Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)

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She may also claim for damages in accordance with § 1295 ABGB (see Case 4).

Belgium

Four remedies will be considered:

(i) The peculiarity of this case is that it does not only constitute a door-step sale4 but also, more specifically, an instalment sale as defined by art. 1,9◦ of the Consumer Credit Law. Article 87(g) of the law of 14 July 1991 provides that its provisions are not applicable to consumer credit door-step sales dealt with by consumer credit law. As a result, the time limit (seven working days after the contract has been signed) for cancelling the contract provided in art. 89 of the 1991 law does not apply here.

The relevant cancellation provisions are, in my view,5 to be found in art. 18 of the Consumer Credit Law,6 which gives the buyer similar, if marginally shorter, rights.7 Although there is some controversy over the interpretation of these provisions,8 this discussion is of mere theoretical

4A sale entered into outside the seller’s enterprise, according to the terminology used in arts. 86 ff. of the law on commercial practices and information and protection of the consumer of 14 July 1991.

5The history of the Consumer Credit Law (the so-called ‘travaux préparatoires’) also points in that direction: see Projet de loi relatif au crédit à la consommation, Documents parlementaires, Sénat, sess. 1990--1991, no. 916--2 (1989--90), pp. 92--3.

6Article 18 § 1. ‘Except for instalment sales and for leasing contracts, the consumer has the right to cancel the contract within a 7 working days time limit starting on the day of signature of the contract, when the latter has been entered into on the day when the [credit] offer became valid (. . .).

§2. The consumer has the right to cancel the contract within a 7 working days

time-limit starting on the day of signature of the contract, when the contract was entered into by both parties being present outside the enterprise of the lender or of the credit intermediary (. . .).’

7F. Domont-Naert, ‘ L’information du consommateur et l’obligation de renseignement dans la loi du 12 juin 1991’, Colloque CIEAU, 17 October 1991, Brussels, p. 67, no. 3.2 (reprinted in the review DA/OR); E. Balate, P. Dejemeppe and F. De Patoul, Le droit du

crédit à la consommation (Brussels, 1995), no. 241.

8P. Lettany, Het consumentenkrediet. De wet van 12 juni 1991 (Antwerp, 1993), no. 131; L. De

Brouwer, ‘Le délai de réflexion. Variations d’une protection dans les lois sur les pratiques du commerce et le crédit à la consommation’ in Formation permanente CUP. Pratiques du commerce (Liège, 1997), vol. xvi, pp. 121 ff., p. 135. (‘Sauf s’il s’agit d’une vente à tempérament (. . .), le consommateur peut exercer son droit de renonciation ‘pendant un délai de sept jours ouvrables à dater de la signature du contrat lorsque ce dernier a été conclu le jour à partir duquel l’offre est valable (. . .) ou lorsque le conclusion du contrat a eu lieu en présence des deux parties en dehors de l’entreprise du prˆeteur ou de l’intermédiaire de crédit.’)

value in the present case since it appears that the time limit (supposing that one applies) has already expired.

(ii)Estella was mistaken about a substantial quality of the pan: she thought she could use it on electric equipment whereas it was only suitable for a gas ring. Estella will however have to face two evidential obstacles in that she will have to prove that the substantial quality (that is fitness of the pan to be used on electric equipment) entered into the contractual field (see Case 1); and that her mistake was excusable.

Interestingly, in that respect, Estella might be in a better situation than if her contract had been governed by the law of 1991 since the latter provides that the contract must mention the precise description of the product along with its main characteristics: in that case, Estella would normally have been put on notice of the ability of the pan to work only on a gas ring and it would have been difficult for her to assert that the electric suitability of the pan entered into the contractual field and that her mistake was excusable. But here the contract does not need to describe the thing sold precisely: the instalment sale provisions of the Consumer Credit Law require a description of the financial aspects of the transaction but not of the thing sold itself.

(iii)Again, the issue of excusability will not normally be raised if Estella bases her action on fraud (see Case 1). Is it plausible to assert that Uriah Heep committed some fraudulent concealment in not drawing Estella’s attention to the fact that the thing offered was not suitable for use on electric equipment? Normally, a seller ought to provide information only about the so-called ‘normal use’ of the product9 but this should probably have included mentioning, even incidentally, that the pan is only fit for use on a gas ring. If Uriah Heep actually saw Estella’s kitchen it may not be feasible to raise the defence that he did not know that Estella’s equipment was all electric, but this will depend on the circumstances of the sale.

