Week 5 Flashcards
what is hardship?
When performance has become extremely onerous/difficult due to unexpected external events. Remember that this is not impossible
What are the options for when hardship is granted?
- Hold the affected party to the original terms so nothing happens
- Grant some relief to the affected party. Note we apply the same conditions as with Force Majeuere to give relief. So the event must be unforeseen, beyond control, etc
What are the consequences of hardship?
- Some systems may give the court the power to adjust provisions of the contract
- some systems may oblige parties to renegotiate.
How do we distinguish hardship and Force Majeure?
- Force majeure is when performing is impossible and the debtor is obliged to perform a loss-making contract. This makes sense since noone would accept a loss making contract. So if the contract turns loss-making, then it was probably never even considered a possibility
- Hardship is when performing is just more difficult and they don’t obtain profits or less profits than expected. But it is not loss-making.
Unascertained goods cannot be Force Majeure and is often hardship
Does Force Majeure or hardship have higher burden of proof
force majeure as you need to prove performance is impossible
Sow hat happens if non-performance occurs?
It is a breach of contract and sanctions/remedies can be invoked.
Is the sanction to a breach of contract automatic?
No, the affected party must launch a judicial action to obtain a forced performance. There is no automatic sanction.
What are the types of remedies/sanctions for non-performance that can be invoked?
- Demand specific performance
- Suspension of one’s own obligations
- Termination
- Price reduction
- Repair
- Replacement
- Damages
What is the remedy: demand specific performance?
This is the preferred remedy by legislators as the contract is kept and obligations remain.
courts may force the other party by applying fines to late services
What is the remedy: suspension of one’s own obligations
This is a remedy that can be raised in a reciprocal agreement (meaning both sides have obligations). So the party who has to perform after the first party may suspend performance of its own obligations as long as the first party obliged to perform does not perform.
What is the condition of invoking suspension of own obligations?
The first party obliged to perform does not perform. So the one that does not perform has to be the first party that has to perform. Note that it is all about whether the performance is done, so it can even be done by another person. So bank can pay instead of A, and performance is considered done
What are the conditions to invoke a termination of a contract?
- The non-performance causes a fundamental breach. A fundamental breach is about the core element of the performance itself
- Notice is to be given by the aggrieved party within a reasonable time after it knew or could know the fundamental breach. It is important the non-performing party knows the fundamental breach
When is non-performance a fundamental breach?
- Strict compliance with the obligation is of the essence of the contract; OR
- Non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract; OR
- Non-performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance
What are the effects of termination in English Common Law?
Victim is released from future obligations, but not from obligations which had already accrued. So whatever has happened remains, but future obligations are not gone
What are the effects of termination in civil Law?
The retroactive effect occurs in case of fundamental breach. Parties have to restitute everything which have been exchanged
What is price reduction remedy?
A party who accepts performance not conforming to the contract may reduce the price.
A proportionate decrease where the decrease in value of performance at the time this was tendered compared to the value which a conforming tender would have had at that time.
However, if price reduction is invoke, you cannot invoke damages for the element of reduction of value.
What is the repair remedy?
In case of a defective performance, the repair remedy is about repairing the original product. it does not require a fundamental breach
What is the replacement remedy?
Replacement requires fundamental breach and is about getting a new product
What is damages?
the aggrieved party is entitled to damages for loss caused by the other party’s non-performance which is not excused.
Can remedies be combined?
Remedies can be combined as long as they do not contradict each other. You cannot ask for a price reduction, when asking for damages for the same element.
What are late payment interest clause and damage clause?
- Late payment interest clause compensates the financial losses which are the result of the non-performance
- Damage clause compensates the costs of administration linked to the non-performance like costs relating of notice letters
What are the restriction of remedies?
- Contractual clauses that limit the right to invoke remedies. However, this must remain within limits of good faith and fair dealing, or within limits of unfair contract terms
- Contractual clauses to restrict damages. However, this must remain within the limits of good faith and fair dealings, or unfair terms
What must the aggrieved party do when there is harm from non-performance?
They must mitigate the harm of non-performance. They are not entitled to damages for loss suffered to the extent that the harm could have been reduced by taking reasonable steps. However, the aggrieved party is entitled to recover any expenses incurred in attempting to reduce harm
What is the privity of contract?
The principle that only parties to a contract acquire rights and duties under the contract. However, a third party can be given rights but not obligations.
