Model Rules of European Contract Law. From Draft Common Frame of Reference to Draft Optional Instrument

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1 Model Rules of European Contract Law. From Draft Common Frame of Reference to Draft Optional Instrument Kåre Lilleholt PRESENTATION OF THE DRAFT COMMON FRAME OF REFERENCE AND THE FEASIBILITY STUDY ON EUROPEAN CONTRACT LAW (1 11) 1 Introduction The European Commission is working on a feasibility study on a European Contract Law for Consumers and Businesses, presented in May 2011 by an Expert Group. The Commission has published a work-in-progress version dated 8 July It is still not decided what kind of text that may come out of this, but the most likely alternative is an optional instrument, possibly legislated as a Regulation making the instrument a 2 nd regime in each member state. 2 The feasibility study is based on the Draft Common Frame of Reference (DCFR, more below), but covers only general rules on formation of contract and rules on sales contracts and related service contracts. The third important text at the moment is the revised version of the proposal for a Consumer Rights Directive 3 These lectures will concentrate on the process up to the DCFR and the possible optional instrument, the discussion on these instruments, and on some examples of the content of the instruments. Preparation: Read Introduction in Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Outline Edition, Munich 2009 ( Read Introduction of the Expert Group s feasibility study (see footnote 1). You do not have to read the works referred to in the footnotes of this outline. Prepare exercises. 2 National law, choice of law, uniform law, harmonisation Contract law varies from country to country, also in Europe. There are differences not only between common law and civil law countries, but even among civil law countries 1 The Expert Group s study and the Commission s version are available here: 2 COM(2010) 348 final p See for the latest development, including a consolidated text agreed upon by the Parliament and the Commission: CDT95928&body=IMCO

2 Comparative Private Law Autumn of 14 When a contract is connected to more than one legal system, choice-of-law rules decide which (substantive) rules govern the contractual relationship. For EU member states, see Regulation 593/2008 on the law applicable to contractual obligations (Rome I) States may agree on uniform rules on certain types of contract, e.g. CISG (UN Convention on contracts for the international sale of goods) Harmonisation has different meanings: bringing national rules closer or creating common rules and principles European Union legislation: regulations may be regarded as uniform legislation; directives as harmonisation instruments Non-state instruments: Unidroit Principles of International Commercial Contracts. Principles of European Contract Law (PECL); Draft Common Frame of Reference Some recent and ongoing national reforms: German Schuldrechtsform (from 2001), influence from EU legislation, CISG; new civil codes in several Eastern European countries (e.g. Estonia), influence from EU legislation, CISG, PECL; French avant-projet Catala (law of obligations) 3 Academic projects concerning European private law During the last thirty years, several academic groups have been working with various aspects of European private law. Some of them will be mentioned here: The Principles of European Contract Law was prepared by the Commission on European Contract Law ( the Lando Commission) 4 The Study Group on a European Civil Code is the successor of the Lando Commission. The Study Group prepared several volumes of Principles of European Law 5 The Acquis Group targeted a systematic arrangement of existing Community law which will help to elucidate the common structures of the emerging Community private law 6 The Common Core of European Private Law Project ( the Trento Common Core Project ), under the leadership of Ugo Mattei and Mauro Bussani, has completed several comparative studies on European private law 7 4 O. LANDO and H. BEALE, eds., Principles of European Contract Law. Parts I and II Revised, The Hague 2000; O. LANDO et al., eds., Principles of European Contract Law. Part III, The Hague C. V. BAR, Benevolent intervention in another's affairs (PEL Ben. Int.), Munich 2006; M. W. HESSELINK et al., Commercial agency, franchise and distribution contracts (PEL CAFDC), Munich 2006; M. BARENDRECHT et al., Service contracts (PEL SC), Munich 2007; U. DROBNIG, Personal security (PEL Pers. Sec.), Munich 2007; K. LILLEHOLT et al., Lease of goods (PEL LG), Munich 2008; E. HONDIUS, Sales (PEL S), Munich 2008; C. V. BAR, Non-Contractual Liability Arising out of Damage Caused to Another (PEL Liab. Dam), Munich 2009; B. LURGER and W. FABER, Acquisition and Loss of Ownership of Goods (PEL Acq. Own.), Munich 2011; C. VON BAR and S. SWANN, Unjustified enrichment (PEL Unj. Enr.), Munich More information at 6 Quoted from See also Contract I: Pre-contractual obligations, conclusion of contract, unfair terms. Prepared by Research Group on the Existing EC Private Law (Acquis Group), München 2007; Contract II: General Provisions, Delivery of Goods, Package Travel and Payment Services. Prepared by Research Group on the Existing EC Private Law (Acquis Group), Munich 2009.

