Comparative Contract Law
Summary
1. Introduction to Contract law
What is a contract?
Germany
§ 311 BGB: A contract between the parties is necessary for the formation of an obligation
relationship by a legal transaction … in so far as statute does not prescribe otherwise.
Contract more correctly referred to as:
•
Contractual relationship of obligation = § 241 BGB (where a relationship of obligation exists,
the person whom the obligation is owed is entitled to claim a performance from the person
who owes the obligations).
•
Legal transaction
•
Declaration of intention
Relationships of obligation by law: § 812 BGB, § 823 BGB and § 677 BGB: not based
on voluntary agreement, but imposed by law
Relationships of obligation by contract: § 311(1) BGB
Specific rules §145 ff. BGB
Precise and complete as to essential elements of the proposed contract
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England
•
No uniform definition of contract
•
Contract is a promise or a set of promises, or an agreement which is enforced or recognized
by law
•
Underlying concept: exchange / bargain
 Consideration
Has not been developed by the court or the legislature. But it can be describe as an exchange of
promises.
Sufficiently precise and complete to amount to an undertaking to be bound if it is accepted –
Scammell & Nephew Ltd v Ouston (1941)
Nearly all definitions of contracts will generally emphasise three main elements:
Agreement
Intention to be legally bound = (parties must intend the agreement to be legally enforceable
but not every agreement will be enforced by the law.  made in domestic or social setting
are not legally binding UNLESS it can be established that there was an intention to create
legal relations.
Commercial = the law will enforce commercial agreements, UNLESS there are clear words
that indicate the contrary for instance, where the parties make the agreement ‘ subject to
contract’, or ‘binding in honour only’.
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Consideration: idea of reciprocity. Is in essence mean the act or promise given in exchenge
for the promise.
France
Art. 1101 CC:
A contract is an agreement by which one or several persons bind themselves, towards one or several
others, to transfer, to do or not to do something.
Art. 1108 CC:
Four requisites are essential for the validity of an agreement:
•
The consent of the party who binds himself;
•
His capacity to contract;
•
A definite object which forms the subject-matter of the undertaking;
•
A lawful cause in the obligation.
Juridical act = voluntary act that is intended to create legal relations, since a contract is a
source of obligation that is founded on parties’ agreement.
Contract = a contrast is an agreement that creates obligations
But
Convention: is any agreement based on consent and includes agreements to modify or terminate a
contract or to transfer an obligation.
 A contract is therefore a sub-category of the larger category of convention.
Rule the same for contract and convention
THEREFORE:
• contracts=agreements on consent of both parties
• must have a definite object + lawful cause in obligation
• art. 1126 further elaboration on concept of object (subject matter of the agreement)
• art. 1131 further elaboration on requirement of cause (the reason, subjective or
objective)
The Netherlands
3
Book 6 = the law relating to contract
Book 3 = the concept of a juridical act
•
Art. 6:213 DCC
A contract in the sense of this title is a multilateral juridical act whereby one or more parties assume
an obligation towards one or more other parties. Provides that ‘a contract… is a multilateral juridical
act whereby one or more parties assume an obligation towards one or more other parties’
•
Art. 3:33 DCC
A legal act requires a will which is directed a will is directed towards a legal consequence and which
has been manifested by a declaration.
 A juridical act requires an intention to produce juridical effects, which intention has been
declared.
Agreement of the parties and obligations imposed by law: art 6:162 ff., art. 6:212 ff., art. 6:
198 ff.
Contract = sub-category of juridical acts
Declaration of intention = a contract is made up of two declaration of intention: OFFER /
CORRESPONDING ACCEPTANCE.
By making an offer, the offeror manifest his attention to be bound by the
terms of his offer once it is accepted by the offeree.
The offeree declares his intention to be bound by accepting the offer. In this
way, these two corresponding declarations of intention constitute the multilateral
juridical act that is the contract.
Why contracts are enforced?
•
Promissory theories
–
•
Will theories
–
•
You should keep your promise
You intended to be bound
Reliance theory
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•
–
You induced another to rely on your undertaking to his detriment
–
Combination will and reliance theories
Efficiency theory
Everyone is better off if you keep your
Basic principles:
•
Freedom of contract
Everyone is free to decide whether to contract at all, with whom they are willing to contract
and on what terms
• Binding force/Sanctity of contracts
contracts should be respected, upheld and enforced by the courts out of respect for
voluntarily assumed obligations and the corresponding voluntarily created rights
• Consensualism
contract is not subject to specific formal requirements, unless prescribed by the law
What is the role of contract law?
•
•
•
•
•
•
Contract law defines how the practice of making agreements should be conducted:
Has a contract been made?
– Offer and acceptance
– Intention to create legal relations
– Consideration/causa
– Formalities
Can the contract be set aside?
– Mistake
– Misrepresentation / (Non-)Disclosure
– Undue influence/Exploitation/Duress
What are the respective rights and duties of the parties?
– Interpretation
– Supplementation
• Legislative default rules
• Good faith
• Custom
What remedies are available for breach of contract?
– Breach of contract
– Damages
– Termination
– Specific Performance
Are there limits to the parties’ freedom of contract?
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2.Contract Formation
Contract formation is mainly based on the offer/ acceptance mode. It is accepted as the method for
analysing contract formation in England, France, Germany and the Nlds.
What is an offer?
Germany
Intermediate approaches
 Offer = declaration of intention,
 Specific rules §145 ff. BGB
 Precise and complete as to essential elements of the proposed contract
Offer = declaration of intention, therefore the general provisions on declarations of intention
and the specific rules on offers are applicable. The offer must state the essential elements of
the proposed contract precisely and completely. The offer must be complete and definite.
Declaration of intention is= a declaration that expresses an intention to bring about certain
legal consequences. It expresses the intention to enter into a contract and to be legally
bound.
The Netherlands
Intermediate approaches






Offer : 6:217(1) BW = introduce the offer and acceptance model
Offer = juridical act (see 6:218 BW)
Art. 3:33 BW  declaration of intention
Art. 3.33 – 3.35 BW: establishes whether an offer has been made.
Art. 3:37: to take effect, an offer must be communicated to the addressee.
Art.6:227: provides that is must be possible to determine the content of the obligations
assumed by the parties. An obligation is considered to be sufficiently determinable if its
content can be determined according to criteria which can be indentified in advance.
 However, if a contract is concluded by offer and acceptance, and the acceptance is a mere’
yes’, then in order for a contract to be concluded, the obligation must be sufficiently
determinate, hence be contained in the offer.
France
Subjective approaches
 Art. 1108 CC: agreement - ‘consent of the party’- no reference to the concept of offer. The
formation of a valid contract requires ‘the consent of the party who commits himself’.
 Offer = proposition which includes all the elements of the proposed contract, must be
precise and firm  Concept of an offer (or acceptance) is not defined in the civil code.
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 Art. 1583 CC: in the case of sales contracts, the parties must have reached agreement on the
thing to be sold and the price to be made.  the offer to conclude a contract of sale must
identify the thing to be sold and the price to be paid for it.
England
Objective approaches
 Offer = a statement expressing a willingness to contract on the terms stated as soon as
those terms are accepted by the offeree  Storer V Manchester City Council (1974)
 The offer must be communicated to the offeree Taylor v Laird (1856)
 Sufficiently precise and complete to amount to an undertaking to be bound if it is accepted –
Scammell & Nephew Ltd v Ouston (1941)
 Contract is not concluded if terms are not clearly enough indicated that they indicated to be
bound May &Butcher v R (1934)
Can proposal made to the public be an offer?
German law: Offer can be made to undefined group of persons
Dutch law: no general rule, depend on circumstances
French law: A proposal to the public generally will be treated as an offer
English law: proposal to the public generally treated as an invitation to treat
o BUT: Carlill v Carbolic Smoke Ball Co = that was an offer
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Offer an invitation to treat
Proposals to conclude a contract can be made to an individual, a group o person on the
public at large.
Proposal to the public = advertisements, poster, circular, price list, window displays, display
of goods, on shop shelves or in vending machines, ect.
 the person making the proposal does not make an offer but invites the other party
to do so.
