Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1
.pdf256 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m
and common usage contained in art. 288 AK. The consequence of the non-existence or collapse of the underlying basis of the transaction is, according to the prevailing scholarly opinion, applicable by analogy with art. 388 AK. This provision, one of the most forward-looking of the Greek Civil Code, provides for the dissolution or adjustment of a synallagmatic contract if an unforeseen change in circumstances, which has occurred after the conclusion of the contract, has destroyed the balance of the contract to the detriment of one of the parties. It is maintained27 that the other contracting party, here the shop owner, should be entitled to a reasonable compensation, a solution imposed by the rule of good faith (art. 288 AK).
Emmanuel’s mistake has found expression outside his inner world and is known to the vendor. Stathopoulos28 submits that in cases like the above where the mistake as to motive is not an inner personal matter of the mistaken person but concerns the other party (his quality as a professional is significant), the substantial criteria that justify annulment are met, since the mistake is objectified. Consequently, Emmanuel can seek the judicial annulment of the sale. He is however liable for the loss sustained by his contracting party but the award of damages cannot exceed the amount the other party would have received if the sale were valid (art. 145 AK).
As a result of judicial annulment the sale becomes void ab initio (art. 184 AK). This means that Emmanuel is obliged to return his title to the computer on the basis of unjust enrichment (arts. 904 ff. AK). The independent transfer agreement of the computer is not affected by the annulment of its cause, i.e. the promissory contract of sale.
Ireland
Under Irish law, Emmanuel’s claim lies against the shop where he bought the computer. This is a breach of contract arising out of Emmanuel’s mistake as to the terms of the purchase.
With regard to misrepresentation, it is possible that Emmanuel would have a claim where he can show the salesman, by his silence, led him to believe that one of the terms on which he was buying the computer was that it was still under guarantee. Where the courts agree that it was reasonable for Emmanuel to have such a belief, thereby making it an integral part of the agreement, he would be entitled to claim damages. However, as a rule, silence will not amount to misrepresentation with
27 Spyridakis, General Principles, p. 611. 28 Stathopoulos, Contract Law in Hellas, p. 104.
c a s e 6 : e m m a n u e l v. t h e c o m p u t e r s h o p |
257 |
the Irish courts tending to follow the decision of Smith v. Hughes29 in this regard.
Italy
Emmanuel has a slight chance of being successful against the seller. The relevant facts are the ‘non-disclosure’ by the computer store salesman and the fact that the ‘maintenance contract had expired before the sale’. There is however no duty to disclose and the salesman might not have known that the maintenance contract had expired. If liability is established, the computer shop will be liable for the act of the salesman.30
(i)This could be considered to be a case of fraud (dolo) using art. 1337 and arts. 1339 and 1440 of the Civil Code (duty of good faith in precontractual negotiations and negative fraud), but there are no precedents. Once again we have to deal with a negative fraud when there is nondisclosure of an element, which if it were known, would have induced the party to enter into a different kind of contract or, in this case, to buy another computer. Silence by itself does not mean fraud,31 unless there were a fraudulent concealment of true facts or breach of an explicit duty to inform required by law.32
(ii)This could also be considered to be the tort of negligence (Fatto illecito): the salesman has caused an injury by not correcting Emmanuel’s false statement thus making him liable for the harm caused (art. 2043 of the Civil Code). Using a very innovative approach33 we could say that we can derive from the new legislation’s rationale (protection of consumers) a new tortious liability that could fit into the open provision set out in art. 2043 (neminem laedere). If such a provision were applied, the seller would be liable for tortious damages but arguably the obligation to pay damages could be transformed in order to annul the contract by the application of art. 2058 of the Civil Code, providing for specific
29(1871) LR 6 QB 597.
30Article 2049 of the Civil Code provides for the vicarious liability of masters and employers for damage caused by an unlawful act of their servants or employees acting in the course of their employment.
31This statement could be found in a decision of the Trib. Verona, 18 November 1946, in Foro Pad., 1947, 199. The sale of a truck, without disclosing that it belonged to the State, was considered fraudulent and annulled.
32The Civil Code contains an explicit duty to disclose in arts. 1892--3 concerning insurance contracts.
