introduction to the legal system 2nd partial, Dispense di Diritto Privato

Scarica introduction to the legal system 2nd partial e più Dispense in PDF di Diritto Privato solo su Docsity! UNIT 12: FORMATION OF CONTRACTS Process of formation of contract: French civil code art.1113: “A contract is formed by the meeting of an offer and an acceptance by which the parties demonstrate their will to be bound. As such, offer and acceptance are conceived as declaration of willingness issued by each party and dispatched to the other one". [A contract, in civil law jurisdictions, is a meeting of consents/wills (agreement)]. A contract sets forth the will to be bound to certain obligations to other parties and to establish a legal relation which will perform a change in rights and duties of the parties. The process of formation of contracts is circular: Offeror makes an offer to the offeree who has to accept (acceptance) the offer. The process of formation of contracts can therefore be split into two: - Offer - Acceptance OFFER: We refer to the person and legal subject who triggers the formation of the contract as offeror. Process of formation of contracts begins when the offeror issues an offer to the offeree. Offeree has to decide whether enter or not into this relationship and he is given time to think over the proposal. Offeree agrees —> issues an acceptance: communicate to the offeror his acceptance of the offer. —> Offeror triggers the process, offeree allows to close it. An offer is a proposal that must include basic elements of the contract to be considered such: - It is intended to result in a contract if the other party accepts it, and (intention to be bound) - It contains sufficiently definite terms to form a contract (requirement of definiteness) (good at stake and money required to conclude the contract). Acceptance: the offeree manifests his will to accept; the acceptance must be in line with the offer: - Yes I accept - Or it should contain the identical elements of the offer. ex. “Do you want to buy iPhone X for 1000$? —> this is an offer -Yes -yes I want iPhone X for 1000$ Offer/ invitation to treat: Offer or just tasting the possibility of actually giving the car for that amount? —>Preliminary discussions and incomplete proposals do not amount to offers, but remain mere invitations to treat (discuss). 1. Is A actual’s intention that of selling the item? Or is he kidding? Can the intention to be bound be found in the text? If the will to be bound is not clearly expressed, we are probably of 1 48 dealing with an “invitation to treat”—> a phase of the negotiation: just trying to find out whether there is the possibility for a contract or not. 2. B can accept or say he would buy the item for that amount, in this last case we deal with a potential offer and a counteroffer. 3. Is the item to be put in the contract (namely, the good at stake) clearly identified in the message? Are we sure about which car is A talking about? Otherwise not an offer. 4. Is the price specified? Or should it be negotiated afterward? • Are Newspapers advertisement invitation to treat or offers?
 in the newspaper there are pictures of the good at stake (clearly specified which the good it). • Can the reader trust completely on the advertisement? i.e. If he were to contact the seller, could he accept the offer? • Does the advertisement mention the price? • Offer made to the public at large: • if the advertisement is complete, we can treat it like an offer. Advertisement is often an invitation to treat, but it could be seen as an offer if it contains all the basic elements to be considered as such (good mentioned, price and explicit will to sell). Case of “Pharmaceutical Society of Great Britain vs. Boots Cash Chemists” in 1953. Display of goods in shop window or supermarket shelves: is that an offer? If I pick the product am I accepting and concluding the contract or not? The defendant ran a self-service shop in which non-prescription drugs and medicines were sold. They were displayed on open shelves from which they could be selected by the customer and placed in a shopping cart, and taken to the till where they would be paid for. The till was operated by a registered pharmacist. The claimant said that the store broke a section of a pharmaceutical act which states that there needs to be the supervision of a registered pharmacist for the sale of any item in the list, which is stated in the act. The issue was whether the contract of the sale was concluded when the customer selected the product from the shelves (in which case the defendant was in breach of the Act due to lack of supervision at this point) OR when the customer went to the till and paid (in which case there was no breach because the person allowing the transaction was a registered pharmacist). The court sides with Boots and says that simply picking up a good doesn’t pass the ownership to the person who simply picked it up. If it is just an invitation to treat, the offeror is more free because afterward he will be able to choose whether enter or not and he will be able to make a counteroffer. Choice made by the legal system on how to qualify these cases represents the choice of the legal system of who should be protected between the contracting parties. How do common and civil law jurisdiction treat these situations? Civil law jurisdictions tend more easily to acknowledge offers made to the public at large to protect the reliance/trust of the client in the market. The answer is given by the Draft Common Frame of Reference which summarizes the decision on the issue taken by most countries.