The fact that Uriah Heep arguably complied with the statutory requirements as to instalment sales will not normally have a negative impact on Estella’s claim because Belgian authors are generally favourable to a cumulative application of the general rules on defective consent protective of the consumer and specific consumer law provisions.10

9Merchiers & De Pover, ‘ La vente -- Les contrats spéciaux -- Chronique de jurisprudence 1988--1995’, no. 35.

10See, for instance, H. Cousy, Problemen van produktenaansprakelijkheid (Brussels, 1978), no. 191 who suggests that the policy underlying this position is to protect the consumer by offering him the greatest variety of actions.

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(iv)Estella can also bring an action against the seller for breach of guarantee of hidden defects (art. 1641 of the Civil Code). We have seen already that the concept of ‘functional defect’ comes very close to the notion of substantial defect. Indeed, a functional defect is one that affects the use that the purchaser intended, with the seller’s awareness (i.e. it must have ‘entered into the contractual field’), to make of the thing even if it does not intrinsically affect the thing itself (see Case 3). As the Cour de cassation has admitted that a hidden defect might be a functional defect, Estella might try to construct an argument under this head. The specific obstacles that she will have to overcome are that the alleged defect might be considered as apparent and the short time limit expressed in art. 1648 of the Civil Code may have expired.

Despite the presence of specialised consumer protection legislation, it would seem that the general rules (on defective consent or breach of contract) appear to be the most promising remedies although a favourable outcome is far from certain.

England

Two separate issues arise here: Estella’s remedies in relation to the unsuitability of the pan; and the loan. These must be addressed separately because the fact that the contract involves a credit facility means that additional statutory rules apply.

The first issue is whether there was (apart from the ‘small print’) any remedy arising from the unsuitability of the pan. The facts are not sufficiently explicit. It is not clear whether Uriah made any misrepresentation about the pan (if he did, the remedies for misrepresentation discussed under Case 1 -- rescission and/or damages -- will be relevant); or whether the pan could be held to be not ‘fit for any particular purpose for which the goods are being bought’ with the result that Uriah would be in breach of an implied term under the Sale of Goods Act 1979, s. 14(3) (which implies such terms into contracts of sale of goods entered into by sellers in the course of a business where the buyer has expressly or impliedly made known the purpose. It will therefore depend here on whether Estella made clear to Uriah that she needed a pan suitable for an electric cooker); or whether any express right to return the goods within a particular period was given in the contract (if so, she would have to exercise it within the given time period). If no right to reject the pan (or other remedy, such as damages) arose under any of these heads, then Estella has no remedy under the contract of sale. If, however, she did have such a remedy, the next question would be whether she had deprived herself of that remedy by signing the ‘small print’ which (it appears)

placed a time limit on the exercise of remedies. At common law11 the approach has been to say that a signature on a document containing terms is sufficient to incorporate the terms into the contract, whether or not the party has read them (and even where the other party knows that they have not been read). But there are statutory provisions which might prevent Uriah relying on the written terms. Any claim Estella may have for misrepresentation can only be restricted by the ‘small print’ if Uriah establishes that the restriction is reasonable;12 under the Unfair Contract Terms Act 1977,13 Uriah cannot exclude his liability for breach of the term implied by s. 14 Sale of Goods Act, and he cannot exclude his liability for other breaches of contract unless he establishes that the exclusion is reasonable;14 and under the Unfair Terms in Consumer Contracts Regulations 199915 any term which Uriah included in the ‘small print’ will not bind Estella if it is ‘unfair’ -- in the sense that ‘contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’. Depending on the precise details of the term in the ‘small print’ Estella’s remedies may therefore not be restricted, although this (together with the assessment of the ‘reasonableness’ of the term and whether it is ‘unfair’) depends on the facts.

Given the credit arrangements here16 there is a statutory regime, under the Consumer Credit Act 1974,17 which, in the case of a door-step

11L’Estrange v. F. Graucob Ltd. [1934] 2 KB 394. This has been strictly applied in England, although there are signs in other common law jurisdictions that the rule might not be so absolute: in Canada, for example, it has been held that where a car hire company held itself out as offering a speedy service and so knew that a hirer would not have the opportunity to read all the small print, the hirer was not bound by unusual terms: Tilden Rent-a-Car Co. v. Clendenning (1978) 83 DLR 3d. 400.

12Misrepresentation Act 1967, s. 3 (as replaced by Unfair Contract Terms Act 1977, s. 8).

13Section 6(2), since Estella is a ‘consumer’ within the meaning of the Act. If she were entering into the contract in the course of business, there would still be a restriction on the effectiveness of the ‘small print’ but then Uriah would have to establish that the exclusion of remedy was ‘reasonable’: s. 6(3).

14Section 3(2)(a). 15 Implementing Council Directive 93/13/EEC.

