Invalidity of Contracts: Infringement of fundamental principles, mandatory rules, mistake,fraud,duress Flashcards
Where can the two types of externally invalid contracts be found
-Book II-7:101 (1)
-Contracts infringing fundamental principles (II-7:301)
-Contracts infringing mandatory rules (II-7:302)
What are the two types of externally invalid contracts
-Contracts infringing fundamental priciples
-Contracts infringing mandatory rules
Do fundamental principles only encompass non-mercantile (economic) values?
No !
Which article describes the factors which influence decision of the court where the mandatory rule does not expressly provide for the nullity of the contract?
-Art II-7:302 (3) DCFR
What are the possible outcomes after an offer is made
- Revoked by the offeror (II-4:202) = offer cancelled, no offer
-Rejected by the offeree (II-4:203) –> invalid
-Accepted by the offeree (II-4:205)–> contract concluded
-Expired (II-4:206)–> offer lapses, invalid
-Unless II-4:207
-Modified by the offeree(II-4:208)–> new offer
What was the main question of law in the Shroeder v. Macaulay case?
Was the contract valid?
Was it contrary to public policy (non-mercantile values)?
Explain the facts of the Schroeder v. Macaulay
-Macaulay(unknown songwriter) signed a five year exclusive agreement at schroeder’s
-no payment unless music was publisised
-No right to termination
-Music publishers have no obligation to publish his music
What was the judgment in the Shroeder v. Macaulay case?
–> The contract is not valid
-> because it is contrary to public policy
–>too damn oppressive
–> too one sided
–> hampers promotion of trade
Explain the facts of the Davis Contractors v. Fareham
-Initially a building contract was agreed upon for 78 houses to be completed in 8 months at a cost of 92,000 pounds
-but construction actually took 22 months
–> so cost 115k
What was the judgment in the David Contractors v. Fareham case
-Still possible to perform the contract
-no frustration
Explain the judgement in the Davis Contractors v. Fareham case
–> Just because a contract becomes more difficult (less profitable) to perform does not mean its frustration
–> it’s not automatically unfair to hold company to the obligation
–>Frustration only happens when there’s a big change in the obligation,
–>making what was promised something completely different from what was agreed upon.
What is the overarching theme of the Davis Contractors v. Fareham case
-Frustration
Describe the facts of The Bad Harvest Case
- the defendant entered into a contract to sell sugar beet seeds for future years
Under the agreement, the defendant was obligated to sell 20,000 kg to the plaintiff annually.
In 1912, the defendant sold a lesser quantity of seeds.
-The reason for this was the exceptionally severe drought in 1911.
Seeds were distributed proportionally among all customers.
-force majeure?
What was the issue in The Bad Harvest Case?
-Is this a case of force majeure?
What was the judgment in The Bad Harvest Case
Yes! There was force majeure
–> can distribute seeds
–> exceptional circumstance (drought)
Explain the judgment in the Bad Harvest Case
-Principle of good faith
-Exceptional circumstances
Explain the facts of the Jean Didier v EDF- Exemption from liability + force majeure
Company concluded a contract for the supply of current with
French public utility EDF
There was a national strike leading to interruptions in the supply
The company sued for 784,230 Franks
What was the main issue of law in the Jean Didier v. EDF case?
-Is this a case of forece majeure? Was there necessity in the interruption of the supply?
Explain the judgment in the Ste Heliogravure Jean Didier v. EDF case?
-Strike does make it a case of force majeure
-The situation would be very different if the strike had happened within the French public utility company ITSELF.
-if that was the case they were obliged to provide temporary workers
-If the strike affected the whole of public then it wouold have been a case of force majeure
What was the judgment in the Ste Helogravure Jean Didier v. EDF Case?
