The Principles of European Contract Law 9789041113054, 9041113053

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Principles of European Contract Law Parts I and II Prepared by The Commission on European Contract Law Edited by Ole Lando and Hugh Beale

KLUWER LAW INTERNATIONAL

PRINCIPLES OF EUROPEAN CONTRACT LAW

PRINCIPLES OF EUROPEAN CONTRACT LAW PARTS

I

AND

II

Combined and Revised

Prepared by The Commission of European Contract Law Chairman: Professor Ole Lando

Edited by

OLE LANDO AND HUGH BEALE

KLUWER LAW INTERNATIONAL THE HAGUE / LONDON / BOSTON

Library of Congress Cataloging-in-Publication Data

web-ISBN 978-90-411-1305-4

Published by Kluwer Law International, P.O. Box 85889, 2508 CN The Hague, The Netherlands. Sold and distributed in North, Central and South America by Kluwer Law International, 675 Massachusetts Avenue, Cambridge, MA 02139, U.S.A. In all other countries, sold and distributed by Kluwer Law International, Distribution Centre, P.O. Box 322, 3300 AH Dordrecht, The Netherlands.

Printed on acid-free paper

All Rights Reserved © 2000 The Commission on European Contract Law

Kluwer Law International incorporates the publishing programmes of Graham & Trotman Ltd, Kluwer Law and Taxation Publishers, and Martinus Nijhoff Publishers. No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner. Permission is given by the copyrightowner for unlimited reproduction for non-commercial purposes only of the pages containing the texts of the articles.

Printed and bound by Antony Rowe Ltd, Eastboume

PRINCIPLES OF EUROPEAN CONTRACT LAW Full text of Parts I & II combined

Table of Contents PREFACE

XI

MEMBERS OF THE COMMISSIONS ON EUROPEAN CONTRACT LAW

XVll

INTRODUCTION

XXI

SURVEY OF CHAPTERS 1 ~ 9

XIX

xliii

LIST OF ABBREVIATIONS TEXT OF ARTICLES IN ENGLISH AND FRENCH

94

CONCORDANCE

CHAPTER 1 : GENERAL PROVISIONS Section 1: Scope of the Principles Article 1: 10 1: Application of the Principles Article 1: 102: Freedom of Contract Article 1: 103: Mandatory Law Article 1: 104: Application to Questions of Consent Article I: I 05: Usages and Practices Article 1: 106: Interpretation and Supplementation Article 1: 107: Application of the Principles by Way of Analogy

95 99 100 103 104 108 110

Section 2: General Duties Article 1:201: Good Faith and Fair Dealing Article 1:202: Duty to Co-operate

113 113 119

v

VI

Contents

Section 3: Terminology and Other Provisions Article 1:301: Meaning of Terms Article I :302: Reasonableness Article I :303: Notice Article I :304; Computation of Time Article I :305: Imputed Knowledge and Intention

122 122 126 128 131 134

CHAPTER 2 : FORMATION OF CONTRACTS Section 1: General Provisions Article 2: 101: Conditions for the Conclusion of a Contract Article 2: I 02: Intention Article 2: 103: Sufficient Agreement Article 2: 104: Terms Not Individually Negotiated Article 2: I 05: Merger Clause Article 2: 106: Written Modification Only Article 2: 107: Promises Binding without Acceptance

137 143 146 149 152 154 157

Section 2: Offer and Acceptance Article 2:201: Offer Article 2:202: Revocation of an Offer Article 2:203: Rejection Article 2:204: Acceptance Article 2:205: Time of Conclusion of the Contract Article 2:206: Time Limit for Acceptance Article 2:207: Late Acceptance Article 2:208: Modified Acceptance Article 2:209: Conflicting General Conditions Article 2:210: Professional's Written Confirmation Article 2:211: Contracts not Concluded through Offer and Acceptance

159 164 168 169 171 174 176 177 180 185 187

Section 3: Liability for negotiations Article 2:30 I: Negotiations Contrary to Good Faith Article 2:302: Breach of Confidentiality

