This article has been written by Dandangi Yaswanth Kumar, pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution, and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
Introduction
A contract is an essential commodity for both corporate entities and normal people. The Dutch Contract Law is governed under the Dutch Civil Code. Dutch contract law is generally regarded as balanced and well-developed. Good faith, reasonableness and fairness are the most essential principles of the Dutch Contract Law and each party must behave according to these principles and follow them as the principle of natural justice. This article discusses the performance of a contract under Dutch business law, highlighting on the governing contract statutes in the Netherlands (Dutch) as well.
How are contracts formed
Offer and acceptance are the two most vital elements of a contract under Article 6:217. There should be a valid offer from a party who is capable and there should be acceptance from the other party. An offer can be of four types. They are as follows:
a) Valid;
b) Voidable;
c) Null;
d) Void in accordance with the rules for more-sided juridical acts.
One party while making an offer must prescribe a reasonable time for the acceptance of the offer made to the other party. In the case of an oral offer acceptance must be given immediately, and in the case of a written offer acceptance can be given instantly or later on according to the agreed time period between the parties. And when a party rejects the offer then the offer does not exist. For example, if ‘A’ orally offers to ‘B’ to sell his book, then, ‘B’ must give his accept to the offer instantly, else the offer will be terminated, and where in case of an offer in written form, ‘B’ can either give his acceptance immediately or later on as and when the time period agreed between both ‘A’ and ‘B’. Where, ‘B’ rejects the offer made by ‘A’, whether an oral or written offer, the offer ceases to exist.
Position of an offer when a party dies
If an offer is made, and when either of the party is dead or becomes legally incapable to perform juridical acts, then, the offer does not lose its force and it is also applicable when either of the party is in a fiduciary administration. For example, ‘A’ made an offer to ‘B’ to sell his house, and when either of them is dead the offer stands still and does not cease to exist, and the same happens when either of them becomes legally incapable to perform juridical acts or involved in fiduciary administration.
Delay in acceptance
When there is a delay in giving acceptance to the offer, the acceptance can be valid. And, when the offeror understands that the other party was not clear of this delayed acceptance, then, the said acceptance is valid, until and unless the offeror informs the same to other party. For example, ‘A’ makes an offer to ‘B’, and ‘B’ gives his acceptance through a letter to ‘A’, then such acceptance can be considered as a valid acceptance, even though there is a delay in giving such acceptance.
And, where in case, when ‘A’ makes an offer to ‘B’, and when ‘B’ gives his acceptance to the offer made by ‘A’ beyond the time period and ‘A’ is aware of this situation and then, the said acceptance is valid when ‘A’ informs the same to ‘B’. When a party makes an offer and the other party must accept the same and if there is or are any changes in the offer or conditions or obligations then it will transcend the previous offer and emerge as a new offer and it is deemed as the dismissal of the previous offer. When the parties perform their obligations, they must be certain and they should be strictly bound to the contents of the contract.
For example, ‘A’ offers ‘B’ to sell his white horse, and when the time arrives for ‘A’ to perform his obligation, he must give his white horse to ‘B’ and should not give any other, and if he does then the offer deemed to be dismissed and in the place of that offer, a new offer will emerges.
What does the performance of the contract mean
Performance of the contract can be understood to be a discharge of parties from their obligations that are said to be assumed by them during the time of formation of the contract. The performance of the contract comes with different types. While it may be part performance, it can also be of substantial performance. In Dutch, the law of the contract is contained in the New Civil Code. This Code spells out different sets of obligations under a contract alongside providing how the same can be discharged. The New Civil Code is a derivation of the Old Civil Code, therefore, the applicability of the New Code is extended to those cases that were subjected to the ambit of the Old Code.
It needs to be borne in mind that the general rule, as provided under the Civil Code, states that the legal effect of a contract is subject to the agreement entered by the parties in the contract. The contract may also be brought about by means of legal operation, the existence of customs and the need to implement reasonableness and fairness. Agreement between parties is relevant in accordance with that court shall interpret the contract.
Reasonableness and fairness
The application of the principle of good faith is based on the determination of different obligations of the parties who have entered the contract. The legal duties of the parties are structured in such a way. In this genre, the aspect of reasonableness and fairness is important for implementation along with the underlying principles of the contract. They basically ensure the contract is legally sound and has sustenance before the court of law thereby eliminating any kind of prejudice on the party’s part. If any terms of the contract goes against the principles of reasonableness and fairness, the same is subject to be set aside.
