Apr 15, 2025
Content Deficiencies in Agreements: Legal Overview and Consequences
Introduction
Contracts can be invalid for various reasons, with defects in content being a central category. These are defects related to the content of the contract itself, as opposed to defects in the formation of the contract. This article provides a thorough review of the most important legal rules related to defects in contract content, including gambling and betting, agreements against the law and decency, the Price Act, and the general mitigation rule in the Contracts Act § 36.
The Penal Code's Implementation Act § 12: Gambling and Betting
Main Rule: No Legal Obligation
The Penal Code's Implementation Act § 12, no. 1, first paragraph states that "no obligation arises from gambling and betting, and a recognition of debt arising from them is non-binding." This means that participants in gambling and betting cannot demand fulfillment of the other party's obligations through the courts.
The provision has two central elements:
It regulates the relationship between the gambler and the person they play with or against
It regulates the relationship between the gambler and those who may have extended credit for the game
Credit for Gambling
The second paragraph of the provision establishes that "loans or advances" knowingly provided for the use in gambling or betting are non-binding. This is a so-called weak ground of invalidity—a lender who knew the loan was to be used for gambling cannot demand repayment, while an unaware lender can.
In Rt 2003 p. 1210, the Supreme Court decided that the rule also applies to legal games. In the case, a betting agent had allowed a player to bet on credit for several million kroner. The Supreme Court ruled that the agent's claim did not impose any payment obligations on the player.
Voluntary Payment
The fourth paragraph of the provision states that a voluntary payment cannot be reclaimed unless the payment was made in ignorance of the claim's invalidity or with assets instead of money. This follows the principle that "gambling debt is a debt of honor."
Agreements Against Law or Decency (NL 5-1-2)
Agreements Against the Law
NL 5-1-2 establishes that all agreements that are not against law or decency are to be upheld. However, this does not mean that any agreement violating a law is automatically invalid. The question must be determined through an interpretation of the specific law, where the law's purpose is an important interpretive factor.
The Supreme Court stated in Rt 1993 p. 312 that "there is no general rule that an agreement with illegal content is without effect between the parties, but that the matter must be determined by interpreting the specific law, where consideration is also given to more general factors—such as whether real concerns suggest that the violation should result in invalidity."
The decisive factor will be if the implementation of the agreement so significantly counteracts the law's purpose that it is justified to react with invalidity after a comprehensive assessment.
Agreements Against Decency
Agreements can also be deemed invalid if they violate decency ("pactum turpe"). Courts today only use this designation in more severe cases of immoral agreements.
The rule targets two situations:
Where the specific agreement is directly immoral (e.g., an agreement to commit a crime)
Where the agreement indirectly aims to promote an immoral purpose (e.g., insurance against the risk of the government uncovering tax evasion)
The Price Act § 2
The Price Act § 2, first paragraph prohibits "taking, demanding, or agreeing to unreasonable prices," as well as demanding, agreeing to, or maintaining business terms that are unreasonable or manifestly contrary to public interests.
Unreasonable Prices
The assessment of whether a price is unreasonable starts with the market price. If this is deemed unreasonable, a calculation must be performed. The difference between the reasonable price and the agreed-upon price must be clear and not insignificant for the provision to be considered violated.
The Price Act § 2 does not target unreasonably low prices, unlike the Contracts Act § 36 which can also be applied in such cases.
Unreasonable Business Terms
The law's rule on illegal business terms has two aspects:
It targets unreasonable business terms
It targets business terms that are manifestly contrary to public interests
Typical conditions targeted include terms that contribute to a disparity between the service and the consideration, or so-called "tying arrangements" where a party is forced to purchase goods or services they do not need.
The Contracts Act § 36: The General Mitigation Rule
Background and Purpose
The Contracts Act § 36 provides courts the authority to completely or partially set aside or amend unreasonable contracts. The provision was introduced in 1983 and was primarily intended as a consumer protection measure but has also become significant outside the consumer area.
The section states: "A contract may be completely or partially set aside or altered if it would be unreasonable or contrary to good business practice to enforce it. The same applies to unilaterally binding dispositions."
Characteristics and Relationship to Other Rules
The Contracts Act § 36 has three important characteristics:
It is a rule of invalidity like other rules of invalidity in the Contracts Act
It is a contract law mitigation rule that can be applied where no invalidity exists
It has flexible legal effects
The provision partially overlaps with other rules of invalidity but has a broader scope of application:
It includes both defects in formation and content defects
It applies to subsequent circumstances that make the contract unreasonable
It has more flexible legal effects than traditional rules of invalidity
The Assessment of Unreasonableness
The Contracts Act § 36 contains a concrete standard of reasonableness. It means that the reasonableness of the particular contract or contract term in question is evaluated. The standard is also relative, with the threshold being higher in commercial contracts between professional parties than in consumer relationships, for example.
In the assessment, the following should be considered:
The content of the contract
The status of the parties
The circumstances at the time of entering the contract
Subsequent circumstances
Other relevant circumstances
Legal Effects
If a contract is deemed unreasonable, the court may choose among the following reactions:
The unreasonable term is modified or set aside while the rest of the contract is maintained
The unreasonable term is changed along with other terms
The unreasonable term is maintained, but other terms are changed
The entire contract is set aside
The Contracts Act § 37: Special Rules for Consumer Contracts
The Contracts Act § 37 applies to standard terms in consumer contracts and was introduced to implement the EU directive on unfair terms in consumer contracts (Council Directive 93/13/EEC).
The most important special rules in § 37 are:
Subsequent circumstances should not be considered to the detriment of the consumer
The consumer may demand that the rest of the contract remain unchanged when unfair terms are set aside
In cases of doubt about the interpretation of a contract term, it should be interpreted in favor of the consumer
The trader bears the burden of proving that a term is individually negotiated
Summary
The rules on defects in contract content constitute an important legal framework to counter unreasonable contracts. They range from specific rules about gambling and betting to the general mitigation rule in the Contracts Act § 36. While some rules have existed for centuries, like NL 5-1-2, others, like the Contracts Act § 36, represent a more modern approach to contract review. Collectively, these rules provide courts with tools to intervene in contractual relationships where the content is so unreasonable that enforcing the contract would violate fundamental principles of justice.