33Sacco and De Nova, ‘Il contratto’, pp. 429--30; Bianca, ‘Il contratto’, pp. 614 ff., takes a position similar to Sacco.
258 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m
relief.34 The only cases that could be used in this latter approach are cases considering false information given by a company specialised in the collection of business information35 or by a journalist when the information in the newspaper damages someone’s reputation.
(iii) It may be possible to convince the court that the duty to behave in good faith (art. 1337 of the Civil Code) entails an obligation by one party to inform the other when the former discovers the other’s mistake. The same article can be considered as a basis for culpa aquiliana; the Italian giurisprudenza (case law) and legal theorists have considered the breach of precontractual duties as tortious liability, as under French law.36 Article 1337 is thus considered a specific example of the neminem laedere principle used by art. 2043 of the Civil Code. The Italian courts are open to creating new types of tortious liability. It could be easier for a court to take an innovative decision on the basis of the wide principle of ‘unjust harm’, than to create a new kind of negative fraud.
The Netherlands
Emmanuel’s only possible claims must necessarily be against the shop that sold him the computer. Whether there is non-performance by the seller of his obligations will depend on the facts. The computer may not be what Emmanuel was entitled to expect on the basis of the contract (non-conformity) in which case Emmanuel may resort to the remedies for non-performance (repair, replacement, withholding his own performance, termination and damages), subject to the requirements discussed in Cases 3 and 5, above. Also the seller may be under an explicit (depending on the conditions of the contract) or implied (i.e. heteronomous, based, for example, on good faith (art. 6:248 BW)37) obligation to help.
34Article 2043 Compensation for unlawful acts: ‘Any fraudulent, malicious, or negligent act that causes an unjustified injury to another obliges the person who has committed the act to pay damages.’
Article 2058 Specific redress: ‘The injured party can demand specific redress when this is wholly or partially possible.
The judge, however, can order that the redress be made only by providing an equivalent, if specific redress would prove to be excessively onerous for the debtor.’
35Cass 1984, n. 94.
36Sacco and De Nova, ‘Il contratto’, p. 255; Cass 4.10.1948, n. 1667, in GI, 1949, I, 1, 29; and nine other decisions up to Cass 11.5.1990, n. 4051, in FI, 1991, I, 184; the opposite solution similar to the German tradition, where precontractual liability is considered as a breach of a contract has been followed in Italy by Mengoni, in RDCo, 1956,
II, 365.
37See on this Hesselink, De redelijkheiden in het Europese privaatrecht, pp. 173 ff.
c a s e 6 : e m m a n u e l v. t h e c o m p u t e r s h o p |
259 |
Did the parties agree on the sale of a computer which was covered by a maintenance contract with the manufacturer? In that case there is another ground for remedies for non-performance: i.e. breach of the obligation to deliver a computer covered by a maintenance contract. This is a matter of interpretation (arts. 3:33 and 3:35 BW). When determining the proper interpretation of the contract, among other things, the fact that the seller remained silent when Emmanuel informed him he preferred to pay extra as he was acquiring the benefit of a proper maintenance contract, could be taken into account. In legal doctrine it is maintained by some authors that interpretation may go further. They accept a ‘normative’ method of interpretation which does not aim merely at determining which obligations the contract agreed on in the view of the parties (subjective interpretation) or of an outsider (objective interpretation) but on which obligations it would be fair to deduce from this contract in this particular case.38 Others regard this approach of so-called normative interpretation as fairly artificial.39 It would be more straightforward to recognise an obligation laid on the parties by the law (in fact: the courts) rather than to try to attribute it to the contract.40
Emmanuel probably can annul the contract for mistake. The seller knew that the buyer thought he was acquiring the benefit of a maintenance contract and that this was crucial for him. If the seller knew that the contract had expired he was under a duty to tell this to the buyer, especially if he presented himself as a quality shop and as a specialist (art. 6: 228 (1)(b)). Probably only the seller knew whether the maintenance contract had expired (the buyer probably was not in a position to find it out himself). This explains the seller’s duty to inform the buyer once he had become aware that the buyer was wrong on a point that he knew to be crucial to him.
