1
Lecture 17-19
COMPARATIVE CONTRACT LAW
A. Illegality of a legal act: when it violates or circumvents a mandatory prohibi<on, or the
agreement contravenes public policy, including morality (ex. illicit contracts).
B. Invalidity of a legal act: when it is affected by a legal pathology.
1. Voidness (or nullity): en<rely or par<ally ineffec<ve right from the beginning,
regardless of whether or not any of the par<es has disaffirmed it.
- Example: absence of essen<al element of the contract etc.
- Nullity is designed to safeguard public interests.
2. Avoidance (or annulment): capable of producing its legal effects un<l the aggrieved
party has the possibility to disaffirm it (via a court claim).
- Example: contract concluded by a minor (legal incapacity), mistake etc.
- Avoidance is designed to safeguard individual interests.
o Affirma<on (or confirma<on): of an avoidable legal act is generally allowed,
but with the condi<on that the reason for annulment has ceased to exist.
Unfairness
• For some <me it was believed that it was a sin for a party to pay less than a ‘iustum
pre*um’, and Natural lawyers developed the idea that a party should be allowed to resile
from a contract on the ground of ‘laesio enormis’ if, for example, the value of its
performance exceeded that of the other’s by more than a half.
• In the 19th century such rules were considered rather out of place in an economy
increasingly dominated by liberalism (people should look aOer themselves).
• However, § 138 (2) BGB states that a contract is void if:
a) performance and counterperformance are ‘clearly dispropor<onate’
b) one of the par<es exacted the contract ‘through exploi<ng the predicament,
inexperience, lack of judgment or significant indecisiveness’ of the other party.
• English law has no general principle which would allow a party to escape from an
obviously disadvantageous contract, despite Lord Denning’s proposal.
• OOen standard terms are used to save the par<es the cost of nego<a<ng the terms of
each contract individually. On the other hand, firms will oOen draO their terms so as to
shiO as many risks as possible to the other side, thus making them unbalanced and
unfairly favour the party who draOed them. The customer habitually accepts unfavorable
standard terms because of ‘unequal bargaining power’.
• Courts have always protected par<es against unfair standard terms. One example of it is
the contra proferentem rule. This principle means that if there is uncertainty in a wriVen
contract, it must be interpreted against the person who draOed it.
• The 1993 EU Direc<ve on Unfair Terms in Consumer Contracts allowed the courts to treat
contract terms as invalid if they were ‘unfair’, ‘unreasonable’, or ‘contrary to good faith’.
1. Mistake
A. Civil law jurisdic<ons: tend to lean towards an 'inten<on-based' approach to contracts,
which allows more flexibility for contract avoidance due to factors that affect it.