189 193

CHAPTER 3 : AUTHORITY OF AGENTS Section 1: General Provisions Article 3: 101: Scope of the Chapter Article 3: 102: Categories of Representation

197 199

Contents

Section 2: Direct Representation Article 3:201: Express, Implied and Apparent Authority Article 3:202: Agent acting in Exercise of its Authority Article 3:203: Unidentified Principal Article 3:204: Agent acting without or outside its Authority Article 3 :205: Conflict of Interests Article 3:206: Subagency Article 3:207: Ratification by Principal Article 3:208: Third Party's Right with Respect to Confirmation of Authority Article 3 :209: Duration of Authority Section 3: Indirect Representation Article 3:301: Intermediaries not acting in the name ofa Principal Article 3:302: Intermediary's Insolvency or Fundamental Nonperformance to Principal Article 3:303: Intermediary's Insolvency or Fundamental Nonperformance to Third Party Article 3:304: Requirement of Notice

VII

202 205 206 207 209 211 213 215 216

220 221 223 225

CHAPTER 4: VALIDITY Article 4: 101: Matters not Covered Article 4: I 02: Initial Impossibility Article 4: 103: Fundamental Mistake as to Facts or Law Article 4: I 04: Inaccuracy in Communications Article 4: 105: Adaptation of Contract Article 4: 106: Incorrect Information Article 4: 107: Fraud Article 4: 108: Threats Article 4: 109: Excessive Benefit or Unfair Advantage Article 4: 110: Unfair terms not Individually Negotiated Article 4: III: Third persons Article 4: 112: Notice of Avoidance Article 4:113: Time limits Article 4: 114: Confirmation Article 4: liS: Effect of Avoidance Article 4: 116: Partial Avoidance Article 4: 117: Damages Article 4: 118: Exclusion or Restriction of Remedies Article 4: 119: Remedy for Non-performance

227 228 229 242 246 248 252 257 261 266

271 274 275 276 277 279 280 284 285

viii

Contents

CHAPTER 5 : INTERPRETATION Article Article Article Article Article Article Article

5: 101: General Rules ofInterpretation 5: 102: Relevant Circumstances 5: 103: Contra Proferentem Rule 5: 104: Preference to Negotiated Terms 5:105: Reference to Contract as a Whole 5: 1106: 06: Terms to Be Given Effect 5: 107: Linguistic Discrepancies

287 291 294 295 296 297 298

CHAPTER 6 : CONTENTS AND EFFECTS Article 6: 101: Article 6: 102: Article 6: 103: Article 6: 104: Article 6: 105: Article 6: 106: Article 6: 107: Article 6: 108: Article 6: I 09: Article 6: 110: Article 6: Ill:

Statements giving rise to Contractual Obligation Implied Terms Simulation Determination of Price Unilateral Determination by a Party Determination by a Third Person Reference to a Non-Existent Factor Quality of Performance Contract for an Indefinite Period Stipulation in Favour of a Third Party Change of Circumstances

299 302 306 307 310 311 313 314 316 317 322

CHAPTER7:PERFORMANCE Article Article Article Article Article Article Article Article Article Article Article Article

7:101: Place of Performance 7: 102: Time of Performance 7:103: Early Performance 7: 104: Order of Performance 7:105: Alternative Performance 7: 106: Performance by a Third Person 7:107: Form of Payment 7:108: Currency of Payment 7: 109: Appropriation of Performance 7: 110: Property Not Accepted 7: Ill: Money not Accepted 7:112: Costs of Performance

329 332 334 335 337 338 340 343 346 351 355 357

Contents

IX

CHAPTER 8 : NON-PERFORMANCE AND REMEDIES IN GENERAL Article Article Article Article Article Article Article Article Article