German law
Advertisements, catalogues, displays in shop windows, menus – invitations to treat
Display of goods on shop shelves – unresolved, probably invitation to treat
Public proposal  invitation to treat.
Interest persons are requested to make an offer to the seller. Advertisements are treated as
invitation to treat in order to avoid the consequence for the seller or offeror who could run
out of the goods he is proposing to sell. The courts provide the offeror the opportunity to
decide at a later stage whether and with whom he wants to conclude a contract.
Dutch law
Advertisements: no general rule, depends on circumstances
Display of goods: offer, subject to proviso ‘While stocks last’
No general rule on whether a public proposal should be regarded as an offer or as an
invitation to treat, this will depend on circumstances.
The Dutch Supreme Court has decided that an advertisement concerning the sale of real
property at a specified price will be regarded as an invitation to treat.  The characteristics
of the person with whom the contract is to be concluded are essential to the seller and
further negotiations on the other conditions of the sale will be usually necessary.
If the advertisement in a newspaper about a 50 € bikes, it is regarded as an offer because
the characteristics of the buyer are not essential to the seller. The contract will be concluded
with the first person who accepts the offer.
Whether an advertisement is treated as an offer or an invitation to treat depends on when
there is a need for further bargaining or whether the characteristics of the person
contracting is essential.
Catalogues and prices list  offer because that are subject to the implied clause that the
offer is valid”while stocks last”. (épuisement des stocks)
French law
Public proposals – offers which bind the offeror to the first acceptor
But: if the offeror may need to know the identity of the offeree, invitation to treat
Displays of goods in shop windows, shelves = offer, provided price displayed
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Whether a proposal is an offer or an invitation to treat is a matter of fact to be decided by
the courts in an individual case. The “Court de cassation” has laid down certain rules.
 the public proposal as a public offer.
English law
Advertisements, displays of goods in shops, catalogues, circulars, advertisements of auctions
and requests for bids = invitations to treat
 Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953)
 Partridge v Crittenden (1968)
 But:Carlill v. Carbolic Smoke Ball Co (1893) = OFFER
Public offers/ proposals  invitation to treat
Advertisement of a rewards  an offer
Display of goods
Germany
On shop shelves – unresolved, probably invitation to treat
Uncertainty about invitation to treat/offer under German law
It is the customer who makes the offer
The Netherlands
Normally regarded as an offer
Offer subject to the proviso ‘while stocks last’
France
In a shop window, shelves regarded as an offer as long as there is a price displayed.
In self-service shop the sale is completed when the customer has placed the article in the
basket (decision of Paris Court of Appeal). There is consensus between the parties and a
contract is formed.
England
Display of priced goods in shop is invitation to treat
Fisher v Bell
Customer treated as making an offer, which the seller can accept or reject
Contract is not completed until the customer has indicated the article which he needs and
the shopkeeper accepts that offer
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd.
Shop regarded as a place for bargaining, not for compulsory sales
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Agreement
Germany
Intermediate approach
Declaration of intention: -person must intend to act per se
-an intention to act in a legally relevant way
-person must intend to bring certain, specific legal consequences (§
119 BGB: person who intend to make declaration but mistakes in
relation to the specific consequences)
§ 122 BGB: protection of the party to whom declaration is made
The Netherlands
Intermediate approach
Recognizes a combined will-reliance theory
Offer must be sufficiently definite, containing all essential elements of an offer the contract
The appearance of an intention to be bound will bind the maker of a declaration if it is
reasonable for the addressee to rely on it being an offer
France
Subjective approach
Take account of the actual state of mind of one of the parties
Contractual obligation can only arise from the will of the person bound by it
Agreement= as subjective meeting of two minds
If party alleges he did not intend to be bound by the agreement he needs to make allegation
plausible, but may be required to compensate the other party as result fo any loss suffered
as a result on the basis of tort art. 1382 CC
England
Objective approach
To determine whether agreement has been reached between the parties it is sufficient that
one party reasonably thinks that the other party has agreed
 Storer v Manchester City Council (1974)
Agreement must be clear and definite, otherwise contract is not binding
Close relationship between two requirements: certainty and intention. It is not possible to
have an intention to be bound when the content of the proposed agreement is not
sufficiently certain
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Effect of an offer
Germany
Offer = declaration of intention  § 130 BGB ff. : becomes effective when it reaches the addressee.
§130 BGB: a declaration of intention which is to be communicated to another person is effective,
when made in the absence of the addressee of the declaration, at the point in time at which it
reaches him.
§ 145 BGB: once the offer is effective, both parties are bound by it and the offeror is not permitted
to revoke his offer. He will remain bound until the offer lapse.
Period time = § 146 BGB provides that an offer loses effect or lapses if it is rejected by the offeror, or
if it is not accepted in due time in accordance §§ 147 – 149 BGB.
§ 147 BGB = an offer that is made in presence of the offeree, may only be accepted immediately,
unless the offeror fixes a time period within which acceptance of the offer can take place.
(Telephone or other technical apparatus as well).
Loses effects: The offer loses effect if they are not and no time period is given for acceptance.
§ 148 BGB = If the offeror fixes a time period for acceptance in the terms of the offer, this § provides
that the acceptance may take place only within that period of time.
§ 149 BGB = provides that if an acceptance reaches the offeror belatedly, but it was in such a way
that it would ordinarily have arrived in time (postmark), then the offeror, once he has received the
acceptance, must notify the offeree of the delay.
§ 150 BGB (1) = provides that the acceptance will count as a new offer. If the acceptance contains
amplifications, limitations or other alterations to the offer, it is also deemed to be a rejection of the
offer and the purported accepted is treated as a counter offer.( § 150 BGB (2))
The Netherlands
Offer = juridical act  art. 3:37 (3) BW: becomes effective once it reaches the addressee. The
addressee does not actually have to be aware of the content of the declaration in order for it to
reach him. An offer thus takes effect when it reaches the offeree.
Withdrawal an offer = once the offeror has sent the offer, he can prevent it from taking effect by
withdrawing the offer. The withdrawal must reach the offeree before or at the same time as the
offer.  art. 3:37 (5) BW
Loses effect = the offer loses its effect when it is accepted, because it has been subsumed by the
contract which has been formed.
Art. 6:221 (2): an offer loses effect if it is rejected by the offeror.
 When it reaches the addressee. (German and Dutch)
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Art. 6:225: modification of the offer is treated as a rejection of the original offer and as a news one
 counter-offer.
England
Offer is not effective until it is communicated to the offeree, i.e. received
• Unless withdrawal reaches offeree previously or at the same time
Period of time: if the offeror fixes a period of time in the offer during which it can be accepted, the
offer lapses if it has not been accepted by the end of that time period. If the offeror didn’t fixe the
period of time for the acceptance in the offer, an offer will be normally be held to be open for a
reasonable period of time.
 Manchester Diocesan Council v Commercial Investment (1969)
 Ramsgate Victoria Hotel CO v Montefiore (1866)
 When it enters his sphere of influence.
France
The offer must be communicated to the offeree in order to take effect.
Period time = the offer lapses after the end of time fixed for acceptance.
No time = fixed after a reasonable period.
Revocation of an offer
The Netherlands
– Art. 6:219 (1) BW: an offer can be revoked. However, the revocation is no longer
possible if the acceptance has been dispatched. Once it has been dispatched, the
offeror can no longer prevent the conclusion of the contract.
– Art. 6: 219 (2): where an offer is made with the statement that it is without
obligation, the offer can still be revoked, even after the acceptance has been
dispatched and even after the acceptance has reached the offeror.
–
–
Exceptions:
1. Irrevocable during the fixed time stated for acceptance but not all the time
 art. 3.33 – 3.35 BW
2. Irrevocable if it is stated in the terms of the contract Nature of the offer
3. Irrevocable if is stated that it is an offer WITHOUT OBLIGATION. If the
revocation has delay it is irrevocable – if not it is revocable even after
acceptance has been dispatched.
4. Art. 6:220 BW = an offer of a ‘reward’ made for a fixed time can only be
revoked for ‘important reason’. It is therefore in principle irrevocable.