3 Comparative Private Law Autumn of 14 The Academy of European Private Lawyers, ( Gandolfi Project ) based in Pavia, has published a draft European Contract Code, inspired by the Italian Civil Code and a draft Contract Code prepared for the Law Commissions of England and Scotland by Harvey McGregor 8 The European Group on Tort Law ( Tilburg Group ) has drafted Principles of European Tort Law 9 The Commission on European Family Law conducts research concerning the harmonisation of family law in Europe 10 The Unidroit Principles of International Commercial Contracts are not limited to Europe; on the other hand they deal with commercial contracts exclusively 11 4 The Common Frame of Reference political documents The European Parliament has repeatedly expressed the need for harmonisation of European private law (or even a European civil code) 12 The Commission s action plan on a more coherent European contract law resulted inter alia in a research project for the preparation of a common frame of reference of European contract law (CFR). 13 Among the participants of the research network (Joint Network on European Private Law (CoPECL)) were the Acquis Group, the Study Group on a European Civil Code, and the Common Core of European Law Project. 14 The DCFR is an academic text a possible CFR will be prepared by the Commission An expert group was appointed in April 2010, a Green Paper on policy options was presented in July 2010 (COM/2010/0348 final), in May 2011 the feasibility study was published and in July the Commission s work-in-progess version (see 1 above) 7 See for a comprehensive list of publications, 8 G. GANDOLFI and L. GATT, eds., Code européen des contrats: avant-projet, Milano Black letter rules of this first Book as well as of the first Title (Sale) of the second Book are available at 9 Principles of European tort law: text and commentary, Wien Black letter rules in several languages are available at 10 See for publications etc., 11 Unidroit principles of international commercial contracts 2004, Rome More information at See also M. J. BONELL, An international restatement of contract law: the UNIDROIT Principles of International Commercial Contracts, Ardsley, N.Y. 2005; M. J. BONELL, ed., The Unidroit Principles in Practice: Caselaw and Bibliography on the Unidroit Principles of International Commercial Contracts, Ardsley, N.Y. 2006; S. VOGENAUER and J. KLEINHEISTERKAMP, Commentary on the Unidroit principles of international commercial contracts (PICC), Oxford See for example, press release 12 April COM(2003) 68 final; see also COM(2001) 398 final; COM(2004) 651 final; COM(2005) 456 final; COM(2007) 447 final. 14 More information at

4 Comparative Private Law Autumn of 14 5 The Draft Common Frame of Reference and the French drafts A full version of the Draft Common Frame of Reference was published in October A text which can, to a certain extent, be regarded as an alternative to the DCFR, were published by the Association Henri Capitant and the Société de législation comparé in 2008, including a revision of PECL 16 6 The DCFR overview The DCFR has the formal outline of a civil code (books, chapters, sections, articles) Black letter rules, comments with illustrations, comparative notes Book I Book II Book III Book IV Book V Book VI Book VII Book VIII Book IX Book X General provisions Contracts and other juridical acts (pre-contractual duties, formation of contract, representation, invalidity, interpretation, etc.) Obligations and corresponding rights (performance, remedies for nonperformance, transfer of rights and obligations, set-off, prescription) Specific contracts and the rights and obligations arising from them (sales, leases, services, mandate, commercial agency, franchise and distributorship, loan contracts, personal security, donation) Benevolent intervention in another s affairs Non-contractual liability arising out of damage caused to another Unjustified enrichment Acquisition and loss of ownership in movables Proprietary security rights in movable assets Trusts 15 C. VON BAR and E. CLIVE, eds., Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Full Edition, 6 vols., Munich B. FAUVARQUE COSSON and D. MAZEAUD, eds., Projet de cadre commune de référence. Principes contractuels communs, Paris 2008; B. FAUVARQUE COSSON and D. MAZEAUD, eds., Projet de cadre commune de référence. Terminologie contractuelle commune, Paris 2008; B. FAUVARQUE COSSON and D. MAZEAUD, eds., European Contract Law. Materials for a Common Frame of Reference. Terminology, Guiding Principles, Model Rules, Munich 2008; see also B. FAUVARQUE COSSON, Les travaux du groupe Association H. Capitant des Amis de la Culture Juridique Française/Société de législation comparée: terminologie, principes directeurs et révision de Principes du droit européen du contrat, Era Forum, vol. 9 Supplement , 51 64, D. MAZEAUD, La terminologie commune et les principes directeurs du droit des contrats, Era Forum, vol. 9 Supplement ,