8:101: Remedies Available 8: 102: Cumulation of Remedies 8: 103: Fundamental Non-Performance 8: 104: Cure by Non-Performing Party 8:105: Assurance of Performance 8: 106: Notice Fixing Additional Period for Performance 8: 107: Performance Entrusted to Another 8:108: Excuse due to an Impediment 8: 109: Clause Excluding or Restricting Remedies

359 362

364 368 370 372 378 379 385

CHAPTER 9 : PARTICULAR REMEDIES FOR NON-PERFORMANCE Section 1: Right To Performance Article 9:101: Monetary Obligations Article 9: 102: Non-monetary Obligations Article 9: 103: Damages Not Precluded

391 394 402

Section 2: Withholding Performance Article 9:201: Right to Withhold Performance

404

Section 3: Termination of the Contract Article 9:301: Right to Terminate the Contract Article 9:302: Contract to be Performed in Parts Article 9:303: Notice of Termination. Article 9:304: Anticipatory Non-Performance Article 9:305: Effects of Termination in General Article 9:306: Property Reduced in Value Article 9:307: Recovery of Money Paid. Article 9:308: Recovery of Property Article 9:309: Recovery for Performance that Cannot be Returned

409 411 413 416 419 421 422 423 425

Section 4: Price Reduction Article 9:401: Right to Reduce Price

430

Section 5: Damages and Interest Article 9:501: Right to Damages Article 9:502: General Measure of Damages Article 9:503: Foreseeability Article 9:504: Loss Attributable to Aggrieved Party Article 9:505: Reduction of Loss Article 9:506: Substitute Transaction Article 9:507: Current Price

434 438 441 443 445 448 449

x

Contents Article 9:508: Delay in Payment of Money Article 9:509: Agreed Payment for Non-performance Article 9:510: Currency by which Damages to be Measured

450 453 456

BIBLIOGRAPHY General National: Austria Common Law (England, Ireland, United States) Denmark Finland France, Belgium and Luxembourg Germany Greece Italy The Netherlands Portugal Scotland Spain Sweden Comparative and general works

479

TABLE OF CASES

481

TABLE OF CODE PROVISIONS AND LEGISLATION

501

INDEX

553

461 471 471

471 472 472 473 475 475 476 476 477 477 478 478

Preface

How

IT STARTED

In 1974 a symposium was held at the Copenhagen Business School. The subject was the EEC Draft Convention on the Law Applicable to Contractual and Noncontractual Obligations. At a dinner in Tivoli Gardens after the symposium I sat next to Dr Winfried Hauschild who was Head of Division in the Directorate General for the Internal Market of the Commission of the European Communities, and who assisted the working group of experts which prepared the Draft Convention. We agreed that the proposed choice oflaw rules would be insufficient. They would never establish the legal uniformity necessary for an integrated European market. Uniform substantive law rules were needed. Dr Hauschild said: "We need a European Code of Obligations". In 1976 another symposium was held in the newly established European University Institute near Florence. Its subject was New Perspectives of a Common Law of Europe. I was asked to present a paper and found here an opportunity to argue for what I then called a European Uniform Commercial Code. In the years that followed efforts were made to find qualified people from all the EC Member States who were interested in preparing what now became the Principles of European Contract Law and to get the necessary funds. This took some time.

MEMBERS AND MEETINGS

First Commission

With the help of Dr Hauschild and his Directorate General, meetings were held in Brussels in December 1980 and November 1981 with lawyers from the EC Member States most of whom were later to become Members of the Commission on European Contract Law. The purpose of the first meetings was to prepare the future work. We were short of funds, and if it had not been for the Legal Services of the Commission of the European Communities and its Director General, Dr Claus Ehlermann, we would not have been able to continue. We got the funds necessary to Xl