16The Consumer Protection (Cancellation of Contracts Concluded Away From Business Premises) Regulations 1987, implementing Council Directive 85/577/EEC, impose a cooling-off period of 7 days in the case of contracts for goods over £35 between a trader and a consumer following an unsolicited visit to the consumer’s home. However where, as here, there is a credit agreement governed by the Consumer Credit Act, the Act takes effect in place of the Regulations.

17Sections 67--73. For the purposes of this Act, the agreement must be a ‘regulated’ agreement: a credit agreement in favour of an individual, not exceeding £15,000. It is assumed that Uriah is both creditor and supplier of the goods (and therefore the contract is a ‘debtor-creditor-supplier’ contract within the meaning of the Act).

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contract where the price of the goods is greater than £35 (which we do not know here), requires the creditor to give the debtor a ‘cooling-off’ period during which she has the right to cancel both the credit agreement and the linked sale contract. A prescribed notice detailing, inter alia, the cancellation right must be given on the spot, when the contract is concluded; and a copy must be sent by post, within seven days. The consumer’s cooling-off period is 5 days from receipt of the posted copy. Estella’s right to cancel therefore depends on whether the documents supplied by Uriah complied with the Act, and whether the cooling-off period has now expired. If the prescribed notice was not served by Uriah within the period required by the statute, the cancellation right is prolonged indefinitely. If she has the right to cancel the credit agreement and the sale contract, Estella would have the right to refuse to pay, and to require Uriah to take back the pan.

France

The case of Estella is a typical example of door-step sale to a consumer. Two kinds of provisions concerning protection against vitiated consent are cumulatively applicable. Special protection is granted by the Consumer Law Code provisions which are to be added to the general remedies offered by the general law of contract for defective consent. Moreover, the whole field is subsumed under the doctrinal concept of the duty to inform.

(i) As far as the adequacy of a remedy provided by the Consumer Code is concerned, reference has to be made to arts. L121--21 ff.18 The Consumer Law of door-step protects individuals, to whom a seller (or his employee) pays a visit for selling purposes, to offer goods or services.19 These three requirements are satisfied in the case of Estella.

Moreover, the special protection against vitiated consent is guaranteed by a series of prerequisites, the absence of which gives rise to the annulment of the whole agreement. Among them certain information must clearly feature in writing in the contract (art. L121--23), including

18Statute of 22 December 1972 as modified by the law of 1989 and introduced in the Consumer Code in 1993.

19Article L121--21: ‘The provisions of the subsequent section are applicable to any person who sells or appoints to sell door to door to an individual, at his residence or place of work, even when asked, in order to offer him a purchase, sale, a lease, or a hire-purchase agreement of goods or services.’

a description of the item or service subject to contract, the payment facilities and the option to cancel.

In our case this would seemingly apply to the ability of the pan to be used only on a gas ring as the statute demands ‘a precise description of the nature or features of the proposed item or service’,20 the absence of one of the above-mentioned characteristics rendering the contract voidable.21 Besides, the remedy is available even if the cancellation option has expired.22 The formal requirement has been also interpreted by the courts as including a requirement of legibility, subject to the same remedy.23

Estella’s case does not at first sight satisfy any of these conditions for annulment. Although the documents are written out in ‘small print’, nothing really suggests that they are not legible (if they were then the contract could be annulled no matter the delay). It can be assumed on the facts that all the legislative provisions have been complied with.24

Focusing now on the key element of the statutory protection, i.e. the cancellation option, art. L121--25 offers a seven-day delay (not open to any agreed suppression or reduction) within which the client can retract his consent. Here too Estella will not be able to take advantage of it if Uriah Heep is right in saying that she has not returned the pan soon enough, the time limit being supposedly the statutory one.25

Thus it seems that Estella will not be able to avail herself of any protection provided by the Consumer Code. It is accordingly crucial to determine whether she could have recourse to the general provisions of the Civil Code for defective consent.

(ii) Actually and perhaps surprisingly26 the specific protection of the Consumer Code is not exclusive of the general protection of arts. 1109 and following of the Civil Code.27 Is an action based upon mistake

20Article L121--23, 4◦ .

21Cass Civ 1, 30 March 1994, no. 92--18. 179, See G. Lamy, Droit économique (Paris, 1998), no. 2765.

22CA Versailles: 1st division, 12 April 1996, MHT Case, Lamy cit. no. 338.

23Cass Com, 23 October 1984, D 1985.IR.74: pale grey ink on the back of the document, the contract was annulled.

24As she has signed ‘various documents full of small print’ presumably fulfilling the statutory requirements. If not, again the agreement is voidable and also the loan.