Offer without obligation
Not revocable: once the acceptance of the offer has been dispatched.
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France
– In principle an offer may be revoked as long as it has not been accepted.
– The offer cannot be revoked during the fiwed time for acceptance.
– The offer must be kept open for a reasonable time for acceptance.
 if the offeror revokes his offer anyway, he will be held liable to pay damages for the loss
the offeree has suffered from the revocation = art. 1382 CC  tortious wrong
Germany
–
–
–
–
–
§ 145 BGB: once it took effect, an offer is in principle irrevocable unless the offeror
states that it is ‘revocable’ or ‘subject to change’.
§ 130 BGB: the offer can be withdrawn or revoked provided it reaches the offeree
prior to or at the same time as the offer itself.
The offer is irrevocable until it lapses. Thus it is in the offeror’s interest to stipulate in
his offer a fixed period of time for acceptance.
The German approach is explained as being a “requirement of commerce”. The
offeree must be able to rely on a contract being concluded when he makes a timely
acceptance of the offer.
Offer is binding unless offeror states, e.g.:
•
revocable offer
•
offer subject to change
NB. Distinguish between revocation and withdrawal:
– withdrawal: prior to or at same time as offer received
– revocation: after offer has taken effect
England
–
–
–
–
–
Every offer can be revoked at any time before it is accepted, every offer is revocable.
The offeror is not bound by the offer.
Even if the offer itself states that it is irrevocable or if it provides a fixed period of
time for acceptance, the offer may nevertheless be revoked at any time before
acceptance, without further consequences.
Rationale: doctrine of consideration
Exceptions:
• Offers contained in a deed (signed written document attested by a witness.
• Option contract (a separate contract made for a nominal amount, which
holds the promisor to his offer.
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Consideration:
•
•
•
A promise by one party which is not supported by consideration is generally not binding
Basic concept: there is consideration for a promise if the promisor makes it in order to obtain
a desired counterpart
Reciprocity, bargain
What is a consideration?
Currie v. Misa (1875) LR 10 Ex 153 "consideration" is : “ a valuable consideration, in the sense of the
law, may consist either of some right, interest, profit or benefit accruing to the one party, or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."
Example:
In a contract for the sale of goods, the seller (S) promises to deliver the goods and the buyer (B)
promises to pay for them on delivery
– S’s promise to deliver the goods is consideration for B’s promise to pay for them
– B’s promise to pay for the goods is consideration for S’s promise to deliver them
Nature of the consideration:
Consideration need not be ‘adequate’, i.e. of equivalent value, but it must be sufficient – something
of value in the eyes of the law
– Thomas v Thomas (1842) 2 QB 851
– Midland Bank & Trust Co v Green [1981] 1 All ER 153
– Chappell & Co Ltd v Nestle Co Ltd [1959] 2 All ER 701
– Mountford v Scott [1975] Ch 258
Is a fundamental requirement for the formation of a valid contract under the common law.
 The doctrine of consideration provides that a promise is only binding if there is a
corresponding benefit to the promisor or detriment to the promise.
 It’s a promise to keep an offer open (not revoking it), therefore, requires consideration to
make it binding and would thus only become so if the offeror obtains some benefit or the
offeree incurs some detriment in return for the promise not to revoke the offer.
Option contract: the offeror cannot revoke his offer. This means that the parties must enter into a
separate contract to keep the offer open. The offeror needs to receive consideration for his promise
to keep his offer open.
In order for a revocation to take effect, notice of revocation must reach the offeree  Byrne § Co v?
Leon Van Tienhoven.
The communication of revocation does not need to come from the offeror. It can be communicated
by a reliable source  Dickinson v. Dodds
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Uniteral contract = an agreement to pay in exchange for performance, if the potential performer
choose to act. Paying 1000 € for doing something: the performance is the acceptance.
 Errigton v. Erringhon and Woods (1952) = when the performance stated, the offer cannot
be revoked.
 Daulai Ltd v. Four Millbank Nominess ltd (1978)
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Acceptance
When the acceptance became effective then the contract is concluded and it cannot be withdrawn
without further consequences.
England
•
•
The offeree must communicate his acceptance to the offeror in order for the acceptance to
have effect and for the contract to be concluded.
Acceptance is communicated if it is brought to the notice of the offeror. When it reaches the
offeror, it is concluded.
•
However, POSTAL RULE = When the acceptance is communicated via the post, the contract is
concluded when the acceptance is dispatched.
 Adam v. Lindsell (1818)
 Harris’Case (1872)
•
The postal rule is not a general rule. It is limited to postal and telegram communication of
acceptance and is subject to a number of restrictions. It only applies when a mode of
communication has not being specified in the offer. If the better is sent too late, the postal
rules don’t apply anymore.
 Holwell Securities Ltd v. Huges ( 1974) = an acceptance was posted to the offeror and was
lost in the mail. The plaintiff argued that the postal rule applied. Russel Lj held taht since the offer
contained the instruction that “notice of the acceptance must be given to the offeror, it followed
from the words notice...to’ that the offeror be notified of the acceptance for it to have effect, even
though the language of th offer suggested that communication of the acceptance could be made by
post.  Postal rule is exclude.
Exceptions of the postal rule:
1. It does not apply when the terms of the offer specify that the acceptance must reach the
offeror.
2. It probably does not operate if its application would produce manifest inconvenience and
absurdity taking into account the circumstances of the case and the subject-matter of the
contract.
 Byrne & Co. V. Leon van Tienhoven (1880) = postal rule is criticized because it may
occur that the acceptance is posted prior to the receipt of a revocation. In that case, tje
offeror no longer intends to conclude a contract with the offeree, but a contract has
nevertheless been concluded.

The postal rule does not apply to all forms of communication. There is a distinction between
INSTANTENEOUS (telephone, telexes, faces, emails and electronic date exchange and NONINTANTANEOUS communication.
Silence: is generally not regarded as acceptance even when the offer states that silence constitutes
acceptance.
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 Brogden v Directors of the Metropolitan Railway CO (1877)  acceptance may take the
form of conduct.
= Conduct will consist of acts of performance of the contract, for instance by delivering the goods
that have been ordered. The offer may invite acceptance by conduct and waive the requirement of
notification.  Especially in UNILATERAL contract where acceptance usually takes the form of
performance. ( Carlill v Carbolic Smoke Ball Co (1877) )
Germany




An acceptance is also a declaration of intention.
An acceptance must be communicated to the offeror.
Takes effect when the declaration of intention comprising the acceptance reaches the
offeror.
For the acceptance to be effective, it is sufficient that it comes within the sphere of influence
of the offeror.
Silence: cannot in principle constitute an acceptance. However, and offeror must respond promptly
to a counter-offer, otherwise he may be deemed to have accepted it.
France
When acceptance takes effect lies within the discretion of lower court. The “Court de cassation” has
adopted the dispatch theory for the acceptance by letter.
In one case, the court decided that where an offer was to be accepted within 30 days, and the
offeree dispatched the acceptance 7 days prior to the expiry of this time period, the acceptance was
‘destinated to become perfect’ by its dispatch.
Silence: silence does not constitution acceptance. When an offer is made in the exclusive interest of
the addressee, the addressee’s silent implies acceptance.
The Netherlands





The acceptance is also a ‘juridical act”.
It becomes effective when it reaches the offeror  3:37 BW
Like other declaration of intention, the acceptance is effective  3:37 (3)
For the acceptance to ‘reach’ the offeree, it is not necessary for the offeree to have actual
knowledge of the acceptance. It is generally accepted by doctrine and case law that it is
sufficient that the acceptance has arrives at the offeree’s address and that he could
reasonably have acquainted himself with the content of the acceptance.
Art. 6:224 combined with art. 3:37 (3): If the acceptance does not reach the offeror due to
circumstances which can be attributed to his own risk, for example because he provided an
incorrect address, then the contract is deemed to be concluded at the time that the
acceptance would have reached him has the disruptive event not occurred.
 hence a ‘corrected actual receipt theory’ is applied = if an acceptance does not reach the
offeror due to circumstances which can be attributed to his own risk, then the contract is deemend
to be concluded at the time that the acceptance would have reached him if the disruptive
(perturbateur) event had not occurred.
