Understanding Contractual Obligations and Rights in European Law, Exams of Law

Download Understanding Contractual Obligations and Rights in European Law and more Exams Law in PDF only on Docsity! CHAPTER 2. OBLIGATION AND DUTY 2 Main concerns I. THE AMBIGUOUS USE OF THE TERM ‘OBLIGATION’ The term ‘obligation’ is widely used. Depending on the context, the use of the word leads to an univocal meaning or to ambiguous meanings. For instance, the term ‘obligation’ in the singular or ‘obligations’ in the plural is univocal when it refers to what one party has agreed to perform under the terms of an agreement. In this sense, the positive counterpart of the obligation is the right (‘rights and obligations’), that is to say what the creditor is entitled to receive from the debtor. This is a classical view of the term ‘obligation’ seen as ‘a tie which exists between at least two individual persons which enables one person to request something from the other’1. The obligation should therefore be perceived as including a legal tie, a legal tie between at least two persons and a coercitive power enabling the enforcement of the obligation. It should be distinguished from the chose in action which is ‘the anticipation of the objective economic result expected from the performance of the obligations’2. In this context, it would seem preferable to focus on the term ‘obligation’ exclusively. Other uses of the term ‘obligation’ would however appear ambiguous. Firstly, an ambiguity occurs when the term ‘obligation’ is used to refer to the contractual relationship between the parties. It would be preferable to refer to the global contractual relationship by the term ‘contract ’ or, in order to avoid any ambiguity, with wording such as ‘the relationship between the parties’. Such a clarification would result in the parties having to fulfill obligations under the terms of the relationship which holds them together. It would therefore be superfluous to specify that the parties are under ‘contractual obligations’. Secondly, the use of the term ‘obligation’ is ambiguous in French when it is understood as meaning one of the terms and conditions of performance for the obligations undertaken by the parties. Thus, the article 7:105 of the Principles of European contract law (PECL), entitled ‘obligation alternative’ in French, deals with ‘prestations alternatives’ in the body of the text, translated into English as ‘alternative performance ’. In this context, the term ‘obligation’ could simply be replaced with the term ‘performance’ (‘exécution’ in French). Thirdly, it should be noted that the term ‘obligation’ is used in a haphazard way to refer to the delivery of property. Without going into a detailed analysis of delivery, the reference to the term ‘obligation’ may not be entirely appropriate in this context. Finally, an ambiguity occasionally arises, not from the use of the term ‘obligation’ but from that of ‘engagement’ (in French). Indeed, although it is traditionally considered that consent finds its source in the freewill of the parties and that it is the origin of the obligations, it would appear that it is often used instead of such obligations. It would seem useful, in order to avoid ambiguities, to determine a standard use of vocabulary, particularly since the English 1 J. GHESTIN, M. BILLIAU, G. LOISEAU, Le régime des créances et des dettes, Traité de droit civil, LGDJ, 2005, n°4, p.3. This definition appears as a common basis for the various academic proposals. 2 J. GHESTIN, M. BILLIAU, G. LOISEAU, op. cit. n°6, p. 8. 5 Community framework for electronic signatures5: article 1 of this directive refers to the conclusion and validity of contracts and other legal obligations. In this case, the term ‘obligation’ designates the global legal relationship. However, as will be shown hereunder, most directives use the word ‘obligation’ to refer precisely to what the obligor has to do (as opposed to the rights held by the obligee). In the Rome Convention dated 19 June 1980 on the law applicable to contractual obligations6, the term ‘obligation’ refers to the global legal contractual situation between the parties. Thus article 1 sets out that the Convention rules apply to ‘contractual obligations’ in situation where a conflict of laws arises. However, in this instance also, it should be noted that the Rome Convention, in the provisions that follow, makes more use of the term ‘contract’ to refer to the global contractual relationship linking the parties (see for example, among a number of provisions, article 3 (‘a contract shall be governed by the law chosen by the parties […] ’), or article 4 (‘To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected […] ’)). Although the term ‘obligation’ used in article 1 does refer to the global contractual relationship between the parties, the report on the Convention7 does not dwell on this use of the word: in the general presentation of the genesis of the Convention it highlights that the efforts to harmonize private international law focused on certain areas considered as being essential, and in particular the field of contract law (point 1 of the report introduction). The reference to contractual obligations in the very title of the Convention should be understood in this way (it is worth remembering that the Convention was initially intended to cover the law applicable to ‘contractual and non-contractual obligations’, but was finally limited to the former, the latter becoming the subject of a draft regulation dated 22 July 2003 on the law applicable to non- contractual obligations). Much more frequently, the term ‘obligation’ is used to designate what the obligor must carry out in favour of the obligee. In this narrow sense, the texts usually use the term ‘obligation’ in French, whilst the English versions would appear to vary, referring, indifferently to ‘obligation’ or ‘duty’. B. A frequent use to refer to what is due by the obligor to the oblige The use of the term ‘obligation’ or ‘duty’ refers, in this case, in a narrow and technical sense, to what each party to the contract should do. Many texts, both of European (1) as well as international origin (2), show evidence of this use. 1. Texts of European origin Evidence of this use can be found in soft law such as PECL as well as in secondary legislation, the Rome Convention and the European Convention for the protection of Human rights (ECHR Convention). 5 OJEC L 13 of 19 January 2000, p. 12. 6 OJEC n° C/27 of 26 January 1998, p. 34. 7 Report on the convention on the law applicable to contractual by M. GIULIANO and P. LAGARDE, OJEC n° C 282 of 31 October 1980, p. 1. 