Week 4 - Invalid contracts

what are the grounds for invalidity of contracts?

1. Internal

2. External

what are the internal gounds for invalid contacts

a. no consensus

b. 4 grounds of contract avoidance (ch7, book 2) = fraud, mistake, coercion or threat, unfair exploitation

Fraud

• art. II - 7:205

• one party intentionally decieved the other party to get them to sign the contract

what is the problem with fraud?

• fraud is difficult to prove, because you need to prove intention

• instead use mistake, because in mistake there does not need to be a proven intention

Mistake

• art. II - 7:201

• One or both parties held an mistaken assumption about the facts or the law when concluding the contract

• The internal belief did not match reality

coercion or threat

• art. II - 7:206

• One party forced the other into the contract using an illegitimate threat

• You signed, but your internal will was overpowered by fear

Unfair exploitation

• art. II - 7:207

• One party was highly vulnerable (due to economic distress, ignorance, or urgency), and the other party knowingly exploited this to get a grossly unfair advantage

what are the 4 internal gounds used for / what interest do they protect?

• party autonomy

in which 4 grounds of invalidity (internal) can the contract be adapted?

• mistake

• unfair exploitation

Internal flaws make a contract…

• voidable

• which means that the victim has the choice to avoid/rescind the contract, or they can choose to keep it if they want

what is another term for voiding (which means the same thing?)

avoiding

what are the effects of voidance / avoidance?

• retroactive effect of voidance / avoidance is allowed = when contract is affected by internal flaw, it is not automattically void, it remains valid until the victim voids it

• After the contract is void = it acts as a time machine, so the contract never existed in the first place

in which situations can you restrict remedies (for internally invalid contracts)?

• mistake

• if you make a mistake and try to avoid the contract,

• the other party can stop you by performing the way you throught it would be perfromed

how to avoid a contract?

• give notice (art. II - 7:209)

• no form prescribed