“A proposal to supply goods from stock, or a service, at a stated price made by a business in a public advertisement or at a catalogue, or by a display of of 2 48 The knowledge rule explicits the will of civil law legal systems to pursue the interest of the addressee. Case: example of the postal rule: Adams v. Lindsell (1818): A contract for the sale of wool fleece was at issue. Timeline: 2 September: Lindsell (offeror) writes to Adam (offeree) to sell wool. Lindsell required expressed acceptance by September 7 in the form of post: mailed response 5 September Adams accepts the offer right away as he receives the mail, and sends back the mail. 8 September, offeror sells the wool fleece to another buyer, no contract was issued because he hadn’t received the mail. One day after, 9 September, Lindsell receives the letter but the wool had already been sold. Lindsell argued there was no valid contract because no news was received by the deadline —> postal rule: acceptance hadn’t been received by the due date. We are in the UK: Adams wrote the email: contract was formed when Adams posted the acceptance, Adams won the case and he was paid back the damages. In conclusion, in common law the offeree bears the risk of revocation only for the extra period between the arrival of the offer and the dispatch of the acceptance. There is the possibility to use other forms of communication by fast mean to notify the other party we have accepted the offer before the mail arrives. Contracts to be laid down in written form: We have seen that contracts can be laid down in any form. Nonetheless, there are exception for specific categories of contracts. Pursuant to statutory provisions (a norma di legge), some contracts must be in writing (these represent exception to the principle of freedom of contract). These exceptions are when the contract is: • either to be concluded (form ad substantiam actus) • Or to be evidenced (forma ad probationem tantrum): copy for what we have ordered, to be able to look at the contractual form in the future. Sometimes, even though there is no formal rule that establishes that the contact should be in written form, parties could agree on having the contract valid only if laid in written down. These three categories are the ones that should compulsory be made in writing. 1. Sale of land or other disposition of an interest in land or immovable properties—> change in ownership in lands: statutory provision asks for a written form. Lands are always registered so any change in the property should be registered.
 (Every piece of land belongs to someone, if it is nobody’s it is of the State).
 Not necessary hand-written by the parties but signed by them or their agent. 2. Gifts (only significant ones e.g donations): those amounting to a certain value. 
 This is because legal system does not understand why somebody should give something without receiving anything in return. To be sure that the will of the giving party is that of giving without receiving —> need for written form.
 Remember that in civil law jurisdiction donations are considered contracts, while in common law they aren’t. 3. Contract between professionals and consumers. 
 We deal with consumers contracts, a category protected by the legal system. Legal systems give consumers the possibility to withdraw from the contract within 14 days. 
 of 5 48 Receipt is a unilateral declaration in which the seller recognizes that sb paid something to him. MERGER CLAUSE: From the Draft Common Frame of Reference: “If a contract document contains an individually negotiated term stating that the document embodies all the terms of contract, any prior statements, undertakings or agreements which are not embodied in the document do not form part of the contract”. Boilerplate clause: arbitration clause, choice of jurisdiction, merger clause. A merger clause is a boilerplate clause where it is stated that the whole contract is contained in the written down text, and no former speech should be considered as part of the contract apart from what’s written above: the entire contractual relationship between the parties rests only on this. Unit 13: INVALIDITY OF CONTRACTS Legal acts may be unilateral (performed by the declaration of one single party), or bilateral (agreement) in this case there is the manifestation of mutual consent of two parties. Legal acts are multilateral when the consent of more parties is required for the act to exist. A contract is invalid if it is affected by a major flaw which undermines its enforceability at law. Legal systems do not protect parties of a defective contract. Two types of invalidity (legal pathology): - Voidness /nullity : contacts contrary to mandatory rules or absence of fundamental elements of the contract —> category of invalidity meant to protect the general/public interest. - Avoidance / recession: contract concluded by a minor or by incompetent parties or contracts affected by vitiating actors = defect of consents such as fraud or deceit. —> category of invalidity meant to protect the private interest of one party to the contract. These are reactions of the legal system to contractual imperfectness and invalidities. These types of invalidity have nothing to do with party not accomplishing their obligations during the contractual relationship. Nullity: Major kind of invalidity: the legal act is wholly (or partially) ineffective from the outset: a null contract is invalid and is never capable of producing any legal effect. Null contracts cannot be validated by anyone. A legal act’s voidness may be invoked by the parties to the contract, by a third party whose rights might be affected by the act or by courts on their own motion. In the event of performance, each party can claim restitution for what has been given. Non- performance is excused. Nullity is ascertained when the legal act is illegal, affected by indefiniteness or vagueness or because it lacks some formal requirements. Defectiveness of the agreement between the parties: of 6 48 - The contract is merely apparent but lacks parties' actual consent. (Only apparent consent = lacks of signature). No consent on the good at stake - Does not meet the formality requirement. - The subject-matter does not exist or is not possible. Illegality and morality (illicit contracts): This is the case of well formed contracts, where the will is manifested, but the legal system does not approve the contract because of a matter of public policy. (Ex: contract is null because interest rate applied higher than the maximum for law) - There is the infringement of a mandatory rule, which prohibits both parties from entering into a contract. —> Illegal contracts cannot produce legal effects. - The agreement contravenes public policy and/or morality: 
 Ex: sex for money contests with public order (prostitution). Defective in formation: true for both: voidness and avoidance. Lack or impossibility of the subject-matter Subject matter should be possible and determined or capable of being determined, otherwise there is ground for voidness. Lack or impossibility of the subject matter refers to those contracts whose specific performance is impossible. In civil law jurisdiction, contracts whose specific performance is impossible are regarded as null, unenforceable. If the subject matter is not feasible/impossible to realize from the very first day, then there is no contract. Undertake obligations only for something that is possible from the very first day. In common law, such contracts can be enforced: if a party has undertaken to do something which is physically impossible, it is bound to pay damages for breach of contract. In the French civil code, article 1163 states that: “An obligation has as its subject matter a present or future act of performance; the latter must be possible and determined or capable of being determined”. —>with impossibility of the subject matter the contract does not exist. In English law, it is stated that: ‘it is of paramount importance that contracts should be observed, and that if parties honestly comply with the essentials of the formation of contract – i.e. agree in the same terms on the same subject-matter – they are bound, and must rely on the stipulations of the contract for protection from the effect of facts which are unknown to them”. In the BGB, it is stated: ‘A contract is not voided of its effects for the fact that one of the parties’ performance is impossible already at the time when the contract has been concluded. The other party can claim damages or reimbursement of expenses”—> similar to common law: protect the damaged and weaker party. Case: Mc Rae v Commonwealth Disposals Commission 1951: High court of Australia (common law jurisdiction) The owner of a wrecked tanker of oil wrecked sold the tanker to Mc Rae brothers. The brothers went to look for it out in the sea and were not able to find the place specified by the seller (Jourmand Reef). Only later was is found out that the contract (about the presence of the tanker in the middle of the sea) was based on a legend: the subject matter did not exist and was impossible; the contract was declared null: the High court of Australia had the owner of the wrecked tanker to pay damages to the buyer for breach of contract. of 7 48 • Claim for avoidance: If correctly informed, the mistaken party would not have concluded the contract. 
 Pay attention: the contract is no avoidable in case of laudatory puffery that no reasonable man would have taken literally —> dolus bonus: a reasonable man would never think of that statement as convincing to enter the contract. • Claim for damages: If correctly informed the mistaken party would have concluded the contract although on better terms: dolus incident.
 ex. Had I known that the artist was not that good, I would not have paid that much
 Damages are to be assessed along the better terms which the mistaken party would have bargained if correctly informed (expectation damages).
 Damage: amount of money on top of what we should have paid if we had perfect information. 