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Silence: silence can under certain circumstance be regarded as acceptance. Offer and acceptance do
not need to take place expressly but can occur in any form.
 can be regarded as acceptance in particular as a result of conduct that implied this
acceptance/ the contract might be concluded by the performance of the required act.
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3. Defects of consent
England
Netherlands
France
Germany
Misrepresentation
Common/mutual
mistake
Dwaling art. 6:228 BW
Erreur art. 1110
Irrtum §119-120
Fraudulent
misrepresentation
deceit
Bedrog art. 3:44
Dol art. 1116
Arglistige
§123
Duress
Bedreiging art. 3:44
Violence art. 1111 ff.
Widerrechtliche
Drohung §123
Undue Influence:
- Actual
- Presumed
Misbruik
omstandigheden
3:44
van
art.
Täuschung
Wücher §138
We can distinguish three type of defect of consent:



Mistake
Fraud
Duress
Mistake
England
Types of mistake:
a. Shared common mistake
b. Non-identifical mistake (mutual mistake/misunderstanding)
c. Unilateral mistake
Shared common mistake
• Both parties made the same mistake
• Mistake can be seen to nullify consent
• Mistake must be fundamental
o Res extincta – mistake as to the existence of the subject matter of the contract
o Res sua – mistake as to title
o Mistake as to the quality of the thing?
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•
Quality forms part of the contractual description
• Breach of contract
• Misrepresentation
Mistake as to quality
• Generally will not avoid the contract
• If the quality forms part of the description – breach of contract
• If the quality is not part of the contractual description: mistake will not nullify consent
• UNLESS: it relates to the substance of the subject matter and its absence makes the thing
essentially different
Non-indentical bicameral mistake
• Misunderstanding, mutual mistake
• Both parties made mistakes, but different ones
• Mistake prevents parties from reaching an agreement
• Mistake negates agreement
Unilateral mistake
• Only one party makes the mistake
• If other party knows or ought to have known of the mistake, the contract is void
• E.g. mistake as to the identity of the contracting party
1.Mutual or common mistake: both parties made the same mistakeagreed on same thing but their
agreement cannot have its normal effect, mistake is said to nullify consent
-mistakes to nullify consent are very limitedneeds to be fundamental shared mistake of fact,
mainly as to the existence of the subject matter
2.Unilateral mistake: parties never agreed on same thing, either one party has made a mistake or
both have made different mistakes
-only allowed if it is caused by innocent or negligent misrepresentation
Misrepresentation is another means of identifying mistake in English law, but mistakes caused by
misrepresentation is another means of identifying mistake
France
•
•
Art. 1109 CC
Art. 1110 CC
Types of mistake:
• Erreur sur la substance: mistake relating to the subject matter of the contract
20
•
•
•
•
•
•
Erreur sur la personne: mistake relating to the other party
Erreur sur la valeur: mistake as to value?
‘Motif déterminant’
Excusable
Knowledge of the other party not necessary
Distinction between mistaken valuation and mistaken facts which form the basis for the
valuation (mistake as to a substantial quality)
Uses mistake as ground for relief
Mistake= false assessment of reality made by contracting party
Erreur-obstacle= If mistakes are really important that there has never been any agreement (obstacle
to the formation of contract), concern the very nature or identity of the subject-matter of contract
Art. 1110 CC: two main types of mistakes: relating to subject matter and relating to the other party
-does not take into account how the mistake was caused
-allows unilateral and induced mistakes
The Netherlands
Art 6:228 (2) BW:
The nullification cannot be based on an error regarding a strictly future circumstance or an
error which should remain for the account of the party in error, given the nature of the
contract, common opinion or the facts of the case.
Germany
Mistake= incorrect understanding of the reality of the situation
§119 and §120 BGB: mention different types of mistakes, rather unclear
§119: two clauses: 1st: mistake in declaration or expression (meaning or content)- 2nd: mistake as to
subject matter (judged by objective criterion)
-includes the element of the parties’ reliance on contract
Misrepresentation
England
Misrepresentation – 5 ingredient:
1.
2.
3.
4.
5.
A statement
Specific existing and verifiable fact or past event
Statement must induce the contract
No knowledge that the statement is untrue
Did the statement influence the representee’s decision?
21
Three types of misrepresentation:
1. Innocent: false statement with reasonable grounds to believe it was true
2. Negligent: false statement, no reasonable grounds to believe it was true
3. Fraudulent: false statement, knowledge of falsity, reckless whether or not true
France
The Netherlands
England
Fraud/ Deception
•
•
•
•
English law: fraudulent misrepresentation
France: art. 1116 Dol
Germany: §123 BGB arglistige Täuschung
Netherlands: art. 3:44 BW bedrog
Fraud
-least controversial of the defects
ENGLAND
 fraud is not treated as general defect of consent since it is subsumed as an instance of
misrepresentation
 person may complain if he was induced to conclude a contract by a fraudulent misleading
statement
FRANCE (dol)
Art. 1116 CC: conditions of fraud
to vitiate consent: fraud must have induced a mistake in the other party’s mind
Difference between fraud and mistake= mistake concerns essential qualities of subject-matter,
fraud may be invoked when resulting mistake would not have given the right to annul the contract if
it had been spontaneously made
fraud is not in itself defect of consent but the cause for such defect
Requirements for contract to be annulled: proven that without fraud the aggrieved party would have
entered into contract, deceiving party’s intention to deceive must be established and fraud must
have been committed by a party to the contract
-fraud can result from acts, lies (made on purpose to induce other party into contracting and
sufficiently important) or fraudulent non-disclosure of material facts
22
GERMANY
-very similar to French law
§123 BGB: anyone who has been induced to make a declaration of will by fraudulent deceit may have
this declaration annulled
-fraud must result in mistake of the other party, but does not have to be fundamental
-fraud by third party may lead to annulling the contractif other contracting party knew about the
fraud or should have known (§123 BGB II)
-less strict than French law mere knowledge suffices
-three conditions: must have been deceit, due to acts or non-disclosure, deceit must be fraudulent
and if a mistake has been caused by the fraudulent deceit, the mistaken party is relieved from paying
the negative interest to the non-mistaken party, whose reliance is no longer deemed worthy of
protection
Coercion/ Duress
•
•
•
•
England: Duress
France: art. 1112 Violence
Germany: §123 BGB widerrechtliche Drohung
Netherlands: art. 3: 44 BW bedreiging
Duress
-less controversial than mistake since if illegitimate pressure has been exercised on one party by the
other few would deny that relief should be granted
-differences may lie as to what kinds of pressure may be considered illegitimate (economic) and in
how far an what circumstances constrained party should be protected
ENGLAND
-duress and undue influence may be represented together under this category
-both: consent of party to a contract obtained by form of pressure which law regards as illegitimate
or improper
Duress: common law defect of consent: actual or threatened physical vilence to the person of the
contracting party or victim’s property or economic duress
Economic duress: cases where contractual modification
-all threats can be considered as a duress, when they leave the coerced party with no other
reasonable alternative than concluding the contract
-equity has added remedy in cases of undue influence, contrary to duress does not need violence
-undue influence: where influence is acquired and abused, where confidence is reposed and
betrayed
Allcard v. Skinner (1887)
23
FRANCE
-art. 1112 CC: violence prevents consent from being given freely, the person knows perfectly that he
is making a bad bargain but has no other reasonable option because he has been threatened with
worse
-harm feared may be physical, moral or pecuniary
-may be aimed at person who is to sign the contract or persons close to him
-fear must be actual and serious enough to induce the victim to enter into the contract
-contradiction in Civil Code whether the test must be objective or subjective, judges mainly chose
subjective
-constraint must be illegitimate
-origin of the pressure may be diverse: may come from contracting party or third party, debate on
whether the constraint may also arise from external circumstance in which plaintiff finds himself
GERMANY
-admits concept of illegitimate threat
-§123 BGB: anyone whose declaration of will has been illegitimately induced by means of threat can
have this declaration annulled
-requirements to grant relief: there must be a threat, threat must be made to induce the victim’s
declaration of will illegitimately, must have actually compelled the victim to make this declaration of
will (subjective test applied)
-§138 II BGB: exploitation of a person’s difficulty
Exploitation/undue Influence/Unconscionable bargains
English equitable doctrine
•
Two categories:
–
Actual undue influence
•
–
Can actually prove party was induced to enter into contract through undue
influence
Presumed undue influence
•
Presumption that the party entered into the contract through undue
influence because of the special relationship
24
Germany
§ 138 (2) BGB  Legal transaction is void
Illegality and Immorality
Freedom of contract
 Underlying principles of contract law:
o Freedom of contract
o Binding force of contract – pacta sunt servanda
 Constraints on individual’s freedom of contract?
