Week 6 - Interpretation and remedies

what is in a contract?

• II - 9:101 terms of a contract

express terms

provisions which parties have explicitly stated and agreed upon

tacit terms

not spoken or written out, but are considered part of the contract

default / dispositive rules

• apply when parties have failed to agree upon a specific point

• they are disposive because parties can ignore them if they prefer their own arrangement

example of disposive terms in DCFR?

• time of conclusion of contract (II - 4:205)

• the price (II - 9:104) or quality (II - 9:108)

mandatory / imperative rules

• rules apply regardless of what parties want / agree on

example of mandatory rules

• min wage

• rent control

where are practices and uses outlined in DCFR?

• art. 1:104(1)

• parties to a contract are bound by any usage to which they have agreed and by any practice they have established between themselves

established practices

• pattern of conduct that has developed specifically between 2 parties

• internal to that specific relationship

usages

• custom or method that is widely recognized and regularly observed within a specific trade, profession, region

• external to the parties

Implied terms

• II - 9:102(2)

• when the court implies an additional term

interpretation of contracts (where is the general rule outlined?, how are contracts usually interpreted?)

• II - 8:101 = genral rules

• subjective interpretation = depends on the common intent of the parties

when would you use para 3 to II - 8:101 (interpretation of contracts)

• when an outsider is involved

• or the intention of the parities are missing

where can you find a list of interpretative rules

• art. II - 8:102(1)

• list of tools that courts use to reconstruct intention of parties

contra preferntem

interpretation method where interpretation is in the interest of the less dominant party

where is contra preferntem interpretation outlined? when is it used?

• art. II - 8:103 = interpretation against supplier of term or dominant party

1. when there is doubt about meaning of a term not individually negotiated = interpret against party who supplied the contract

2. where there is doubt about meaning of term which has been established under dominant influence of 1 party = that interpretation should be against the dominant party

what is classified as a total failure to perform?

• no performance

• anticipatory breach

• delayed performance

what is non-conformity / defective performance?

• non-conformity in quality

• non-conformity in quantity

types of remedies where non-performance is not excused?

• specific performance

• termination

• damages

• withholding performance (of reciprocal obligation)

• price reduction (non-conformity)

types of remedies when non-perfromance is excused

• excuse = force majeure

• termination

• witholding performance

• price reduction

• everything but specific performance and damages

non-performance of an obligation (which art.? what is included?)

• art. III - 1:102(3) = non-performance of an obligation

• non performance = any failure to perfrom whether or not it is excused

• total failure to perform, delayed performance, non-conformity

remedies for non-perfromance

1. III - 3:101(1) = if non-performance is not excused

2. III - 3:101(2) = if non-performance is excused

can remedies be cumulated?

• yes, as long as they are not incompatable with one another

• III - 3:102

what is always available as a remedy?

damages

what are the civil law vs common law views on enforcing specific performance as a demedy?

civil law

• principle of performance in natura

• specific performance is enforceable as a principle

• exception = performance is impossible or innapropriate

common law

• theory of effcient breach

• specific performance unenforceable as a principle

• instead = damages

• exceptions = damages inadequate

which approach (civil law vs common law) does the DCFR approach on specific performance?

• civil law approach

types of specific performances in the DCFR

1. Monetary obligations = III - 3:301(1)

2. Non-monetary obligations = III - 3:302

when can non-monetary specific performance not be enforced?

• III - 3:302(3)

a. factual / legal impossibility = performance is unlawful

b. economic impossibility = performance would be unreasonably burdensome/expensive

c. personal obligation = performance would be of such a personal character that it would be unreasonable to enforce it

when can you terminate a contract under DCFR

1. fundamental breach = right to termination (III - 3:502)

2. non-fundamental = no right to termination (III - 3:502)

what counts as a fundamental breach?

• non-performance is fundamental if it substantially deprives the creditor of what the creditor was entitled to expect under the contract

• including anticipary breach

what is the exception to termination for a fundamental non-performance

• art. III - 3:502(2)(a)

• if the debtor could not reasonably foresee the result of their non-performance

anticipatory fundamental breach

• art. III - 3:304 - 305

• when you terminate a contract before the actual deadline for performance has arrived, because it has become completely obvious that the other party is going to commit a fundamental breach

• if the debtor declared that there will be a non-performance

Termination for inadequate assurance of performance

• a creditor reasonably believes that there will be a fundamental non-perfromance

• they may terminate if the creditor demands assurance of due performance but no such assurance is provided within reasonable time

when is creditor entitled to damages? (+art., + what is an exception)

• art. III - 3:701(1)

• creditor is entitled to damages for loss caused by the debtors non-performance of an obligation

• unless performance is excused

what do you need to prove for damages?

1. Loss

2. Caused by the debtors non performance

what is the rule of how much damages should be provided to the creditor

• art. III - 3:702

• the sum which will put the creditor as nearly as possible into the position which the creditor would have been if the obligation had been duly performed

• cover the loss and the gain from which the creditor would have been deprived

what are mitigating factors for damages? (what reduces damages)

• foreseeability (III - 3:703) = The debtor only has to pay for losses that they could reasonably contemplate or predict at the time the contract was signed

• contributory negligence (III - 3:704) = If the innocent party (the creditor) partially caused their own financial misery through their own carelessness

• duty to mitigate (III - 3:705) = creditor has the proactive duty to take reasonable steps to keep your losses as small as possible

liquidated damages clauses

• III - 3:712

• specific amount has to be paid if a party commits non-performance

is a contract excluding or restricting liability valid

• III - 3:105

• this type of contract is void

when are remedies available?

total failure to perform (including delayed performance) = remedies immediately available

non-conformity (when debtor performs but they do so badly) =

1. notice of non-conformity = III - 3:107

2. cure of non-confmity = III - 3:202 - 204

where are the rules for cure by debtor outlined

• art. III - 3:202

before due date cure by debtor

• debtor may make a new and confronting tender if that can be done within the time allowed for performance

after due date cure by debtor

• debtor must promptly to fix the problem at their own expense

• cure must happen within a reasonable time

• ceditor may not pursue any remedies for non-perfromance except withholding performance

when does creditor not need to give the opportunity for cure?

art. III - 3:203