 The contract would have been entered all the same, but under different conditions —> I receive damages that correspond to the different conditions. Avoidance is granted if the fraud is committed by the other contracting party (or her agent). If it is committed by a third party, avoidance is granted when the other contracting party knew or must have known it. Case: BUNDESGERICHTSHOF (11/08/2010): civil law jurisdiction: GERMAN: THOR STAINER CASES: The two cases bear upon the commercial tenancy of two shops selling textiles and accessories. The assortment list of the goods that were to be sold in the shops was integrated in the tenancy contract (Case XII ZR 192/08) or emailed to the landlord (Case XII ZR 123/09). Although they did not mention the brands, the lists omitted that most of the clothes and accessories were of the controversial brand Thor Steinar. This brand is often associated with extreme right-wing convictions by the media (associated to nazi). In addition, the German Bundestag and some football stadiums forbid wearing clothes of this brand. In both cases, the landlords demanded the immediate termination, the clearance, and the restitution of the premises on the ground of fraud —> Peculiar non disclosure of the brand of the products. The court signed with the landlord and the contract was avoided because of fraud. Good faith imposes the duty of a party to inform the other part of facts that are obviously of decisive nature for his/her consent —> The non disclosure was read as breach of the principle of good faith which supplements the obligations of the parties. Non disclosure, treated as fraud, is ground for avoidance. The (potential) economic loss and the reputation of the landlord play an important role in assessing the information duties of the tenant. We are dealing with an unforeseeable and unusual circumstance. Duress: It consists in threats of a harm to a would-be party’s (or his/her family’s) life and limb, honor, property, economic interest (in this case: economic duress). The aforementioned threats induce the would-be party to enter into a contract in order to avoid the danger thus faced. It is a pressure that one party exercises on another to force him/her to enter in the contract. Does the legitimate threat of something that one is entitled to do amount to duress? of 10 48 I ask for an increase in salary with the threat of something that lies outside the relationship between me and my boss: threat or duress: my boss can claim the avoidance of my increase in salary. In the second case: I have a contract of tenancy: my counter party has to pay the rent: if tenant does not pay I can go in front of the court and ask for my money: I’m entitled to react to the non payment of the rent. Art 1141 Code Napoléon: “A threat of legal action does not constitute duress, except where the legal process is deflected from its own purpose or where it is invoked or exercised in order to obtain manifestly excessive advantage”. i.e. I cannot go out the contract to make you accomplish the duties you agreed upon in the contract. In most civil law jurisdiction, avoidance is granted not only when the threats are made by the other contracting party (or his/her agent), but also when they are made by a third party, even if the other contracting party was in good faith. Unit 14: Unfair standard terms Contracts are considered standard when they cannot be negotiated by the counterpart who can only accept the conditions proposed by the stronger part. The contract contains only the terms chosen by the “company” (only one party) and cannot be negotiated. Standard contracts are used by companies which repeatedly enter into certain types of contract and need to develop their own standard conditions, which will be applied in all their relationships. The rationale behind standard contracts is that of efficiency and reduction of transaction costs. These contracts are designed to protect the interests of the party who developed the terms (they protect the party to a contract that is already in a position of strength). The special part of EU contract law comprises sets of rules addressing contracts relating to goods or services that, due to the difficulty and technologically of information needed to evaluate them, are purchased on the basis of credence given to the supplier. The structural information asymmetry affects the purchaser irrespective of her being a consumer or another business (financial services contracts). The problem behind standard contracts is that of information asymmetry: Customers face uncertainty and they do not know if the contractual terms are good or bad. George Akerlof studied this phenomena of information asymmetry and explained it into “The market for Lemons: Quality Uncertainty and the Market Mechanism”. Akerlof found out that the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers The buyer will be willing to pay for the used car, only the price of a car of known average quality. Therefore, the buyer is not willing to pay above an average price for a car of which he has no information. —> adverse selection issue. Often we find unfair standard terms: terms drafted by companies which are heavy for consumers. The market for standard terms can be assimilated to the ‘lemon market’. Standard terms deal with contingencies that are not core to the transaction and are unlikely to occur. (Nonetheless, they are binding standard terms —> we accept them as consumers). of 11 48 A party confronted with them does not try to understand or negotiate them —> costs outweighs benefits. This situation calls for the intervention of the state. How can the state save consumers from unfair standard terms? - Formal control: state can control standard terms: art 1341: unfair terms have no effect unless specifically approved in writing. —> not very effective solution as it does not really protects consumers (there is no investigation on the understanding of the consumer of the contract: has the consumer really read the contract and understood the terms?). - Substantive control: BGB in Germany: 307: (also in France): provisions in standard business terms are ineffective if, contrary to the requirement of good faith, they unreasonably disadvantage the other party to the contract with the user. (The contract stays in place but is not binding for the consumer if I regard it as unfair)