5 Comparative Private Law Autumn of 14 7 Character of the DCFR 17 Purposes: Possible model for a political CFR; legal science, research and education; possible source of inspiration (legislators, courts, parties) Underlying principles: freedom, security, justice and efficiency Overriding principles: protection of human rights; promotion of solidarity and social responsibility; preservation of cultural and linguistic diversity; protection and promotion of welfare; promotion of the internal market (and again freedom, security, justice and efficiency) Definitions (suggestions for the development of a uniform European legal terminology) Model rules (not necessarily common core or restatement ), a toolbox 8 The Expert Group s feasibility study overview The text has a much narrower scope than the DCFR: Part I Part II Part III Introductory provisions Making a binding contract Assessing what is in the contract Part IV Obligations and remedies of the parties to a sales contract 18 Part V Part VI Part VII Part VIII Obligations and remedies of the parties to a related services contract Damages, stipulated payments for non-performance and interest Restitution Prescription 9 The proposal for a Directive on consumer rights In 2008 the Commission presented a proposal for a Consumer Rights Directive, merging four existing directives. 19 The proposal met severe criticism and a revised proposal is limited to 17 BAR and CLIVE, eds., DCFR Full Edition, 1 23 (Introduction); C. V. BAR, The Launch of the Draft Common Frame of Reference, Juridica International, vol. XIV 2008, 4 9;H. BEALE, The Nature and Puposes of the Common Frame of Reference, Juridica International, vol. XIV 2008, 10 17; E. CLIVE, An Introduction to the Academic Draft Common Frame of Reference, Era Forum, vol. 9 Supplement , The Commission s July version adds or a contract for the supply of digital content. 19 COM(2008) 614 final (link). For discussions, see e.g. G. G. HOWELLS and R. SCHULZE, eds., Modernising and harmonising consumer contract law, Munich 2009 and several articles in European Review of Contract Law, 2010 Issue 1.

6 Comparative Private Law Autumn of 14 distance contracts and off-premises contracts. 20 The agreement between the Parliament and the Council seems to widen the scope again Existing EC contract law Most of the existing EC contract law regulation is consumer contract law (some exceptions, e.g. Late Payment Directive 2011/7) Important directives: Doorstep Selling (85/577), Package Travel (90/314), Unfair Contract Terms (93/13), Distance Selling (97/7), Sale of Consumer Goods (99/44), Distance Selling of Financial Services (2002/65), Life Assurance (2002/83), Unfair Commercial Practices (2005/29), Consumer Credit (2008/48), Timeshare (2008/112). Some of the directives are vertical (applying only to one type of contract), while others are horizontal (covering certain issues common to all consumer contracts or a larger group of contracts) Most of the directives imply minimum harmonisation (states are allowed to keep or introduce rules that are more favourable to consumers than the directives do), but the directives on Unfair Commercial Practices and on Consumer Credit are maximum harmonisation directives (neither more favourable nor less favourable rules are allowed concern issues covered by the directives) 11 Debate concerning the DCFR and a possible optional instrument 11.1 Legitimacy Is harmonisation of private law within the competence of the EU? Is there a need for model rules on European contract law? Does business ask for this instrument? 23 Will national law have to provide for background rules anyway? See press release 21 For latest development in the Parliament, see CDT95928&body=IMCO. 22 S. WEATHERILL, Constitutional Issues How Much is Best Left Unsaid? in The Harmonisation of European Contract Law, (ed. S. Vogenauer and S. Weatherill), Oxford and Portland, Oregon 2006, ; G. C. JÜRGEN BASEDOW, WALTER DORALT, MATTEO FORNASIER, MARTIN ILLMER, JENS KLEINSCHMIDT, SEBASTIAN A.E. MARTENS, HANNES RÖSLER, JAN PETER SCHMIDT, REINHARD ZIMMERMANN, Policy Options for Progress Towards a European Contract Law. Comments on the issues raised in the Green Paper from the Commission of 1 July 2010, COM(2010) 348 final, Max Planck Private Law Research Paper (2011), K. GUTMAN, The Commission's 2010 Green Paper on European Contract Law: Reflections on Union Competence in Light of the Proposed Options, European Review of Contract Law, vol. 7, no S. VOGENAUER and S. WEATHERILL, The European Community's competence for a comprehensive harmonisation of contract law an empirical contribution to the debate, in The Harmonisation of European Contract Law, (ed. S. Vogenauer and S. Weatherill), Oxford 2006, (yes); J. MANCE, Is Europe