-This was a case of force majeure
Explain the facts of the St John Shipping Corp v. Joseph Rank Ltd case
-St. John Shipping Corporation owned a ship
Define frustration
-Law recognises that a contractual obligation has become incapable of being performed
-because the circumstances in which performance would be achieved
-would render the situation radically different from what was agreed on
-Not just hardship/ suffering
-radically different terms
List the grounds of termination
- NO consensus= NO contract
- Infringement of fundamental principles–> immediately void (II 7:301)
- Infringement of mandatory rule (II 7:301)
4.Avoidance= contract retroactively ceases to exist (II 7:212)
5.Right of withdrawal (II 5:101) + restitution (5:105(2)) - Termination due to non-performance (III. 3:501)= restitution
- Change of circumstances (III.1:110)= termination or modification
List the cases which grapple with the idea of non- consensus
Raffles v. Whichelhaus
Hartog v. Colin and Shields
Hannah Blumenthal
Describe the facts of the Raffles v. Whichelhaus case
- R sells cotton to W,
-the cotton is transported from Bombay in December
-But W refused to accept the goods because thought they agreed to send the shit over on another ship called Bombay which sailed in September
-R demands performance by W (buyer)
What was the judgment in the Raffles v. Whichelhaus case
-Sided with W
Explain the judgment of the Raffles v. Whichelhaus case
because there wasn’t a mutual understanding or overlap in what parties wanted
-NO CONSENSUS
- no contract to begin with
Explain the facts of the Hartog v. Colin and Shields Case
-C&S mistakenly offers to sell H Argentine hare skins for a price per pound
-H accepts
-C&S refuses to perform, it meant to sell hare skins for a price per piece
What was the judgment in the Hartog v. Colin and Shields Case
-No contract therfore C& S justified
Explain the judgment in the Hartof v. Colin and Shields Case
-no contract (no consensus) because it is
-customary in the hare skins trade to give prices per piece and not per pound
Explain what avoidance of contract delineates
-Voiding a contract
–> making it void
List the grounds for avoidance of contract
- Fraud (7:205)
- Mistake (7:201)
3.Coercion or threats (7:206) - Unfair exploitation (7:207)
Where can the grounds for avoidance of contract be found
- Book 2 (7:205–>7:207)
Where can the effects of voiding a contract be found
-Art. II 7:212
Explain the effects of voiding a contract
-Contract retroactively ceases to exist
What are the criteria needed to be fulfilled in order to avoid a contract
- Give notice of the avoidance (Art 7:209)
- Right to avoid is lost in the event of:
a. Notice given after unreasonable lapse of time (Art. II 7:210)
b. Confirmation of the contract (7:211)
Explain the facts of the Shark Meat Case
- Contract of sale: 214 barrels of X which is shark meat in norwegian
-but the intention of BOTH parties was to buy and sell whale meat
-Seller wanted to avoid contract because of mistake
Explain the judgment of the court in the Shark Meat case
- common intention prevails over the mistakenly used term
-so still contract for whale meat
Explain the effects pf avoidance
- pronounced null and void after it is technically concluided
-contract is valid until it is avoided (7:212(1))
Explain the facts of the threatened wife case
- Wife guarantees that the debts of her husband’s firm will be paid
-Wife tries to avoid guarantee
-Debuty bank director threatened her that criminal proceedings would be brought against her husband for (threat)
-fake bills
What topic is the threatened wife case concerned with
-Coercion and threats
What is the main question of law in the threatened wife case
Was the treat(of legal action) legally justified for her to sign the guarantee?
What does one have to asses when determining whether the threat is justified?
1.Determine if the person making the threat genuinely needs the result they’re after
2.is the threat a reasonable way to achieve the threater’s goal (e.g: signature 4 bank guarantee) to:
-reasonably minded ppl
-consider all circumstances 4 context
What are the two categories of dependence which can be exploited under the DCFR
Book II- 7:207
- Trust
-Economic duress/ urgent needs
(needing that moolay)
Explain the facts of the Steamship Rolf case
-Value of Rolf and cargo was 363k francs
- they accidentally run aground on san
-Tugboat dude agrees to help for 18k francs
-out of necessity the SS Rolf crew agreed
What was the judgment of the Steamship Rolf case
- Agreement declared void
-tugboat exploited the other ships dire circumstances
-operation itself worth 4k
-involved no risk
-not time consuming
Explain the facts of the Atlantic Baron Case
-Builders of the ship ‘The Atlantic Baron’ demand a 10% increase in price when the value of the dollar drops by 10%
-threaten not to deliver the ship
-owners desperate (very lucrative contract) so they say yes
-but then they claim the 10% back
What was the main issue of law in the Atlantic Baron Case?
- Were the owners under economic duress (economic pressure)?
What was the judgment in the Atlantic Baron Case?
-No economic duress !
Explain the judgment in the Atlantic Baron case?
-> No objection of owner
–> no signs that they had other reservations
–> secret mental reservation not enough
–> didn’t make it material
What are the two overarching ways a contract might be invalid
- Internally invald
–> something about it iself
1. no consensus
2. fraud/mistake/coercion/unfair exploitation
