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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argument were to be accepted, the contract could be annulled on the basis of art. 1116 of the Civil Code (see Cases 2 and 6 for examples).

Could it be argued therefore that Mary was under an obligation to disclose the fact that she was guilty of misconduct? The argument is both plausible -- in terms of the duty of cooperation between employer and employee -- and preposterous. It is thus perhaps more reasonable to clothe the duty to inform in terms of a more traditional version of fraud, rather than an independent obligation to provide information that does not make sense when the debtor under the obligation (Mary) is already liable for misconduct within the framework of the employment contract.

Germany

Monstrous Inventions Ltd could annul the agreement it concluded with Mary on the grounds of a mistake as to characteristic (§ 119 II): the fact that Mary may be dismissed is one of her characteristics or qualities. The mistake made by the representative (Mr Dracula) will be attributed to the legal person represented (i.e. the company) according to § 166. This provision, which derives directly from Roman law (D. 18, 1, 12) also states however, that the party represented is to be imputed with the representative’s knowledge in addition to the latter’s mistake. Owing to the fact that two representatives act for the company here, of which one (the personnel department), knew that Mary could be dismissed, the company will also be imputed with this knowledge.10 If a person has knowledge of a circumstance however, he or she may not at the same time be mistaken in respect to it; the company may not annul on this ground the agreement it entered into with Mary by reason of having made a mistake.

The claim for compensation arising from culpa in contrahendo for neglecting to disclose the reason for dismissal also fails due to this imputation of knowledge; in any event, one will not be able to substantiate the argument that Mary was under a duty to have informed Mr Dracula about the reason for her dismissal.11

Greece

Greek law gives Monstrous Inventions Ltd a remedy arising from the theory of the basis of the transaction.

10On attributing knowledge, see generally, Schilken, Wissenszurechnung im Zivilrecht and -- dealing with aggregation of knowledge in an undertaking -- Larenz/Wolf, AT 886 ff.

11See generally on the duty of disclosure Taupitz, Die zivilrechtliche Pflicht zur unaufgeforderten Offenbarung eigenen Fehlverhaltens.

Both the contracting parties have mainly based the conclusion of the contract on a point, which turned out to be false. They shared the same mistake which was not fundamental as it referred to their motives for contracting (art. 143 AK). As the common mistake refers to a fundamental element of the transaction, it is considered operative. The fundamental aspect of their shared mistake as to the basis of the transaction,12 is founded on the general clause of good faith of art. 288 AK and particularly on the more specific provision of art. 388 AK which provides for annulment or adjustment of a synallagmatic contract in case of a subsequent unforeseen change of the basis of the transaction.

The consequence of the lack of the basis of the transaction is, according to the prevailing view,13 to apply art. 388 AK by analogy as this provision presupposes the collapse of the basis ex post facto and not a change already existing at the time of the contract’s conclusion. This means that Monstrous Inventions Ltd has the right to seek the adjustment of the contract as appropriate, i.e. by reducing its performance or annulling the contract. If it chooses the latter Mary Shelley is obliged to return the enrichment received under art. 904 f. AK since the cause of the enrichment no longer exists.

Ireland

Similar to English law, in Irish law a contract to terminate an employment contract by payment continues to be a valid contract even where unknown to the employer, the contract could have been terminated without payment. Such a contract would not be void at common law for mistake because the employer obtained the benefit he had been seeking under the transaction -- the termination of the contract of employment. The law as contained in the House of Lords decision of Bell v. Lever Brothers represents the situation in Irish law in this regard.

There may be a good argument for this position to be somewhat relaxed so as to provide for such a contract to be voidable at the court’s discretion or possibly to be rescinded. However, such an approach has not proved attractive to the Irish courts.

12See the corresponding theories in Germany on subjective Geschäftsgrundlage and in France on the cause de l’engagement.

13Georgiadis, General Principles of Civil Law; Karakatsanis in Georgiadis and Stathopoulos, Civil Code (Athens, 1978), vol. 1, AK 143 n. 8; Papantoniou p. 403; Spyridakis, General Principles, p. 610; Stathopoulos, Contract Law in Hellas, p. 102.

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Italy

The Mary Shelley settlement will stand notwithstanding the result of the investigation, in principle, such a contract cannot be annulled if one party turns out to have concluded it under a mistake with regard to its rights. In this case, moreover, there is a ‘settlement’ that cannot be annulled on grounds of a mistake of law (art. 1429 of the Civil Code) when relating to the questions that were the subject of litigation between the parties (art. 1969 of the Civil Code), only if one of the parties was aware of the lack of foundation of his claim, can the other ask for the annulment of the settlement (art. 1971). In this case, though, it will be impossible to take proceedings against Mary on the basis of the Civil Code, for we are facing an employment contract situation where ordinary contract rules do not apply.