6 In PECL, articles 1:201 and 1:202 set out the general duties of the parties: duty of good faith and duty to cooperate8. Article 2:301 refers to the duty of confidentiality. These references aside, PECL make use of the terms ‘contract’ and ‘obligation’. The latter, frequently recurrent, is used to define what each party owes to the other under the terms of the contract. Numerous examples of such use can be found: article 6:101 (statements giving rise to contractual obligations) – article 6:102 (Implied terms (‘obligations implicites’ in French) – article 6:111 (fulfillment of a party’s obligations in the event of a change of circumstances – article 7:101 (place of performance of a contractual obligation) – article 7:105 (alternative performance of an obligation) – articles 8:101 et 8:103 on the non-performance of obligations – article 9:101 (monetary obligations) – article 9:102 (remedies available to the aggrieved party in the event of the defective performance of non-monetary obligations) – article 9:305 (effects of termination on the parties’ obligations) – articles 10:101 to 10:205 (plurality of parties) – article 11:303 (effect of assignment on debtor’s obligation) – article 16:101 (conditions). In Community secondary legislation, a large number of directives dealing with consumer protection use the word ‘obligation’. Reference is generally made to ‘rights and obligations’ together: rights of the consumer, at the heart of the legislation, and correlatively, obligations imposed on the professional generally. The common objective of these texts is to ensure a minimal level of harmonization between Member State laws in relation to consumer protection, in order to facilitate the organization and operation of the internal market. For example, in Directive 2005/29/CE dated 11 May 2005 concerning unfair business-to- consumer commercial practices in the internal market9, article 2 defines a ‘product’ as including, inter alia, rights and obligations. This directive amends Article 9 of Directive 2002/65/CE so that it exempts the consumer from any obligation in the event of unsolicited supplies. Annex 1 lists commercial practices which are in all circumstances considered unfair. Points 25 and 26 relate to visits to the consumer’s home or persistent and unwanted solicitations except where national law allows the professional to carry out such practices to enforce a contractual obligation; point 31 relates to creating a false impression of a prize or gift which the claiming of such prize or gift is subject to the consumer paying money (in French, subject to an obligation to pay money). Directive 97/7/CE of 20 May 1997 on the protection of consumers in respect of distance contracts10 lists in its article 5 the supplier’s information obligations. Article 6 provides that the consumer may withdraw in the event of a failure to fulfill these obligations. In Directive 2002/65/CE of 23 September 2002 concerning the distance marketing of consumer financial services11, articles 3.4 and 5 impose pre-contractual information obligations on the supplier. Article 9 exempts the consumer from any obligation in the event of unsolicited supplies, the absence of a reply not constituting consent. Article 5 of Directive 85/577/CEE of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises12 provides that in the event of the consumer renouncing the effects of his undertaking, he shall be released from any obligations under the cancelled contract. 8 See also the comments at point B below. 9 OJEU n° L 149 of 11 June 2005, p. 22. 10 OJEC n° L 144 of 4 June 1997, p. 19. 11 OJEC n° L 271 of 9 October 2002, p.16. 12 OJEC n° L 372 of 31 December 1985, p. 31. 7 In Directive 94/47/CE of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis13, recital 9 states that it is necessary to stipulate minimum obligations with which vendors must comply. The body of the text defines the rights of the purchasers (and therefore correlatively the obligations of the seller). Under the provisions of article 3.1 of Directive 93/13/CEE of 5 April 1993 on unfair terms in consumer contracts14, an unfair term is defined as a term which causes a significant imbalance in the parties' rights and obligations. The annex refers to rights and obligations of the parties a number of times15. Directive 1994/44/CE of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees16 emphasises the rights of the consumer. It specifies that the vendor must deliver goods which are in conformity with the contract of sale [and provide a guarantee]. Finally, Regulation n° 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters17 provides in article 5.1 that a person domiciled in a Member State may be sued in another Member State ‘in matters relating to a contract, in the courts for the place of performance of the obligation in question’. The term ‘obligation’ refers to what is owed by the defendant to the plaintiff. Article 1 of the Rome Convention defines the material scope of the rules of the Convention. Paragraph b excludes in particular ‘ contractual obligations ’ relating to wills and succession, rights in property arising out of a matrimonial relationship, rights and duties arising out of a family relationship, parentage, marriage or affinity, including maintenance obligations in respect of children who are not legitimate; are also excluded (article 1.c) ‘obligations’ arising under negotiable instruments to the extent that the negotiable character of these instruments is in question. Article 10, relating to the scope of applicable law, provides that the law applicable to a contract shall govern in particular performance (article 10.b) and the various ways of extinguishing obligations (article 10.d). Articles 12 and 13, which deal respectively with the assignment of debts and subrogation, refer to the obligations between the assignor and assignee (article 12.1) and the obligation for a third party to satisfy the creditor (article 13.1). In these various provisions, the term ‘obligation’ is clearly used to refer to what each party owes to the other under the terms of the contract between the parties (see in particular article 10.d. above). Article 6.1 of the ECHR Convention provides that ‘in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law (…)’. The English version refers to ‘civil rights and obligations’, which is a notion more concerned with the distinction between private rights and public rights, distinction which is required for the application of the Convention. From this point of view, the word ‘obligation’ is not used in such a technical and narrow sense as described above: the expression ‘rights and 13 OJEC n° L 280 of 29 October 1994, p. 83. 14 OJEC n° L 95 of 21 April 1993, p. 29. 15 See in particular points b, e and o). 16 OJEC n° L 171 of 7 July 1999, p. 12. 17 OJEU n° L 12 of 16 January 2001, p. 1. 