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Act 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).
Chapter I. On contracts
Article 1
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.
Article 3
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.
If an offer is made orally and no deadline stipulated for acceptance, the offer must be accepted
immediately.
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 an offer is refused the offer is no longer binding for the offeror even if the deadline for
acceptance has not passed.
Article 6
A response which purports to be an acceptance of an offer but, as a result of any addition,
restriction or reservation, is not consistent with the offer, the response shall be regarded as a
rejection of the previous offer and the making of a new offer.
However, this does not apply if the sender of the acceptance assumes that the acceptance is
consistent with the offer 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 with the terms of the
acceptance.
Article 7
If an offer or acceptance of an offer is withdrawn, the withdrawal is valid if it reached the
counterparty before, or at the same time that, the offer or acceptance came to his or her
knowledge.
Article 8
If an offeror has stated that silence on the part of the counterparty will be regarded as acceptance,
or if it is clear for other reasons that no explicit response is expected, the counterparty is
nonetheless required to respond to any query as to whether acceptance of the offer is intended. In
the absence of such response the offer shall lapse.
Article 9
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.
Chapter II Agency
Article 10
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.
Article 11
If an agent, in entering into a legal instrument, has violated instructions given by the principal,
and if this was known, or should have been known, to a third party, such legal instrument is not
binding for the principal even if it falls within the scope of the agent’s authority.
The same applies even if the third party is in good faith in the case of authority provided for in
Article 18.
Article 12
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.
If authorisation has been withdrawn in the manner provided for in Article 13, a third party
receiving the withdrawal cannot contend that the authorisation should also have been withdrawn
in another manner.
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.
If this is not possible, the withdrawal of the authorisation shall be publicised in another equally
secure manner. If a principal so wishes, he or she can obtain instructions from an official referred
to in Article 17 as regards the arrangement of the publication.
Public registration of an authorisation does not constitute publication.
Article 15
Authorisation of the kind referred to in paragraph 2 of Article 10 is regarded as withdrawn if the
agent relinquishes his or her position.
Article 16
A written authorisation which is handed to an agent for display to a third party is withdrawn if it
is returned at the request of the principal or if it is destroyed.
An agent is required to return the instrument of authorisation at the request of the principal.
Article 17
If principal can show that it is probable that a written authorisation of the kind referred to in
Article 16 has been lost, or that he is for some other reason unable to retrieve it within a
reasonable time, the authorisation may be declared void.
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.
Article 18
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
If an authorisation has been withdrawn or declared void, but the principal has specific reason to
believe that the agent will nevertheless enter into a legal instrument on his/her behalf with a
specific third party, who may be presumed to be unaware that the authorisation is void, the
principal must inform the third party, if possible, that the authorisation is void. Otherwise the
legal instrument will be binding for the principal if the third party was in good faith.
Article 20
If an authorisation has not been withdrawn or declared void, but the principal has instructed the
agent not to exercise the authorisation, or indicated in another manner that it is not the principal’s
wish that the authorisation should continue in force, any legal instrument entered into pursuant to
the authorisation shall not be binding for the principal, provided that the third knew, or should
have known, of the circumstances.
Article 21
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.
Article 22
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
If the estate of a principal is subjected to bankruptcy proceedings, a third party cannot obtain
further rights against the bankruptcy estate 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 bankrupt person
himself or herself. If the instrument was made pursuant to authorisation of the kind referred to in
Article 18, a third party cannot invoke the instrument if the agent knew, or should have known,
about the bankruptcy at the time that he or she made the instrument.
Article 24
If a principal has died, been deprived of legal capacity or his or her estate subjected to bankruptcy
proceedings, an agent can still enter into the instruments pursuant to his or her authorisation
which are necessary to protect the estate or the principal from damage until such time as the
estate or the guardian of the principal has taken the actions that need to be taken.
Article 25
A person acting as an agent for another person warrants that he or she has sufficient
authorisation. If he or she cannot prove that he or she possesses such authorisation, or that the
legal instrument into which he or she entered was approved by the party from whom he or she
believed himself or herself to derive the authorisation, or that the instrument is for other reasons
binding for such party, the agent shall compensate for any damage suffered by a third party as a
result of the instrument not being enforceable against the purported principal.
However, this does not apply if the third party knew, or should have known, that the person
entering into the instrument had insufficient authorisation, nor if the party who entered into the
instrument exercised authorisation which was not valid for reasons unknown to him or her and
the third party could not have expected the party to be aware of.