Norway
The purchaser (Emmanuel) presumed there was a maintenance agreement with the purchase of the computer, which did not turn out to be the case. The question is whether the seller should have disclosed this. As
38J. M. van Dunné, Normatieve uitleg van rechtshandelingen (diss.) (Leiden, 1971), Verbintenissenrecht deel I, pp. 125 ff., H. Schoordijk, Contractenrecht (3rd edn, Deventer, 1997), Verbintenissenrecht pp. 21--43. Compare M. W. Hesselink, The New European Legal Culture, p. 16.
39See Asser/Hartkamp II (2001), no. 198 with further references.
40See Hesselink, De redelijkheiden in het Europese privaatrecht, pp. 131 ff.
260 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m
with property sales (see Case 4), a specific duty to inform rests upon the seller of the goods. The wording of this duty varies a little among Scandinavian countries, and is dependent on whether or not one is dealing with a consumer purchase.
(i)The duty to inform in Norwegian law has developed based partly on the theory of invalidity and partly on contract law.
(a)Section 33 of the Contract Act has been central to the invalidity-based duty to inform (see Case 2). Breach of this section leads to invalidity. We shall see below in (ii) that this could create some uncertainty in respect of the consequences of a breach of the legal duty to inform. However,
§33 of the Contract Act has not had great significance in legal practice. As regards professional business people, there has not been a single example of the use of § 33 in Supreme Court practice during the period 1945--91.
(b)The duty to inform has a much more important basis in contract law. It is generally accepted in Norway and the Scandinavian countries that a certain duty rests with the actual debtor to reveal ‘negative’ aspects of the item referred to in the contract. This duty is now regulated by law when, among other things, it concerns the purchase and sale of goods and property.
As a consequence of the EC Directive 1999/44 of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees, Norway passed a law relating to consumer sales in 2002 (Consumer Sales Act of 21 June 2002, no. 34). The law came into force on 1 July 2002.
This Act contains a general rule about the seller’s duty to inform, see
§16 (1)(b). Here it is stated:
The item has a defect if the seller at the time of the purchase has omitted to provide information about the condition of the item or its use which he ought to have been aware of and which the purchaser had reason to expect to be provided with, and if the omission can be assumed to have influenced the sale.
Three conditions for imposing upon the seller a duty of disclosure are listed. First, the seller ought to have been aware of the condition of the item or its use, secondly the consumer must have reason or expect to be provided with the information and finally the omission must be assumed to have influenced the sale.
(ii) In Sweden and Denmark the Contract Act, § 33, has, as a basis for the duty to inform, played an even more subordinate role than in Norway. It is primarily the contract-based duty of information which
c a s e 6 : e m m a n u e l v. t h e c o m p u t e r s h o p |
261 |
has attracted attention.41 The general Swedish Sale of Goods Act is, to a large extent, framed along the same lines as the Norwegian. There are, however, specific regulations pertaining to consumer situations, see the Consumer Sales Act (1990.932). The Act contains a specific regulation pertaining to the seller, cf. § 16, para. 3, no. 2. The regulation is generally framed in such a way that it applies irrespective of whether or not an ‘as is’ condition is present. It reads:
The item shall be considered defective if the seller prior to the purchase has neglected to inform the purchaser about a particular condition concerning the nature of the item or its use, which he knew or ought to have known of and which the purchaser could reasonably be expected to be informed about, providing the neglect can be seen as having influenced the purchase.
No duty of essentiality is stipulated. But failure to provide information about the condition must be assumed to have influenced the purchase (the requirement of hypothetical causality), and the purchaser must have had reason to expect to be provided with the information. It is further worth noting the normative character of the regulation. The duty to inform is applied if the seller knew or ought to have known of the condition.
(iii) The Danish Sale of Goods Act has incorporated specific consumer regulations into the general Sale of Goods Act, see §§ 72--86. In § 76, para. 12, we find, similarly to the Swedish Consumer Sales Act, a generally formulated regulation about the duty to inform on the part of the seller. The regulation reads as follows:
There is a defect in the sale item if the seller has neglected to provide the purchaser with information on conditions which may have had a bearing on the purchaser’s evaluation of the item and which the seller knew of or ought to have known of.
Even if there is a slight difference in wording between the Danish and Swedish regulations, it may be assumed that in respect to content they are closely related.