10 the assignee. The UNIDROIT Conventions on International Factoring and International Financial Leasing (both dated 28 May 1988), refer in their French version to the rights and ‘obligations’ of the parties (chapter 2 in each text) whilst the English version uses the terms ‘right and duties’. In this last example, the term ‘duty’ is used as a synonym of the term ‘obligation’: each party finds itself sometimes under ‘obligations’ (in French) or duties owed to the other party and sometimes the holder of rights. However, with regard to certain types of obligations, it is notable that preference is given to the term ‘duty ’. II. THE AUTONOMOUS USE OF THE TERM ‘DUTY’ Although, as was illustrated above, certain texts make use of the terms ‘obligation’ and ‘duty’ (‘obligation’ and ‘devoir’) as if they were synonymous, certain ‘obligations’ are almost always referred to by the term ‘duty’ or ‘devoir’. As was mentioned above regarding PECL and the UNIDROIT Principles, some obligations are almost always referred to as ‘duties’ in English, with the French version sometimes following suit with the word ‘devoirs’. Thus, legislation refers to the duty to act in good faith, the duty of cooperation and the duty of confidentiality. The most pronounced specificity is found in PECL which classify the duty to act in accordance with good faith and fair dealing and the duty to cooperate under a common heading: the ‘general duties’ of the parties. The question arises as to whether such a use is justified. Arguments in favour are based on one hand on the nature of the obligations in question (A) and on the other hand, on the sanctions arising out of a failure to comply with such obligations (B). A. Specific nature of the obligations The obligations to which these duties relate are standards of behaviour which imply a certain ethical code in the contract, a degree of solidarity between the parties. PECL gives them the status of general duties which permeate the more specific obligations of the parties. The comment under article 1:201 of PECL thus specifies that the ‘aim [of the concept of good faith] is to promote collective standards of good behaviour, of fairness and of reasonableness in economic transactions. It complements the provisions of the Principles and even takes precedence over them in cases where a narrow application of a provision would lead to a result which is obviously unfair’. It has been argued that the term ‘duty’ was different from the term ‘obligation’ in that the party to whom the duty is owed is not predetermined, whilst by definition the party entitled to the performance of the obligation is. Such a distinction is not entirely convincing: the party to whom are owed the various duties set out by PECL or by the UNIDROIT Principles is the contracting party: the duty to cooperate, for example, is expressly owed by each party to the other. B. Sanctions specifically applicable to the breach of a duty 11 The question arises as to whether the sanctions applicable to a breach of these duties is identical to the sanctions which apply for the breach of ‘classical’ contractual obligations. PECL would appear to suggest a distinction. Article 1:301 sets out the definition of the term ‘non- performance’. It refers to a failure to perform an obligation under the contract, delayed performance, defective performance and failure to cooperate. On that basis, one can query whether a breach of the duty to act in good faith, which is not referred to expressly, will entail the same sanction as the non-performance of a classical obligation under the contract. The answer to this question is not clear cut. It rests on the analysis of the notion of an ‘obligation under a contract’19. On the one hand, this can be seen as a very narrow notion, focusing on the non-performance of an obligation which arises specifically under the contract. On the other hand, it can be understood as a wide notion, which must include a breach of rules of behaviour implied by the contractual relationship. Finally, the last term which is recurrent both in texts of European origin and in those of international origin is that of ‘engagement’. III. SPECIFIC USE OF THE TERM ‘ ENGAGEMENT ’ (IN FRENCH) The word ‘engagement’ in French is ambiguous. Sometimes it designates the global contractual relationship between the parties, sometimes it refers to the mandatory character of the relationship between the parties. [There is no single translation for the word in English, as specified in the footnotes and the English versions of legislation use ‘ undertaking’, ‘obligation’ or ‘commitment’ depending on the context. In the interests of consistency, the French word ‘engagement’ has been adopted throughout the translation]. The term ‘engagement’ in French is much less frequently used than the terms ‘duty’ or ‘obligation’20. It is used in international banking operations in which the bank undertakes (‘prend l’engagement’) to pay in particular in documentary credit operations21. In this context, it does not appear that the term ‘engagement’ should have a different meaning from the term ‘obligation’. The use of this term in the context of the above mentioned Regulation n° 44/2001 would appear more specific. Its use arises from the interpretation made by the European Court of Justice (ECJ) of the notion of ‘ matters relating to a contract ’ referred to in article 5.1 of this text. The ECJ took the view that this notion was independent and should be understood as an ‘obligation which is freely assumed by one party towards another’ (‘engagement librement assumé’ in French). Such an interpretation is justified, according to the ECJ, by the objective of strengthening the legal protection of persons referred to in the Regulation22. The ECJ has 19 See also article 8.101 which allows the aggrieved party to resort to the remedies set out in chapter 9 when the other party does not perform an obligation under the contract. 20 See also the analysis of the distinction between the term « engagement » and the term « contract » in the document analysing the term « contract ». 21 See, for example, article 3.a of the UCP relating to documentary credit which refers to the « engagement » on the part of the Bank to pay or article 9.a which defines the obligations of the bank with regard to an irrevocable documentary credit. 22 See in particular CJEC Jakob Handte C-26/91 of June 17, 1992. 12 applied this notion several times without seeking further to clarify the abstract phrase23. The term ‘engagement’ emphasises the voluntary character of the contractual relationship24. This notion appears to differ from the classical notion of obligation: there has to be a contractual relationship between the plaintiff and the defendant, out of which obligations arise. The ECJ itself however moved away from this conception in a case where it had to decide whether the promise by a mail order company to award a prize to a consumer could be considered as contractual in nature: The ECJ took the view that it could, on the basis that there existed an ‘obligation freely assumed’ by the company which had taken the initiative of sending a letter to the consumer, which obligation was the basis for the claimant’s action25. Comparative Law No matter which country is in question, it is usual to identify different meanings attributed to the notion of ‘obligation’26. It sometimes refers to the legal relationship existing between two or more persons, in accordance with which a person, the obligor must perform its obligations (‘vinculum juris’ – specific term in German law , ‘schuldverhältnis’) as regards the obligee. But the ‘ obligation ’ also refers to what is due by the obligor to the obligee as a result of the contractual relationship, it is then often presented as being synonymous with the notion of ‘duty’. The fact that the term ‘obligation’ should be interchangeable with the term ‘duties’ or even ‘liabilities’ reveals terminological inconsistencies (I). On this point, this observation matches those made in relation to the Acquis Communautaire and Acquis International. However, in certain particular contexts, the term ‘duty’ is given preference over the term ‘obligation’. (II). Nevertheless, a common base for the specific use of the terms ‘obligation’ and ‘duty’ would appear to be emerging (III). Finally, a clarification of the notion of ‘engagement’, often used improperly instead of ‘ obligation ’ would seem necessary (IV). I. THE INTERCHANGEABLE USE OF THE TERMS ‘OBLIGATIONS’ AND ‘DUTY’ Under American law and English law, as under French law, an informal consensus would appear to have emerged, to the effect that the terms ‘duty’ and ‘obligation’ are synonymous. In the American Uniform Commercial Code (hereafter UCC) it is apparent that the terms ‘obligations’, ‘liabilities’ and ‘duties’ are used interchangeably in order to refer to what one party is required to do in favour of another. The following expressions are used: ‘rights and 23 It is probable that the type of appeal made to the Court on these questions of interpretation was not without incidence on the decision. 24 See also our comments on the document relating to the analysis of the term « contract ». 25 CJEC Petra Engler C-27/02 of January 20, 2005, in particular recitals 50, 51 and 52. 26 For a historical approach of the notion, see in particular, Ph. STOFFEL-MUNCK, L’abus dans le contrat. Essai d’une théorie, Préf. R. Bout, LGDJ, 2000, n°145 and following; J. GHESTIN, M. BILLIAU, G. LOISEAU, Le régime des créances et des dettes, LGDJ, 2005, n°3 and following. 15 ‘obligation’ rather than ‘duty’39. This difficulty with terminology has been increased, these last few years, by the discovery of pre-contractual obligations of information, or to act in good faith. The breach of these ‘obligations’ is in principle actionable under the principles of tort: whether it be the breach of an obligation created by statute or by the courts, the obligations do not arise under the contract. Therefore it could be argued that the use of the term ‘obligation’ is not appropriate and that the term ‘duty’ should be chosen40. And yet, both in judgments and in various works on civil law, references are made indistinctly to ‘obligation and/or duty to advise’, ‘obligation and/or duty to inform’, ‘obligation and/or duty of good faith’ as well as the usual corollary ‘duty and/or obligation to act fairly’… Caselaw has also made this confusion and, in relation to the ‘obligation’ of information, the Cour de Cassation (Highest appeal court in France) has stated that ‘whatever the contractual relationship between a client and a bank, the bank has the duty to inform him of the risks taken… ’41. In German law, the legislative texts and academic writings hardly ever refer to the traditional Gernan word ‘obligation’, despite the fact that such term was in regular use among the drafters of the BGB who had a solid Roman law training. Instead, several terms are used including the term ‘Schuldverhältnis’ which, as is the case with the term ‘obligation’, can take on two different meanings. The ‘ Schuldverhältnis ’ is used in a wider sense, explained in § 241 BGB (used for example in §§ 273 (1), 292 (1), 314 (1), 425 (1)), when it refers to the legal tie between the obligee and the obligor and is the source of ‘ancillary’ duties of information, of safety, and in a more general way, of respect for the rights and interests of the other party ((§ 241 (2) BGB). The breach of these duties gives rise to a liability labelled as contractual. The BGB also contains reference to a ‘Schuldverhältnis’ in a narrow sense, used in §§ 362, 364 et 397 BGB, when it designates the obligation alone, without the ancillary duties. But the term is no longer used by academics in this narrow sense. This ‘Schuldverhältnis’ can arise out of a contract, a tort, an unjust enrichment, but also out of property law (for ex. the actio rei vindicatio (§ 985 BGB) or the actio negatoria (§ 1004 BGB)) or out of family law (for ex. the right to food or to an allowance). Both in European texts and in PECL, the term ‘Schuldverhältnis’ is never employed, which is not surprising bearing in mind the concept of ‘Schuldverhältnis’ in the wider sense is a feature specific to German law. The German versions of the above mentioned texts generally translate the term ‘obligation’ as ‘Verpflichtung’, sometimes also as ‘Pflich ’, ‘Verbindlichkeit’ or even ‘ Schuld ’, whilst ‘duty ’ is generally translated as ‘Pflicht’. In German legal terminology, the two terms ‘Verpflichtung’ and ‘Pflicht’ are synonymous, and refer to the opposite of a ‘Recht’ (right). Indeed, the BGB refers to the ‘Verpflichtung zur Leistung’ (cf the title before § 241) and, such third party may claim compensation for such damage on the basis of articles 1362 to 1366. He then becomes subject to all the limitations and conditions which bind the creditor in seeking reparation for his own damage. He may also obtain compensation on the basis of extra-contractual liability, but must then prove the cause of the damage in accordance with articles 1352 à 1362 ». However, article 1352 sets out, as a source of tortious liability « the infringement of a rule of conduct imposed by law or a breach of a general duty of pudence or diligence ». 39 The Commercial chamber seemed attached to a strict distinction between the two. 40 Along the same lines, Ph. JACQUES, Regards sur l’article 1135 du Code civil, Preface. F. Chabas, Dalloz, 2005, n°390 and following, spec. n°390-1, p. 832. 41 Cass.com., 18 May 1993, Bull.civ.IV, n°188. 16 without any difference, to ‘Leistungspflicht ’ (cf the title of § 275). However, the terms ‘Verbindlichkeit’ and ‘Schuld ’ which are also synonymous, can only refer to obligations to perform something concrete, not to an abstract behaviour. These are therefore the negative counterparts of the ‘Anspruch’ (claim) (and which, in fact, can also refer to debts). The terms ‘Verbindlichkeit’ and ‘ Schuld ’ are therefore more specific terms than ‘Pflicht’ ou ‘Verpflichtung’, which means that every ‘Verbindlichkeit’ (or ‘Schuld’) is at the same time a ‘Pflicht’ or ‘Verpflichtung’. For example, the contractual obligation to perform is referred to in the BGB ‘ Leistungspflicht ’ or ‘Verpflichtung zur Leistung’, but also ‘Schuld’ or ‘Verbindlichkeit’, whilst there is no ‘Verbindlichkeiten’ or ‘Schulden’ to ensure safety, but only ‘Schutzpflichten’ or ‘Informationspflichten’, which may, for linguistic reasons, also be ‘Verpflichtungen zur Information’ without any change in content. Moreover, the use of the terms ‘Pflicht’ and ‘Verpflichtung’ is not limited to legal language, but can also be found in a moral context (the two