European Contract Protocols - Chapter 4

CHAPTER 4 – VALIDITY

Article 4.101 (ex art. 6.101) - Matters not Covered

This Chapter does not deal with invalidity arising from illegality, immorality or lack of capacity.

Article 4.102 (ex art. 6.102) - Initial Impossibility
A contract is not invalid merely because at the time it was concluded performance of the obligation assumed was impossible, or because a party was not entitled to dispose of the assets to which the contract relates.

Article 4.103 (ex art. 6.103) - Mistake as to facts or law

(1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if:
(a) (i) the mistake was caused by information given by the other party; or
(ii) the other party knew or ought to have known of the mistake and it was contrary to good faith and fair dealing to leave the mistaken party in error; or
(iii) the other party made the same mistake, and
(b) the other party knew or ought to have known that the mistaken party, had it known the truth, would not have entered the contract or would have done so only on fundamentally different terms.
(2) However a party may not avoid the contract if:
(a) in the circumstances its mistake was inexcusable, or
(b) the risk of the mistake was assumed, or in the circumstances should be borne, by it.

Article 4.104 (ex art. 6.104) - Inaccuracy in communication

An inaccuracy in the expression or transmission of a statement is to be treated as a mistake of the person who made or sent the statement and Article 4.103 applies.

Article 4.105 (ex art. 6.105) - Adaptation of contract

(1) If a party is entitled to avoid the contract for mistake but the other party indicates that it is willing to perform, or actually does perform, the contract as it was understood by the party entitled to avoid it, the contract is to be treated as if it had been concluded as the that party understood it. The other party must indicate its willingness to perform, or render such performance, promptly after being informed of the manner in which the party entitled to avoid it understood the contract and before that party acts in reliance on any notice of avoidance.
(2) After such indication or performance the right to avoid is lost and any earlier notice of avoidance is ineffective.
(3) Where both parties have made the same mistake, the court may at the request of either party bring the contract into accordance with what might reasonably have been agreed had the mistake not occurred.

Article 4.106 (ex art. 6.106) - Incorrect information

A party who has concluded a contract relying on incorrect information given it by the other party may recover damages in accordance with Article 4.117(2) and (3) even if the information does not give rise to a right to avoid the contract on the ground of mistake under Article 4.103, unless the party who gave the information had reason to believe that the information was correct.

Article 4.107 (ex art. 6.107) - Fraud
(1) A party may avoid a contract when it has been led to conclude it by the other party's fraudulent representation, whether by words or conduct, or fraudulent non-disclosure of any information which in accordance with good faith and fair dealing it should have disclosed.
(2) A party's representation or non-disclosure is fraudulent if it was intended to deceive.
(3) In determining whether good faith and fair dealing required that a party disclose particular information, regard should be had to all the circumstances, including:
(a) whether the party had special expertise;
(b) the cost to it of acquiring the relevant information;
(c) whether the other party could reasonably acquire the information for itself; and
(d) the apparent importance of the information to the other party.

Article 4.108 (ex art. 6.108) - Threats

A party may avoid a contract when it has been led to conclude it by the other party's imminent and serious threat of an act:
(a) which is wrongful in itself, or
(b) which it is wrongful to use as a means to obtain the conclusion of the contract ,
unless in the circumstances the first party had a reasonable alternative.

Article 4.109 (ex art. 6.109) - Excessive benefit or unfair advantage

(1) A party may avoid a contract if, at the time of the conclusion of the contract:
(a) it was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill, and
(b) the other party knew or ought to have known of this and, given the circumstances and purpose of the contract, took advantage of the first party's situation in a way which was grossly unfair or took an excessive benefit.
(2) Upon the request of the party entitled to avoidance, a court may if it is appropriate adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealing been followed.
(3) A court may similarly adapt the contract upon the request of a party receiving notice of avoidance for excessive benefit or unfair advantage, provided that this party informs the party who gave the notice promptly after receiving it and before that party has acted in reliance on it.