The Netherlands

First, the company may argue that they were mistaken in reaching the settlement: had they known of Mary’s dishonesty they would have fired her instead of offering her this (apparently favourable) retirement settlement. Therefore, they will argue, the contract may be annulled on the ground of mistake or fraud. Under Dutch law a contract may be annulled for mistake (art. 6:228 BW): (a) in the case where the company concluded the contract on the basis of incorrect information given to them by Mary; (b) in the case where Mary was under a duty to inform the company and she violated this duty; and (c) in the case of common mistake. Much depends here on what ‘Mary’s dishonesty’, the sufficient reason for firing, means, but whatever it means there does not seem to be a case of common mistake because Mary knew she was dishonest. If Mary told lies to the company and if these lies also made the company conclude the settlement, the company may have a chance, since in principle the company was not under a duty to check whether the information actually given to them by Mary was correct. They may rely on its accurateness.14 However, if Mary did not lie and instead she was guilty of some other type of dishonesty (e.g. she had stolen money from the company) the question arises whether Mary should have informed the company of her dishonesty. The problem seems to be here that at the moment of conclusion of the settlement the company knew of Mary’s

14HR, 15 November 1957, NJ 1958, 67, note Rutten, AA 1957/1958, 103, note Van der Grinten (Baris/Riezenkamp); HR, 21 January 1966, NJ 1966, 183, note G. J. Scholten, AA 1967, 161, note Van der Grinten (Booy/Wisman).

dishonesty. Although Mr Dracula was not aware, the personnel department knew. Does this mean that Mary was no longer under a duty to inform? In principle a party is not under a duty to inform the other party of facts the first party may expect the second party to know of. Thus, much depends here, in principle, on whether Mary was aware of the fact that the company had found out about her dishonesty. This would be the case if the personnel department had explicitly told her, e.g. when they questioned her in the course of their investigation. In that case, in principle, she was not under a duty to inform. However, some courts may accept that in this case good faith even required Mary to tell Mr Dracula what the rest of his company already knew.

In the case that the contract can be annulled for mistake, i.e. if Mary’s lying or violation of a duty to inform can be established, the contract may probably not only be annulled for mistake, but also for fraud. The company would opt for annulment for fraud if there were additional damages that they would wish to be compensated for.

If the employment contract has not yet been terminated, the company may dismiss Mary with immediate effect if the ground for termination is important enough (arts. 6:677 and 6:678 BW). Would this have any effect on the settlement? Dracula may try to rely on art. 6:229 BW.15 At the moment that the settlement should take effect the contractual relationship (employment contract) that the settlement is based on no longer exists. However, they will probably not be successful because it is generally accepted that art. 6:229 BW is only meant for cases where the underlying relationship did not exist from the outset, i.e. the cases where under the old code the contract would be void for lack of causa.16

Finally, the company may ask the court for the adaptation or termination of the settlement on the ground of unforeseen circumstances. Article 6:258, § 1, BW says:

Upon the demand of one of the parties, the court may modify the effects of a contract or it may set it aside in whole or in part, on the basis of unforeseen circumstances of such a nature that the other party, according to standards of reasonableness and fairness, may not expect the contract to be maintained in unmodified form. The modification or setting aside may be given retrospective effect.

15‘A contract in furtherance of an existing legal relationship between the parties can be nullified if the relationship does not exist, unless, in view of the nature of the contract, common opinion or the facts of the case, the non-existence should remain for the account of the person who invokes it.’

16Cf. Verbintenissenrecht (Hesselink), art. 229, aant. 23.

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Unforeseen means here: not taken into account by the parties when concluding the contract, not accounted for in the contract. That seems to be the case here: the contract does not say anything about what would happen in case Mary turned out to be dishonest or indeed if she should be fired. As to the first circumstance (Mary’s dishonesty), this circumstance already existed at the moment of conclusion of the contract and it is generally accepted that a contract can only be adapted or terminated on the basis of art. 6:258 BW in case of an unforeseen change of circumstances.17 However, if Mary were fired after the conclusion of the contract that would constitute a change of circumstances that a court might find serious enough to justify adaptation or termination of the contract for change of circumstances.18

Norway

The present case concerns a promise given without knowledge that Mary Shelley’s employment contract could be terminated on grounds of dishonesty. Legal procedures in this situation are based on the invalidity regulations, and not on the doctrine of condictio indebiti. Whether or not a retirement compensation or similar allowances have been paid, is here irrelevant.