 Inherent tension between freedom and protection
Illegality/immorality/public order and policy
England
–
Illegality doctrine
–
A legal transaction which violates a statutory prohibition is void unless otherwise
provided by the statute (§134 BGB )
–
A legal transaction which violates public morals is void (§138 BGB)
Germany
•
Pursant to Art.134 and 138 under German Civil Law, a contract which violates a statutory
prohibition or good morals is void in most cases. This means that is the subject-matter of a
contract is illegal or immoral, then it cannot be conclued and it is void.
•
§134 A legal transaction which violates a statutory prohibition is void unless a different
consequence is to be deduced from the statute ]...]
25
•
•
§ 138( 1) A legal transaction which is contrary to public policy is void.
(2) In particular, a legal transaction is void by which a person, by exploiting the
predicament, inexperience, lack of sound judgement or considerable weakness of will
of another, causes himself or a third party, in exchange for an act of performance, to
be promised or granted pecuniary advantages which are clearly disproportionate to
the performance.
•
Surroygacy is not allowed in Germany.
France
–
Art. 6: Statutes relating to public policy and morals may not be derogated from by
private agreements
–
The agreement must have a lawful cause (art. 1108)
–
Art. 1131: “an obligation without cause or with a false cause, or with an unlawful
case, may not have any effect”
–
Art. 1133: “a cause is unlawful if it is prohibited by legislation, where it is contrary to
good morals or to public policy”
–
If the content of the contract is prohibited, the contract is invalid (“objet”)
The Netherlands
–
Art. 3:40 (1): a juridical act which by its content or necessary implication is
contrary to good morals or public order is void
–
Art. 3:40 (2): A juridical act which violates a mandatory provision is void, if
however the provision is intended solely for the protection of one of the
parties to a multilateral juridical act it is voidable
Illegalilty/ good morals / public order
 Formation, method of performance or purpose of contract are illegal or contary to
public policy
 Contract violates
o interests of one of the contracting parties
26
 E.g. Restraint of trade
o interests of the community at large
 E.g. Contracts to commit crimes, contracts that are harmful to
the administration of justice
 E.g. Contracts affecting basic principles of family life and sexual
morality
o interests of third party
 E.g. Contracts to defraud a third party
4. Remedies for breach of contract
Remedies
Damages
Termination
Specific
Performance
The legal systems will allocate detrimental consequences to the defaulting party if that party is in
fault or carries the risk. The failure to perform may give the other party (the aggrieved party) certain
rights against the defaulting party. The aggrived party may have the right to damages for the loss he
suffers from the other party’s failure to effect due performance. Under certain conditions he may
terminate the contract. Furthermore, the aggrieved party may have a right to specific performance,
that is to claim that the contract be performed as agreed. All these three rights are called ‘remedies’.
The situations where there is a failure to effect due performance which gives the aggrieved party one
or more remedies are called ‘situations of non-performance’.
27
There is also the ‘duty of best efforts’: One party has to make his best effort in order to perform his
obligation. However, in the case of a doctor, he does his best to cure his patient and even if he fails,
there is still due performance as he made it with his best efforts.
Excused Non-Performance: even the debtor who must achieve a specific result is not always liable in
damages for non-performance. This is the case when he proves that the failure to perform was due
to an impediment beyond his control. Then, the non-performance is excused as it is not his fault.
1. English Law
Breach of contract = failure, without lawful excuse, to perform a contractual obligation.
 Refusal to perform, defective performance, late performance
Mostly a standard of strict liability. When strict liability is applicable like in English law, the promisee
must have received exact and precise performance of the contract  otherwise, there is a breach of
contract.
***A contract may stipulate a less strict liability (e.g. a doctor has to make his best efforts)
1) Damages
•
Primary remedy: every breach of contract gives rise to a right to damages monetary
compensation for the loss caused by the breach or contract
There must be no penalty stipulated in the contract in order to punish a breach of contract as the aim
is not to punish the defendant but to compensate the claimant. A breach of contract is a civil wrong;
it is not a criminal offence. Although punitive damages can be awarded in a tort action, they cannot
be awarded in a purely contractual action, even where the defendant has calculated that he will
make a profit from his breach of contract.
28
•
Aim: put the claimant in the position which he would have been in had the contract been
performed according to its terms.
 ‘Expectation’ or ‘performance’ interest
The general rule is that an award of damages for breach of contract seeks to protect the claimant’s
expectation interest.
 Case-law: “ Robinson v. Harman (1848) ”
If no damage is caused by the breach of contract, nominal damages should be compensated (= small
amount of money).
•
Causation
There must be a direct causal link between the damages caused and the breach of contract. If the
damages are caused by many different factors including the breach of contract, compensation may
not be granted.
•
Remoteness of Damage
The doctrine of remoteness limits the rights of the innocent party to recover damages to which he
would otherwise be entitled. The principal justification for the existence of this doctrine is that it
would be unfair to impose liability upon a defendant for all losses, no matter how extreme or
unforeseeable, which flow from his breach of contract. The claimant can only recover in respect of
losses which were within the reasonable contemplation of the parties at the time of entry into a
contract.
–
Authorities
• Hadley v Baxendale (1849) 9 Exch 341
• The Heron II [1969] 1 AC 350
“Where two parties have made a contract which one of them has broken, the damages which the
other party ought to receive in respect of such breach of contracts should be such as damages which
may fairly and reasonably be considered as arising naturally from the breach and damages which
29
may reasonably be supposed to have been in the contemplation of the parties as liable to result from
the breach at the time of the contract.”
•
Mitigation of Loss
A claimant is under a ‘duty’ to mitigate his loss. However, he does not incur any liability if he fails to
mitigate it. The claimant is entirely free to act as he thinks fit but, if he fails to mitigate his loss, he
will be unable to recover that portion of his loss which is attributable to his failure to mitigate. The
aim of the doctrine of mitigation is to prevent the avoidable waste of resources.
•
Heads of damages:
–
Loss of bargain
• Cost of cure = how much it is going to cost to compensate the damages.
• Difference in value = if it is too complicated to compensate the damages, th
difference in value/price can be payed. It is the difference between the
market value and the value of the received object.
–
Reliance loss = to put the claimant in the position in which he would be if the
contract had never been concluded.
Restitution = to claim back what has been performed or payed
Incidental losses = losses resulting from the breach of contract
Consequential losses = not directly resulting from the breach of contract but is a
consequence of it
Disappointment, vexation, mental distress
–
–
–
–
2) Termination
30
•
Termination discharges both parties from further performance of their primary obligations
•
Right to terminate depends on:
– Nature of term broken
– Consequences of breach
Whether or not a contract is terminated, it is at the option of the parties. As long as the contract is
still valid, both parties still have to perform their obligations although there was a
breach of contract. In order to avoid performance, the contract must be terminated.
•
Distinction between:
– Conditions – breach always gives the innocent party option to terminate contract and
claim damages
– Warranties – breach never gives the innocent party option to terminate contract; he
can only claim damages
– Innominate terms – innocent party can always claim damages and might also to
terminate contract if the effect of breach is serious enough (it is some way between
conditions and warranties: a mix of both).