 If the legal system declares that the clause is unfair, the contract loses its enforceability: it is not binding on the consumer even if the business has signed it. Core of EU law is consumer protection. To make consumers aware of which is the best product on the market, thus increasing competition —> Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. 1. Consumers should be protected against one-sided standard contracts and the unfair exclusion of essential rights in contracts —> protect consumers from contracts which they could not negotiate 2. Member states must ensure that unfair terms are not included in contracts 3. It is necessary to fix in a general way the criteria for assessing the unfair characteristics of contract terms —> need for an adequate and effective tool to fight unfairness 4. Courts or administrative authorities of the member states must have at their disposal adequate and effective means of preventing the continued application of unfair terms in consumer contracts Unfairness test: Article 3: a contractual term which has not been individually negotiated, shall be regarded as unfair if, contrary to the requirement of good faith, arises an imbalance in the consumers’ party. The unfairness test requires to take into consideration what rules of national law would apply in the absence of an agreement by the parties in regard. Moreover, the reference to the principle of good faith means that the national court must assess for those purposes whether the seller or supplier, dealing with fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations. If contract is too detrimental to the consumer —> there is the significant imbalance and it is regarded as contrary to good faith. Problems: - Signing without reading problem - Substantive control of contract terms - Supplementary rules as a benchmark: project of EU law: forming an objective idea of justice. To fill the gaps: default rule. CJEU: aim: unique strategy to understand when a term is unfair. Court should make a comparison between what would have happened without agreement vs with the agreement. of 12 48 - Individual enforcement:
 Individual litigation between traders and consumer calls for certain deviations from cvil procedural law. 
 Consumer individually goes before a court claiming unfairness of the contract. 
 National court is required to examine, of its own motion the unfairness of a contractual term. A consumer may choose whether to take advantage or not from the declaration of unfairness: the consumer can choose not to have unfairness. 
 The binding effect of the term is finally remitted on the consumer who is considered the person in the best position to know which should be the outcome of the judge’s assessment. - Collective or public enforcement: 
 The imbalance between the consumer and the seller or supplier may be only corrected by a positive action unconnected with the actual parties to the contract. 
 In this case the actors are public authorities and/or consumer organizations. The actions may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations.
 Main instrument: Injunction (Judgment prohibiting the continued use of the unfair term in that standard contract). 
 UNIT 15. BREACH OF CONTRACT Contract law would not exist if contracts were completely and perfectly fulfilled. We deal with breach of a contract when the fulfillment of contractual obligations is missing. Anticipatory breach of contract: a party declares its intention of not performing the contract before the performance is accrued due. Actual breach of contract: It occurs on the due date of performance or during the course of performance. A breach of contract triggers remedies (reactions of the legal system). If one of the parties does not fulfill its obligation, remedies are taken to give relief to the damaged party. A contract is binding if it is enforceable; in this case I can go before a court if the other party does not respect the contractual obligations. Protection of contractual expectations is the primary aim of law of contract. Expectations are met when each party performs its respective promise. If any of them fails and breaks the contract, instead, the promisee is entitled with a set of remedies. A remedy is a court order that seeks to uphold someones’s rights or to redress another’s illegal action. When one of the parties breaks a contract, the other can ask a court to provide a remedy for the breach. Solution is identified in the law, but is enacted by a court. Remedies: 1. Specific performance: if a party does not perform his/her obligations, he/she can be forced to do so by a court of law. The party who has breached the contract must perform what it should have done according to the contractual obligations (civil law countries). 2. Termination of contract: the non-breaching party may ask for the dissolution of the contract, refuse to perform its part or claim the restitution of what has already been paid. 