The question should be decided according to the Contract Act, § 33, possibly together with § 36. As previously indicated, the problem is, first, whether the person to whom the promise was made (the promisee) had knowledge of the conditions, and secondly, whether, because of these conditions, it would be contrary to ‘honest behaviour and good faith’ to ask for the promise to be honoured. In the present case, the question of knowledge is not in debate: Mary Shelley (the promisee) was aware of her dishonesty. The case would, therefore, depend on the interpretation of honest behaviour. How would regard for ‘good faith and fair dealing’ (‘Treu und Glauben’) stand in relation to the offer of early retirement?

If proof of dishonesty can be shown, which gives the right to dismiss the employee with immediate effect (termination), the employer would normally be able to free himself from this type of promise. The reason for dismissal is directly related to the giving of the promise in the sense that it clearly would not have been given if the employer had known

17Cf. Parl. Gesch. Boek 6, p. 969 (T.M.); Verbintenissenrecht, art. 258 (valk), aant. 21; Hesselink,

De redelijkheiden in het Europese privaatrecht, p. 344; and HR, 20 February 1998, RvdW 1998, 55C.

18See on the German law in this kind of case, Hesselink, ibid., p. 367.

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signed, it would be valid. The company would have the option to try claiming for damages caused by the employee’s dishonest conduct.

Comparative observations

This case concerns a settlement in the context of employment contracts in which Mr Dracula, managing director and authorised agent of the employer, Monstrous Inventions Ltd, is mistaken as to the attributes (the honesty) of its employee, Mary Shelley. The case combines a number of factors relating to mistake, first can the employer rely on his own unilateral mistake in view of the fact that the company (via its personnel department) knew about Mary Shelley’s dishonest behaviour? Secondly, did Mary have a duty to inform the company about her own improper behaviour, in view of the relationship of trust and loyalty which may sometimes be inferred from a relationship between employer and employee? Although at first glance it might seem as though the different faces of the company complicate these issues, the company’s constructive knowledge is only partially relevant. Testing the limits of the duty to inform shows up once again its casuistic and versatile nature. It is, as one reporter expressed it, preposterous20 to imagine that Mary should be expected to inform the company about her own misconduct while negotiating the settlement. Moreover, it could be submitted that her failure to inform is not necessarily deceitful or fraudulent. This might lead to an enquiry about whether a non-fraudulent failure to inform should ever be contested. This case would suggest that such a positive duty to inform will probably only lie in very limited circumstances. It could equally be inferred that the relationship of good faith that is said to exist under some national laws21 between employer and employee is relative. Finally, this case suggests that not many laws push the duty to inform so far as to oblige a contracting party to give information against his own interests.22 The majority of reporters were in agreement that the company had no remedy; exceptionally certain systems inclined towards very high standards of good faith suggested the contrary.

20 See French report. 21 See for example French and Austrian reports.

22This may be an illustration of the dialectic demonstrated in contract law between heteronomous and autonomous principles of good faith cf. M. Hesselink, ‘Good Faith’ in A. Hartkamp et al. (eds.), Towards a European Civil Code (2nd edn, Nijmegen, The Hague, Boston, 1998), pp. 285--310; G. Teubner, ‘Legal Irritants: Good Faith in British Law or How Unifying Law Ends Up in New Divergences’ MLR 61 (1998), 11.

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as contrary to honest behaviour and good faith and thus in violation of § 36 of the Contract Act. Likewise, under Dutch law the company just might be able to annul either for mistake or fraud if it was held that Mary had breached a duty to inform her employers, although the issue was not definitively determined since it was pointed out that although some courts might expect Mary to tell Mr Dracula what the rest of the company already knew, on another contrasting interpretation it might not be expected of her to inform the company of facts of which it was already aware.

Does this case show that there is not inevitably a correlation between breach of good faith and fraud? It would seem here that if Mary was held to have breached a standard of good faith in some countries, this does not mean that her non-disclosure of information amounted to fraud. Moreover, as in most countries it was not really suggested that a duty of good faith had been breached, this case might seem to suggest that it would be excessive to expect information to be given, absent either of these two elements in circumstances when the content of the information is self-incriminating! In other words, a certain amount of selfprotection is justifiable.