 Conditions
– Statute = when a statute provides that a particular term is a condition
– Contract = when a condition is stipulated in the contract. The terms of the contract
may contained that breach of contract would lead to the termination of it (e.g. ‘the
time is the essence’)
– Precedent = standard terms
 Warranty – subsidiary term
 Innominate term – terminated if breach deprives the innocent party of ‘substantially
the whole benefit which it was intended he should obtain’
3) Specific Performance
•
•
•
Secondary remedy  discretionary remedy
Equitable remedy at court’s discretion
Order of the court that consitutes an express instruction to a contracting party to perform
the actual obligations which he undertook in a contract
•
Available when damages inadequate (established by case-law):
31
 Claimant cannot obtain satisfactory substitute, then no monetary compensation 
performance (e.g. land)
 Award for damages would be unfair to claimant (not valuable)
 Measure of damages difficult to assess (compensation difficult to estimate)
 Specific or ascertained goods (s. 52 Sale of Goods Act 1979) specific thing that
cannot be compensate and has to be performed
•
Judicial discretion – granted only if just and equitable to do so
•
Refused in claimant has acted unfairly or dishonestly, or cause unfair hardship to defendant
•
Type of contract, no specific performance for:
 Contracts for personal services
 Building contracts
2. German Law
•
Reform 2002  the new German law of obligations entered into force = streamlined rules on
remedies for breach of contract
•
German law does not speak about breach of contract but of ‘violation of obligations’ because
the rules cover impediments not only to contractual but also to statutory obligations. The
violation of obligation in the meaning of the new law includes all kinds of non-performance.
– Defective performance = failure to perform at the time performance is due (either
too early or too late), non-performance at all and violation of an accessory duty
– Late performance = performance arrived too late
– Failure to perform = non-performance at all

Breach of ancillary duties
1) Specific Performance
It is the first and primary remedy of the creditor. The debtor in many instances has a right to a
second chance to perform. Thus most of the remedies are only available to the creditor after he has
given notice of an additional period for performance.
§ 241. (1) By virtue of the obligation relationship, the creditor is entitled to demand performance from
the debtor. Performance can also consist in an omission.
32
 ‘The effect of an obligation is that the creditor is entitled to claim performance from
the debtor
§ 275. (1) The claim to performance is excluded in so far as this is impossible for the debtor or for
anyone.
(2) The debtor can refuse performance in so far as this requires expenditure which is in gross
disproportion to the creditor's interest in performance, having regard to the content of the obligation
relationship and the requirement of good faith. When determining the efforts to be expected of the
debtor, consideration must also be given to whether the debtor is responsible for the hindrance to
performance.
(3) The debtor can further refuse performance if he has to effect performance personally, and on
balancing the hindrance to his performance, together with the creditor's interest in performance, the
debtor cannot be expected to do this.
 §275 creditor has a right to performance, unless:
– Performance is impossible
– Performance will cause the debtor an effort which, contrary to good faith, is
disproprtionate to the creditor’s interest in obtaining performance
– Performance of a personal character
2) Termination
The right to terminate the contract is a remedy at the choice of the creditor. There is no automatic
termination of a contract. In order to terminate a contract, the aggrieved party only needs to tell the
other party that it terminates the relationship, provided it has good cause to do so.
The first prerequisite to terminate a contract is that there must be a violation of obligation, which
need not to be a fundamental breach. Thus, the violation may consist of delay, delivery of defective
goods, delivery of the wrong quantity, of a breach of an accessory duty, or total-non performance.
If a performance has been defective, termination depends on the weight of the defect; minor defects
do not give rise to the right of termination.
•
§326 BGB, if debtor is excused from performance under §275, his claim to counterperformance lapses
33
•
Termination for breach of contract other than in case of impossibility: §323 and 324
•
§323 BGB = in case of non-performance or defective performance, creditor can terminate
provided additional time for performance has been fixed, and still no performance in
accordance with contract
A second chance must be given to the debtor (=additional time). The duration depends on the
circumstances of the case. If there is still no performance, then the contract can be terminated.
•
Except: (additional period of time doesn’t make sense in those situations)
• Performance impossible (§326 V)
• Performance refused by debtor (§323 II, no. 1)
• Damage has been done already (§324)
• Further delay seems unacceptable (§323 II, no. 2. 3. 324)
•
Partial performance: termination of whole contract only if creditor has no interest in partial
performance
•
Creditor may not terminate if responsible
•
§324: breach of ancillary (accessory) duty (=devoirs subsidiaires) not affecting performance,
termination if creditor can no longer be reasonably expected to accept performance.
At termination, both parties are released from their obligations Both parties have the right to recover
money paid, property supplied and other means of performance or counter-performance.
3) Damages
The aggrieved party may ask for damages under new law. Like the right to terminate a contract, the
right to damages may also arise from all kind of violations. However, rules on damages differ slightly
depending on kind of violation and kind of damage suffered.
•
§280 I: General principle = damages for violation of obligation must be imputable to the
debtor
 Notion of fault important = imputable to the debtor + each party is held responsible
only for his own intentional or negligent acts (=faults).
34
In contrast with English law, strict liability is applied. However, there is a presumption of fault. The
debtor has to prove that the failure or defect in performance was not imputable to him. He bears the
full burden of proof.
•
Different types of damages:
1. damages in lieu of performance
§280 III – additional requirements of §281, 282, 283
–
–
–
§281: defective or delayed performance
§282: violation of ancillary duty (accessory duty)
§283: performance impossible under §275
2. damages for delay = The creditor may ask for compensation when the debtor didn’t perform
his obligation even after the additional period of time.
•
•
Debtor’s duty to perform remains unaffected
§280 II – additional requirements of §286
– Due date for performance arrived
– Special warning (second chance by the creditor)
– Still no performance
3. ‘simple’ damages = it concerns only compensation for the loss the creditor suffered because
he did get the performance at a later stage.
Falls under §280(I) BGB
-
Loss caused by violation of obligation
Fault of debtor
e.g. consequential loss
35
3. French Law
In France the term ‘inexécution’ covers both non-performance and “remedyless” failure to perform.
In case of a debtor’s non-performance, the creditor may claim specific performance.
Damages
Article 1147. A debtor shall be ordered to pay damages, if there is occasion, either by reason of the
nonperformance of the obligation, or by reason of delay in performing, whenever he does not prove
that the nonperformance comes from an external cause which may not be ascribed to him, although
there is no bad faith on his Article.
Article 1148. There is no occasion for any damages where a debtor was prevented from transferring
or from doing that to which he was bound, or did what was forbidden to him, by reason of force
majeure or of a fortuitous event.
36
Article 1149. Damages due to a creditor are, as a rule, for the loss which he has suffered and the
profit which he has been deprived of, subject to the exceptions and modifications below. Mental
distress or lost reputation (dommages morales) are recoverable.
The starting point of French law for the assessment of damages is that the injured party should
receive full compensation. Art. 1149 CC allows recovery of both losses incurred and profit denied as a
result of breach.
Termination
In principle, French law does not allow a party to a bilateral contract to terminate it on the ground of
the other’s non-performance, but if it is serious enough he may ask the court to do so (it is at the
courts’ discretion).
4. Dutch Law
Failure to perform will prevent the debtor from exercising any remedy.
Article 6:74. 1 Every failure in performance of an obligation shall require the obligor to repair the
damage which the creditor suffers therefrom, unless the failure is not attributable to the obligor.
Article 6:75. A failure in performance cannot be attributed to the obligor if it is neither due to his
fault nor for his account pursuant to the law, a juridical (legal) act or generally accepted principles.
The aggrieved party may terminate the contract, reduce or withhold his performance even in cases
where the defaulting party is not liable in damages. However, under Art.6:74, the aggrieved party
cannot claim damages if the failure is not attributable to the debtor.
The debtor is always excused in case of force majeure.
37
5. Content of the contract and the limits of freedom of
contract
Contract interpretation
THE INTERPRETATION, IMPLICATION AND SUPPLEMENTATION OF
CONTRACTS IN ENGLAND AND THE NETHERLANDS – notes
The problem: contracting parties often lack the necessary information to foresee every
contingency or they do not have the time, money or inclination to negotiate the allocation of
rights and obligations for every situation. Contracting parties therefore leave matters unsettled.
