The Structure and the Salient Features of the Principles of European Contract Law
| Author | Ole Lando |
| Pages | 4-15 |
Ole Lando
The Structure and the Salient Features of the Principles of European Contract Law
This is the first time I address an audience in a Baltic country on the Principles of European Contract Law. I am very pleased and very honoured.
I shall first tell you why the Principles were made and who made them. Then I shall address what they contain, their scope style and technique, and finally some of their salient features.
The European Union of today is an economic community. Its purpose is the free flow of goods, persons, services and capital. The Union is based on these four flows. They go by way of contracts. To make the flows go easily it should be made simpler to conclude contracts and to calculate contract risks.
The contract laws of the Union countries differ considerably. Anyone doing business in Europe knows that a foreign law will come to govern some of his contracts with foreign partners. The unknown law of the foreign countries is therefore one of his risks. They are often difficult for him and his local lawyer to understand. They make him feel insecure, and may keep him away from foreign markets in Europe. Thus, the existing variety of contract laws in Europe is a non-tariff barrier to trade.
It is the aim of the Union to do away with restrictions of trade within the Communities, and therefore the differences of law, which restrict this trade, should be abolished.
In the last decades there have been important developments of what may be called the EU contract law. Most significant is the unification of the law of consumer contracts by way of directives. In this way the Union has provided some harmonisation. However, it is only fragmentary. It tends to vary in its level of detail and is often unpredictable in terms of its contents. In addition it is not well co-ordinated, and since the national laws of contract are very different, it causes problems when it is to be adjusted to the various national laws. There is no European law of contract to support these specific measures.
The Principles are intended to become part of a future European Civil Code. They may also serve other purposes. They will apply when the parties have agreed that their contract is to be governed by them. They may be applied when the parties have agreed that their contract is to be governed by the "general principles of law", the lex mercatoria or the like, or when the parties have not chosen any system or rules of law to govern the contract, see article 1:101 (2). Parties to an international commercial contract often agree that disputes which may arise between them shall be submitted to arbitration. When doing so they also often agree that the contract is to be governed by the lex mercatoria i.e. the international customs and usages of international trade, the rules which have been established for this purpose, such as the PECL or the UNIDROIT Principles, and the rules of law which are common to most of the States engaged in international trade or to the States connected with the dispute.
Finally the PECL may help national legislatures that wish to reform their contract law. It is our hope that the Principles may be a source, which the legislators of the Baltic Countries may use.
Since 1982 the Commission on European Contract Law (CECL) has been working to prepare the Principles of European Contract Law (PECL). The CECL has not been appointed by any government or international authority. It has appointed itself. The present 23 Members of the CECL come from all the states of the EU. They have been selected for their independence and have not promoted any governmental or commercial interests. A large majority of the Members have been academics but many of the academics have also been practising lawyers.
The Principles were published in 19991. The first chapter contains general rules on the scope and application of the Principles. The next chapters deal with the formation of the contract, that is the agreement between the parties, the authority of an agent to bind his principal, the validity of the contract, which is mostly about defects in the consent such as mistake, fraud, and duress, the interpretation, the contents and the performance of a contract. The final chapters treat breach of contract, which we call non-performance, and the remedies for non-performance such as damages and termination.
The articles drafted are supplied with comments that explain the operation of the articles. In these comments there are illustrations, ultra-short stories which show how the rules will operate in practice. Furthermore, there are notes, which tell of the sources of the rules and state the laws of the Member States.
In 1997 the CECL began to draft additional rules, many of which are common to contracts, torts and unjust enrichment, such as plurality of creditors and debtors, assignment of debts and claims, set-off, and prescription and some other outstanding issues. We finished this part in February this year, and it will be published when edited, probably in 2003.
The Study Group of a European Civil Code, which is established under the leadership of Professor Christian von Bar, is a continuation of this work. The general principles of the law of contracts provided in the PECL will be integrated in what will eventually become a European Civil Code. The Code will deal with obligations, that is contracts, torts, unjust enrichment and negotiorum gestio, and with the law of movable property, which includes transfer of title and secured transactions, such as retention of title and mortgages. It will not be a Code in the traditional continental sense. Family law and the law of succession will not be included.
The rules of the Civil Code will not only apply to international trade transactions within Europe; they are to be applied equally to purely domestic transactions.
The PECL, which deal with the general law of obligations, do not make special provision for consumer contracts. On the other hand, the PECL are not confined to commercial relationships but are intended to apply to contracts generally, including contracts between merchants and consumers.
An attempt has been made to draft short rules, which are easily understood by the prospective users of the Principles, the practising lawyers and business people. As the authors of CISG we tried to avoid legal concepts and used a factual language, which is easier to translate.
The rules drafted are broad principles, not rules that go into details. Broad principles claim a broad interpretation. Like the rules of CISG those of the PECL give room for development and flexibility. Article 1:106 provides that "these Principles should be interpreted and developed in accordance with their purposes", and that "issues within the scope of the Principles but not expressly settled by them are as far as possible to be settled in accordance with the ideas underlying the Principles." This is the approach generally adopted by the Continental courts. Flexibility will ensure the continuity and stability of a European civil code.
This is a basic principle in the laws of all countries. The legislators and courts stick to it with vigour. A contracting party must be able to rely on the contract and exercise the freedom and rights granted to it under the contract. The CECL considered it to be so obvious that it was not stated in a special rule in the PECL. It is, however, implied in several articles, including article 1:102 on freedom of contract and article 6:111 (1) on change of circumstances which provides that a party is bound to fulfil its obligations even if performance becomes more onerous.
Most contracts provide that one party shall pay a sum of money for the goods or services it has purchased and the other party shall deliver the goods or perform the services. If one party fails to perform, can the other request performance?
A creditor may require performance of a contractual obligation to pay money. He can tender his performance to the other party and then claim the price. The rule generally applies even if the buyer later discovers that he does not want performance. Most continental systems have no restrictions on claims for payment of the price. However, experience gained seems to indicate that there should be exceptions to the rule. If the supplier has not yet performed and the buyer repudiates the contract and he can show that the supplier has no legitimate interest in performing, the supplier's action should be confined to one for damages2. The underlying consideration is that a debtor should not have to pay for an undesired performance in cases where the creditor can easily make a cover transaction and in other cases where it would be unreasonable to oblige the debtor to pay the price. The latter occurs in construction contracts in which the contract or part of it has not yet been performed, and the owner makes it clear that he does not desire performance and is...
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