7 Comparative Private Law Autumn of Is harmonisation possible? Is it possible to combine common law and civil law? Is harmonisation a threat to cultural (and legal) pluralism? 26 Law as a part of culture. 27 The question of language English as a common language? The DCFR and social justice Market liberalism v. social justice? An optional instrument? Rules that may be chosen by the parties (today only as a supplement to national law). The blue button approach ( click here if you choose the DCFR to apply to our contract ). 30 A 28 th regime or a 22 nd regime of each member state? Aiming to Civilise the Common Law, European Business Law Review 2007, (no); G. CORDERO MOSS, International Contracts between Common Law and Civil Law: Is Non-state Law to Be Preferred? The Difficulty of Interpreting Legal Standards Such as Good Faith, Global Jurist 7, no. 1 (2007), (sceptical); cf. G. CORDERO MOSS, Contracts between Consumer Protection and Trade Usages: Some Observations on the Importance of State Contract Law, in Common Frame of Reference and Existing EC Contract Law, (ed. R. Schulze), München 2008, See also overview of arguments in E. MCKENDRICK, Harmonisation of European Contract Law: The State We Are In, in The Harmonisation of European Contract Law, (ed. S. Vogenauer and S. Weatherill), Oxford and Portland, Oregon 2006, G. CORDERO MOSS, Contracts between Consumer Protection and Trade Usages: Some Observations on the Importance of State Contract Law, in Common Frame of Reference and Existing EC Contract Law, (ed. R. Schulze), München 2008, O. LANDO, Culture and Contract Laws, European Review of Contract Law, vol. 3, no , 1 21 (yes); P. LEGRAND, Antivonbar, The Journal of Comparative Law, vol. 1, no , (no). 26 R. SEFTON-GREEN, Choice, Certainty and Diversity: Why More is Less, European Review of Contract Law, vol. 7, no H. COLLINS, The European civil code: the way forward, Cambridge R. SEFTON-GREEN, Sense and Sensibilities: The DCFR and the Preservation of Cultural and Linguistic Plurality, European Review of Contract Law, vol. 4, no , G. BRÜGGEMEIER et al., Social Justice in European Contract Law: a Manifesto, European Law Journal, vol. 10, no , ; U. MATTEI and F. G. NICOLA, A 'Social Dimension' in European Private Law? The Call for Setting a Progressive Agenda, Global Jurist 7, no. 1 (2007), O. LANDO, The Structure and the Legal Values of the Common Frame of Reference (CFR), European Review of Contract Law, vol. 3, no , ; M. HESSELINK, Common Frame of Reference & Social Justice, European Review of Contract Law, vol. 4, no , See also R. SCHULZE and T. WILHELMSSON, From the Draft Common Frame of Reference towards European Contract Law Rules, European Review of Contract Law, vol. 4, no , , G. ALPA, Party Autonomy and Freedom of Contract Today, European Business Law Review, vol. 21, no , and (on the discussion in Italy in particular) B. PASA, The DCFR, the ACQP and the Reactions of Italian Legal Scholars, European Review of Private Law, vol. 18, no , ; C. MAK, Fundamental Rights in the DCFR, (2009), H. G. EIDENMÜLLER et al., Towards a revision of the consumer aquis, Common Market Law Review, vol , H. SCHULTE-NÖLKE, EC Law on the Formation of Contract from the Common Frame of Reference to the 'Blue Button', European Review of Contract Law, vol. 3, no ,

