Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1

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the contract is valid as the fact that her rights were written in small print is not crucial.

(i)Estella can however ask for the termination of the contract on the grounds of a defect of the thing sold (art. 534 AK). Such a defect must be accepted because the quality of the pan as suitable only for gas appliances and not the usually used electrical ones affects its usefulness, in accordance with the content of the contract but also generally accepted views (subjective-objective theory). The defect is substantial. The question whether ‘the usefulness of the thing is eliminated or substantially diminished’ (art. 534 AK) will be judged on the basis of the usefulness that the parties intended. Finally, it is a matter of interpretation of the contract, which will be carried out with the use of the subjective and objective interpretative criteria of arts. 173 and 200 AK.40 This means that the pan, in the absence of express provision, must have the usual qualities of its category,41 i.e. it should be suitable for use on an electric stove, a perfectly normal feature of modern kitchens. Remedies under this head, actionable within six months of delivery (arts. 554 ff. AK) are alternatively termination, reduction of the purchase price or damages.42 Uriah Heep is not liable if he can show that Estella knew of the pan’s defect or that her lack of knowledge amounts to gross negligence. Negligence on Estella’s part cannot be established from the fact that it was written somewhere that the pan is only fit for gas rings and she did not read it before the conclusion of the contract.

(ii)Estella can also claim the annulment of the sale on the grounds of mistake as to the qualities of the thing (art. 142 AK). The two criteria, objective and subjective, of the fundamental nature of the mistake as to quality are satisfied here. With regard to the objective criterion, the quality of a pan as suitable for electric appliances is of importance for the whole legal act on the basis of good faith and common usage. The effects of annulment have already been discussed.43 If the pan has suffered harm because of the use Estella made of it she may be liable to pay negative interest damages to Uriah as owner of the pan (art. 145 AK).

(iii)Annulment on the grounds of fraud (art. 147 AK) could be sought only if Uriah Heep concealed the truth as to the pan’s qualities (a duty to inform must be established first) with the purpose of inducing Estella to conclude the sale.

40I. Spyridakis, and E. Perakis, Civil Code Law of Obligations. Special Part (Athens, 1978), AK 534 n. 6.

41Filios, Law of Obligations, Special Part § 5 A IV.

42See Cases 3 and 5. 43 See Case 2.

Ireland

It is necessary to ascertain whether Estella actually told Uriah Heep that she required a pan that would work on an electric cooker or whether Heep made a representation to her that the pan would work on such a cooker. If she did not make explicit her requirements to him, it may be that her right to redress is limited to a situation where the pan is actually defective. In such circumstances, the implied warranties under s. 39 and s. 40 of the Sale of Goods and Supply of Services Act 1980 come into play. If Estella bought the pan based on a misrepresentation by Heep that the pan was suitable for use on an electric cooker, Estella would be entitled to rescind the contract or sue for damages. However, she may have restricted her remedies by signing the small print in the contract. Irish law presumes that people understand the ‘small print’ of a contract and in Carroll (A Minor) v. Budget Travel (Unreported judgment of Morris J in the High Court), the fact that the mother of the infant plaintiff had failed to read the small print in the contract because such had not been explicitly brought to her attention did not render the contract inoperable. The court held that as a reasonable person, she should have read the small print and informed herself of the consequences of entering into the contract. Furthermore, the approach of the Irish courts has been that while clauses in a contract which exclude a party’s statutory rights are not permissible, clauses which limit those rights can be allowed. In Ireland, the issue as to whether such a term in a contract is fair is governed by common law principles and EU legislation in the form of the Unfair Terms in Consumer Contracts Regulations 1994.

A further possible method of redress for Estella arises under the Consumer Protection (Cancellation of Contracts Concluded Away From Business Premises) Regulations 1987. These apply where the value of the goods purchased is in excess of £35.00 and require a trader who deals with a consumer on foot in an unsolicited visit to the consumer’s home to give the consumer notice of her right to cancel the contract, which right can be exercised within seven days of the contract being entered into. If such notice was not brought to Estella’s attention however, she has a right to refuse to pay and hand the pan back to Uriah Heep.