Estoppel and waiver
The concept of estoppel developed in the case of Central London Property v. High Trees (1947) where the decision was developed by Lord Denning. Unlike waiver, estoppel is not catered for under the Dutch Civil Code. Estoppel can be understood as a common law doctrine that vests a party with fundamental rights and the same is governed by rules. It is in estoppel where the right is created and the same right when lost is known as a waiver. The waiver is a frequent sight in creditor-debtor relationships. The line of difference that can be drawn between waiver and estoppel is not simple and the difficulty that arises is presented by the application of the two. Estoppel is referred to as a doctrine of equity and therefore works in the principles of fairness.
Invalidity of a contract
Under Dutch Contract Law, a contract may be annulled due to the mistake of parties under the following circumstances:
- When one of the party gives false information or misrepresentation;
- When the party knew or ought to have known about this mistake and he failed to inform the same;
- When both the parties enter into the agreement on the basis of this mistake.
When there is a mistake of representation or another kind, the mistaken party or the other party must inform the same else the contract will be void. When the contract is on the basis of mistake due to its nature then the mistaken party will be barred from rescinding the contract.
For example, ‘A’ offers to ‘B’ that he will sell his car, but the car belongs to ‘C’, here ‘A’ gives false information and represents himself as the owner of the car belonging to ‘C’, and in this case the contract will be annulled on the basis of misrepresentation on the part of ‘A’. A contract is void when either of a party is having no legal capacity, minor, lunatic, or any other obligation prescribed by the law.
For example, ‘A’ offers ‘B’ to sell his bike, but here ‘A’ is a minor, then, the contract between ‘A’ and ‘B’ is void, but ‘A’ enters into a contract with the prior approval or permission from his guardian.
Separate liability or joint and several liabilities of the parties
Where there are two or more parties entered into a contractual relationship to perform the similar obligation, then, each party will be liable to perform to his part of the obligation and does not perform beyond his obligation, until and unless from the law, common practice or a juridical act results that they are liable for unequal parts or that they are joint and several liable. If the contractual performance is undividable, then, each party will be liable to the whole obligation, like if a partner is liable for the whole debt made by another partner in a partnership firm.
Breach of a contract
Under Dutch Contract Law breach of contract is referred to as the non-performance of a contract or contractual obligations. There are certain remedies for non-performance or breach of a contract, that the failure in the performance of a contract is divided into two types. They are
- Attributable failures;
- Non-attributable failures.
Attributable failures
When a party fails to perform his obligation as mentioned in the contract then, it is considered that the contract is breached and the former will be liable to pay the damages to the other party. For example, ‘A’ make a contract with ‘B’, that he will supply 100 oxygen cylinders with good quality to ‘B’ within 5 days, and later, ‘A’ supplied the 100 oxygen cylinders within the stipulated time but with poor quality then, ‘A’ is liable to pay damages to ‘B’ or not fulfilling the contractual obligation.
Non-attributable features
When a party is hindered from performing his contractual obligation, and there is an impossibility in performing the contractual obligation like Force Majeure, Tsunami, earthquake, lightning, Covid-19, etc., then the other party may ask either to perform the contractual obligation or to terminate the contract.
For example, ‘A’ agrees to sell his horse to ‘B’ and executes a contract, and in the contract ‘A’ mentioned he will deliver the horse within 10 days of the enforcement of the contract, and just before the day of delivery there was a huge storm and the horse died due to lightning. In this instance, ‘B’ can either ask ‘A’ to deliver him another horse or to terminate the contract.
Remedies for breach of a contract
When a party fails to perform his contractual obligation i.e., attributable failure, then the other party can seek the following remedies. They are:
a) Specific performance;
b) Specific performance with damages;
c) Rescission of the contract;
d) Cancellation and restitution;
e) Termination of a contract with damages.
Specific performance
When a party fails to perform his contractual obligation then, the other party may approach the court of law and seek an order for specific performance of the contract i.e., the party may ask the court to make the failed party perform his contractual obligation.
Specific performance with damages
When a party breaches the contract, the other party may approach the court of law and seek an order for specific performance of the contract with damages due to the failure of the contractual obligation on part of the latter.
Rescission of the contract
When both parties agreed to terminate the contract agreed by both of them, then both parties are not obliged to perform the contract. And if any of the parties breaches the contract, then, the other party may terminate the contract and may or may not ask for the damages.
Cancellation and restitution
When a party breaches the contract, then, the other party may terminate the contract and may sue the former for restitution if the latter has given some benefit to the former.
Termination of a contract with damages
When a party breaches the contract, then, the other party may terminate the contract and may sue the former for damages.
Conclusion
As we come to the end of this article, it is ideal to state that the performance of a contract is made either wholly or partly. It is the court that gives meaning to the contract by means of interpreting them in accordance with the party’s terms. Performance of the contract is necessary for executing any contract whatsoever, provided the same is done on grounds of reasonability and fairness.
References
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