25Note that the delay is postponed by bank holidays: art. L121--25 cited.

26The relationship is indeed controversial -- the principle of specialia generalibus derogant could provide an argument for the opposite solution.

27CA Versailles, 8 July 1994, RTDCiv 1994.97, obs Mestre, granting a remedy based upon the general provisions of the Civil Code.

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doomed to failure? As already observed, to be actionable, it is not enough that the mistake must have induced the mistaken party’s consent; it is also necessary that the substantial quality concerned has entered the ‘contractual field’.28 In addition, the unfitness of the thing bargained for to achieve the desired end has to be inherent to the item itself, and must not result from the personal situation of the party concerned unless within the ‘contractual field’ (see also Case 4). Estella could claim she was so mistaken: she thought that she was buying a device which could be used on electric equipment in her kitchen when it was only suitable for a gas ring and this has implicitly entered into the contractual representations of the parties.

Nevertheless, the success of Estella’s claim will still depend upon two successive hurdles. First, she will have to defeat the seller’s allegation that the written provisions of the contract mention the ability of the pan to be used on a gas ring only. Secondly, the seller could allege that Estella had made an inexcusable mistake.29 In that respect Estella could perhaps rely on an a contrario interpretation of a decision of the Court of Appeal of Paris30 which held that ‘despite the clear provision of an advertising order, a confusion occurred in the client’s mind, such a mistake is not excusable on the part of a tradesman who is under an obligation to read the written or printed writing under which he lays his signature’. Conversely, the consumer’s mistake (as opposed to the professional tradesman’s) may not result from the sole fact that he did not read carefully all the documents that he has signed. Here the problem will boil down to the free assessment of the judges who may also take into account the circumstances of the door-step sale. Estella might thus show that her mistake was justified and the contract may be annulled.

(iii) Lastly, Estella might try to allege fraud. But this is unlikely to work as Estella would have to plead the seller’s fraudulent concealment. As already seen, fraudulent concealment depends in most cases on the prior existence of a duty to inform.31 The duty to inform has been incorporated in a specific duty in the Consumer Code.32 In that respect the Cour de cassation has decided that when the debtor under such a duty, i.e. Uriah Heep -- has fulfilled the statutory requirements, no fraudulent

28See Ghestin, La formation du contrat, nos. 500 ff.

29‘Mistake is a cause of nullity only if it is excusable’ Cass Soc, 3 July 1990, D 1991, 507.

30CA Paris 24 April 1984, RTDCiv. 1985, 572 obs. Mestre.

31Cf. Ghestin, La formation du contrat, nos. 571 ff. 32 See above pp. 290--91.

concealment can be claimed against him.33 The whole question would depend again on whether or not the statutory provisions have been fulfilled.

Germany

The more recent legislation on consumer protection which has in part been prompted by European Directives34 in this case offers Estella two possibilities to cancel the contract -- independently of her mistake concerning the use of the pan: according to § 1 of the Haustürwiderrufgesetz (HaustürWG: Law on Doorstep Sales)35 the customer (consumer) may in the case of a contract concluded away from the seller’s business premises, revoke his acceptance within a period of one week from when the contract was concluded. According to § 2 HaustürWG the period begins to run if the seller has distributed a ‘printed, clearly formulated, instruction of his right to revoke in writing’. Section 7 of the Verbraucherkreditgesetz (VerbrKrG: Law on Consumer Credit Arrangements) provides a similar right of cancellation.36 Because Estella and Uriah have agreed payment by instalments then under certain circumstances (§ 1 II and § 3 VerbrKrG) the Law on Consumer Credit Arrangements is also applicable to the contract of sale. Uriah replies in his defence that he had provided Estella with all the necessary contractual documents prescribed by statute. However, the facts of the case make reference to the ‘small print’ which could -- according to the way in which the contractual documents have been formulated -- infringe the requirements of clarity in § 2 of the Law on Doorstep Sales and § 7 of the Law on Consumer Credit Arrangements, thereby granting Estella a right of cancellation. Due to the fact that the case lacks sufficient evidence to support this claim such a possibility will not be considered.

(i)Estella might claim either for repair (i.e. exchange of the pans,

§§437 Ziff 1, 434 I, 439 BGB) or for termination of contract or reduction in the price (§§ 437 Ziff 2, 434 I, 440). But neither the pan’s normal

33Cass Civ 1, 14 of June 1989, Bull civ I, no. 240. JCP 1991 II, 21632 obs. Virassamy, Dalloz 1989, Somm. Comm. p. 338, Aubert.

34The German laws on consumer protection are as a rule older than the relevant Directives of the EC but it has been necessary to change certain details to bring them into line with these Directives.