Italy

This is a typical case of door-step sale,44 the new legislation provides the consumer with five days to make up his mind. Furthermore, in case the

44L. 7 June 1974, n. 216, DL 8 April 1974, n. 95, modified by the EEC Directive 89/298, enacted by the d.lg.vo 25 January 1992, n. 74, L. 29 December 1990, n. 428.

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five days have expired without notice of cancellation, Estella could take advantage of the consumer contracts regulations45 introduced in the Civil Code (arts. 1469 bis--1469 sexies). Following the EC Directive 93/13, the new regulations on unfair contract terms provide the consumer a way out from unfair terms46 (such as the one that fixes a shorter time limit for cancelling the contract); in other words, unfair terms are not considered as part of the contract, while the contract itself will stand in its fundamental provisions.

Moreover, Estella might find some grounds for recovery under the provisions of arts. 1519 bis--1519 nonies, recently introduced in the Italian Civil code by Dlgs 2/2/02 n. 24.

In fact, art. 1519 ter Civil Code imposes on the seller the obligation to supply the buyer with goods that conform with the contract. Goods do conform if two criteria are met: (a) they are fit for the purposes for which goods of the same description would ordinarily be used; and

(b) they possess the qualities necessary for their normal use. Thus, a saucepan is expected to be used on an electric stove if the seller does not mention the fact that the item might have a more restricted range of use than similar products have.

It follows that Estella could claim either for repair (i.e. exchange of the pans) or for termination of the contract or for a reduction in price (art. 1519 quater).

The Netherlands

Estella may terminate the contract on the basis of the statute on doorstep sales, and may probably also annul the contract on the basis of mistake.

This is a case of door-step selling to which the Colportagewet of 1973, which was adapted several times (amongst other reasons for the implementation of the Directive 85/577/EC), applies (see definition in art. 1). The general rules on door-step sale in the Colportagewet apply. Article 25 says that the buyer may unilaterally cancel the contract within 8 days

45The new section of the Civil Code has been enacted by art. 25 of L. 6.2.1996, n. 52.

46V. Roppo, ‘La nuova disciplina delle clausole abusive nei contratti fra imprese e consumatori’, RDC 1994, I, p. 277; R. Pardolesi, ‘Clausole abusive, pardon vessatorie: verso l’attuazione di una direttiva abusata’, RCDP 1995, p. 523; C. Alpa and C. M. Bianca, ‘Le clausole abusive nei contratti stipulati con i consumatori. L’attuazione della direttiva comunitaria del 5 aprile 1993’, 1995; G. Cian, ‘Il nuovo Capo XIV-bis del codice civile’ in Studium Iuris, 1996, pp. 415--16; G. De Nova, Le clausole vessatorie (Milan, 1995).

after the seller has registered his copy of the contract document at the Chamber of Commerce (Kamer van Koophandel) (cooling-off period).

Therefore, if registration has not been effected or the 8-day period has not yet passed Estella may cancel the contract unilaterally (art. 5 Colportagewet). Therefore Uriah’s claim for payment of her first monthly instalment on the loan (and any other claims based on the contract) will fail. It also means that if she has paid some money, this becomes retrospectively undue. She can claim the money back on the basis of art. 6:203 BW (onverschuldigde betaling). The right to claim her money back cannot be limited in the contract (art. 3, s. 5, Colportagewet).

In the event that the cooling-off period has already expired, Estella can only rely on the following remedies.