terms are not even listed as technical terms in Creisfelds’ Rechtwörterbuch), whilst ‘Verbindlichkeit’, ‘Schuld’ and ‘Schuldverhältnis’ are strictly legal terms. These various observations lead to the impression that the two notions – obligation and duty – are not easily distinguishable and not in fact clearly distinguished. However, it would seem possible to identify a specific use of the term duty. II. AN INDEPENDENT USE OF THE NOTION OF ‘DUTY’ / ‘DEVOIR’ Under American law, a group of scholars argues for a differentiation of the terms obligation and duty. For instance, professor Wesley Newcomb HOHFELD, who devised the terminological system known as ‘Hohfeldian terminology’42 recommended a specific use of the terms. He proposed in particular that, in order to refer to a claim or rather to its opposite – that is to say to the debt owed by one party to the other – one should not talk of ‘rights and obligations’ or of ‘rights and liabilities’ but rather of ‘rights and duties’. American caselaw sometimes echoes these proposals. For example, the term ‘duties’ or ‘duty’ is consistently made use of by the judges in the application of the ‘implication’ theory, which finds the existence of a ‘duty of good faith’43 or a ‘duty of best efforts’44. Under French law, the distinction made between obligation and duty is essentially academic, but is sometimes applied by the courts. This distinction is based on three main criteria. The first criterion relates to the nature of the liability incurred in the event of a breach: a breach of duties would entail a liability under the principles of tort, whilst a breach of obligations would be sanctioned under the rules of contract. The second criterion relates to the area covered by the performance to be made by the obligor. The distinction would then be based on the identification of the person for whose benefit the obligor is performing: the obligation would only bind the parties to the contract, whilst duties could also benefit third parties who could have a claim in the event of a breach. The third criterion is concerned with the effects of the contract. Effects can be classed into two categories45: General effects which occur independently from the 42 This system is described in W.N. HOHFELD, Fundamental Legal Conceptions, New Haven, Yale University Press, 1919. 43 Anthony’s Pier Four v. HBC Assocs., 583 N.E. 2d. 806 (Mass. 1991). 44 Milau Assoc. V. North Ave. Dev. Corp., 368 N.E.2d 1247 (N.Y. 1977). 45 On this point, see. D. MAZEAUD, note under Civ. 3ème 14 September 2005, D. 2006.761. 17 nature of the contract and effects which are specific to each contract. If the contract is intangible and irrevocable, it must come into existence, be entered into and implemented fairly: its effects go beyond the performance under the contract and impose general duties on the parties before, during and after the contract. As noted by Prof. MAZEAUD, ‘in addition to the specific obligations to which they have agreed, the parties are bound, as they would be by law, by standards of legal origin which constitute a general framework inside which such obligations will be implemented’46. In accordance with this principle, the so-called ‘obligation’ of good faith which is imposed on the parties under the terms of article 1134 al. 3 of the Civil Code would merely be a reminder of a wider requirement to behave fairly, a rule of good behaviour in society, which should be generally complied with, whether or not a contract is in existence47. Following the same ideas, the ‘obligation’ to ensure safety, the ‘obligation’ of information, of warning or advice, which have been added, inter alia, to the mandatory content of a contract, are part of this ‘general framework’ inside which every person must meet a ‘basic standard of behaviour’48, a ‘general standard of civility’49; in other words, every person has ‘a general duty of good behaviour, which is the equivalent of the general duty of prudence and diligence described by H. and L. MAZEAUD50, and which finds an expression in the Civil Code’51, in particular in articles 1382 and 1383. Indeed, it had been noted that these obligations are imposed primarily on professionals as a standard which is inherent to their profession, whether or not a contract is entered into (such a contract ‘would only have the consequence of bringing into effect pre- existing professional rules’52). 46 Ibid, n° 8, p. 763. 47 The same questions seem to arise in Belgium. Indeed, if the third Civil Chamber of the Cour de cassation, in a judgment dated 19 September 1983 (RCJB 1986, 282, note. J.-L. FAGNART), clearly designates article 1134 para 3 of the Civil Code as the basis for the breach of a contractual right, the authors raise the question of the existence of « a more general principle of liability, with articles 1134 para.3 and 1135 of the Civil Code being the translation into the field of contract of such principle ». 48 M. PUECH, L’illicéité dans la responsabilité civile extra-contractuelle, LGDJ, 1973, n°31 and following cited by G. VINEY, P. JOURDAIN, op. cit. n°473, p. 413. 49 J. DARBELLAY, Théorie générale de l’illicéité, Friboug, 1955, n°69 and following cited by G. VINEY, P. JOURDAIN, op. cit. n°473, p. 413. 50 H. et L. MAZEAUD and A. TUNC, Traité théorique et pratique de la responsabilité civile délictuelle et contractuelle, t. I, 6ème édition, Montchrestien, n°103-109; H., L. et J. MAZEAUD and F. CHABAS, Leçons de droit civil, Montchrestien, 9ème édition, n°21. 51 G. VINEY, P. JOURDAIN, op. cit. n°473, p. 413. 52 G. VINEY, P. JOURDAIN, op. cit. n°515, p. 498. The authors note that this distance from the contract is even, in fact, in certain cases, officially established by caselaw. The courts now accept, for example, that the obligation to advise imposed on notaries, because of its « professional » nature, can only be actionable under the principles of tort, they refuse to « treat this duty as an implied obligation under a contract » and they turn it into « in any circumstance, an implied legal duty » actionable under the rules of tort (see J. DE POULPIQUET, La responsabilité civile et disciplinaire des notaires, LGDJ, 1974, Preface P.-A. Sigalas, n°160, p. 192 and n°155) ». 