Meeting 2.2 Contractual Remedies PDF

Introduction to P R I VAT E L AW 2024/25  Meeting 2.2 Contractual Remedies Once a contract has been concluded, which as we know describes the situation where both parties have agreed to the terms and co...

Introduction to P R I VAT E L AW 2024/25  Meeting 2.2 Contractual Remedies Once a contract has been concluded, which as we know describes the situation where both parties have agreed to the terms and conditions of the contract (Meeting 1.2), and the meaning/interpretation of the content of the contract is undisputed (Meeting 2.1), another key question that arises concerns the obligation of the parties to perform in accordance with the terms of the contract. During Meeting 2.2, we will consider how the law deals with situations where one of the parties to the contract breaches their contractual obligations. When a party fails to fulfill their contractual obligations, it can be said that they are in breach of their contractual obligations. When a breach has occurred, the non-breaching party will have access to several contractual remedies and the availability of these remedies will differ depending on jurisdiction. During Meeting 2.2, we will address three key contractual remedies (1) specific performance, (2) termination, and (3) damages. The format of the reader for this week will differ slightly from the previous meetings. The readings are divided into three sections and will be accompanied by an introduction to the texts at the beginning of each section. The reader for this meeting is comprised of the following extracts: Section 1 – Specific Performance Smits, Jan, The Law of Contract in Hage, Jaap, Waltermann, Antonia and Akkermans, Bram eds, Introduction to Law (2nd ed. 2017 Springer) pp. 72 - 73. Smits, Jan, Contract Law: A Comparative Introduction (3rd ed, Edward Elgar 2021) pp. 193- 202. Edwin Peel, Treitel on the Law of Contract (14th ed, 2015) ss.19–001 - 19–005 pp. 1822 - 1824 Section 2 – Termination Smits, Jan, The Law of Contract in Hage, Jaap, Waltermann, Antonia and Akkermans, Bram eds, Introduction to Law (2nd ed. 2017 Springer) pp. 75. Rowan, Selen, The New French Law of Contract (OUP 2022) 213 – 223. Cartwright John, Contract law: an introduction to the English law of contract for the civil lawyer (3rd ed. Hart 2016) pp. 281 - 285. Section 3 – Damages Smits, Jan, The Law of Contract in Hage, Jaap, Waltermann, Antonia and Akkermans, Bram eds, Introduction to Law (2nd ed. 2017 Springer) pp. 74. Kötz, Hein, European Contract Law (2nd ed, OUP 2017) pp. 252 – 259 1  Peel, Edwin, Treitel on the Law of Contract (14th ed, 2015) ss. 17 - 049 to 17 – 056, ss. 20 - 093 to 20 – 094, ss. 20 – 098 to 20 – 107. Stanhope Kenny, Courtney Selection of Cases Illustrative of the Law of Contract (Based on the Collection of G. B. Finch 1922) (2209, Cambridge University Press) pp. 411 – 414. 2  Specific Performance The first contractual remedy that we will address during Meeting 2.2 is specific performance, where the breaching party is compelled to perform their obligations according to the terms of the contract. As you read the following literature, (i) identify and define the requirements that must be fulfilled before specific performance can be claimed by the non-breaching party, and (ii) identify situations where the breaching party will not be compelled to perform. Pay particular attention to the differences between civil law and common law jurisdictions concerning specific performance as a primary or secondary remedy and the reasons why such differences exist. In this section of the reader, the following extracts can be found: Jan Smits, The Law of Contract in Hage, Jaap, Antonia Waltermann, and Bram Akkermans, eds, Introduction to Law (2nd ed. 2017 Springer) pp. 72 – 73. Jan Smits, Contract Law: A Comparative Introduction (3rd ed, Edward Elgar 2021) pp. 193- 202. Edwin Peel, Treitel on the Law of Contract (14th ed, 2015) ss.19–001 - 19–005 pp. 1822 - 1824  Jan Smits, The Law of Contract in Hage, Jaap, 72 J. Smits Waltermann, Antonia and Akkermans, Bram eds, Introduction to Law (2nd ed. 2017 Springer) pp. 72 - 73. 5.1 Performance Civil Law Approach It seems to follow from the principle of the binding force of contract that if a party does not perform, it can be forced to do so by a court of law. This is indeed the position of all civil law jurisdictions. In countries like Germany, France, and Poland, the claim for performance is seen as the natural remedy that 4 follows automatically from the fact that a valid contract exists. And if a party does not abide by the court decision to per- form, it can be forced to do so by an official (Gerichtsvollzieher, huissier, deurwaarder, or bailiff) who would take the goods or the money from the defaulting party and give it to the creditor. However, this main rule cannot always be applied. If the computer that Sarah sold to Lena is stolen from Sarah before delivery is due, it does not make much sense for Lena to claim performance. Such a case of objective impossibility also exists if performance is only useful if it takes place before a fixed date. If Christa is to marry on 8 August, it would be futile to claim performance from the manufacturer of the wedding dress on any later