Act No. 7/1936 on contracts, agency and void legal instruments
1936 No. 7 1 February
Entered into force on 1 February 1936. Amended by Act No. 11/1986 (entered into force 1 May 1986), Act No. 14/1993 (entered into force on 9 March 1995; Article 1 entered into force in accordance with the stipulation in Article 3; EEA Agreement: Annex XIX directive 93/13/EEC), Act No. 151/2001 (entered into force 31 December 2001; EEA Agreement: Annex XIX 93/13/EEC), Act No. 72/2003 (entered into force 10 April 2003) and Act No. 108/2006 (entered into force 1 November 2006 according to Notice C 1/2006).
The provisions of this chapter shall be applied except as dictated by the legal act itself, trade practice or other custom.
Article 2
If a person who has offered to make a contract (offeror) has requested a response within a specific time (deadline for acceptance), a response accepting the offer (acceptance) must be received prior to the deadline.
If an offer is made by letter, the deadline is calculated from the date of the letter. If an offer is made by telegram the deadline is calculated from the time that the telegram was delivered at the telegraph office from which it was sent.
If a person who has made an offer by letter or telegram has not stipulated any deadline for acceptance, the acceptance must have been received before such time has passed that the person might reasonably have expected to be needed for acceptance at the time that the offer was made. Except as circumstances may otherwise dictate, the deadline shall be calculated based on the assumption that the offer was received at the correct time, that the counterparty had adequate time for consideration before responding, and that the response was not delayed in transmission. If an offer is made by telegram, the response shall also be made by telegram unless the offer can be made equally promptly by other means.
Article 4
If an acceptance is received too late, such acceptance shall be viewed as a new offer.
However, this does not apply if the sender of the acceptance assumes that the acceptance was received in time and this must have been obvious to the offeror. In such an event, the offeror shall inform the sender without unreasonable delay if the offeror does not agree to the acceptance. Otherwise, a contract is regarded as having been made.
Article 5
If a party has inserted the words “without obligation” or words to such effect in a message which in other respects would constitute an offer, such message shall not constitute an offer, but an invitation to make an offer of the substance contained in the message. If such an offer is received within a reasonable time from a party to which the message was directed, and the party receiving the offer can assume that it is made in response to the message, that party shall, without unreasonable delay, inform the offeror if he/she does not wish to accept the offer. Otherwise, the offer is regarded as accepted.
If an agent concludes a legal instrument in the name of a principal and within the limits of his or her authority, such legal instrument will give rise to rights and obligations for the principal without need for any further legal instrument from the agent or principal.
If a person, by contract with another person, occupies a position that by law or custom conveys authority to act within certain limits on behalf of such other person, the former shall be regarded as authorised to enter into legal instruments within those limits.
If a principal wishes to withdraw any authorisation provided for in Articles 13 - 16, the principal shall observe the provisions of these articles, as applicable, even when the principal has notified the agent that the authorisation is not longer in effect. If the provisions of more than one of these articles apply to the same authorisation all of them shall be observed.
Article 13
If a principal has made the authorisation known to a third party by means of a declaration made specifically to that party, this authorisation is withdrawn when a specific declaration by the principal that it is no longer in effect has been delivered to such third party.
Article 14
Authorisation that has been published in newspapers or in another equally public manner can be withdrawn by a declaration published in the same manner as the authorisation.
Public registration of an authorisation does not constitute publication.
An agent is required to return the instrument of authorisation at the request of the principal.
Article 17
An application for voiding shall be sent to a district court of the principal’s place of domicile or the place where the principal was last domiciled. If the judge sees reason to grant the request the court will issue a ruling to the effect that the authorisation will become void when the ruling has been published once in Lögbirtingablaðið [the Official Gazette] and a specified period of time has passed, which shall not be more than 14 days from the publication. The judge may provide in the ruling that, in addition to the publication in Lögbirtingablaðið, it should also be published in another manner.
A court ruling under this Article cannot be appealed to a higher court.
Authorisation which consists only in a declaration on the part of the principal to the agent is withdrawn when a declaration from the principal to the effect that the authorisation is no longer in effect has been delivered to the agent.
Article 19
In the event of the decease of a principal, an authorisation shall remain in force unless there are special circumstances to indicate that it should lapse. However, a legal instrument entered into by the agent pursuant to the authorisation shall always have effect for the estate of the principal if the third party had no knowledge of the decease of the principal and its effect on the powers of the agent to enter into the legal instrument and could not have been expected to possess such knowledge. In the case of authorisation pursuant to Article 18, however, the legal instrument is valid only if the agent did not know or could not have known of the circumstances.
If the estate of a principal is subjected to public adminstration the authorisation shall lapse.
If a principal is deprived of legal capacity, a third party cannot obtain further rights against him or her by means of a legal instrument with the agent than he or she would have obtained if the legal instrument had been entered into with the principal himself or herself. In circumstances where a third party could not have invoked the instrument with regard to the principal if he or she had known, or should have known, of the deprivation of legal capacity, the third party cannot invoke the instrument either if the agent knew, or should have known, of the deprivation of legal capacity when he or she entered into the legal instrument and the authorisation in question was of the kind referred to in Article 18.
