Contract

41.Treating like alike. The most obvious manifestation of this aspect of justice in the DCFR is in the rules against discrimination69 but it is an implicit assumption behind most of the rules on contracts and contractual obligations that parties should be treated equally by the law unless there is a good reason to the contrary. The big exception to the rule of equal treatment is that there are situations where businesses and consumers are not treated alike. This has been mentioned already and is discussed further below. The “equality” aspect of justice also surfaces in a rather different way in the notion that if both parties have obligations under a contract what goes for one party also goes for the other. This idea – sometimes called the principle of mutuality in contractual relations. – appears, for example, in the rule on the order of performance of reciprocal obligations: in the absence of any provision or indication to the contrary one party need not perform before the other.70 It also appears in the rules on withholding performance until the other party performs71 and in the rules allowing one party to terminate the relationship if there is a fundamental non-performance by the other,72 although the primary explanation for these rules is the need to provide effective remedies to enhance contractual security. A further example of the “equality” aspect of justice can be seen in the rules on a plurality of debtors or creditors: the default rule is that as between themselves solidary debtors and creditors are liable or entitled in equal shares.73

42.Not allowing people to rely on their own unlawful, dishonest or unreasonable conduct. There are several examples of this aspect of justice in the DCFR provisions on contract law. A recurring and important idea is that parties are expected to act in accordance with good faith and fair dealing. For example, a party engaged in negotiations has a duty to negotiate in accordance with good faith and fair

69II. – 2:101 to II. – 2:105 and III. – 1:105.

70III. – 2:104.

71III. – 3:401.

72III. – 3:502.

73III. – 4:106 and III. – 4:204.

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dealing and is liable for loss caused by a breach of the duty.74 For later stages in the relationship it is provided that:

A person has a duty to act in accordance with good faith and fair dealing in performing an obligation, in exercising a right to performance, in pursuing or defending a remedy for non-performance, or in exercising a right to terminate an obligation or contractual relationship.75

A breach of this duty does not in itself give rise to a liability to pay damages but may prevent a party from exercising or relying on a right, remedy or defence. The Principes directeurs say that “Each party is bound to act in conformity with the requirements of good faith and fair dealing, from the negotiation of the contract until all of its provisions have been given effect”.76 They also have an additional provision on performance: “Every contract must be performed in good faith. The parties may avail themselves of the contractual rights and terms only in accordance with the objective that justified their inclusion in the contract.”77 Taken together, these provisions are slightly wider than those of the DCFR but whether there would be much difference in practical effect may be doubted.

There are many specific provisions in the DCFR which can be regarded as concretisations of the idea that people should not be allowed to rely on their own unlawful, dishonest or unreasonable conduct. An example is the rule that the debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps.78 Another recurring example is in the requirements to give reasonable notice before certain steps are taken which would be harmful to the other party’s interest. And there are several rules which allow a person to rely on an apparent situation only if that person is in good faith.79 The rules on

74II. – 3:301 (2) and (3).

75III. – 1:103.

76Art. 0-301 (General duty of good faith and fair dealing).

77Art. 0-302 (Performance in good faith).

78III. – 3:705.

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voidable contracts, even if their primary purpose is to ensure that a party can escape from a contract concluded in the absence of genuine freedom to contract, often have the incidental effect of preventing the other party from gaining an advantage from conduct such as fraud,80 coercion or threats.81

43.No taking of undue advantage. This aspect overlaps with the last one. The most explicit recognition of this aspect of justice in contract law is the rule which allows a party, in carefully specified circumstances, to avoid a contract on the ground of unfair exploitation if the party was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, or was improvident, ignorant, inexperienced or lacking in bargaining skill. It is necessary that the other party knew or could reasonably be expected to have known of the vulnerability and exploited the first party’s situation by taking an excessive benefit or grossly unfair advantage.82 Again, it is clear that the rule also has the function of ensuring that the victim of the exploitation can escape from a contract concluded in the absence of genuine freedom to contract.