 In dissolution of the contract: what has been given should be given back and the non- of 15 48 breaching party is not required to perform anything, nothing should remain of the contractual relationship 3. Damages: (compensation in money) monetary reward capable of bringing the aggrieved party in the same utility position in which it would have been, had the contract been properly performed. 
 It can be autonomous or coupled with actions for performance/termination.
 I ask for damages because it will cost me a lot to go back to the market and start looking for another partner. (Common law jurisdictions prefer damages. When damages are not adequate for the breach in question, may recur to other solutions). The availability of remedies for breach of contract depends on the role that a legal system assigns to contract law. We can have a moral or an economic approach to contract law. Civil law Specific performance is a general remedy for breach of contract. Contracts are considered agreements: moral approach to remedies: fulfillment in the debtor’s duty as a remedy; there is a breach if there is a non-performance, a defective performance or a delay in performance; in these cases each party holds an enforceable right to claim performance from the counterpart. (specific performance). If a party does not abide by the court decision to perform, an official has the power to seize the good owed and deliver it to the other party. There are some exceptions to specific performance in civil law, in such cases we will have compensation for damages: 1. Impossibility to performs (whether or not due to the debtor’s fault). 2. Disproportionate costs: debtor would bear unreasonable effort or expense. (Costs to make specific performance are too high) 3. Contracts involving personal services: (panting a portrait): not only specific performance would potentially contravene the debtor’s personal freedom, but, if forced, the debtor would possibly perform not at the best of its abilities. In order to enforce an obligation, the creditor is entitled to claim for the performance from the debtor. The performance may consist in forbearance (not acting). A creditor of an obligation may, having given notice to perform, seek performance in kind, unless performance is impossible or if there is a manifest disproportion between its cost to the debtor and its interest for the creditor. Common law approach: Contracts are exchanges between parties—> economic approach to remedies: people conclude contracts to increase their welfare; compensation for damages is the general remedy. Common law legal systems regard the parties to a contractual relationship free to break the contract by paying damages. Efficient breach of contract: a party should be allowed to break the contract signed and pay damages, if that would be automatically more efficient than performing the contract itself. No specific performance is required in case of sale of generic goods which are easily replaceable at standard prices on the market. of 16 48 Case: société des industries métallurgiques vs bronx engineering ltd: Seller of a machine wrongly refused to deliver it. The buyer asked the court to remedy with specific performance because it would have cost him a lot of time and money to find another seller; the court denied the buyer specific performance, even though a substitute machine could be obtained only after 9-12 month delay. In common law damages are preferred. Specific performance is allowed only if there is an exception and damages are inadequate. In cases concerning specific goods (such as land, works of art, objects having unique qualities), courts allow the creditor to force the other party to perform in specie (in kind). Example: a party signed a contract to have a Van Gogh. The damaged party would obtain a specific performance if the painting had not been delivered (only compensation for damages would not have been enough). —> inability of money to compensate for damages and to bring the non-breaching party in the same utility position that would have been obtained had the contract been properly performed. Termination: We say that a contract is dissolved when an end is put to the contractual relationship: if a party claims performance or damages it still has to perform its own obligations. However, the innocent part may be instead willing to terminate the contract: if this remedy is allowed by the law, no performance is due by either party and, in case performance already happened, it shall be given back by the recipient. In civil law termination is allowed when the breach is material = fundamental, important and significant. A cake for a wedding was delivered 1 day late: termination of contract: material and fundamental breach. Fundamental breach of contract may lead to termination): A non-performance of an obligation is fundamental to the contract if: • Strict compliance with the obligation is of the essence of the contract • The non performance substantially deprives the aggrieved party of what is was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result. • The non performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance. A minor failure to carry out “exact” performance, i.e. a non-performance of minor importance, exposes the party in breach to liability for damages, but will not entitle the innocent party to seek dissolution of the contract for non-performance. Terminations is used when parties cannot put up with each others anymore, they look for other parties. In Common law: Don’t use terminology of fundamental breach. Courts distinguish