32 pr econtractual liability in european private law

premises. Such conduct is wrongful. A entered into the negotiations without any intention to conclude the contract, which is one of the situations of fault discussed above.39 B certainly suffers harm as a consequence of that fault, because he lost an opportunity to sell his premises at a fair price, and certainly incurred costs as a result of the negotiations. Thus, fault, harm and causation are established, leading to A’s precontractual liability under article 1382 of the Civil Code.

B is entitled to ask for damages on the ground of A’s liability for his wrongful conduct. These damages comprise two separate components. First, B can recover the costs he incurred during the course of the negotiations, such as the cost of evaluation of his premises. Secondly, B is certainly entitled to compensation for his loss of opportunity.40 The precise amount of the damages is difficult to evaluate, because it is fixed by the judge.41 B finally sold his premises for E1m after A withdrew his offer. A’s offer cannot be considered as a serious one, so it cannot be used to quantify B’s damages. Without A’s manoeuvres in bad faith, B may have sold his premises to C, but there is no certainty that the sale would have taken place. In consequence he lost an opportunity to sell his premises at a price of E1.2m. Therefore, the damages awarded for this loss of opportunity will probably exceed E0, because the loss is real, but will not be as much as E0.2m, because the sale was not certain.

Germany

The doctrine of culpa in contrahendo was ‘discovered’ by Rudolf von Jhering.42 He derived it from the few and rather specific Roman law sources establishing liability for void contracts, claiming as their rationale that a party entering into contractual negotiations, when lacking capacity to conclude a valid contract, acted in a culpable way in misleading the other party. By initiating contractual negotiations, Jhering concluded, a party was leaving the ambit of purely negative duties to refrain from an act (culpa in faciendo) and was entering the sphere of positive diligence (culpa in non faciendo).

39 Rennes, 8 July 1929, DH 1929, 548; Paris, 13 May 1988, arreˆt Vittel, JurisData no. 025708. 40 On this question, see Viney, Introduction a` la responsabilite´, no. 198, p. 361, and above

n. 35. See also Com 2 Nov. 1993, Bull Civ IV, no. 380.

41Civ 1, 3 June 1997, JurisData no. 002562.

42‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfection gelangten Vertra¨gen’ (‘Culpa in contrahendo or damages in situations where contracts are void or did not reach the stage of perfection’) (1861) 4 Jherings Jahrbu¨cher fu¨r die Dogmatik des bu¨rgerlichen Rechts 1.

Jhering’s seminal article immediately gave rise to further scientific investigations of his basic ideas, the draftsmen of the German Civil Code thus being well aware of this new theory. Nevertheless, they incorporated the doctrine of culpa in contrahendo into the codification in no more than a sparing and fragmented fashion.43 It was therefore up to the courts and academic writers to establish culpa in contrahendo as a general ground of liability. Since the 1920s it has been consistent practice of the courts that from the moment of entering into contractual negotiations, a special relationship (Sonderrechtsverha¨ltnis) is created between the negotiating parties by virtue of the law (gesetzliches Schuldverha¨ltnis) imposing on both parties duties of protection and loyalty (Schutzpflichten). The imputable violation of such a Schutzpflicht may entail liability according to the rules governing contractual relations.44

These principles have recently been codified. In 2001, the German legislator combined the implementation of Directive 1999/44/EC45 into German law with a major revision of the BGB. The main purpose of the reform was (1) to reform the law of impairment of the performance of an obligation (allgemeines Leistungssto¨rungsrecht) together with the law of sale (Kaufrecht) and (2) to integrate well-established institutions of judge-made law into the Code such as frustration of contract (Sto¨rung der Gescha¨ftsgrundlage)46 and culpa in contrahendo.47 Accordingly, precontractual liability now has a statutory basis. It is governed by §280

(1) BGB in combination with §§241(2), 311(2), (3) BGB:

§280 BGB:

(1) If the debtor fails to comply with a duty incumbent upon him under the obligations entered into, the creditor may demand compensation for the damages done. This does not apply if the debtor is not responsible for the failure to comply with the duty.

§241 BGB:

(2) An obligation may obligate each party, having regard to its substance, to take into consideration the rights, legally protected interests and (other) interests of the opposite party.

§311 BGB:

(2) An obligation with duties under §241(2) will also arise from

43Cf. §§122, 179, 307, 309 BGB.

44Larenz, Lehrbuch des Schuldrechts, Bd. I, Allgemeiner Teil, p. 104ff.; Medicus, Schuldrecht, Allgemeiner Teil, p. 56ff.; P. Gottwald, JuS 1982, 877.

45Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees.

46Cf. §313 BGB.

47Lorenz and Riehm, Lehrbuch zum neuen Schuldrecht, para. 1ff.

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1.the beginning of contractual negotiations,

2.initiating the conclusion of a contract whereby one of the parties, having regard to a possible contractual relationship, either grants the other party the possibility of affecting his rights, legally protected interests and other interests, or entrusts the other party with them, or

3.similar business contacts.

(3)An obligation with duties under §241(2) may also arise in relation to persons who are not meant to become contracting parties. Such an obligation will come about especially where the third party takes special advantage of confidence thus exercising considerable influence on the contractual negotiations or the conclusion of the contract.

The legislator did not intend with these provisions either to change the judge-made rules of culpa in contrahendo or to impede their further development by case law. Therefore, §§241(2), 280(1) and 311(2) BGB must be construed with reference to the case law preceding the reform.

