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CONTRACT LAWWeek 1: What is a contract and what are its sources
Date: 17 November 2020
Lecturer: Marta Kolacz
Contract: A legally binding agreement that will be enforces by law. It gives rise to obligations between
the parties to the contract and the failure to perform these obligations gives the right to a remedy.
Contract law: the set of rules and principles that governs transactions among parties, thereby establishing
those parties enforceable rights and remedies. (CONTRACT LAW, JAN M. SMITS, P16)
Contract law governs the rules and principles that govern transactions amongst parties. It enables market
actors to participate in economic and social life, since it ensures that agreements are enforceable.
(CONTRACT LAW, JAN M. SMITS, P4)
Why contract law:
• To support market economy; to allow market actors to participate in economic and social life.
• It facilitates mutually beneficial exchanges, and so promotes overall social welfare.
• Building market confidence: most exchanges of any complexity cannot be performed simultaneously.
CL facilitates the making and performing of deferred exchanges. It provides remedies for breaches of
contract.
• Secure cooperation in human behaviour (e.g. credit)
,• CL provides mechanisms for enforcement of agreements.
• Secures transaction with high risks.
• The defendants have duties, owed to the claimants to do what they contracted to do. CL thus facilitates
remedying the injustice caused by the defendant having infringed the claimant’s right.
• Protection of weaker parties (e.g. consumer contracts).
All contract consists of the same principles and rules, such as the principle of freedom to decide what to
contract on and the formation of a contract.
However, contracts can be classified on the basis of the involved parties; B2B-contracts (business to
Business), B2C-contracts (business to customer) and C2C-contracts (customer to customer).
They can be also classified through the type of performance, such as contracts that guide the sale of goods
etc. These contracts are called specific contracts.
A third categorisation is bases on the reason of performance here the distinction is made between
contracts in which each party assumes an obligation on order to obtain the performance to which the other
party in exchange obligers itself to the first party: bilateral contracts (performance for performance,
works both ways). And contracts on which party is not promised anything in return for its promise:
unilateral contracts (works 1 way). (CONTRACT LAW, JAN M. SMITS, P6)
Private law: consists of the rules and principles that deal with the relationships between private actors
such as individuals and companies. Contract law is a part of this comprehensive system of private law. It
also falls under the law of obligations since it gives rise to enforceable obligations between the parties.
(CONTRACT LAW, JAN M. SMITS, P7)
Contract law is being governed by certain principles;
1. Freedom of contract: the idea that each individual is allowed to make the choices they desire, on the
basis that a party won’t chose contract terms that are unfavourable to them. This principle entails that
a person is allowed the choice of content (on what terms), freedom to contract at all( whenever
desired) and freedom to choose the other party. (CONTRACT LAW, JAN M. SMITS, P10)
2. Binding force: agreements lawfully entered into have the force of law between the parties. When an
agreed upon obligation is failed the court can intervene upon request from the other party. The
breaching party must compensate the non-breaching party. (CONTRACT LAW, JAN M. SMITS,
P10)
3. Informality: contracts don’t require any particular form. If parties are legally bound to the contract
because they intend to be bound, their intention is apparently sufficient and there is, as a matter of
principle at least, not need to put the contract into writing. (CONTRACT LAW, JAN M. SMITS,
P11)
4. Contractual fairness: the principle that is the least precise, due to the definition of fair. However, it
is established that a contract should show procedural fairness: unequal positions between the parties
needs to be remedied. Sustainable fairness: content of the contract of the parties, doesn’t need to be
present, since an individual is in a better position to decide his/her best interest. (CONTRACT LAW,
JAN M. SMITS, P11) (CONTRACT LAW, JAN M. SMITS, P13)
There are 3 types of sources that govern contract law:
1. Party agreement: consist of what the parties expressly agreed upon when entering into the contract,
typically includes the price of the good or service and the quality it must process. For the rest it
depends heavily on the type of contract. Usually, it also contains the general conditions: standardised
set of rules that are suited to their own interest. (CONTRACT LAW, JAN M. SMITS, P17)
2. Formal sources of law: the party agreements cannot cover all rights and obligations of the contract,
usually only those elements of the contract that they see as essential. The general conditions doesn’t
cover everything as well therefore the law provides default rules: rules that automatically apply if
, the parties haven’t made any other arrangements on, they fill the gap left over by the parties. There
are also a set of rules that cannot be departed from by the parties: mandatory rules. When these rules
aren’t upheld the court can intervene and declare the contract void. Both the default and mandatory
rules are set out in the official national, European and supranational sources. (EU and international
law) (CONTRACT LAW, JAN M. SMITS, P18) In the Netherlands the national law regarding
contracts can be found in the Dutch burgelijk wetboek 1/2/3/6/7. Whilst in England in can be found in
a number of cases.
3. Informal sources of law: are rules that are non-binding in nature, and have the goals to assist. Such
as: non-state organisations, academics and non-binding soft law. An important informal source of
contract law is the so called PECL: have the goal to restate the contract laws of EU member states.
(CONTRACT LAW, JAN M. SMITS, P34)
Article 1:101: Application of the Principles
(1) These Principles are intended to be applied as general rules of contract law in the European
Communities.
(2) These Principles will apply when the parties have agreed to incorporate them into their contract or that
their contract is to be governed by them.
(3) These Principles may be applied when the parties:
(a)
have agreed that their contract is to be governed by "general principles of law", the "lex mercatoria" or the
like; or
(b)
have not chosen any system or rules of law to govern their contract.
(4) These Principles may provide a solution to the issue raised where the system or rules of law applicable
do not do so.
Article 1:102: Freedom of Contract
(1) Parties are free to enter into a contract and to determine its contents, subject to the requirements of
good faith and fair dealing, and the mandatory rules established by these Principles.
(2) The parties may exclude the application of any of the Principles or derogate from or vary their effects,
except as otherwise provided by these Principles.
Article 1:103: Mandatory Law
(1) Where the otherwise applicable law so allows, the parties may choose to have their contract governed
by the Principles, with the effect that national mandatory rules are not applicable.
(2) Effect should nevertheless be given to those mandatory rules of national, supranational and
international law which, according to the relevant rules of private international law, are applicable
irrespective of the law governing the contract.
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