1.1   The Notion of Contract

 

What does one understand by the terms “contrat”, “contract” or “Vertrag”? It is doubtful whether this term is identical in the different systems of European law. Failing precise concordance, it may even be that the term is misleading. It is appropriate to start (1.1.1) with a comparative study of the definitions given by the various different legal systems, and then (1.1.2) to consider where the law of contract is to be found (particularly in codified systems of law)and the sources from which it emanates (legislation, case-law, academic legal writings, etc.). The various classification applicable to contracts may also (1.1.3) shed an interesting light on the very concept of a contract. In addition, it will be necessary (1.1.4) to clarify the specific elements of contracts inherent in each legal system.

 

1.1.1          Definitions

In searching for definitions, we need to look at the legislation, if any, in which they are to be found, and also, where appropriate, at the relevant case-law and /or academic legal literature. It is apparent from such an analysis that the various definitions differ according to the particular legal system in which they appear. In addition, there are two specific points on which the various national legal systems differ from one another, the first being concerned with the question whether gifts inter vivos constitute contracts, and the second relating to the question whether any obligation arises from a unilateral intention to contract involving a promise of reward (unilateral promise).

 

1.1.1A.  Definitions of Contract under Certain Systems of Law

If one has regard to definitions contained in the code, certain differences are to be found.

 

Code civil (French Civil Code)                              1.F.1.

Article 1.101: A contract is an agreement (convention) by which one or more persons obligate themselves to one or more other persons to give, or to do or not to do, something.

 

Codice civile (Italian Civil Code)                             1.I.2.

Article 1321: Definition: A contract is an agreement between two or more parties for the purpose of creating, providing for or extinguishing amongst themselves a legal patrimonial relation.

 

Burgerlijk Wetbock (Dutch Civil Code)                      1.NL.3.

Article 6:213: A contract in the sense of this title is a multi-lateral juridical act whereby one or more parties assume an obligation towards one or more other parties.

 

BGB                                         1.G.4.

§305: For the creation of an obligation by a juristic act, and for any alteration of the substance of an obligation, a contract between the parties is necessary, unless otherwise provided by law.

 

Proceeding form the point of departure, which is the basic criterion of an agreement to create obligations, one may discern different approaches. Only under French law is the contract a species of agreement. Under German law it is the notion of the legal act to which reference must be made. As to the obligation to “give” (dare) mentioned in Article 1108 of the French Civil Code, this will be considered with the category of agreements for the transfer of property.

  In English law there is no legal definition of contract. The American Restatement Second gives one.

 

Second Restatement on Contracts

§1: A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognize as a duty.

 

The definitions given by academic legal author are not always the same. They tend to emphasize different elements. Certain definitions stress, for example, the need for the existence of a “bargain”, that is to say, an exchange of promised benefits----which may appear to exclude all but synallagmatic contracts (A contract in which the parties obligate themselves reciprocally, so that the obligation of each party is correlative to the obligation of the other. A synallagmatic contract is characterized by correlative obligations, whereas a commutative contract is characterized by correlative performances. The term synallagmatic contract is essentially the civil-law equivalent of the common law’s bilateral contract.). In other definitions, the emphasis is placed on the existence of a “promise”. According to those definitions, a contract appears to involve the superimposition of two “promises”, rather than any single, all-embracing transaction. Then again, one finds yet further definitions, such as that contained in the American Restatement (see above), which stress the need for the availability of a remedy, and according to which the contractual right emerges principally when one party fails to perform, taking the form of the options available to the wronged party. It should also be noted that that definition----which is, in fact, a statement rather than a definition as such----attaches greater weight to the role played by law than to any intention to contract. Certainly, voluntarism has never been unreservedly accepted and the role played by the notion of “reliance” will be examined under Section 1.3. A comparison of the various definitions of a contract shows the mixture in varying degrees of two components, namely the subjective element: the irreplaceable role of intention, and the objective element manifested by the role of the law. It is around these two axes that the contemporary law of contract in Europe is articulated.

 

1.1.1.B.  Contract and Gift

Is a gift a contract? Divergent views have been expressed regarding that question. If it is a contract, the concept of gift presupposes mutual consent, that is to say, acceptance by the beneficiary and an agreement that the transaction is to be subject to the normal rules governing the validity of a contract. It is true to say that, in general, a contract of gift must ----by way of derogation form the principle of consensualism----be a solemn form contract, that is to say, a contract which, if it is not to be null and void, must comply with certain formal requirements. Thus, in French law, a promise of a gift is void unless it is made in the form of an officially or notarially recorded instrument.