In general neither the beginning nor the continuance of contractual negotiations may impose any duty on a party to enter into a contract.48 It is a firmly established principle of German law that parties must be free to break off negotiations without fear of liability if the institution of contract is to be maintained as an instrument of self-determination (Grundsatz der Vertragsabschlubfreiheit). The ordinary course of the bargaining process places a legal obligation upon a party only from the point at which he has made a binding offer, whereas both parties are only bound after there is acceptance. The fact that under German law an offer is normally binding upon the offeror unless he has excluded the binding effect49 is one reason why the present problem appears to be less significant than in other legal systems.50 Once negotiations have ripened into an offer, it depends solely upon the offeree to bring about a contract. But if the offeror expressly declares that he does not consider himself bound, the other party has little or no reason to rely on the proposed contract and spend money in expectation of it. Furthermore, German law recognises the possibility of a ‘contract to make a contract’ (Vorvertrag). An actionable right to demand the conclusion of the main contract will not arise until the negotiations of the parties have reached the point of an agreement on the essentials of the main future contract. Therefore, the situations where the law will come to the

48BGH, decision of 22 Feb. 1989, NJW-RR 1989, 627; BGH, decision of 28 Sep. 1977, WM 1977, 618, 620; BGH, decision of 17 May 1962, WM 1962, 936, 937.

49Cf. §145 BGB.

50For a comparison of French and German law, see S. Lorenz, ZEuP 2 (1994), 218, 227ff.

rescue of a party who is still in the process of negotiation without having been able to reach the stage of a binding offer or a Vorvertrag are rather exceptional. A party is entitled to rely on the conclusion of a future contract only if the other party is in breach of his duty to bargain bona fide,51 that is, if he has (1) entered into, (2) continued with or (3) terminated contractual negotiations in contravention of the standards of good faith.52 A party breaches his duty to bargain in good faith by the mere fact of entering into contractual negotiations if he starts negotiations without any reasonable chance for the opposite party to make a bargain (objective test) or without any intention at all to contract with the other party (subjective test). The law will not condone a party conducting sham transactions. The same applies mutatis mutandis if a party continues negotiations, having given up any intention to contract with the other party. Furthermore, by terminating contractual negotiations a party is in breach of his duty to bargain in good faith if in the course of the events he made the other party believe a contract would certainly come about, but then, without good reason or from ulterior motives, refuses to go ahead.53 A party must not induce the other to incur expenses he could have regarded as necessary in the circumstances by encouraging his hopes that a contract would come about even though, from an objective point of view, this hope is completely futile,54 no matter whether the legitimate expectations of the other party had been raised culpably or not.55 Nevertheless, this is not a case of strict liability as argued by some writers, since the culpa necessary for a claim in culpa in contrahendo is established by the fact of terminating negotiations without any good reason.56

It should, however, be borne in mind that a party is never held liable on the ground of culpa in contrahendo by the fact only that the other party made (even substantial) investments in reliance on the conclusion of a future contract. It is a firmly established practice of the Bundesgerichtshof that culpa in contrahendo must not be used as an

51Cf. §§241(2), 311(2) No. 1 BGB.

52BGH, decision of 10 Jan. 1996, WM 1996, 738.

53BGH, decision of 22 Feb. 1989, NJW-RR 1989, 627; BGH, decision of 12 June 1975, NJW 1975, 1774; BGH, decision of 14 July 1967, NJW 1967, 2199; Markesinis, Lorenz and Dannemann, The German Law of Obligations, vol. I, The Law of Contracts and Restitution, p. 69.

54BGH, decision of 12 June 1975, NJW 1975, 1774; BGH, decision of 10 July 1970, NJW 1970, 1840.

55BGH, decision of 22 Feb. 1989, NJW-RR, 1989, 627, 629.

56Cf. Mu¨nchKomm-Emmerich, Vor §275 para. 164.

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inroad to the principle of freedom of contract by indirectly putting pressure on a party to conclude a contract:

Within the scope of freedom of contract, until there is a bargain, every party has a perfect right to refrain from entering into the envisaged contract. Expenses incurred in the expectation of a future contract are basically at a party’s own risk. A party owes compensation to another party on the ground of culpa in contrahendo only if he refuses the conclusion of a contract without a valid reason, although, pursuant to the course of negotiations, a bargain was certainly to be expected and the other party in relying thereon has incurred expenses necessary for the conclusion of the contract.57

A party liable on the ground of culpa in contrahendo has to make up for the aggrieved party’s reliance interest (Vertrauensschaden). The scope of liability mirrors its rationale which is not to be found in a party’s refraining from a bargain but in his creation of legitimate expectations within the other party that a contract would be brought about. The aggrieved party has to be put into the position he would have been in if he had known of the other party’s unwillingness to make a commitment. This means there must be compensation for the necessary expenses incurred by the party legitimately expecting the conclusion of a contract.

Where a party at the start of the negotiations had no intention whatsoever to conclude a contract, he must make up for the total reliance loss. In the case of a party terminating contractual negotiations without good reason, compensation is limited to those expenses incurred after the conditions for liability were met, that is, there must be a causal connection between the aggrieved party’s expectations and his expenditure.58

In the case of breaking off contractual negotiations, the significance of culpa in contrahendo within the German legal system follows from the fact that in most cases a person terminating contractual negotiations cannot be held liable in tort. German law does not provide for torts by the means of an all-embracing statute. As a rule it rather protects from wrongful interference a discrete group of selected legal interests such as life, body, health, freedom and property in goods.59 These provisions do not cover pure economic loss (reiner Vermo¨gensschaden). Damages of

57BGH, decision of 29 Mar. 1996, NJW 1996, 1884, 1885; cf. also BGH, decision of 22 Feb. 1989, NJW-RR 1989, 627; BGH, decision of 7 Feb. 1980, BHGZ 76, 343, 349; BGH, decision of 12 June 1975, NJW 1975, 1774; BGH, decision of 6 Feb. 1969, WM 1969, 595, 597.

58BGH, decision of 22 Feb. 1989, NJW-RR 1989, 627, 628. 59 §823 BGB.