35Gesetz über den Widerruf von Haustürgeschäften und ähnlichen Geschäften (Law on the Revocation of Doorstep Sales and Related Transactions) from 16.1.1986 (BGB1 I 122); corresponds to the Directive 1985/577/EEC (OJ 1985 L 372).

36Verbraucherkreditgesetz from 17.12.1990 (BGBl I 2840); corresponds to the Directive 1987/102/EEC (OJ 1987 L. 42).

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use nor its use as prescribed by the contract is impaired; it may be used without any problem with gas stoves. Even if Uriah must have known that Estella intended to cook on an electric stove the limited possibility to use the pan has not become a component of the contract. It is not apparent from the facts of the case that Uriah actually knew that Estella intended to use the pan with her electric stove. Therefore the pan that Uriah supplied is neither objectively nor subjectively defective. Accordingly, Estella is unable to enforce any guarantee claims.

(ii) According to Flume’s view of mistake relating to characteristics in business transactions, the conditions set out in § 119 II are only fulfilled if the properties of the corporeal object provided diverge from those which have been agreed in the contract. The courts substantially follow this view but not without allowing exceptions.37 However, in order to accept it as a ‘normally substantial quality’ they require that the party making the mistake ‘perceivably’ rooted the contract in his expectation of this quality being present.38 According to both views it would not be possible for Estella to annul for such a mistake. The pan’s suitability for use on electric stoves was neither made a condition of the contract nor did Estella make it clear at the conclusion of the contract that she intended to use the pan on an electric stove. Both Flume and the BGH would consequently classify Estella’s mistake as an insignificant mistake as to motive.

I have already criticised this view a number of times; it does not take into account the fact that the laws on mistake and warranty use different evaluations. To be sure, here as there the absent ‘quality’ occupies centre stage but the perspectives are different: in the law on warranty the principle of equivalent exchange is in the foreground whereas in the law on mistake the question concerns a party’s mistaken assumption or expectation. In practice, the fact that the party claiming annulment is liable towards the other party for the latter’s negative interest (§ 122) deters the mistaken party from annulling his declaration.

When assessing a mistake as to quality, it is more appropriate to draw upon the evaluation criteria contained in § 119 I. Estella can annul the contract of sale for the pans if her mistake relating to the use of the pans caused her to conclude the contract not only in her case (subjective) but also in the case of other purchasers (objective) and if she did not assume any particular risk concerning the use of the pans. The criterion that

37Especially well-known instances are the so-called ‘Baujahr-Cases’; cf. above at Case 5.

38BGHZ 88, 240, 246.

Estella’s mistake would also have proved substantial for other purchasers of the pans causes difficulties. This criterion helps to differentiate mere ‘mistakes as to motive’ from mistakes which may typically occur in the conclusion of such contracts. The assumption that the pan which Uriah sold can also be used on electric rings is not Estella’s exclusively subjective expectation; the mistake which Estella made may also induce other users of electric kitchens to enter into such a contract with Uriah. For this reason, Estella should be able to annul the contract of sale. That said, she must compensate Uriah’s negative interest (§ 122 I) if he could not have known of Estella’s mistake (§ 122 II).

(iii) Instead of annulling the contract, Estella may claim that Uriah compensate her negative interest in the case, if Uriah through his own fault failed to fulfil his duty in informing Estella that the pan’s use was qualified. Such a duty of disclosure will mainly be implied if Uriah was bound to have taken into account the fact that his customers use electric stoves.39 Assuming that Uriah has negligently breached such a duty of disclosure, when assessing his obligation to pay compensation it should also be considered whether Estella should have enquired whether the pan sold could also be used on electric rings. Uriah’s duty to inform and Estella’s duty to obtain further information therefore supplement each other: the sooner Uriah had to take into account that his customers use electric rings the sooner he comes under a duty to inform; vice versa, Estella is especially expected to obtain further information in the case where gas rings are mainly used in her area; she cannot therefore expect Uriah to provide clarification on this matter. However these two considerations are weighed up -- with regard to the actual circumstances -- Estella’s claim for compensation according to § 254 will either be reduced or fail altogether.

Greece

Greek law gives Estella several remedies. The contract which she has concluded with Uriah Heep falls under the scope of application of art. 3 of the L.2251/1994 for the protection of consumers who have concluded contracts outside business premises. A right to cancel without reason is provided by art. 3 § 4 which must be exercised within 10 working days from the delivery of the contractual document or the later delivery of the thing. If it is assumed that Estella’s statutory rights have expired,

39The predominance of gas ovens varies greatly both on a regional and national level; to my knowledge gas ovens are seldom used in Germany.