 

  The formal criteria applying in French law have been relaxed to some extent, but not in such a way as to call in question the classification of such a transaction as a contract. Thus, French law recognized the validity of a gift from hand to hand (don manuel) ----i.e. traditionally , the giving of a corporeal chattel by means of its being handed over----, an indirect gift----i.e. an act of giving carried out by means of a “neutral” transaction such as the remission of a debt----, a waiver, and even a disguised gift----i.e. one concealed within a transaction purporting to be for valuable consideration, such as a sale in which it is understood that payment of the purchase price will not be demanded.

 

Code civil                                   1.F.5.

Article 931: All instruments for inter vivos gifts (A gift of personal property made during the donor’s lifetime and delivered to the donee with the intention of irrevocably surrendering control over the property) are to be entered into before a notary in the usual form of a contract. They shall be recorded failing which they shall be null and void.

 

Article 932: A gift inter vivos shall be binding on the donor and shall have effect only as from the date on which it shall have been expressly accepted.

 

Acceptance may be in the lifetime of the donor by subsequent notarial act of which there shall be a record, but in that case the gift shall have effect as regards the donor only from the date on which the act recording such acceptance shall have been notified to him.

 

Article 938: The gift accepted shall be completed by mere agreement of the parties and property in the items subject to the gift shall be transferred to the donee without there being any need for any other handoer.

 

Cass, 15 July 1889                            1.F.6.

Unaccepted gift

A gift which has not been accepted in invalid; provisions applying to contracts by a minor do not apply.

Judgment: THE COURT:----Whereas on the first plea alleging misapplication of Article 935 of the Civil Code, an infringement of Article 1125 and the rules relating to nullity, a gift which is not duly accepted fails to fulfil one of the conditions necessary for its completion and for it to produce mandatory effect.

----Whereas although Articles1125 and 225 provide that nullity based on the incapacity of a minor and a woman may only be invoked by them or by their successors in title, those provisions do not apply to gifts.----Whereas therefore, the judgment appealed against did not infringe the abovementioned provisions of law by declining to uphold a gift not accepted under French law;

----Whereas the appeal is therefore dismissed.

 

This is the case of a contract for the transfer of property; see Article 938 of the French Civil Code.

  Under German law the contractual nature flows by implication but necessarily from §516 BGB, with §518 imposing the formal requirement of an officially or notarially recorded instrument. Note the procedure designed to prompt the beneficiary to accept the gift(§516, second paragraph) and the possibility of affirming a contract which would otherwise have been void for failure to comply with the formal requirements relating to execution.( §518).

 

BGB                                1.G.7.

§516: (1) A disposition whereby a person confers a benefit on another out of his own property is a gift if both parties agree that the disposition is made gratuitously.

(2) If the disposition is made without the consent of the other party, the person making it may demand that the other party declare whether he will accept it within a fixed reasonable period. After the expiration of the period, the gift is deemed to have been accepted, unless the other party has declined it within the period. If the gift is declined, the return of what has been given may be demanded under the provisions relating to the return of unjustified benefits.

§518: (1) For the validity of a contract whereby an act of performance is promised gratuitously, notarial authentification of the promise is necessary. If a promise of debt or an acknowledgment of debt of the kind specified in §§780,781, is made gratuitously, the same rule applies to the promise or the declaration of acknowledgment.

(2) Any defect of form is cured by the performance of the promise.

 

As in the case of a sale an agreement to make a gift does not entail transfer of property in the thing given.

On the other hand, under common law, a gift cannot be a contract because the promise made by the donor is by definition not supported by consideration, a gratuitous or non-bargain promise becomes binding only if it is contained in a deed, that is to say, if it is made in a particular form or (but only in American law, not English law) if the recipient has acted on the basis of that promise, the so-called theory of promissory extoppel reproduced in section 90 of the Second Restatement on Contracts. 

 

Second Restatement on Contracts

Section 90: Promise reasonably inducing action or forbearance.

(1)    A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is if injustice can be avoided only by enforcement of the promise. The remedy granted or breached may be limited as justice requires.

(2)    A charitable subscription or marriage settlement is binding under sub-section 1 without proof that the promise induced action of forbearance.

 

1.1.1.C. Contract and Undertaking by Unilateral Promise

Can the intention of one person alone be binding on that person without acceptance by the beneficiary, the other party? In other words can he be precluded from going back on his undertaking? The question whether a unilateral promise may give rise to a promise, in the absence of any specific legislative provision, is very controversial. It should be added that the unilateral promise is also used in order to account for rules contained in some systems of substantive law, thus, the value of the offer accompanied by a fixed period for acceptance. The classic example of a unilateral promise is the promise of a reward, but also the transformation of a natural obligation into a civil obligation. A recent example from French case-law----to be contrasted with the German lottery judgment----may serve to illustrate this point.