20 English notion of contract, essentially economical, tends to limit its content so that the parties are only bound by those obligations to which they have expressly agreed. However, the theory of implied terms allows the judges, to a limited extent, to find the existence of implied terms in a contract. There is however, a double limit to the judges’ power: on the one hand, the judges cannot imply a term which contradicts an express provision of the contract, and on the other hand, they must act on the basis of a legal basis which is threefold: ‘unexpressed intentions’, ‘importation of general civil obligations’ and ‘model contracts’. In practice, it is a standard of behaviour, ‘duties’ which are extra-contractual by nature, which are incorporated into the contract. It would therefore appear that under English law, a duty of legal origin can become an implied term in a contract. The obvious inconsistencies in terminology which occur in the use of the terms ‘obligation’ and ‘duty’ epitomize the difficulty caused by the theory of implied terms, which tends to impose on the parties various standards of behaviour (based on equity, usages or on the law) which are not expressly provided for in the contract. Extra-contractual matters are therefore brought into the contractual sphere and generate difficulties from a terminological point of view but also with regard to the question of how such standards should be treated legally (Should a breach of such standards be actionable in tort or in contract?). In order to deal with these difficulties, Quebec law adopts a position which is perfectly clear: For example, M. CREPEAU58, is of the view that certain ‘ancillary obligations’59 acquire ‘because they are fitted into the contractual mould, a contractual tint or qualification’. ‘Messrs BAUDOUIN and JOBIN60, do not hesitate to state that the breach of an obligation61 arising out of a contract, even if it is imposed by law, gives rise to the application of the rules governing contractual liability’62. Certain duties, the breach of which is generally sanctioned under the principles of tort, are therefore contractualized. Since 1994 and the new Quebec Civil Code – and in contrast with the large volume of civil liability litigation arising out of the provisions of the Civil Code of Lower Canada –, more and more obligations are implied, whether it be on the basis of the nature of the contract, of commercial practices, law or equity. This evolution is reminiscent of article 1135 of the French and Belgian Civil codes and would appear to share similarities with the Anglo-American theory of implied terms. Prima facie, the German distinction based on the subject matter of the obligation does not fit in with the theory outlined above. However, a more careful analysis shows that the difference with the proposed solution is not so significant. At the outset, the German system of civil liability is fundamentally different from the French and Common Law systems. There is in the BGB a strict distinction between the liability known as ‘contractual’, dealt with under §§ 241 (2), 280 (1) BGB and liability in tort, dealt with under §§ 823 and following BGB. This liability known as ‘contractual’ concerns not only the non performance or inadequate performance or an obligation, but also any breach of a duty of information or duty to ensure safety, including in respect of any injury or loss sustained by a party to the contract during the implementation 58 P.-A. CREPEAU, « Le contenu obligationnel d’un contrat », Rev. bar. Can. 1965.1, esp. p. 28, cited by Ph. JACQUES, op. cit. n°411, p. 872. 59 These are obligations which are ancillary to the contract and which find their source in article 1135 of the Civil Code. Ph. JACQUES, op. cit. 60 J.-L. BAUDOUIN, P.-G. JOBIN, Les obligations, 5ème édition, Yvon Blais, 1998, n° 813. 61 Our emphasis. 62 Ph. JACQUES, op. cit. n°411, p. 872. 21 thereof (for example, an injury caused by a banana skin on the floor of a shop on which a customer has skidded). Such duties are expressly dealt with in § 241 (2) BGB as arising out of ‘ Schuldverhältnis ’ in the wider sense: ‘Das Schuldverhältnis kann nach seinem Inhalt jeden Teil zur Rücksicht auf die Rechte, Rechtsgüter und Interessen des anderen Teils verpflichten’. (The ‘Schuldverhältnis’ may, depending on its content, oblige each party to respect the rights, the ‘Rechtsgüter’ (for example, property, health or freedom) and the interests of the other party). Moreover, according to § 311 (2) BGB, the mere fact that the parties have entered into negotiations with a view to concluding a contract constitutes this special tie named ‘Schuldverhältnis’ which gives rise to the same duties of information, to ensure safety and to act in good faith as those arising out of a contract: ‘Ein Schuldverhältnis mit Pflichten nach § 241 Abs. 2 entsteht auch durch 1. die Aufnahme von Vertragsverhandlungen, … (A ‘Schuldverhältnis’ giving rise to duties in accordance with § 241 (2) BGB will also be created when the parties enter into negotiations). The civil liability which arises out of a breach of such pre-contractual duties (‘culpa in contrahendo’) is therefore identical to contractual liability. However, liability in tort is also dependent on the breach of ‘allgemeine Verkehrspflichten’ (general duties) which constitutes a fault and which gives rise to an obligation (‘Verbindlichkeit’/ ‘Schuld ’): the obligation to pay damages. The theory – whether regarding terminology or content – is therefore identical: there are ‘Pflichten’ (duties without a corresponding right) which only trigger consequences in the event of their breach. This ‘consequence’ is an obligation, which this time is paired with a right. By noting that under French law as well as under the other laws under study, the result of a liability in tort is an obligation (imposed on the party found liable to pay damages to the victim) and that such a liability only arises in the event of a fault (therefore in the event of a breach of a general duty of good behaviour), a striking parallel appears between all these systems: the obligations (‘Verbindlichkeiten’) which correspond to a claim, that is to say their subject matter is an obligation the performance of which can be required by the obligee, and the duties (‘ devoirs ’, ‘Pflichten’) the sole aim of which is to avoid loss or damage on the part of the other party, by establishing standard of behaviour. These ‘duties’ are treated (under French law, Quebec law, and to a certain extent, under English law) as being of a legal (rather than contractual63) nature. Although there are clearly obstacles to a coherent use of the terms ‘obligation’ and ‘duty’ within the various legal systems (whether it be the source, the subject matter or the scope of the standard), it is necessary to reserve a specific use to each one, so that a uniformisation of their legal treatment should become possible. Although this is not a task which had been taken on by certain contemporary academics, it would appear that recent academic studies have attempted better to define the limits of these different notions64. Such works do not all reach the same conclusions, but it is positive that they should rekindle a debate which is gaining more weight at a time when the construction of European contract law is taking place. 63 Contra Ph. JACQUES, op. cit. n°408. 64 See inter alia, Ph. JACQUES, Regards sur l’article 1135 du Code civil, Dalloz, 2005 ; Y.-M. LAITHIER, Les sanctions de la rupture pour inexécution en droit comparé, LGDJ, 2004; Ph. STOFFEL-MUNCK, L’abus dans le contrat, Essai d’une théorie, LGDJ, 2000. 