8 Comparative Private Law Autumn of Is the DCFR a modern contract law instrument? Is the DCFR too abstract, too German? 31 Does it reflect modern contract law problems? 32 Is it too much based on the approach of national law? 33 Does it sufficiently reflect multi-level governance? 34 PRESENTATION OF SELECTED RULES IN THE DRAFT COMMON FRAME OF REFERENCE (12 22) 12 Unfair terms Background: Unfair Contract Terms Directive (93/13); national legislation; proposal for Consumer Rights Directive (see 9 above) The Directive are limited to non-negotiated terms; DCFR II. 9:403 has a possible expansion of scope to negotiated terms in business to consumer contracts. See also differences between the Expert Group s feasibility study and the Commission s July text. The Directive and the DCFR have a grey list of terms that are presumed to be unfair in business to consumer contracts; the feasibility study has in addition a black list of terms which are in all circumstances considered unfair (art. 83) Duty of transparency (DCFR II. 9:402); plain, intelligible language (fesibility study art. 80) Definition of not individually negotiated (DCFR II. 1:110) Meaning of unfair business to consumer contracts (DCFR II. 9:403; feasibility study art. 81) contracts between non-business parties (DCFR II. 9:404) contracts between businesses (DCFR II. 9:405; feasibility study art. 85) 31 Critical remarks in LANDO, The Structure and the Legal Values of the Common Frame of Reference (CFR) ; SCHULZE and WILHELMSSON, From the Draft Common Frame of Reference towards European Contract Law Rules ; FAUVARQUE COSSON, Les travaux du groupe Association H. Capitant des Amis de la Culture Juridique Française/Société de législation comparée: terminologie, principes directeurs et révision de Principes du droit européen du contrat ; H. COLLINS, Christian von Bar, Eric Clive, Hans Schulte-Nölke (eds), Principles, Defnitions and Model Rules of European Private Law, The Modern Law Review, vol. 71, no , Reply to critics, M. STORME, Une question de principe(s)? Era Forum, vol. 9 Supplement , 65 77; CLIVE, An Introduction to the Academic Draft Common Frame of Reference. 32 S. GRUNDMANN, The Structure of the DCFR Which Approach for Today's Contract Law? European Review of Contract Law, vol. 4, no , ; M. MAUGERI, Is the DCFR ready to be adopted as an Optional Instrument?, European Review of Contract Law, vol. 7, no J. M. SMITS, The Draft-Common Frame of Reference, Methodological Nationalism and the Way Forward, European Review of Contract Law, vol. 4, no , H. MICKLITZ and N. REICH, Unfair Terms in the Draft Common Frame of Reference, Juridica International, vol. XIV 2008, 58 68; H.-W. MICKLITZ, Failure or ideological preconceptions thoughts on two grand projects: the European Constitution and the European Civil Code, in EUI Working Papers (Florence: European Law Institute, 2010).

9 Comparative Private Law Autumn of 14 Exclusions for rules based on legislation etc.; main subject matter and price (DCFR II. 9:406; feasibility study art. 78(3)) Factors to be taken into account (DCFR II. 9:407; feasibility study art. 82) Effects on unfair terms (DCFR II. 9:408; feasibility study art. 77); not binding on the party who did not supply it Exercise 1: Group discussion and presentation in class Lisa bought an apartment in a house with eight apartments in total. The house was not constructed yet at the time when the contract was concluded, but the contract included a description of the apartment together with dimensioned drawings. When the apartment was finished six months later and Lisa was going to move in, it turned out that the ceiling had been lowered with thirty centimetres in part of the living-room because of a ventilation duct. Lisa found this ugly and considered it to be a lack of conformity. The seller referred to a clause in the contract allowing him to make small alterations of the planned apartments if necessary due to technical reasons. The ventilation system was not planned in detail at the time when the contracts were concluded, he explained. The seller asserted that there was no lack of conformity. In Lisa s opinion, this contract term was unfair. She had not noticed the term in the twelve-page contract document which was presented only at the meeting where she signed the document. Should the term be considered unfair under the DCFR? 13 Overview of DCFR Book III Law of obligations : general rules on obligations (contractual and non-contractual); performance; remedies for non-performance; plurality of debtors and creditors; transfer of rights and obligations; set-off and merger; prescription (limitation) We will concentrate on remedies for non-performance 14 Obligations and performance Definitions in DCFR III. 1:101 of obligation, performance, non-performance, reciprocal obligation (the correlative of obligation is right to performance ) Terminology: the difference between duty and obligation Good faith and fair dealing (DCFR III. 1:103; feasibility study art. 2(10)); duty to act in accordance with good faith and fair dealing; effects of breach of such duty; good faith and fair dealing as objective standard of conduct (distinguished from good faith referring to knowledge) Obligation to co-operate (DCFR III. 1:104; feasibility study art. 89) Detailed rules in Book III Chapter 2 on place of performance, time of performance etc.