Xll

Preface

cover the travel expenses of the Members, and the discussions of the principles started at the third meeting which was held in Hamburg in November 1982. At this and at the following five meetings (Paris, June 1983; Rome, November 1983; Thessaloniki, May 1984; Brussels, February 1985; and Copenhagen, October 1985) the participating Members of the Commission were: Professor Brigitte Berlioz-Houin, Universite de Paris IX, Professor Massimo Bianca, Universita degli Studi di Roma, Professor M.1. Bonell, Universita Cattolica del Sacro Cuore, Milano; later Universita degli Studi di Roma, Professor Ulrich Drobnig, Director at the Max Planck Institut fUr ausliindisches und internationales Privatrecht, Hamburg, Maitre Andre Elvinger, Luxembourg, Professor Dimitri Evrigenis, Centre of International and European Economic Law, Thessaloniki, Professor Roy M. Goode, Queen Mary College, University of London; later, St John's College, Oxford University, Professor Guy Horsmans, Universite Catholique de Louvain, Louvain-Ia-Neuve, Professor Roger Houin, Paris, Professor Ole Lando, Copenhagen Business School, Professor Bryan McMahon, University College, Cork, Professor Denis Tallon, Universite de Paris II, Director of Institut de Droit Compare de Paris, Deputy Director lA. Wade, T.M.C. Asser Institute, The Hague, Dr Frans lA. van der Yelden, University of Utrecht, and Professor William A. Wilson, University of Edinburgh. By January I, 1986, Spain and Portugal had become Members of the European Communities. From the ninth meeting in London in October 1986 Professor de Magelaes Collayo, University of Lisbon and Professor Alberto Bercovitz, Autonomous University of Madrid participated as members of the Commission. We had the misfortune of losing Professor Roger Houin and Professor Dimitri Evrigenis who both died in 1986. Due to pressing work at her University, Professor Brigitte Berlioz-Houin was unable to participate in further meetings. From the tenth meeting in Luxembourg in March 1987 and through the succeeding meetings (Madrid, November 1987; Lisbon, May 1988; Utrecht, December 1988; and Oxford, December 1990) the following new Members participated: Professor Hugh Beale, University of Bristol, later University of Warwick, Professor K. Kerameus, University of Athens, Professor Georges Rouhette, Universite d' Auvergne, Clermont Ferrand. Second Commission, 1992- I 996

In September 1992 the Second Commission on European Contract Law began its work. At its first six meetings (Ghent September 1992; Brussels, January 1993; Barcelona, July 1993; Osnabriick, December 1993; Utrecht, May 1994; and Palermo, December 1994) the participating Members were:

Preface

XlII

Professor Christian von Bar, University of Osnabrock, Professor Hugh Beale, University of Warwick, Professor Michael Joachim Bonell, University of Rome (La Sapienza), Professor Michael Bridge, University of Nottingham, Professor Carlo Castronovo, Universita Cattolica del Sacra Cuore, Milan Professor Isabel de Magelhiies Collac;o, University of Lisbon, Professor Ulrich Drobnig, Director of the Max Planck Institut fUr ausliindisches und internationales Privatrecht in Hamburg, Maitre Marc Elvinger, Luxembourg, Professor Arthur Hartkamp, Advocate-General of the Hoge Raad der Nederlanden, Professor Ewoud Hondius, University of Utrecht, Professor Guy Horsmans, University of Louvain la Neuve, Professer Konstantinos Kerameus, University of Athens, Professor Ole Lando, Copenhagen Business School, Professor Bryan McMahon, University of Galway, Professor Georges Rouhette, University of the Auvergne, Professor Pablo Salvador Coderch, Universitat Pompeu Fabra, Barcelona, Professor Matthias E. Storme, University of Leuven, and Professor Denis Tallon, Universite de Paris II, Director of the Institut de Droit Compare de Paris In January 1995 Austria, Finland and Sweden became Members of the European Union. At the seventh meeting in September 1995 in Galway and at the eighth and last meeting in Stockholm in May 1996 Professor Willibald Posch, University of Graz, Professor Jan Ramberg, University of Stockholm and Professor Thomas Wilhelmsson, University of Helsinki joined as Members of the Commission, as did Professor Hector MacQueen, Uniyersity of Edinburgh. As it appears, most of the Members of the two Commissions have been academics. However, several of them are also practising lawyers. Secretaries to the Commission Dr Oliver Remien of the Max Planck Institut fUr ausliindisches und intemationales Privatrecht in Hamburg served as secretary of the First Commission from the third through the seventh meeting. Henning Klinkenberg of the Max Planck Institute served at the eigth meeting, and Dr Remien at the following six meetings. Professor Matthias E. Storme served as secretary of the Second Commission. The Commission is indebted to the secretaries for their valuable work. Their main task was to prepare the minutes of the meetings, a task which was performed with great competence and care. For Part 1 Dr Michael Peglow and for the present edition Ms Bettina PiconeMaxion and Mr. Dirk Maxion produced the list of abbreviations, the bibliographies and the table of cases.