Article 26
The provisions of this chapter on authorisation to enter into legal instruments also apply, as
applicable, to authorisation to take delivery of legal instruments on behalf of a principal.
Article 27
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.
If a third party has used force, and the party with whom the legal instrument is made was in good
faith, the person who was subjected to force must, if he or she intends to plead duress, inform the
third party without unreasonable delay when the duress was ended. Otherwise, the party is bound
to the legal instrument.
Article 29
If a person has, by unlawful means, forced another person to enter into a legal instrument, but
without resorting to duress of the kind referred to in Article 28, the legal instrument is not
binding for the person who was subjected to duress if the person who accepted the legal
instrument himself or herself exerted the duress, or if he or she knew, or should have known, that
the legal instrument was made as a result of unlawful duress exerted by another person.
Article 30
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.
Article 31
[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)
1)
L. 11/1986, 1. gr.
Article 32
[Any legal instrument which, as a result of a misprint or other error on the part of the person
concluding it, has become materially different from what was intended, is not binding for the
person who concluded it if the person at whom the instrument was directed knew, or should have
known that an error had been made.
If a legal instrument is sent by telegram and corrupted at the hands of a telegraph office the legal
instrument is not binding for the sender in the form that it appears, even where the recipient is in
good faith. The same applies if an oral legal instrument entrusted to a messenger is wrongly
delivered.
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)
1)
L. 11/1986, 2. gr.
Article 33
[A legal instrument that would otherwise be valid shall not be invoked by the person receiving it
if would be considered dishonest as a result of circumstances prevailing at the time that the
instrument came to his or her knowledge which he or she knew or may be assumed to have
known.]1)
1)
L. 11/1986, 3. gr.
Article 34
[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)
1)
L. 11/1986, 4. gr.
Article 35
[When a creditor has unwillingly lost a receipt for a sum of money, the debtor is nonetheless
freed if he or she, in good faith makes the payment on or after the due date against the surrender
of the receipt.]1)
1)
L. 11/1986, 5. gr.
Article 36
[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 (a)
The provisions of Articles 36 (a) – (d) apply to contracts, including contract terms, which have
not been individually negotiated, provided that the contracts form a part of the business activities
of one of the parties, the employer, but do not form a part of the business activities of the other
party, the consumer; cf., however, Article 36(d). The provisions also apply to contracts between
consumers where an employer acts for one of the parties.
Where an employer claims that a contract has been individually negotiated and that it does not
fall within the scope of paragraph 1, the burden of proof in this respect shall be incumbent on the
employer]1)
1)
L. 14/1995, 2. 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.
In assessing whether a contract pursuant to paragraph 1 is unfair, account should be taken of the
factors and circumstances referred to in paragraph 2 of Article 36, including the terms of other
linked contracts. However, no account shall be taken of circumstances that arose subsequently, to
the disadvantage of the consumer.
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)
1)
L. 14/1995, 4. gr.
[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 Islands in 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.
Article 37
[If, for the purpose of preventing competition, a person has obtained a commitment from another
person not to engage in a commercial undertaking or other business, or not take up employment
at such an undertaking, the promise is not binding on the person if it must be assumed, in light of
all the circumstances, that the commitment goes beyond what is necessary to avoid competition,
or if it unreasonably restricts the freedom of employment of the person who undertook the
obligation. In assessing the latter, account shall also be taken of the rightholder’s interest in the
commitment being observed.
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.
1)
L. 11/1986, 7. gr.
Chapter IV General Provisions
Article 38
When the validity of a contract or other legal instrument under this Act is dependent upon the
premise that the person to whom it was made out did not know, or could not have known, of
certain circumstances, or if the person otherwise acted in good faith, regard shall be had to what
he or she knew or should have known at the time that the legal instrument came to his or her
knowledge. However, in special circumstances regard may also be had of the knowledge that he
or she received, or might have received, after that time but before the legal instrument had an
effect on his or her actions.
Article 39
[If a person has delivered a notice pursuant to Articles 4, 6, 9, 19, and 32 of this Act for
transmission by telephone, mail or other means of transmission which is acceptable for use, he or
she shall not be prejudiced if the notice is delayed or not delivered.]1)
1)
L. 11/1986, 8. gr.
Article 40
This Act does not apply to legal instruments relating to matters which are subject to rules of the
law of persons, family law or probate law.
[Article 40 (a)
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)
1)
L. 151/2001, 2. gr.