Solution: In order to identify the totality of rights and duties contained in the contract, the
courts use processes of interpretation, implication and supplementation to discover the
express, implied and supplemented terms of a contract.
The express content of the contract
Step 1: Identify the content of the agreement expressly concluded between the parties through a
process of interpretation.
Interpretation attaches a meaning to the terms contained in the contract and determines their legal
effect. This process is to be distinguished, at least in theory, from the supplementation of the
contract with duties from sources external to the parties’ agreement. In general, interpretation o a
contract can start from either of two opposing perspectives:
Subjective approach interpretation approached from the perspective of the contracting
parties; limitations: it is difficult to discover with any certainty what a contracting party
actually had in mind when making the contract, it must be proven that this understanding
was common to both parties
Objective approach perspective of an objective third party who determines the meaning of
the contractual document
England
GENERAL:
 Objective nature
 Interpretation focuses on the objective meaning to be given to the contractual document
and no the actual intentions of the parties
 Expression of intention rather than the intention itself
 Evidence of actual intentions are irrelevant
 It is the contractual language used by the parties rather than their actual intentions that
determines the content and nature of their rights and duties
 The object of interpretation is to ascertain the meaning the contract would convey to a
reasonable person
 Change from textualism to contextualism
38
CLASSICAL APPROACH TO INTERPRETATION:
 Traditionally: words in a contract where exclusively determined by focusing on the objective
meaning of the words contained in the agreement  judges had to give those words their
‘plain, ordinary and popular sense’- the meaning the ‘ordinary speaker of English’ would give
to the words
 ‘canons of construction’ which were developed as ‘pointers’ to assist the interpretive process
was applied when language of the contract is unclear or ambiguous
 Contract should be interpreted as a whole; the contra proferentem rule1
 Literal approach to interpretation can at times lead to harsh results that do not justice to the
bargain struck between parties
MODERN DEVELOPMENTS
 Ignoring the context within which words are used can lead to an interpretation that defeats
that expectations of the contracting parties
 Investors Compensation Scheme Ltd v West Bromwich Building Society  the task of the
court is to establish the meaning the contractual documentary document as a whole would
‘convey a reasonable person having all the background knowledge which would reasonably
have been available to the parties in the situation which they are at the time of the contract’
 The meaning of contract must always be determined against the relevant background
 New approach: dependent upon concentric circles working outwards, ever increasing in
scope: word, phrase, sentence, paragraph, clause, section of contract, whole contract,
surrounding factual matrix, legal and commercial context’
 Giving a meaning to the contractual language
 However, evidence of actual intentions concerning the meaning the parties gave to the
words contained in their contract is still excluded
 Parties positions are continuously changing during the negotiating period and only the final
contract reflects the consensus reached between the contracting parties  contract
interpretation highly objective
JUSTIFICATION FOR THE OBJECTIVE APPROACH
 The focus is on the meaning of the contractual document and not the actual intentions of the
parties
 There are two main justifications for this approach:
o It promotes certainty, which is seen to advance the interests of trade and serves the
needs of commerce; it enables advisers and draftsmen to be more confident about
the meaning of contracts; provides the contracting parties with an incentive to
maximize clarity in their contracts; commercial contracts often connected to other
contracts, third parties involved only have the contractual document to consider 
objective approach preferred
o Reason of convenience and expediency; it facilitates quick and relative inexpensive
judicial rulings
E.g. A word has two meanings, one which validates the contract and the other which renders it void  the
court should choose the meaning that validates the contract
1
39
The Netherlands
GENERAL:






Underlying the interpretation of all contracts is the principle of good faith
Art. 6:248 BW requires all contracting parties to perform their contracts in accordance with
that principle
It is possible through interpretation to shape the behavior of the contracting parties and
achieve a fair and just outcome
Not very often used, instead Hoge Raad has developed certain standards for interpretation:
o Haviltex standard for contracts in general
o The objective (CAO) approach for certain types of contracts involving third parties
The Haviltex and the objective (CAO) approach should not be seen as rivals, but rather that
there is a smooth transition between them
Approach adopted depends on the nature of the contract involved:
o Where the contracting parties are themselves directly involved in the negotiation and
conclusion of the contract, the parties’ expectations and justified reliance appear to
be best served by adopting the Haviltex approach
o If the contracting parties are not directly involved in the negotiation of the contract
and consequently cannot influence the content of the contract  the objective
(CAO) approach adopted to interpretation that promotes certainty and uniformity
THE HAVILTEX STANDARD





The Hoge Raad rejected in this judgment a purely literal approach to the interpretation of
contract as well as interpretation exclusively based on the subjective intentions of the parties
Interpretation of a contract is made subject to the will-reliance theory (Art. 3:33 and Art
3:35 BW) and the principle of good faith (art 6:248 BW)
The court adopts the perspective of the contracting party (instead of the objective third
party)
Combination of subjective and objective elements  Haviltex standard can be applied to
either
Subjective application:
o Tries to reveal whether the parties share a common understanding with respect to
the meaning of the terms contained in the contract
o When shared common understanding lacking  the reliance element introduced
(art. 3:35 BW) to the interpretation of the contract
o A contracting party is bound by a meaning given party is bound by a meaning given to
his declaration of intention, even if it does not reflect his actual intention, if the
other party was justified in attaching that meaning to the declaration
o The justified reliance of each party on the meaning he has given to the contract and
the justified reliance that the other party meant the same is protected.
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o Reflects an attempt to balance the contracting parties’ actual intentions with the
expectations raised by the acts of communication
o The text of a contract is not determinative  the context in which the agreement
was reached needs to be considered
o Circumstances that are considered relevant to determining the meaning to be given t
the contract according to the Haviltex standards :
 Statements made by the parties
 Preliminary negotiations
 Subsequent conduct of the parties in perforimg the contract
 The nature and purpose of the contract
 The course of dealing between the partie
 Meanings commonly attached to similar provisions (technical terms)
 Usage
 The social circles to which the parties belong
 The degree of legal konledge possessed by the parties
 Whether they have had legal or technical assistance
Examples of cases when the Haviltex standard, could be applied, albeit objectively:
o General conditions
o Insurance policies
o Third party clauses
The (subjective-objective) Haviltex standard is not applicable to all contracts
THE OBJECTIVE (CAO) STANDARD
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In particular refers to collective employment contract (CAO)
The CAO contracts used to give a grammatical interpretation, now is more of a reasonable
interpretation according to objective standards
Evidence of actual intentions are completely excluded if they cannot be derived from
information that is verifiable for third parties (e.g. explanatory memorandum attached to the
contract)
The parties to such agreements, are not present during the negotiations are therefore lack
the background information that could shed light on the nature of the rights and duties
contained in the contract (only the text of the contract and other publically available
information to rely on)
Exception to the above: trust deeds, contracts concerning the transfer or real property,
arbitration regulations, retirement fund regulation in the relationship employee – retirement
fund
a mere fact that a contract has a consequences for third parties does not on its own justify
the application of this objective (CAO) approach – the nature and purpose of the contract
must be taken into account
CONCLUSION
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It is possible to start the interpretation process from two opposing perspectives,
interpretation can be either approached from:
o The perspective f the contracting parties – reveal the actual intentions
(subjective approach)
o The perspective of an objective third party who determines the meaning of the
contractual document (objective approach)
The interests the law pursues are influential to determine which approach should be
used:
o ENGLISH LAW: the perspective of an objective third party (reasonable person)
o DUTCH LAW: the interpretation combines elements of subjective and objective
interpretation with the perspective of the contracting parties (who are treated as
being reasonable); emphasis on giving effect to the spirit of the contract and
realizing the (reasonable) expectations of the parties, so that a shared common
understanding can be discovered; however if such a shared understanding is
lacking  the court will endeavor to protect the reliance that has been created
as a result of the expression of intention contained in the contractual document
Pursue certainty or the parties’ intentions/expectations  influence the nature of
(extrinsic) evidence that is considered to be relevant to the interpretive exercise:
o ENGLISH LAW: where certainty, predictability and the responsibility of the
parties for the content of their contract prevails  the court will engage in an
inquiry into what the parties intended with their contract; the nature of
contextual information that is permitted to inform the interpretation process still
reflects a need for certainty and objectivity; courts will only reply on objective
and verifiable information to determine what the parties agreed upon
o DUTCH LAW: courts attempt to give effect to the parties (reasonable)
expectations and subsequent conduct which shaped those expectations;
however to the extent that this type of evidence is not verifiable to third parties
it would also seem to be irrelevant to the interpretation of contracts that are
subject to the objective (CAO) standard
CONTENT AND INTERPRETATION OF THE CONTRACT
Problems: How do courts determine what the parties have agreed upon?