22 IV. TERMINOLOGICAL INCONSISTENCIES IN THE USE OF THE TERM ‘ENGAGEMENT’65(IN FRENCH) The term ‘engagement’ (in French) is used in a surprising variety of ways66. If the Principles of European Contract law67, the UNIDROIT Principles68 or even the Gandolfi Project69, do not refer to the term very much, it is frequently used under various laws. For example, the French Civil Code contains 48 articles which refer to it, the French Commercial Code has 108, the French Consumer Code 31, the Labour Code 127…Other Francophone laws are also familiar with the concept: For example, the Swiss Code of obligations refers to it 11 times whilst the Swiss Civil Code refers to it 7 times. Belgian law is also familiar with the term ‘engagement’, referred to in its various codes, as is the case for Quebec law. The term ‘engagement’ is, very often, used out of convenience, without being conceptualized70. However, it would appear that a common base can be determined regarding what is perceived by the notion of ‘engagement’, as perfectly illustrated by German law. Indeed, the terms ‘engagement’ and obligation are translated by the use of the same term ‘Verpflichtung’. Finally, it would appear that the source of the obligation, the ‘engagement’ and its result, the obligation, are de facto treated as one and the same. This observation is confirmed by the examination of certain provisions of French law and other Francophone laws, such as Belgian and Quebec law. The fact of treating the two the same, 65 Aside from the variations on the use of the term by the legislator or the courts, it would appear that the term « engagement » has aroused the interest of modern academics. Indeed, Mr. GHESTIN, in his work on the cause (consideration) (J. GHESTIN, Cause de l’engagement et validité du contrat, LGDJ, 2006, n°1) uses the term « engagement » with a new meaning. « The expression cause of the « engagement » aims first to emphasise, from a negative point of view, the appropriateness of avoiding inappropriate distinctions (…) made between the cause of the obligation and the cause of the contract. From a positive point of view, it means that consideration should be assessed in relation to all the « engagements » of the parties arising out (…) of a contract (…) ». This is the meaning which was adopted by the Pilot Project for the reform of the law of obligations and limitations, which takes the view that «the « engagement » seems more appropriate to name the act which gives rise to the contract understood as a legal or even economical, global operation, and not only, in an analytical way, to one or more obligations placed side by side » (J. GHESTIN, Introduction, Article 1124). 66 Legal « engagements » must be distinguished from moral « engagements », the first being sanctioned by law and the second not. It is traditionally taught that moral « engagements » fall within the field of lawlessness, or conscience and are not sanctioned by the law (see in particular, on this question, Ph. MALAURIE, L. AYNES, Ph. STOFFEL-MUNCK, Les obligations, Defrénois, 2005, n°439). However, a recent judgment seems to cast doubt on the assertion: Cass. com. 23 January 2007, n°05-13189, to be published at D. 2007, p. 442, obs. X. DELPECH ; CCE, n°4, April 2007, comm. 54 Ch. CARON; Contrats, conc. consom., n°4, April 2007, comm. 104, M. MALAURIE-VIGNAL: « By committing (s’engageant) itself, even morally, « not to copy » the products which were commercialised by a competitor, a company had expressed its unambiguous and deliberate intention to be bound with regard to its competitor ». 67 The main examples of use occur in articles 2:105 and 6:101. 68 The main examples of use occur in articles 3.8, 3.9 and 6.1.7. In the first two articles the term « engagement » appears to have been used in lieu of « consent». 69 The Gandolfi project uses the term « engagement » a little more frequently than the various other projects. It can be found in articles 48, 121, 144, 146… It is sometimes used to mean the source of the obligations, sometimes in lieu of the obligation itself. 70 See, however, C. GRIMALDI, Quasi-engagement et engagement en droit privé. Recherches sur les sources de l’obligation, Préf. Y. Lequette, Defrénois, 2007. 25 remains that from the point of view of terminology and meaning, the confusion is understandable. When the obligations are not performed, the ‘engagement’ which is at the source of such obligations is also not performed. The same observations can be made, for example for articles 1158 paragraph 2 or even article 1159. If the ‘engagement’ is the result of the exercise of freewill, it is the source of the obligation. However, as has been observed, the proposed distinction is not so clear in its terminological expression. In any event and despite a certain amount of uncertainty in the use of the words, it would seem that the term ‘engagement’ is regularly used to refer to the source of the obligations. The question does however remain as to how it should be distinguished from the notion of ‘contract’. B. Evidence of a specific use of the term ‘engagement’ as the source of the obligation Although in the relationship existing between an obligation and an ‘engagement’, the two are often confused, it remains that in a large number of instances, it is used specifically to mean the source of the obligation, often indistinguishable from the contract. A clarification should be made in this respect. The term ‘engagement’ is frequently used in lieu of the term ‘contract’. This substitution is not intrinsically wrong in that the contract ‘is the result of two unilateral acts since it is the result of two ‘engagements’, that of the offeror and that of the offeree, two unilateral ‘engagements’ which will become a contract when they meet’81. So that when the term ‘engagement’ is used instead of the term ‘contracts’, it is an involuntary but nevertheless inappropriate ellipsis. Indeed, the ‘engagement’ is necessarily unilateral ‘because it emanates from one sole individual ’82 – and the addition of the adjective ‘unilateral’ to the term ‘engagement’ would appear pleonastic. That is why it is important that when legislators, judges and academics replace the word ‘contract’ with the word ‘engagement’, they should qualify it with the adjective ‘contractual’83. Without this qualification, there remains a doubt as to the nature of the ‘engagement’: unilateral or contractual. The following paragraphs will examine the use of the term ‘engagement’ used instead of the term ‘contract’ but also in a more ambiguous sense in which the term can also be understood to have a unilateral meaning. Under French law, the new article 435 paragraph 2 of the law n° 2007-3080 dated March 5, 2007, provides that ‘the acts which [the person placed under the protection of the courts] has carried out and the ‘engagements ’ which such person has contracted during such placement can be rescinded on the basis of loss or reduced if they are excessive, even though they cannot be cancelled under the terms of article 414-1’. In the same way, article L. 210-6 of the Commercial 81 C. GRIMALDI, Quasi-engagement et engagement en droit privé. Recherches sur les sources de l’obligation, Pref. Y. Lequette, Defrénois, 2007, n°600. 