Article 4.110 (ex art. 6.110) -Unfair terms which have not been individually negotiated

(1) A party may avoid a term which has not been individually negotiated if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of that party, taking into account the nature of the performance to be rendered under the contract, all the other terms of the contract and the circumstances at the time the contract was concluded.
(2) This Article does not apply to:
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(a) a term which defines the main subject matter of the contract, provided the term is in plain and intelligible language; or to
(b) the adequacy in value of one party's obligations compared to the value of the obligations of the other party.

Article 4.111 (ex art. 6.111) - Third persons

(1) Where a third person for whose acts a party is responsible, or who with a party's assent is involved in the making of a contract:
(a) causes a mistake by giving information, or knows of or ought to have known of a mistake,
(b) gives incorrect information,
(c) commits fraud,
(d) makes a threat, or
(e) takes excessive benefit or unfair advantage,
remedies under this Chapter will be available under the same conditions as if the behaviour or knowledge had been that of the party itself.
(2) Where any other third person:
(a) gives incorrect information,
(b) commits fraud,
(c) makes a threat, or
(d) takes excessive benefit or unfair advantage,

remedies under this Chapter will be available if the party knew or ought to have known of the relevant facts, or at the time of avoidance it has not acted in reliance on the contract.

Article 4.112 (ex art. 6.112) - Notice of Avoidance

Avoidance must be by notice to the other party.

Article 4.113 (ex art. 4.113) - Time limits

(1) Notice of avoidance must be given within a reasonable time, with due regard to the circumstances, after the avoiding party knew or ought to have known of the relevant facts or became capable of acting freely.
(2) However, a party may avoid an individual term under Article 4.110 if it gives notice of avoidance within a reasonable time after the other party has invoked the term.

Article 4.114 (ex art. 6.114) - Confirmation

If the party who is entitled to avoid a contract confirms it, expressly or impliedly, after it knows of the ground for avoidance, or becomes capable of acting freely, avoidance of the contract is excluded.

Article 4.115 (ex art. 6.116) - Effect of avoidance

On avoidance either party may claim restitution of whatever he has supplied under the contract or the part of it avoided, provided he makes concurrent restitution of whatever he has received under the contract or the part of it avoided. If restitution cannot be made in kind for any reason, a reasonable sum must be paid for what has been received.

Article 4.116 (ex art. 6.115) - Partial avoidance

If a ground of avoidance affects only particular terms of a contract, the effect of an avoidance is limited to those terms unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold the remaining contract.

Article 4.117 (ex art. 6.117) - Damages

(1) A party who avoids a contract under this Chapter may recover from the other party damages so as to put the avoiding party as nearly as possible into the same position as if it had not concluded the contract, provided that the other party knew or ought to have known of the mistake, fraud, threat or taking of excessive benefit or unfair advantage.
(2) If a party has the right to avoid a contract under this Chapter, but does not exercise its right or has lost its right under the provisions of Articles 4.113 or 4.114, it may recover, subject to paragraph (1), damages limited to the loss caused to it by the mistake, fraud, threat or taking of excessive benefit or unfair advantage. The same measure of damages shall apply when the party was misled by incorrect information in the sense of Article 4.106.
(3) In other respects, the damages shall be in accordance with the relevant provisions of Chapter 9, Section 5, with appropriate adaptations.

Article 4.118 (ex. art. 6.118) - Exclusion or restriction of remedies

(1) Remedies for fraud, threats and excessive benefit or unfair advantage-taking, and the right to avoid an unfair term which has not been individually negotiated, cannot be excluded or restricted.
(2) Remedies for mistake and incorrect information may be excluded or restricted unless the exclusion or restriction is contrary to good faith and fair dealing.

Article 4.119 (ex art. 6.119) - Remedies for non-performance

A party who is entitled to a remedy under this Chapter in circumstances which afford that party a remedy for non-performance may pursue either remedy.
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