Solution: traditional distinction: subjective vs. objective methods of interpretation
Subjective approach: taking the perspective of the parties themselves
Objective approach: taking the external perspective (i.e. third party position)
SUBJECTIVE APPROACH IN DIFFERENT LEGISLATIONS:
FRENCH LAW:
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Art. 1156 CC – one must in an agreement seek what the common intention of the parties was, rather
than pay attention to the literal meaning of the words
GERMAN LAW:
§133 BGB – when interpreting a declaration of intention, the actual intention is to be ascertained
rather to the literal meaning of the expression
ENGLISH LAW:
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Objective stance
External phenomenon of expression rather than subjective intention of the parties
Legal certainty
SHORTCOMINGS OF SUBJECTIVE APPROACH
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‘Intention’ – psychological phenomenon, difficult to verify
Once a dispute arises, it is difficult to prove that the parties shared a common understanding
 That is why the objective elements are often introduced
OBJECTIVE INTERPRETATION: REASONABLE PERSON
FRENCH LAW:
How would the term normally have been understood in that particular context by a reasonable
person?
ENLGLISH LAW:
‘The meaning which the document would convey to a reasonable person having all the background
knowledge which would be reasonably available to the parties in the situation in which they were at
the time of the contract’
Investors Compensation Scheme Ltd v West Bromwich Building Society (1988)
OTHER OBJECTIVE APPROACHES
ENGLISH LAW:
Plain and ordinary meaning (i.e. literal or grammatical meaning)
GERMAN LAW:
§157 BGB – contracts are to be interpreted as required by good faith and having regard to common
practices (i.e. normative interpretation: the role of good faith)
RECAP OF THE ABOVE:
1. Aim interpretation: establish legal meaning of parties’ agreement
2. Traditional distinction: subjective vs. objective approach
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3. Subjective approach: perspective of the contracting parties themselves
4. Objective: external factors
a. Reasonable person
b. Literal or plain meaning
c. Open norms: good faith
SUPLEMENTATION OF THE CONTRACT:
Freedom of contract: the parties decide the terms of their agreement
Problem: what if the contracting parties do not provide for a particular situation in the terms of their
contract?
Solution: look to other sources to fill the gap
Examples of reasons for why the parties leave gaps in contracts:
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Parties lack ability to predict future
It is too costly to write detailed contracts
Reliance on the law
SUPLEMENTARY SOURCES
DUTCH LAW:
Art. 6:248 (1) BW – A contract contains the legal effect agreed to by the parties and the rights and
duties, which according to the nature of the contract, stem from legislation, custom, and the
requirements of reasonableness and equity
FRENCH LAW:
Art. 1135 CC – Agreements are binding not only as to what is therein expressed, but also as to al the
consequences which equity, usage of statute give to the obligation according to its nature
TIME OF PERFORMANCE
ENGLISH LAW :
Sale of goods act 1979 s. 29 – within reasonable time
FRENCH LAW:
Art. 1901 CC – creditor may demand performance at once
GERMAN LAW:
§271 BGB – immediately, subject to good faith (§242 BGB)
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DUTCH LAW:
Art. 6:38 – immediately
PLACE OF DELIVERY
GERMAN LAW:
§269 BGB – place where debtor has his residence
DUTCH LAW:
Art. 6:41 (b) BW – place where debtor has his residence
Art. 6:41 (a) BW – in case of sale of goods, where goods situated
ENGLISH LAW:
Sale of Goods Act 1979 s.29 (2) - in case of sale of goods, where goods situated
FRENCH LAW:
Art. 1247 (1) CC - in case of sale of goods, where goods situated
Exclusion clauses
The role of good faith
Default rules vs. Mandatory law
Default Rules:
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Apply unless parties have made their own arrangements in the terms of the contract
Facilitative functions – assists parties to conclude contracts
Can be recognized in a contract by :‘unless otherwise agreed’
Mandatory Rules:
 Contracting parties may not deviate from these rules
 Controlling function – protect certain interests and (third) parties
 Can be recognized in a contract by: ‘shall’
CUSTOMS
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Customs established between contracting parties within a particular trade, industry or
business community
Repetitive behavior
Conviction among the members of the relevant group that the behavior is required by law
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GAP FILLINF BY THE COURTS
DUTCH LAW:
Art. 6:248 (1) BW – supplementing function of good faith
GERMAN LAW:
§242 BGB – supplementing function of good faith
FRENCH LAW:
Art. 1135 CC – supplementing function of good faith
ENGLISH LAW:
Terms implied by courts:
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Terms implied in facts:
o Solutions for individual contracts based on parties’ presumed intention
Terms implied in law:
o Solutions for all contracts of a particular type based on wider policy considerations
SUMMERY
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Express terms agreed by parties  interpretation
Fill in the gaps:
o Legislation
o Customs
o Good faith, open-ended norms
FREEDOM OF CONTRACT
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Underlying principles of contract law:
o Freedom of contract
o Binding foirce of contract – pacta sunt servanda
The above can be found in Numerical Registering Co v Sampson (1875)
LIMITS TO THE FREEDOM OF CONTRACT
Issues:
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Constraints on individual’s freedom of contract?
Inherent tension between freedom of contract and need to provide protection
ILLEGAL CONTRACTS AND CONTRACTS CONTRARY TO PUBLIC ORDER OR POLICY
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Formation, method of performance or purpose of contract are illegal or contrary to public
policy
Open and direct interference with individual’s freedom of contract justified because:
o Contract violates interests of one of the contracting parties
o Contract violates interests of the community at large
o Contract violates interest of third party
Courts will not assist parties to a contract which illegal or contrary to public policy by
enforcing it
GERMAN LAW:
§134 BGB and §138 BGB
FRENCH LAW:
Art. 1131 and Art. 1133 CC – lawful cause
DUTCH LAW:
Art. 3:40 BW
ENGLISH LAW:
Illegality doctrine
REGULATED CONTRACTS
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Freedom of contract – parties decide on the terms of contract
Emergence of tightly regulated contracts
o E.g. residential leases, employment contracts, consumer transactions
Protective measures to safeguard interests of ‘weaker party’
Mandatory provisions restricting freedom of contract
STANDARDIZED CONTRACTS
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Contract law based on idea that contracts are agreement is reached through negotiation
But: contracts frequently are not the result of true negotiation
Sets of standard terms and conditions
Need for legal control
By product of industrialization – mass transactions
Facilitate conclusion of contracts
Often used to shift the allocation of risks
Why do contracting parties accept standard form contracts?
o Economic superiority
o Transaction costs
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RECAP – CONTRACT LAW

Contract law defines how the practice or making agreements should be conducted:
o Has a contract been made?
 Offer and acceptance
 Intention to create legal relations
 Consideration/causa
 Formalities
o Can the contract be set aside?
 Mistake
 Misinterpretation/non-disclosure
 Undue influence/exploitation/duress
o What are the respective rights and duties of the parties?
 Interpretation
 Supplementation
 Legislative default rules
 Good faith
 Custom
o What remedies are available for breach of contract?
 Breach of contract
 Damages
 Termination
 Specific performance
o Are there limits to the parties’ freedom of contract?
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6. Contract in historical perspective
What is a contract in Roman Law?
Why were contracts enforced in Roman Law and later?
Contract formation
The role of consensus
Additional requirements
Mistake
Coercion/duress
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