Article 23
The withdrawal of powers of procuration notified to a trade register is subject to the provisions of Articles 7 and 32 of the Act on trade registers, firms and powers of procuration of 13 November 1903. If the withdrawal has been registered and published in the manner required by law the principal need not also withdraw the authorisation by other means.
Chapter III Void legal instruments
Article 28
If a person has by unlawful means been forced to enter into a legal instrument and the use of force consisted in physical violence or threats of immediate use of violence, the legal instrument is not binding for the person so coerced.
Article 29
A legal instrument is not binding for a person who entered into the instrument if the person was fraudulently induced and if the person who accepted the legal instrument committed the fraud himself or herself or knew, or should have known, that the instrument was made through fraud committed by another person.
If the person who accepted the legal instrument fraudulently misrepresented circumstances which may be assumed to be relevant to the legal instrument, or if the person fraudulently remained silent as regards such circumstances, it shall be assumed that the instrument was made by such fraudulent means, unless it is proven that these factors had no influence on the conclusion of the instrument.
[If a person has taken advantage of another person’s distress, lack of knowledge or imprudence or dependence on himself or herself to obtain or reserve benefits in such a manner that there is a clear disproportion between the benefits and the consideration received or purported to be received, or if the benefits were to be granted without consideration, the instrument so created shall be void for the person disadvantaged. The same applies if a person other than the person with whom the instrument was concluded, is guilty of the misconduct described in the first clause of this Article, provided that the person benefiting from the instrument knew, or should have known, of the misconduct]1)
If the sender is at fault for the error, the sender shall compensate the recipient for any damage suffered as a result. If the sender receives information of the error, he or she shall, without unreasonable delay, notify the counterparty if he or she intends to invoke the error. Otherwise, the legal instrument shall be binding in the form that it was received by the recipient unless the recipient knew, or should have known, about the error.]1)
[If a written legal instrument has been made pro forma and the person accepting the instrument has assigned his or her rights under the instrument to a third party, who is in good faith, it cannot be held against that party that the instrument was made pro forma.]1)
[A contract may be set aside, in full or in part, or amended if it would be considered unfair or contrary to good business practices to invoke the contract, [subject, however, to Article 36(c).]1) The same applies to other legal instruments.
Any assessment pursuant to paragraph 1 shall take account of the substance of the contract, the position of the parties to the contract, the circumstances of the making of the contract and subsequent circumstances.]2)
1)L. 14/1995, 1. gr.2)L. 11/1986, 6. gr.
[Article 36 (b) Written contracts offered by a business operator to consumers shall be phrased in plain and intelligible language. In the event of any doubts concerning the meaning of a contract referred to in paragraph 1 of Article 36, the contract shall be construed in the consumer's favour.
[The rule in the second clause of paragraph 1 does not apply when persons or organisations that have the role of protecting consumers take action pursuant to statutory law in order to obtain a decision as to whether contractual terms drawn up for general use are unfair.]1)]2)
1)L. 14/1995, 1. gr.2)L. 3/1986, 6. gr.
[Article 36 (c) The provisions of Article 36 apply to contracts pursuant to paragraph 1 of Article 36, but with the changes resulting from paragraphs 2 and 3.
A contract is unfair if it is contrary to good business practices and materially distorts the balance between the rights and obligations of the contracting parties, to the disadvantage of the consumer. If a term of this kind is set aside, in full or in part, or amended, the contract shall, at the request of the consumer, remain valid in other respects without change if it can be performed without the term.]1)
[Article 36 (d) If a provision in a contract is closely linked to the territory of an EEA member state, e.g. if the contract is concluded on such territory, or any of the contracting parties lives in such territory, and if the contractual term provides that the contract is governed by the law of a country outside the European Economic Area, the provision shall not apply to unfair contractual provisions if this would provide the consumer with less protection against such terms than the applicable legislation of a country within the European Economic Area. [If a provision in a contract is linked to the territory of states party to the Convention of the European Free Trade Association or of the Faeroe Islandsin a corresponding manner, the consumer shall not enjoy lesser protection than pursuant to the legislation of the country in question in the territory.]1)]2
1)L. 108/2006, 67. gr. 2)L. 14/1995, 5. gr.
If the employee of a commercial undertaking or other enterprise has undertaken a commitment of the kind referred to in paragraph 1 to the person operating the undertaking, and if the commitment is intended to remain in effect after the person’s employment at the undertaking is at an end, the commitment shall not be binding if the person’s employment is terminated or if he or she is dismissed without having given adequate cause, of if the person lawfully relinquishes the position on the grounds that the person operating the undertaking has failed to meet his obligations.
The Minister of Trade is authorised, on the basis of EEA directive 93/13/EEC on unfair terms in consumer contracts, to provide further by government regulation for the implementation of the provision of this Act relating to unfair contract terms.]1)