(iv) In the present case, the question arises as to whether Emmanuel’s misunderstanding regarding the existence of a maintenance agreement creates a duty to inform on the part of the seller. It is clear that the seller was aware of the suppositions of the purchaser and that this was a motivating factor for entering into the contract. The criteria of
41 See J. Hellner, TfR 1987.301, particularly pp. 307 ff.
262 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m
knowledge (‘ought to have been aware of’) and causality (‘be assumed to have influenced the sale’) are thus fulfilled.
The question that remains to be answered is whether the purchaser had reason to expect to be provided with the information. Normally a maintenance contract is of importance to a purchaser of computers. The seller was therefore under an obligation to inform Emmanuel of his mistake.
The obvious thing for Emmanuel to do would be to invoke the contractual duty of disclosure, and not the invalidity doctrine. Pursuant to § 36 of the Act he can terminate the contract unless the defect is characterised as inessential (not fundamental).
Portugal
This case can be analysed as a case of mistake by Emmanuel, as well as a case of fraud committed by the salesman.
(i)Emmanuel has made a mistake because he was convinced he was simultaneously acquiring the benefit of a proper maintenance contract which turned out to be untrue. Such a mistake constitutes a mistake related to the subject matter of the contract. As the salesman was expressly informed of the fundamental nature of the mistake in Emmanuel’s decision to purchase that computer at that price, Emmanuel will be able to obtain in court the annulment of the purchase, and the restitution of the price (arts. 251◦, 247◦ and 289◦ of the Civil Code).
(ii)This is also a case of fraud by the salesman. In fact, according to art. 253◦ of the Civil Code the non-disclosure of a mistake can be considered a fraud when there is a duty to inform according to the law, the contract or legal authority. Emmanuel would therefore be able to obtain the annulment of the contract based upon fraud (art. 254◦ of the Civil Code) and ask for the restitution of the price (art. 289◦ of the Civil Code). Legal writers state that according to the rules of culpa in contrahendo (art. 227◦ of the Civil Code), parties have a duty to behave in good faith during the negotiation and formation of the contract and among these duties is a duty of information, the breach of which constitutes fraud and liability for loss.42 Even if the salesman had no knowledge of the date on which the maintenance contract expired, he could be still liable in damages for not fulfilling his precontractual duty to inform. However, in this case
42See C. Mota Pinto, Teoria Geral do Direito Civil, p. 524 and M. Cordeiro, Da Boa Fé no Direito Civil, pp. 574 ff.
c a s e 6 : e m m a n u e l v. t h e c o m p u t e r s h o p |
263 |
Emmanuel could combine this with a claim to annul the contract for mistake but not for fraud.
Scotland
There is no remedy available to Emmanuel because, as was noted above, there is in general no duty of voluntary disclosure and misrepresentation is therefore not established by the non-disclosure of a fact by the seller. It would have been a misrepresentation had he either failed to reply or replied inaccurately to any question put to him by Emmanuel about the warranty.
Spain
This is a case of negative fraud, arising when the buyer opts for a more expensive model because this allows him to benefit from an appropriate maintenance contract and the seller deliberately conceals from the buyer the fact that the maintenance contract has already expired. There is no difficulty under current Spanish law to accept fraud by omission, also known as ‘negative fraud’ and the Supreme Court has, on many occasions, ruled that fraudulent conduct occurred when a party failed to speak or did not provide due warning.43
Because the seller’s failure to speak out was fundamental to Emmanuel’s acquisition, we consider that he should be able to annul the contract under art. 1301 of the Civil Code.
Comparative observations
This case, concerning a contract of sale between a professional and a consumer of a computer, an object which requires technical expertise after sale, focuses on an omission on the part of the seller at a decisive moment just before the sale. The seller’s omission, his silence, is characterised by some civil law systems as fraudulent concealment or a failure to inform his co-contractor of information which clearly induced the buyer to contract (namely the presence of an existing maintenance contract for the computer), whereas under the common law conception, silence is not remedied by the law and gives rise to no liability. Why then is silence to be treated oppositely, confirming here a presumption of divergence between civil law and common law conceptions of the law of contract? Nevertheless, despite this apparently striking
43 Rulings of 6/6/53, 20/1/64.
264 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m
difference, by comparing the whole range of remedies available, it transpires that contractual remedies may provide a complementary alternative for the aggrieved party, when defective consent remedies are interpreted more restrictively. Here a relative harmony of solution is achieved by very different means.