XIV

Preface PARTS

1 AND 2 OF THE

PRINCIPLES

Part I Believing that, within the law of contracts, the rules on due performance and the remedies for non-performance were of paramount importance, the first Commission chose these subjects for the first phase of its work. The Principles of European Contract Law, Part I, Performance, Non Performance and Remedies, Prepared by the Commission on European Contract law and edited by Hugh Beale and Ole Lando was published by Martinus Nijhoff Publishers, Dordrecht, in 1995. By 1997 it was sold out. A French edition of Part 1, Les principes du droit europeen du contrat, L' execution, l'inexecution et ses suites. Version francaise, translated and edited by Isabelle de Lamberterie, Georges Rouhette and Denis Tallon, was published by La documentation Francaise, Paris, in 1997. As of March 1998 this version was stiIl available. A German version of the articles of Part 1 has been published in Zeitschriji fur europiiisches Privatrecht, 1995, p. 864. The Present Second Part and future work This Volume contains new principles and rules on formation of contracts, authority of agents to bind their principal, the validity of contracts, interpretation and contents and effects. Futhermore, it contains a revised edition of the general provisions and the rules on performance, non-performance and remedies for non-performance which were provided in Part I. Even this volume does not provide a complete statement of the general principles of contract law. The Commission is continuing its work. Additional chapters will deal with the effects of illegality and immorality, compound interest, conditions, extinctive prescription of claims and with topics which cover both contractual and non-contractual obligations such as assignment of claims, assumption of debts, plurality of debtors and creditors, and set-off.

How WE

WORKED

The drafting of the articles, comments and notes was the task of a Reporter. The Reporters of the First Commission were: Professor Hugh Beale (from 1987) Professor Ulrich Drobnig Professor Roy Goode, Professor Ole Lando, and Professor Denis Tallon. In the second Commission the task was divided between: Professor Hugh Beale, Professor Ulrich Drobnig. Professor Ewoud Hondius,

Preface

xv

Professor Ole Lando, and Professor Denis Tallon Each Reporter presented his draft with comments to the other Reporters in a Drafting Group, which met to prepare the texts to be submitted to the Commission. At its meetings the Commission approved the texts, changed them or sent them back for further consideration by the Reporter and the Drafting Group. An Editing Group worked to improve the terminology and the presentation of the texts. In the First Commission the Members of this group were: Professor Bryan McMahon, Professor de Magelhaes Colla90, Professor Georges Rouhette, who acted as chairman, and Professor William Wilson. In the Second Commission the Members were: Professor Michael Bridge Professor Hector Mac Queen Professor Georges Rouhette, who acted as chairman, and Professor Carlo Castronovo. At its last meeting in 1990 the First Commission adopted the Articles of Part 1, and at its last meeting in 1996 the Second Commission approved the Articles of Part 2 and the amendments of Part 1, each time leaving it to the Drafting Group and the Editing Group to finalize the Comments. The notes to the Articles, which bring a survey of the relevant law of the Member States, have been written by the Reporters on the basis of information received by the Members of the Commissions. Additional information on Irish law has been provided by Mr Eoin O'Dell, Trinity College, Dublin and Ms Nicola Murphy of University College, Galway; and on Spanish law by Professor Fernando Martinez Sanz, Universidad Jaime I, Castellon. The final editing of the notes was done by Professors Hugh Beale and Ole Lando.