(i) Estella made a mistake. She thought that she could use the pan she bought, whereas she could not, since, as she later discovered to her cost, the pan could only be used on a gas ring and her kitchen was entirely electric. Apparently the seller did not tell her that the pan could only be used on a gas ring. Was he under a duty to do so? If he was, Estella may annul the contract for mistake (art. 6:228, s. 1 sub. b BW).47 She then should do so within 3 years after she discovered her mistake (art. 3:52 BW). Was the seller under a duty to inform the buyer that the pans could only be used on a gas ring? In this case there are several circumstances that point towards such a duty. First, the seller was a professional and the buyer a consumer.48 Secondly, the pan was sold at the door step and therefore the buyer was ill-prepared and was not in a position to ask the right questions immediately. Finally, today it is quite normal to have an electric, induction or other hob; a seller can therefore be expected to warn the buyer. Although not certain, it seems likely that a Dutch court would allow Estella to annul the contract for mistake. This would have the same (retrospective) effects as termination under the Colportagewet discussed above.

Uriah argues that Estella’s statutory rights were written out in the documents he had supplied, and that, as she had not returned the pan within the period indicated, she could no longer cancel the sale. Upon one interpretation of the facts, this could be taken to mean that the

47It should be noted that the Colportagewet should not be regarded as a lex speclialis of the doctrine of mistake. If it were so, on the basis of the principle lex specialis derogat legi generali, Estella would not be able to invoke the doctrine of mistake.

48Some authors hold, on law and economics grounds (efficiency), that a seller should in principle be under an obligation to inform the buyer with regard to the qualities and characteristics of the object he is selling. Cf. Barendrecht.

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document actually includes a limitation of the right to invoke annulment for mistake. If the latter is the case the question arises whether such a limitation is valid, particularly if the ‘various documents full of small print’ are in fact general conditions in the sense of arts. 6:231 ff. BW in which case it may be contrary to good faith (arts. 6:2, s. 2, and 6:248, s. 2, BW) to invoke the limitation in the circumstances of this case.49 However, the facts do not allow us to pursue the discussion any further.

The Wet op het consumentenkrediet of 1990, which has been adapted several times, among other reasons for the implementation of the Directive 85/577/EC, is not of any help to Estella. As far as this statute is concerned this is a valid contract and the statute does not provide a cooling-off period similar to the one in the statute on door-step sale.50

(ii) Article 7:17, s. 1, BW says that ‘the thing delivered must conform to the contract’ (conformity). Section 2 says when this requirement is not met:

A thing does not conform to the contract if it does not possess the qualities which the buyer was entitled to expect on the basis of the contract. The buyer may expect that the thing possesses the qualities necessary for its normal use, the existence of which is not open to doubt, and the qualities necessary for any special use provided in the contract.

This requirement does not seem to have been met, since the pan does not have the qualities that are necessary to allow an ordinary use of it. Estella was not expected to doubt that it would be possible to use the pan on an electric ring. Therefore Estella can terminate the contract (art. 6:265 BW).

However, the buyer must make his claims based on non-conformity within a reasonable delay (‘binnen bekwame tijd’) (art. 7:23 BW). It is unclear on the facts exactly when Estella protested and therefore it is difficult to establish whether she did so within a reasonable time. If she did so within days or few weeks she will probably not have lost her claim.

(iii) As suggested earlier, if the documents where her rights were written are to be regarded as general conditions in the sense of arts. 6:231 ff. BW, which seems likely since they seem to be meant to be used in

49Cf. Asser/Hartkamp II (2001), no. 195.

50This was a deliberate choice by the legislator. Cf. N.J.H. Huls, Wet op het consumentenkrediet (Deventer, 1993).

contracts with others as well,51 they cannot limit her right to terminate the contract. Clauses which limit a party’s right to terminate the contract for non-performance are on the so-called black list. All the clauses on that list are deemed to be unreasonably onerous.52 And unreasonably onerous clauses can be annulled on the basis of art. 6:233 (a) BW.53

Norway

In the present case, the product does not meet the purchaser’s intended area of use, namely on an electric stove. Assuming that the seller (Uriah Heep) was unaware of the purchaser’s misunderstanding, the question regarding the placing of the risk must be decided by purely objective criteria.