 

Cass. civ. Ire. 16 October 1995                       1.F.8

The different bet which won

An unenforceable (“natural”) obligation may be changed into a binding one by a subsequent promise to pay.

Facts: A punter promised to pay to a colleague on whose behalf he usually placed bets a share in the winnings on a bet different from the one agreed between them and made instead of it.

Held: The Cour d’appel held that the agreement was binding. The Cour de cassation upheld the decision.

Judgment: THE COURT: On the various branches of the single appeal ground:----Whereas according to the confirmatory judgment appealed against (Metz Court of Appeal, 7 October 1993), Mr Frata won the sum of FF 1,495,777 by playing the correct combination of the “Quinte Plus” (A wager on the first five horses in a race) at a horse race which took place on 8 January 1991 at Canges sur Mer. Mr D’Onofiro maintained that, together with work colleagues, Mr Frata was in the habit of entrusting him with validating the Quinte tickets with PMU which he was able to do owing to his particular working hours; as it was agreed that he would receive 10 per cent of any winnings; as since he was unable for the race to validate the ticket which Mr Frata had given him in the machine for validating the gaming coupons, Mr D’Onofrio obtained a new ticket but reversed the numbers chosen by Mr Frata and this initiative enabled Mr Frata to win the Quinte in the correct order; as after the race Mr frata informed Mr D’Onofrio that he would received his share but in the end he refused to honour his commitments; consequently, Mr d’Onofrio brought proceedings against Mr Frata for payment of the sum of FF 149,577.70, together with interest. His claim was upheld in the lower court.

----Whereas the appeal is brought against the judgment for confirming the lower court’s decision, although, it is pleaded, novation presupposes the existence of a debt to be extinguished and the creation of a new debt. Since, it is claimed, the appeal court based its finding of liability against one of the parties on the of a natural obligation, thus upholding novation whre there was no pre-existing civil law obligation, it infringed Article 1271 of the Civil Code; as the intention for there to be novation must be clear from the act;

----Whereas in upholding the existence of a novation the cour d’appel is said to have based itself on an interpretation of the record of a personal appearance by the parties and witnesses, thus infringing Article 1273 of the Civil Cod; as moreover, by finding there to be liability on the basis of a natural obligation mentioned in the notes of the hearing made by the plaintiff, it is said to have infringed Article 913 of the new Code of Civil Procedure; as finally the court, by placing reliance on those notes, infringed Article 16 of the new Code of Civil Procedure.

----Whereas however, in the first place, since Mr Frata argued in his pleadings that his commitment had no civil law consequences the plea cannot avail appellant as to its first two branches; as the transformation incorrectly referred to as a novation of a natural obligation into a civil-law obligation based on a unilateral promise to perform the natural obligation does not require the pre-existence of a civil obligation; as finally, the cour d’appel after finding that Mr Frata had tacitly waived the application of Article 1341 of the Civil Code in respect of which it correctly states that its provisions are not a matter of public policy, it is for that court to assess the scope of the evidence submitted to it;

----Whereas cour d’appel held therefore on proper grounds that Mr Frata had intened to transform his natural obligations into a civil law obligation from which it follows that the plea which is partly inoperative is also unfounded;

  On those grounds the appeal is dismissed.

Note

This judgment raises several interesting questions: the creation of a natural obligation by a commitment binding in honour, the transformation of the natural obligation into a civil-law obligation by means of a unilateral promise----and not by novation. German law has specific provisions dealing with promises of reward (§§ 657 et seq.) but under § 305 seems not generally to have recognised a unilateral promise. The reverse could be inferred from Article 1324of the Italian Civil Code.

 

BGB                                     1.G.9.

§657: A person who by public notice announces a reward for the performance of an act in particular for the production of a result, is bound to pay the reward to any person who has performed the act, even if he did not act with a view to the reward.

§658: (1) The reward may be revoked before the performance of the act. The revocation is effective only if it made known in the same manner as the reward, or by special notice.

(2) The revocability may be waived in the notice of the reward; in case of doubt a waiver is presumed from the fact that a period of time has been fixed for the performance of the act.

 

The position under English law is more surprising. At first sight the question does not arise because there can be not unilateral promise in the absence of consideration. However, according to a celebrated judgment, the promise of reward give rise to a unilateral contract, that is to say in the English sense of the term, a contract which is accepted by the performance of an act, Carlill v. Carbolic Smoke Ball Company. This should be contrasted with the German rules. However the rule of English law does not apply where the recipient did not know of the promise of reward at the outset.

  Thus the legal uncertainties in this matter may be noted. The Dutch Civil Code (NBW) does not seem to deal with this questiondirectly.

 

 

Extracted from Cases, materials and teext on Contract law, by Hugh Beale

some explanations inside the brackets are from Black Dictionaty