THE SPONSORS

Until the end of 1994 the Commission of the European Community, and notably its Legal Service, provided most of the funds necessary for carrying out our work. Before and after that time contributions have been received from the Stiftverband der deutschen Wissenschaft; ARAG Insurance Co, Germany; Baker & McKenzie, Solicitors, London; Edge & Ellison, Solicitors, Birmingham; The Lord Chancellor's Department, London; Foreningen til unge Handelsma!nds Uddannelse, Copenhagen; Haniel Stiftung, Germany; Masons, Solicitors, London; the Max Planck lnstitutfiir auslandisches und internationales Privatrecht, Hamburg; the French Centre National de Ie Recherche Scient(fique (lnstitut de Recherche Comparee sur les Institutions et Ie Droit); the Law Department of the Copenhagen Business School; the University of Warwick; St John's College, Oxford; and Queen Mary and Westfield College, London.

XVI

Preface

The Universita degli Studi di Roma, the Centre of International and Economic Law, Thessaloniki, the Belgian Centre Interuniversitaire de Droit Compare, the University of Utrecht together with the Netherlands Ministry of Justice, the German Leibnitz Foundation through a grant administered by Professor von Bar, the Government of Catalonia, the University of Palermo, and the University of Stockholm paid a substantial part of the expenses of the meetings in Rome, Thessaloniki, Brussels, Utrecht, Osnabrock, Barcelona, Palermo and Stockholm respectively. In almost every place we met, the local universities made meeting rooms, photocopying machines and secretarial assistance available to us without charge. We are most grateful to all these sponsors for their generous contributions. However, the most important support was provided by my colleagues, the members of the two Commissions, who without being paid for it gave their time and efforts for the cause. Holte, February 1999 Ole Lando

Members of the Commissions of European Contract Law

First Commission: Professor Hugh Beale (from 1987) Professor Alberto Bercovitz (from 1986) Professor Brigitte Berlioz-Houin (until 1986) Professor Massimo Bianca Professor Michael Joachim Bonell Professor 1. de Magelhaes Colla90 (from 1986) Professor Ulrich Drobnig Maitre Andre Elvinger Professor Dimitri Evrigenis (until 1986) Professor Roy M. Goode Professor Guy Horsmans Professor Roger Houin (until 1986) Professor Konstantinos Kerameus (from 1987) Professor Ole Lando Professor Bryan McMahon Professor Georges Rouhette (from 1987) Professor Denis Tallon Dr. lA. Wade Dr. Frans lA. van der Velden Professor William Wilson Second Commission: Professor Christian von Bar" Professor Hugh Beale, Professor Michael Joachim Bonell Professor Michael Bridge Professor Isabel de Magelhaes Collaco Professor Ulrich Drobnig Maitre Marc Elvinger, Luxembourg

xviii Members of the Commission of the Eurpean Contract Law Professor Arthur Hartkamp Professor Ewoud Hondius Professor Guy Horsmans Professor Konstantinos Kerameus Professor Ole Lando Professor Hector MacQueen Professor Bryan McMahon Professor Willibald Posch Professor Jan Ramberg Professor Georges Rouhette Professor Pablo Salvador Coderch Professor Matthias E. Storrne Professor Denis Tallon Professor Thomas Wilhelmsson.

CHAIRMAN OF THE COMMISSIONS:

Ole Lando

MEMBERS OF THE DRAFTING GROUPS:

First Commission: Hugh Beale (from 1987) Ulrich Drobnig Roy M. Goode Ole Lando Denis Tallon Second Commission: Hugh Beale Ulrich Drobnig Ewoud Hondius Ole Lando Denis Tallon

MEMBERS OF THE EDITING GROUPS:

First Commission: I. de Magelhaes ColIa