(i) First, the buyer can rely on a number of remedies for defective consent, namely mistake, fraud and the duty to inform. Relatively few countries prefer to rely on mistake but it has been admitted under Belgian and Portuguese law. In Greece, as an exception to the rule that a mistake as to motive is inoperative, the mistake is admitted since it was declared and known to the other party but the mistaken party must pay negative interest to compensate the seller for his losses. It may not be necessary to have recourse to this theory since under Greek law the mistake could be characterised as a common mistake as to the basis of the transaction -- a fundamental mistake -- sufficient to annul the contract. Interestingly, under Dutch law, the contract can be annulled for mistake but the mistake is characterised by the seller’s knowledge of the buyer’s reliance on the existence of the maintenance contract and his subsequent failure to inform the buyer of the truth (namely that the said contract has expired). This ground, qualified as mistake, looks more like a failure to inform than a more traditional version of mistake.44 A comparable legislative duty to inform, the object of consumer protection law in France and Belgium for example, is distinct from both mistake and fraud. Under Belgian law, for example, the duty gives rise to tortious liability, on the basis that breach of a statutory duty constitutes a delict (art. 1382 of the Civil Code).
Along the same lines, certain legal systems, namely France, Belgium, Germany, Greece, Portugal and Spain prefer to concentrate on the remedy of fraud. Fraud gives rise to both annulment and damages. Fraud can be characterised here as fraudulent concealment, a failure of the duty to inform, as in French, Belgian, German, Greek, Portuguese and Spanish law. German law requires that the silence had a decisive effect on the mistake in the buyer’s mind. Greek and Portuguese law explain the fraud in terms of a failure to disclose in accordance with good faith culpa in contrahendo rules. German law now conceives of the basis of good faith provision (§ 242 BGB) as a precontractual duty to inform. Exceptionally, in German law the lex specialis rule of contractual remedies is circumvented if the seller has assumed a special advisory duty
44 Compare in the same vein, art. 4:103 of the PECL.
c a s e 6 : e m m a n u e l v. t h e c o m p u t e r s h o p |
265 |
towards the purchaser in relation to advising him about the technical complexities of the subject matter of the sale. In the same vein, Italian law, although reluctant to admit a version of negative fraud, might admit precontractual liability on the basis of good faith, although it is suggested that this would work better as a specific example of a general tortious liability not to cause unjust harm (neminem laedere) than as a type of fraud. To conclude on fraud similes, Norwegian law provides an invalidity-based duty to inform under § 33 of the Contract Act but this suggested ground of action must be treated with caution since it has rarely been invoked in practice. The reason why Norwegian law has chosen not to use its invalidity-based remedy is that contractual remedies are a preferable alternative.
(ii) Once again, the same set of facts can be treated in a majority of countries under the head of contractual remedies for non-performance. Legal characterisation of the grounds of non-performance and the content of available remedies differ slightly. Under Austrian, German, English and Irish law the existence of the maintenance contract may be described as a condition or term of the contract, incorporated into the contract by the seller’s silence. Remedies are also available under Dutch law on the basis of non-conformity. More significantly, under Scandinavian law, a contractual remedy lies for failure of a duty to inform. This contractual duty to inform, which provides a high degree of protection for the purchaser, is found both in general contract law legislation and in specific consumer provisions. The existence of this duty is based on four cumulative conditions: (i) the seller must possess the knowledge; (ii) there is a lawful need to give the information, i.e. the purchaser can be reasonably expected to be provided with the information; (iii) the information can be expected to influence the sale, i.e. a requirement of causation; and (iv) the information is essential. This contractual duty to inform looks quite similar to a precontractual duty, if the causation condition is examined, for example.
This case exemplifies different attitudes of the law in relation to the silence of one of the parties to a contract. The case here is even stronger than in Cases 2 and 4, in the sense that a consumer sale for an expensive luxury good45 could be considered to be a relatively ordinary occurrence; the hypothesis is not far-fetched, on the contrary, it is highly plausible. These findings of a diverging underlying value towards silence raise a normative question: should the seller be under a duty to inform, i.e.
45 Some people might not consider a computer is a luxury good but a necessity!