10 Comparative Private Law Autumn of Non-performance, excuse, remedies Remedies for non-performance are regulated in DCFR Book III Chapter 3. The rules in the feasibility study deal only with sales and related services Enforcing specific performance and damages are not available if non-performance is excused due to an impediment (DCFR III. 3:101(3)); compare contract terms giving a party right to additional time or additional payment; if the impediment is permanent the obligation (and any reciprocal obligation) is extinguished (DCFR III. 3:104(4)). See also feasibility study art. 91 Compare rules on mistake (impediment existing at the time when the contract was concluded) Compare rules on changed circumstances (DCFR III. 1:110; feasibility study art. 92); an obligation may be varied or terminated by the court ( hardship ) Compare the distinction between obligation to achieve a specific result and obligation to make reasonable efforts; not regulated in the DCFR; compare UNIDROIT Principles (see also feasibility study art. 152 on services) 16 Excuse due to an impediment (DCFR III. 3:104; feasibility study art. 91) Functions: Prerequisites a permanent excusing impediment leads to extinguishment of the obligation and any reciprocal obligation; restitutionary effects are regulated in Book III, Chapter 3, Section 5, Subsection 4 (DCFR III. 3:104(4)) a temporary excusing impediment bars claims for enforcement of specific performance and claims for damages, but not other remedies for non-performance (DCFR III. 3:104(3), 3:101(2)) impediment Compare CISG art. 79 beyond the debtor s control debtor could not reasonably be expected to have taken the impediment into account debtor could not reasonably be expected to have avoided or overcome the impediment or its consequences 17 Other prerequisites for remedies The creditor must not have caused the debtor s non-performance (DCFR III. 3:101(3)); obligation to co-operate (DCFR III. 1:104, feasibility study art. 108(6)) Possible exclusion or restriction of remedies (DCFR III. 3:105); restriction concerning personal injury; good faith and fair dealing

11 Comparative Private Law Autumn of 14 Notification within reasonable time (DCFR III. 3:107) Possible cure by debtor (DCFR Book III, Chapter 3, Section 2); the debtor as a rule has a chance to cure a lack of conformity (DCFR III. 3:202); limitations in DCFR III. 3:203. Feasibility study art Right to enforce performance Non-monetary obligations (DCFR III. 3:302; feasibility study art. 111); the creditor may as a rule enforce specific performance, including remedying of a lack of conformity; limitations (performance is unlawful or impossible, unreasonably burdensome, of a personal character); substitute transaction and damages Compare English law: the main rule is that specific performance cannot be enforced Monetary obligations (DCFR III. 3:301; feasibility study art. 134); the creditor is entitled to recover money; limitations are mainly a question of cancellation (damages instead of enforcement of agreed payment may be more favourable to the debtor) Exercise 2: Group discussion and presentation in class Mr. Wilson, a farmer, ordered from Machine Industry Ltd. a machine for automatic packaging of the cheese he produced at his farm. The machine was to be produced according to Mr. Wilson s specifications. Some days after the contract was concluded, Mr. Wilson was contacted by another factory that offered to produce a similar machine for just half the price. Mr. Wilson immediately informed Machine Industry Ltd. that he was not willing to receive the machine which he had just ordered. Machine Industry Ltd. protested and wished to produce the machine and recover the payment for it. The machine was still not put into production at the time of this correspondence. Discuss this case according to the DCFR and then according to your national law. 19 Withholding performance Right to withhold performance of reciprocal obligation (DCFR III. 3:401; feasibility study arts. 114 and 135); creditor is to perform at the same time or after; creditor is to perform first (cases of anticipated non-performance) Whole or reasonable part of the performance may be withheld 20 Termination for fundamental non-performance Main rule: the creditor may terminate if the debtor s non-performance is fundamental (DCFR III. 3:502; feasibility study arts. 115 and 136) Definition of fundamental non-performance (DCFR III. 3:502(2); feasibility study art. 90); substantially deprives the creditor of what the creditor was entitled to expect (and foreseeability on debtor s side); intentional or reckless non-performance (and aspects for future performance)

