Rights of Withdrawal

This chapter examines how the law deals with a party’s right to withdraw from a contract. Mandatory statutory provisions give ‘consumers a right to withdraw from certain types of contract within a specified period without having to give a reason for the withdrawal. This is intended to give the ‘consumer’ a ‘cooling-off period’ to come to a decision about whether it really intends to be bound by the contract. The chapter discusses the basis and reasons for withdrawal, focusing on doorstep selling, loan agreements and timeshare contracts, and distance-selling contracts. It also considers the consequences of withdrawal or revocation for the parties involved.

Unfair, Illegal, and Immoral Contracts

This chapter examines the legal consequences of unfair, illegal, and immoral contracts. It first considers cases in which there is an evident inequality between performance and counterperformance and the question arises whether the contract is void or unenforceable either for that reason alone or due to other additional reasons. In a second group of cases validity or enforceability turns on whether the contract improperly restricts personal or economic liberties. Special problems can also arise where the formation or execution of a contract infringes some statutory provision. The chapter concludes by focusing on the restitution of benefits conferred in pursuance of the void or unenforceable contract.

Agency and Representation

This chapter examines the concept of agency or representation, in which contracts are negotiated and concluded by persons other than the parties themselves. It first traces the historical development of agency and representation and discusses their economic importance. It then considers how a power of representation or authority to act for another is granted, what the scope of the agent’s authority is, how agency or representation may be terminated, and what the conditions are which may prevent the principal from raising the defence of the agent’s lack of authority. The chapter concludes with a discussion of the effects of disclosed and undisclosed agency.

Formalities

This chapter considers the importance of formalities in the validity of contracts. All legal systems in Europe have rules that invalidate certain contracts if specified formalities are ignored. Such rules are commonly regarded as exceptional, based on the general principle that no formalities are required. Indeed, this principle is explicit in most civil codes. After discussing the various reasons why contract law imposes formal requirements in agreements, the chapter describes different types of formalities and the sanctions that may be applied when a contract is void or unenforceable. In particular, it examines the question whether contracts may exceptionally be enforceable despite the lack of the required form.

Tests of Earnestness

This chapter examines the question whether a mere agreement of the parties is sufficient to justify the existence of an enforceable contract. Or should evidence be required to show that the promisor was ‘in earnest’, ‘seriously intended’ to enter into an enforceable obligation, or was induced to make his promise only in view of a ‘consideration’, i.e. some sort of counterperformance by the promisee in which the promisor had an interest? The chapter first discusses cases in which a ‘gift’ is promised by one party and then moves to other ‘gratuitous transactions’, focusing on contracts of guarantee, contracts for the use of property, contracts for the management of affairs, offers to contract, and modifications of contract. It also analyses the intention to enter a legal obligation as requirement for a contract to be valid.

Mistake

This chapter examines how the law deals with contracts that a party entered into by mistake. After a brief discussion of the historical background of the rules in the civil law and the common law, the question is raised whether there is a relevant mistake if a party’s ‘motive’ for entering into the contract turns out to be incorrect, if the party’s mistake refers to the value of what it promised or was to receive under the contract, or if the party’s mistake is due to its carelessness. Should the relevance of a mistake not depend on whether it was caused or shared by the other party? Finally, the chapter outlines some common threads in the development of a European law on mistake.

Contracts for the Benefit of Third Parties

This chapter examines cases where proper performance of a contract would benefit persons other than the contractors themselves, and discusses the question whether a third party should be given a right to ask for the performance of the contract or for damages caused by its breach. It first provides a historical background on contracts for the benefit of third parties and considers their economic importance. It then looks at the intention of the parties, contracts protective of third parties, claims by third parties that are not based on the contracting parties’ express or implied intention, and whether a third party may be affected by a limitation of liability agreed by the contracting parties. It also reviews the defences available to the promisor if suit is brought by the third party and the effect which a modification or termination of the contract may have for the third party’s rights.

Interpretation of Contracts

This chapter examines the process involved in the interpretation of a contract. Interpretation is required if contracting parties agree on what they said or wrote, but differ as to what it means. There are two possible, but contrary, viewpoints. The first is that precedence is given to the intention of the parties; the other gives precedence to the external fact of the expression. This tension between more subjective and more objective interpretations—the ‘intention theory’ and the ‘expression theory’—dominates European legal history. The chapter first provides an overview of objective interpretation before discussing the maxims or rules of thumb used by judges to interpret contracts. It also considers various forms of constructive interpretation of a contract, with particular emphasis on collateral duties and the implication of terms by default rules.

Assignment

This chapter examines the law governing the transfer of contract rights that allows the new creditor to take the place of the old and enforce the right against the debtor in the same way. Legal systems differ as to when and how the debtor is to be apprised of the transfer of contract rights. One issue is whether informing the debtor not only makes sense from the assignee’s point of view, but is actually required. The chapter first provides a historical overview of assignment and considers its economic importance before discussing the requirements of an effective assignment, focusing on substantive validity, non-assignable rights, and how courts deal with disputes over priorities of claims. It also tackles the question of what obligations may arise between assignor and assignee when the agreement effects a change of creditor. Finally, it reviews the rules to prevent the debtor being prejudiced by a change of creditor.

Termination of Contracts

This chapter examines what the contract law says about termination of contracts, focusing on the conditions under which the creditor is entitled to terminate the contract and how the parties can claim back what they have already rendered. Can the contract be terminated only where the breach is ‘fundamental’? Can it be terminated immediately or only after a reasonable extra period for performance or cure has been set and the other party has failed to comply with it? When must a contractual time stipulation be regarded as of the ‘essence’ of the contract? In particular, the chapter looks at the impossibility of performance, anticipatory non-performance, delayed performance, incomplete performance, and defective performance. It also explains how the law deals with the question of restitution.