The Sale of Goods Act, § 17 (2)(a) reads: ‘Except as otherwise provided by the contract, the goods shall be fit for the purposes for which goods of the same description would ordinarily be used.’54 In other words, the seller carries the risk that the item might have a more restricted range of use than similar products have. A saucepan can normally be used on an electric stove (at least in Norway where electricity is the common source of power). If neither its shape nor other characteristics made it reasonably clear that its area of use was restricted to gas stoves, there is a defect in the item. The regular remedies for defect could, therefore, be applied. In the present case, termination of contract seems appropriate. Limitations to the purchaser’s rights cannot be agreed on when it comes to a consumer sale.55 An agreed timeframe for termination of contract is, therefore, invalid.

51Cf. the definition in art. 6:231 BW: ‘In this section: a. general conditions mean one or more written stipulations which have been drafted to be included into a number of contracts, with the exception of stipulations going to the essence of the prestations.’

52Article 6:236 sub b, says ‘In a contract between a user and the other party, where the latter is a natural person not acting in the course of a business or profession, the following stipulations contained in general conditions are deemed to be unreasonably onerous: (. . .) b. a stipulation limiting or excluding the other party’s right to set aside the contract, as provided for by section 5 of title 5.’

53Article 6:233 BW: ‘A stipulation in general conditions may be annulled: a. if it is unreasonably onerous to the other party, taking into consideration the nature and the further content of the contract, the manner in which the conditions have arisen, the mutually apparent interests of the parties and the other circumstances of the case;

b. (. . .).’

54Similar regulations are found in the Swedish Sale of Goods Act, § 17, para. 2, no. 1 and the Swedish Consumer Sales Act, § 16, para. 2, no. 1. A similar regulation must be assumed to apply in Danish laws relating to the sale of goods.

55See the Norwegian Sale of Goods Act, § 4(1), the Swedish Consumer Sales Act, § 3, and the Danish Sale of Goods Act, § 1, para. 2.

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From the information given, it appears that the transaction concerns a sale on credit terms. Even if a person other than the seller gives the credit, or the seller has transferred the claim, the purchaser could claim his losses from the third person, cf. the Norwegian Sales on Credit Terms Act, §§ 8 and 8 (a).56

Portugal

This is a door-to-door sale contract governed by a law implementing the EU Directive 97/7. Article 18◦ of DL 143/2001 of 26 April 2001 gives the consumer fourteen working days to cancel the contract without giving a reason.

As far as the general rules of mistake are concerned, there is also a possibility for Estella to obtain the annulment of the sale because there is a mistake related to the object of the contract concerning the qualities of the thing purchased (error in qualitate). To obtain the annulment of the sale, Estella would have to prove in court that she would never have bought the steam-operated pans if she had known they only worked on gas rings (the fundamental nature of the mistake) and that Uriah Heep knew or should not have been unaware that the sale would never happened, if she had knowledge of these facts (arts. 251◦ and 247 of the Civil Code).

The use of general clauses, classified as unfair terms, by the seller is relevant to the extent that Portuguese regulation of such general clauses (DL 446/85, of 25 October 1985 and DL 220/95, of 31 August 1995) establishes special duties to disclose and inform on the party who uses this kind of clause (arts. 5◦ and 6◦). If the seller has not fulfilled his duty imposed by law, the clauses will be deemed void (art. 8◦).

Scotland

I believe Estella’s remedy is more likely to lie in statute than the common law of mistake in contract. She has had a mistaken belief as to how the ‘steam-operated pan’ can be used. It is possible that this could be classified within Bell’s ‘mistake as to the quality of the thing engaged for’. However, to succeed she would need to show that the wording of the documents that she signed was wide enough to allow her to hold this belief. If they stated that the pan could only be operated on gas or some other indication that electricity was not suitable then the fact that

56The Act relating to Sales on Credit Terms etc. of 21 June 1985, no. 82. Similar legal regulations are to be found in Danish and Swedish laws relating to such sales.