12 Comparative Private Law Autumn of 14 Termination after notice fixing additional time for performance (DCFR III. 3:503; feasibility study arts. 116 and 137); reasonable period Termination for anticipated non-performance (DCFR III. 3:504 and 505; feasibility study arts. 117 and 138) Termination of divisible obligations (DCFR III. 3:506(2); feasibility study art. 119) Exercise of right to terminate (DCFR III. 3:507; feasibility study arts. 120 and 141); notice to the debtor (court decision is not necessary) Right to terminate must be exercised within a reasonable time (DCFR III. 3:508); note the automatic termination in case of permanent excusable impediment (DCFR III. 3:104(4)) Effects of termination Exercise 3: outstanding obligations under the contract come to end (DCFR III. 3:509(1); feasibility study art. 6) return of benefits received (or value), DCFR III. 3:510; but not as far as conforming performance has been met with conforming performance (DCFR III. 3:511) payment of value of benefits for what is not returned (DCFR III. 3:512) and for use or improvements (DCFR III. 3:513) creditor retains right to damages (DCFR III. 3:509(3)) see also feasibility study arts Group discussion and presentation in class Summum Ius, a law firm, planned to invite the entire town for the celebration of the firm s five-year anniversary and ordered food for 500 persons from a catering business to be delivered at fixed date (a Saturday). The event was properly announced in the local media. In the morning of the agreed day, Summum Ius received a phone call from the catering business: there was a serious problem with the internal electricity supply, and it was not possible to provide the food before Saturday afternoon. The representative of Summum Ius explained that the event would take place at noon, and she terminated the contract with immediate effect. All the disposable plates, cutlery etc. which the catering business had delivered on Friday would be returned and not paid for, she said. The catering business did not agree with her on any of these points. Discuss this case according to the DCFR and then according to your national law. 21 Price reduction Right to reduce price (DCFR III. 3:601; feasibility study art. 122) Proportionate reduction of price, typically for lack of conformity

13 Comparative Private Law Autumn of 14 Combination with damages Exercise 4: Group discussion and presentation in class Bénédicte was looking for a small boat for leisure purposes and went to J. Flint, a dealer of new and second-hand boats. Bénédicte found a six-year old boat that she liked. The boat had a sign with euro on it, but she managed to beat the price down to 8000 euro. It turned out that the boat had a leakage, the repair of which cost 1000 euro. Bénédicte claimed that the price of the boat must be reduced with 1000 euro. Flint admitted that the leakage was a lack of conformity, but asserted that the correct price reduction in a case like this was 800 euro. Bénédicte did not agree. Discuss this case according to the DCFR and then according to your national law. 22 Damages and interest Structure right to damages (non-performance which is not excused) loss (economic and non-economic) measure of damages creditor s contribution to the loss; duty to reduce the loss Right to damages (DCFR III. 3:701(1); feasibility study art. 163); non-performance which is not excused; no fault requirement; compare CISG; compare national systems Loss (DCFR III. 3:701(2) and (3); feasibility study art. 163(2)); actual and future loss; including loss of income or profit; economic and non-economic loss Measure of damages general measure of damages (DCFR III. 3:702; feasibility study art. 164); comparison with due performance foreseeability (DCFR III. 3:703; feasibility study art. 165); extended if nonperformance is intentional, reckless, or grossly negligent creditor s contribution to the loss (DCFR III. 3:704; feasibility study art. 166); duty to reduce loss (DCFR III. 3:705); damages may be reduced; expenses incurred in attempting to reduce loss substitute transaction (DCFR III. 3:706; feasibility study art. 168); measure of damages based on current price DCFR III. 3:707; feasibility study art. 169) Interest; delay in payment of money (DCFR III. 3:708; feasibility study art. 171); the average commercial bank short term lending rate to prime borrowers

14 Comparative Private Law Autumn of 14 Stipulated payment for non performance (DCFR III. 3:710;feasibility study art. 170); stipulation in contract is valid; reduction if grossly excessive; compare in particular English law on liquidated damages and penalty clauses Exercise 5: Group discussion and presentation in class The facts are the same as in exercise 10. Summum Ius as a plan B, in a hurry bought a lot of fruit, cakes and sweets in order to be able to serve the guests at least something. They had to pay twice as much for this as the price that was agreed for the food. Summum Ius now claimed damages for loss amounting to the difference between these prices. In addition they claimed damages for loss of reputation. The catering firm did not accept any liability. Discuss this case according to the DCFR and then according to your national law.