date. In addition to these cases of objective impossibility, it can happen that performance is still possible but would cause the debtor unreasonable effort or expense. No reasonable person would require the seller of a ring who accidentally dropped it in the River Meuse to dig it up, even though this would technically be possible at the expense of a large sum of money. A final situation in which a claim cannot be brought is where performance requires specific personal qualities of the debtor, or as Art. 9:102 PECL states: «the performance con- sists in the provision of services or work of a personal char- acter or depends on a personal relationship». A music company cannot force Coldplay to make a record to the best of its artistic ability, and the organizers of the Zurich Grand Prix cannot make an athlete run. This does not mean that contracts with artists or sportspeople do not contain provi- sions to this effect, but they only allow the other party to bring a claim for damages or termination in case of breach of the contract. It is clear why a court in these cases would not allow a claim for perfor- mance: not only would this turn the debtor into some sort of slave, but it is also difficult to believe that an unwilling debtor will in fact perform to the best of its abilities when being forced to do so. The Law of Contract 73 4 Common Law Approach Although the general availability of the claim for performance seems logical in view of the aim of the contract (to hold a party to its promise), common law adopts a different stand- point. Under English law, the normal action is for damages, so-called specific performance being the exception. There is a lot to say about the exact reasons for this radically different position, but in essence it finds its origins in an alternative view of the contract itself. This view is perhaps best expressed by the famous American judge and jurist Oliver Wendell Holmes, who wrote in 1881 that «… the only universal conse- quence of a legally binding promise is that the law makes the promisor pay damages if the promised act does not come to pass. In every case it leaves him free (…) to break his contract if he chooses». This is a view of contract, not as a moral con- ception but as an economic device: people conclude contracts to increase their welfare, and if the debtor prefers to bring the other party in the financial position in which it would have been had the contract been properly performed, this is just as good. However, English law does recognize that this so-called specific performance should be available in certain situations. This is why, in equity, it has long been recognized that if dam- ages are «inadequate», the court can grant a claim for perfor- mance. In particular, in the case of contracts concerning specific goods (such as land, works of art, or other objects having unique qualities), the court allows the creditor to force the other party to perform in specie. The difference between civil law and common law is best Generic Goods visible in the case of sale of so-called generic goods. These are goods that are readily available on the market, including bulk products such as (to name but a few) potatoes, bananas, water, oil, steel, and plastics. In German, Italian, or Dutch law, it is beyond doubt that the buyer of such goods can claim delivery from the seller. In English law, however, the buyer has to sat- isfy itself with a claim for damages as these goods are not unique and can easily be found elsewhere. Art. 9:102 PECL also adheres to this view (cf. Art. III.3:302 DCFR). This age-old difference between civil law and common law in the field of performance has considerably diminished as a result of European Directive 1999/44 on consumer sales. If a professional seller delivers goods to a consumer that are not in conformity with the contract, the consumer can require the seller to have the goods brought into conformity by repair or replacement.  Jan Smits, Contract Law: A Comparative Introduction (3rd ed, Edward Elgar 2021) pp. 193 - 202. [ 11 Performance The question addressed in this chapter is whether a party to a contract can compel the other party to perform in natura. While in civil law jurisdic- tions there is no doubt whatsoever that performance is a right of the cred- itor, this is different in English law, which regards specific performance as an exceptional remedy that is only available if a claim for damages would not do adequate justice. This chapter examines: the availability of the action for performance in civil law and common law; how to execute a court order for performance; when the action for performance cannot be brought because of impos- A sibility (frustration) or because it requires personal services or constant supervision of compliance by the court; when unforeseen circumstances can be invoked; repair, replacement and price reduction in consumer sales as laid down in the Consumer Sales Directive; the solution proposed by the PECL. The principle of binding force of the contract would be futile in cases where a party could escape from being bound to its agreement. However, there are two fundamentally different ways in which one can reason about what it means to be 'bound' to a