82 Ibid. 83 We refer the reader to the work relating to the notion of contract and the relationship between this notion and that of « engagement » and in particular that of unilateral « engagement ». It should however be made clear that a unilateral « engagement » is sometimes considered to be the direct source of the credits and debts without the intermediate step involving the creation of an obligation (see generally on this question, J. GHESTIN, M. BILLIAU, G. LOISEAU, Le régime des créances et des dettes, Traité de droit civil, LGDJ, 2005, n°103 and following; C. GRIMALDI, Quasi-engagement et engagement en droit privé. Recherches sur les sources de l’obligation, Preface. Y. Lequette, Defrénois, n°937, p. 430. 26 Code provides in paragraph 2 that ‘persons who acted in the name of a company before its incorporation are held jointly and indefinitely liable for the acts so performed, unless the company, once it is duly incorporated and registered, takes over such ‘engagement ’. These ‘engagements ’ are then deemed to have been contracted by the company ab initio.’. In the same spirit, article L. 210-9 of the Commercial Code provides, in its first paragraph, that ‘neither the company, nor any third parties may refuse to honour such ‘engagements’ (…)’84. The pilot project for the reform of the law on obligations and limitations also occasionally uses the expression ‘engagement’ in lieu of the term ‘contract’, as evidenced for example by the drafting of article 1172-285 which provides that ‘however, certain clauses which appear in one of the contracts apply to the parties to the other contracts, provided such parties were aware of such clauses at the time of their ‘engagement’ and did not express any reservations ‘. The term ‘engagement’ is also used in ways which are ambiguous in that they could be referring to the term ‘contract’ as well as to the unilateral ‘engagement’. In any event, these different examples reveal that the term ‘ engagement ’ is used to mean the source of the obligation, or even of the claim. Thus, article 1116 provides that ‘in order to be valid, an ‘engagement’ requires the contracting party to be capable of enjoying or holding a right ’86. Article 1182 paragraph 2 provides that: ’ in the event of the fulfillment of the condition, the obligation is deemed to have existed from the date the ‘engagement ’ was contracted’87. In this instance, if it can be considered that the article could apply to a unilateral ‘engagement’, the use of the verb ‘to contract’ is likely to introduce some uncertainty as to the scope of the article. Under Belgian law, article 1125 of the Civil Code provides that ‘a minor and a person under judicial disability may not claim incapacity in order to avoid their ‘engagements’ except in the cases provided for by law ’. Similarly, article 1185 of the same code provides that ‘ the term differs from the condition, in that it does not suspend the ‘engagement ’ but merely delays its fulfillment’. Under Swiss law, the Civil Code provides in its article 779 l (2) that: ‘It [the building lease] may be extended at any time, in the form which is prescribed for its constitution, for a new maximum term of one hundred years, but any ‘engagement’ made in advance in this respect is void’. It would not appear that the code refers here to the obligation in its various meanings but rather to the ‘engagement’ which is its origin. Due to the lack of precision of the term, the reference could just as well be a reference to a unilateral ‘engagement’ as to a contractual ‘engagement’. Along the same lines, article 7(1) of the Code of obligations, entitled ‘Offer without engagement and public offer’ provides that: ‘The offeror is not bound if he made express reservations or if his intention not to be bound arises either out of the circumstances or out of the nature of the offer’. In this hypothesis, it would appear that an expression of freewill and consent, understood as the intention to be bound, should be distinguished. If the offeror does not agree to fulfill the obligation towards the offeree, that is to say he does not subscribe to any ‘engagement’, it could be considered that this ‘ offer without ‘engagement’’ is a mere invitation to treat, without any mandatory force because there is no intention to be bound. In any event, it would appear that this article of the Swiss Code of obligations only refers to the source of the 84 The English translations of the term « engagement » in these instances use the term « obligation ». 85 The English translation of the text uses the expression « global undertaking ». 86 Here, it is the term « convention » which was chosen to translate the term « engagement ». 87 Here, it is the term « commitment » which was chosen to translate the term « engagement ». 27 obligation and not to the obligation directly. Article 40 b follows the same logic, when it states that when the ‘engagement’ was contracted in certain circumstances, whether it is an offer or an acceptance, such ‘engagement’ can be revoked. Article 497 (3) of the Code of obligations provides that: ‘if the creditor knew or could have known that the guarantor had agreed to the guarantee on the assumption that the same debt would be guaranteed by other guarantors, the guarantor is not bound by his agreement if this assumption proves wrong or if, at a later stage, one of the guarantors is released by the creditor or if his ‘engagement’ is declared void’. In this case, the term ‘engagement’ is used instead of the term ‘contract’. Under Quebec law, article 1574 of the Civil Code provides in paragraph 2 that: ‘They [the offers] may also by made by the production of an irrevocable, unconditional ‘engagement’ with an indefinite term, subscribed by a financial institution exercising its activities in Quebec, to pay to the creditor the sum which is the object of the offers if such creditor accepts them or if they are declared valid by a tribunal’88. If conceptually, ‘engagement’ and ‘obligation’ can clearly be distinguished, the latter being the source of the other, it remains that the way they are used shows a certain confusion between the two. If it is evident that such confusion is regrettable with regard to clarity and precision, it would appear that it is comprehensible and does obscure the meaning of the provisions in question. A reservation should however be expressed. It is really in its relationship with the term ‘contract ’ that the term ‘engagement’ causes the most difficulty. Indeed, if it is interpreted as being at the very origin of the obligation or the claim, the elliptical use of the term introduces some doubt as to the scope of the rule: is the particular provision applicable to contractual ‘engagements’ (to contracts) or can it also be applied to unilateral ‘engagements ’? Finally, the need to clarify the meaning given to the term ‘engagement’ is particularly important in view of the fact that English translations of this term are varied and cannot be ordered in any way. 88 Here, the English translation uses the term « undertaking » to translate the term « engagement ».