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
Indemnity
Vergoeding
When is it possible to sue for damages in tort?
If the representee was induced into the contract by a negligent or fraudulent misstatement.
Tort of negligence –> negligent misstatement
Tort of deceit –> fraudulent misstatement
When does ‘duress’ occurs?
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).
Undue influence
Occurs when improper pressure is put on someone to enter into a contract
For a contract to be set aside for mistake, it must be…
Fundamental in nature and not in error of judgement
Four types of mistakes that can render a contract void:
(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
When does ‘illegality’ occurs?
If the contract is for criminal purposes, prohibited by statue or on grounds of public policy, or if it promotes sexual immorality
Prima facie void
A contract that restricts the freedom of trade
Remedies for breach of contract
Common law:
- Damages
In equity:
- Quantum meruit (what one has earned)
- Specific performance
- Injunction
The expenses incurred because the innocent party relied on the contract being performed
Reliance loss damages
Occur when a claimant expected profit but did not incur it because the contract was not performed properly
Expectation damages
Damage must be PROXIMITE, which is determined by two rules:
- 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)
Contra proferentem rule
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.
Makes a proper, genuine estimate of the potential losses
Liquidated damages clause
Punished the other party for breach. However, this is in principle unenforceable.
A penalty clause
Quantum Meruit (remedies for breach of contract in equity)
A claim for reasonable remuneration (vergoeding, niet compensatie) and can be made if partial performance was voluntarily accepted by the other party
Specific performance (remedies for breach of contract in equity)
An order to make a party perform his contractual obligations
Injunction is used…
remedies for breach of contract in equity
to stop a party from breaking a negative stipulation in a contract
Injunction can be in 2 forms:
- Prohibitory injunction
- Mandatory injunction
Other types are: freezing injunction, interim injunction and final injunction.
A contract that restricts the freedom of trade
Prima facie void
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.
Contra proferentem rule
A claim for reasonable remuneration (vergoeding, niet compensatie) and can be made if partial performance was voluntarily accepted by the other party
Quantum Meruit
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:
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)