contract. First, one can argue that this must mean that the creditor can go to court and Civil law actually force the debtor to perform in natura; so he can obtain a court order that the goods must be delivered, that the former employee must refrain from competition, or that the contractor must build the house. The position of the civil law is that binding force of the contract means that in principle the credi- tor is allowed to claim performance in any case. Civil law jurisdictions thus tend to regard a contract as a moral device: promises must be kept. Second, one can argue that binding force means primarily that the credi- Common law tor is allowed to claim monetary compensation where the debtor does not  Performance 195 194. Contract law then be demanded 'immediately', which means that the debtor has as much o tons of bananas or 100 barrels of oil to B, perform. If A agrees to sell ",_ 51d B not be satisfied with obtaining time as he reasonably needs to carry out his obligations (a similar rule is pro- ad A does not delveth",";",as he icurred in concluding. the vided by Art. 7:102 PECL). d E....+.±2sa" ?lfAcompensates got9"" „rsys otstote tor find seresto»tons Futile defect The general availability of the claim for performance implies that it is dif- ficult for the debtor to argue that the creditor has only little interest in per- contract. This is, ot course, tr ¿), but in the case of products formance compared to the disproportionate efforts that the debtor may have fi d(like a house or a rare pamtung). ] to go through. The performance must in general entirely match what the specific goo + +let, this is a commercially viable solu- that are readily available on the marKe,., bl The Common parties agreed upon. In a Dutch case in which the tiles of the façade of a.. f English law: In his 1amous oo h tion. This is the position o!_4«st Oliver Wendell Holmes put newly built office building showed cosmetic defects through corrosion the l. h d in Law ( (publishe 1881) the Amencan iuns q, of a legally binding promise is, court still allowed a claim for performance (meaning that the debtor had like thi 'Th only universal consequence q to replace the tiles), even though the costs of replacement amounted to Fl. it like this: 1e dz if the promised event toes hat the law makes the promior PY In """"%""po case it leaves um tree treat his contract 6 million (€2,730,000) and the defects were hardly visibly from the street not come to pass. r every 1 th t. the common law a contract is not (Multi Vastgoed v Nethou, 2001). French courts also used to allow a claim for if he chooses'. This quote reveal """ nomic one. If one assumes performance in cases where the creditor seemed to suffer only little harm ·al device ut as an eco or inconvenience. In a case in which a swimming pool was built with three 1 primarily seen as a more a»rofit, it is just as good (and perhaps that a contract is concluded to mlake ~t. t' obt1in performance in natura. instead of four steps, the contractor could still be obliged to perform correctly even better) to get the money value as 1t 1s to (Piscine, 1984). In the extreme case of Belhadj v Les Batisseurs du Grand Delta (2005), a family house had been built that was 33 cm lower than agreed upon. 7ill d the common law approach to per- """$,",„,„. ms, several vl tá» jurisdictions Ts anterenee between th" This did not make it unfit for its purpose and use, but still the court allowed formance sets the agenda for this ch"?F' ¡,Ash law (B). Separate attention the claim to demolish and rebuild thehouse. This decision seems contrary are examined (A), followed by a survey o! """ (ç)and to the European to what reasonableness and fairness require in the contractual relationship, h d Ioctrmne is paid to the t or f unforeseen cll'cums anees di ·tive 2019/771 on sale o f and it would probably be decided differently today. The new Art. 1221 CC solution in the PECL and in the European 1rectuv (introduced in 2016) now requires the court to deny a claim for performance goods (D). if there is a manifest disproportion between its cost to the debtor and its inter- est for the creditor. The German $ 275 BGB also offers space for denying the Civil law: Performance as the routine remedy claim in case of a futile defect. It states that the debtor may refuse performance A. 'to the extent that performance requires expense and effort which, taking into account the contents of the obligation and the requirements of good faith, is 1. General.d h t th contracting parties can grossly disproportionate to the interest in performance of the creditor: In civil law jurisdictions it is self-evi ent _t a :akomin ) of the contract. s»rs«ors+amp,",2;";"?2"%.sir suse 2. Impossibility of performance This is so obvious that not a%' „,„„ s 241 (1) BG, ihich states that the rule. ln Germany it can be denve ro f the debtor' while accord- Even if the claim for performance is in principle always available in a civil law creditor is entitled 'to demand performance trom ·ire the other 'to jurisdiction, without the need for a requirement other than that the obliga-. t Art. 1221 of the French Civil Code a party can reqm tion is due, this does not mean that claiming performance is always useful. 1ng o ·