44.No grossly excessive demands. This aspect of justice is reflected in a number of rules which qualify the binding effect of contracts. It is recognised in the rule which regards non-performance of an obligation as excused (so that performance cannot be enforced and damages cannot be recovered) if the non-performance is due to an impediment beyond the debtor’s control and if the debtor could not reasonably be expected to have avoided or overcome the impediment or its consequences.83 It lies behind the rule allowing contractual obligations to be varied or terminated by a court if they have become so onerous as a result of an exceptional change of circumstances that it would be “manifestly unjust to hold the debtor to the

79See e. g. II. – 6:103(3) (Apparent authority of representative); II. – 9:201(Effect of simulation) paragraph (2).

80II. – 7:205.

81II. – 7:206.

82II. – 7:207.

83III. – 3:104.

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obligation”.84 It is the basis of the rule that performance of an obligation cannot be specifically enforced if it would be unreasonably burdensome or expensive.85 And it appears in the rule that a stipulated payment for non-performance can be reduced to a reasonable amount where it is “grossly excessive” in the circumstances.86 It is clear, however, that this aspect of justice has to be kept within strict limits. The emphasis is on “grossly”, and the oft-repeated warning that principles conflict and have to be balanced against each other is particularly apposite here. There is nothing against people profiting from a good bargain or losing from a bad one. The DCFR does not have any general notion that contracts can be challenged on the ground of lesion. This is explicitly illustrated in the rule excluding the adequacy of the price from the unfairness test in the part of the DCFR dealing with unfair contract terms.87

45.Responsibility for consequences. This aspect is most prominent in Book VI on non-contractual liability arising out of damage caused to another but it also surfaces in Book III. For example, a person cannot resort to a remedy for non-performance of an obligation to the extent that that person has caused the non-performance.88

46.Protecting the vulnerable. Many of the qualifications on freedom of contract mentioned above can also be explained as rules designed to protect the vulnerable. Here we consider some other examples. Within the DCFR the main example of this aspect of justice is the special protection afforded to consumers. This appears prominently in the rules on marketing and pre-contractual duties in Book II, Chapter 3; on the right of withdrawal in Book II, Chapter 5; and on unfair contract terms in Book II, Chapter 9, Section 4. It also appears prominently in the parts of Book IV dealing with sale, the lease of goods and personal security.89 Often the protection takes the form of

84III. – 1:110.

85III. – 3:302.

86III. – 3:710.

87II. – 9:407(2). The exclusion applies only if the terms are drafted in plain and intelligible language.

88III. – 3:101(3).

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recommending that, in a contract between a business and a consumer, it should not be possible for the parties to derogate from particular rules to the detriment of the consumer. Most of the consumer protection rules in the DCFR come from the acquis. They are, in substance if not in actual wording, part of EU law and of the laws of Member States and seem likely to remain so. The “consumer” is defined as “any natural person who is acting primarily for purposes which are not related to his or her trade, business or profession”.90 Whether the notion of the consumer is necessarily the best way of identifying those in need of special protection is a question which has been raised and will no doubt be raised again. Some argue that small businesses or “non-repeat players” of any kind may be equally in need of protection. However this question may be answered in the future, the point remains that the protection of those in a weak or vulnerable position can be considered an aspect of the underlying principle of justice within the DCFR. Another example in the DCFR is that some of the rules on contracts for the provision of treatment services (medical and other) afford special protection to patients.91 And yet other examples are the protections afforded to the debtor when a right to performance is assigned92 and the protections afforded to non-professional providers of personal security.93 Both are in an inherently exposed position. People presented with standard terms prepared by the other party are also in a vulnerable position in practice, whether or not they are consumers, and there are rules in the DCFR to protect them.94 Of a rather similar nature is the rule that in cases of doubt an ambiguous term which has not been individually negotiated will be interpreted against the person who supplied it.95

89See e. g. (for sale) IV. A. – 2:304, IV. A. – 2:309, IV. A. – 4:102, IV. A. – 5:103, IV. A. – 6:101 to IV. A. – 6:106; (for the lease of goods) IV. B. – 1:102 to IV. B. – 1:104, IV. B. – 3:105; IV. B. – 6:102; and (for personal security) IV. G. – 4:101 to IV. G. – 4:107.

90I. – 1:105(1).

91IV. C. – 8:103; IV. C. – 8:104; IV. C. – 8:106; IV. C. – 8:108; IV. C. – 8:109(5); IV. C. – 8:111.

92III. – 5:118 and III. – 5:119.

93See in particular IV. G. – 4:101 to IV. G. – 4:107.

94II. – 9:103, II. – 9:405 and II. – 9:406.

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