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that the duration of the relevant cooling-off period for Estella would be from the date of signing the documents until the fifth day after she is given notice of her right of cancellation. The facts do not state the time elapsed, but if Estella is still within her statutory period then, regardless of the interval prescribed by Uriah, Estella could cancel the credit agreement.

Lastly, Uriah stated that the documents contained notice of all Estella’s statutory rights. Further, as the contract was executed by Estella on it being presented to her she should have been furnished with a copy of the agreement immediately. If these formalities58 were not complied with then the credit agreement is unenforceable by Uriah and Estella can withhold payment of the instalments.

Therefore although Estella may have recourse to the common law of mistake in contract her remedies are most likely to lie in the Unfair Contract Terms Act 1977 and the Consumer Credit Act 1974. The 1977 Act would apply if Uriah is relying on an exemption clause which is not reasonable. The 1974 Act establishes the procedure that must be followed before the consumer credit contract could be enforced against Estella.

Spain

The contract of sale between Estella and Uriah concluded outside business premises is governed by the Law No. 26 of 21 November 1991. The Act was the upshot of Directive 85/577/EC and extends protection for consumers. It regulates the formal requirements for such contracts and even grants consumers the right to cancel without giving a reason within seven days of the contract’s conclusion (art. 5). The formal requirements are set out in art. 3 (e.g. the contract must be in writing and include the right to cancel); if these are not complied with art. 5 of the Act provides that the contract can be cancelled on the consumer’s initiative. Estella signed a number of documents, possibly including the cancellation option. However, the facts state that the information was written in small letters so that the requirement in art. 3 for a clear and precise reference to the right of cancellation appears not to have been met. In addition, if Uriah Heep did not deliver a copy of the contract to Estella she would be entitled to annul the contract, since non-compliance renders the contract void (art. 1301 of the Civil Code).

58Section 65 of the Act requires that the documents also contain all the terms of the agreement, follow the prescribed form and be duly executed.

However if Uriah had complied with all the requirements of the 1991 law, it would be unlikely that Estella might have the sale contract annulled based on a defect of consent, since her mistake cannot be qualified as excusable. It is inexcusable since had she acted diligently, she would have read the terms of the sale contract which she signed. It stated the terms for use of the product and the deadlines granted to the buyer to cancel the contract. However, she acted with very little diligence and did not read the contract she had signed: furthermore, the deadline indicated in the contract for cancellation has passed. As a result, her conduct cannot at any stage be considered excusable.

According to case law, mistake as a defect of consent must be dealt with particularly carefully and as an exception in the interests of legal certainty. Spanish law would not treat Estella’s behaviour with much indulgence.

Comparative observations

This case puts to the trial the overlap between general remedies for defective consent and consumer legislation inspired by European Directives.

Total harmony is thus achieved through the operation of the transposition of European Directives on door-step sales. In all countries automatic cancellation is granted as a result of a cooling-off period which entitles the buyer to cancel the contract within a short period of 7 days (subject to minor variations of little interest) from receipt of the contract.

Application of the consumer legislation works on two levels; first, has the statutory cancellation period expired? Assuming it has, the next step is to examine whether any other of the law’s provisions may be of help: briefly these may be summarised as the duty to provide certain necessary information, the use of small print and the impossibility of limiting termination and other such protected rights, which would amount to unfair contract terms. It is therefore important to ascertain whether the seller was under a statutory duty to provide the crucial information about the pan’s suitability on gas rings only. It appears, as a matter of interpretation, that the statutory duty to inform may not descend to this level of detail and the question is rendered more complex by the additional application of legislation relating to consumer credit as well as door-step sales. For the sake of argument it will be assumed that statutory compliance is not an issue, since this highlights the overlap with general remedies more acutely.