contractual terms in: • Conditions: major contractual terms, describe contractual obligations. Basic requirements of the contract. If one condition is breached (breach on a major term) —> obtain termination of of 17 48 Hadley v Baxendale: UK: Mills with flour, sharps, bran. The claimants, Mr Hadley and another, were millers and mealmen and worked together in a partnership as proprietors of the City Steam-Mills in Gloucester. They cleaned grain, ground it into meal and processed it into flour, sharps, and bran. The mill stopped by a breakage in a crank shaft. Hadley enters into a contract with Baxendale, a carrier, to have the shaft carried to the manufacturer for repair. Baxendale is not told that the mill will be stopped until the shaft is repaired, nor does he have reason to believe that this is the case. In breach of the contract, the latter delays in delivering the shaft. As a result, Hadley loses business profits because of the stoppage of the mill. Hadley cannot recover the lost profits because Baxendale did not have reason to know that the delay would cause Hadley to lose profits Baxendale wasn’t aware of the circumstances and did not have mean to know what damage would be caused to Bradley: not foreseeable, no right to full compensation: Baxandale did not cover damages. The non-breaching party has the duty to mitigate damages: (but to full compensation, together with foreseeability). A cardinal rule of contractual damages is that the aggrieved party cannot recover those losses which the party could have avoided by reasonable effort and without undue expenses by virtue of opportunities that the party would not have had but for the breach. I have right for compensation but duty to mitigate damages; we have to do what is possible to limit damages without wasting too much time and money: victims should try to limit damages by a reasonable effort; If they don’t, the gains that the aggrieved parties could have made by reasonable effort are deduced from the amount that it could otherwise recover. Ex: It rains in the house, my panting are ruined, but I could have moved them: I did not do what I could have done to stop damages. (I will not be recompensed for those damages I could have avoided). On the other hand, if I’m not aware of the infiltration —> right to full compensation. The victim should do something which is reasonable and rather effortless to limit damage, otherwise he/she will not be compensated for such damages. Ex: X enters into a contract with Y, a licensed nurse, under the terms of which Y will live with (and take care of) X’s aged father for a three months period while X goes on vacation. Y is to be paid 4.000 Euro for his services. X repudiates the contract before Y performs any services or is paid any money. In an attempt to mitigate damages, Y places an advertisement in two local newspapers indicating that his private nursing services are available. No one responds to his ad; and consequently Y is unemployed for the entire period. Y sues for 4.000 Euro plus the cost of advertisements. X argues that Y did not fulfill his duty to mitigate damages. Y may recover the entire amount. Only a reasonable effort to mitigate damages is required. The doctrine does not require that the efforts are successful. DCFR: • Foreseeability: The debtor in an obligation which arises from a contract or other juridical act is liable only for loss which the debtor foresaw or could reasonably be expected to have foreseen at the time when the obligation was incurred as a likely result of the non-performance, unless the non- performance was intentional, reckless or grossly negligent. • Reduction of loss: 1)The debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps. of 20 48 2) The creditor is entitled to recover any expenses reasonably incurred in attempting to reduce the loss LIQUIDATED DAMAGES CLAUSES: Rules on the assessment of damages are default rules. Parties to a contract may agree, as one of the terms of their agreement, that, in the event of breach, the culpable party should pay a specified amount to the injured party. However, when estimating: people don’t know how much they will suffer, therefore this clause is often inaccurate. As the actual damages which will result from the potential breach are often unknowable at the time of contracting, liquidated damages represent the parties pre-estimate of the extent of probable damages. Often this pre-estimate will turn out to be an inaccurate forecast of the harm actually caused by the breach. Does freedom of contact allow parties to freely determine the amount of liquidated damages? The functions of liquidated damages are: 1. Convenient method of determining the amount to be paid in the event of breach —> less costs of lawyers and save of time in courts. Good faith pre-estimate of the potential damages. 2. Diminish the amount of loss to be borne by a party in breach (the sum is likely to be less than the probable amount of damages). 3. Coercing a party to perform its obligation (the liquidated sum will generally provide for a liquidated damages which is in excess of the probable actual damages). Different jurisdictions = different approaches for liquidated damages clauses: Common law: Liquidated damages clauses are enforceable when their function is the pre-estimate of the probable extent of damages; (non excessive are enforceable). They are unenforceable (in this case we deal with penalty clause) if their function is to coerce the defaulting party to perform his/her obligation. (If the amount decided is excessive for a breach which could cause a really minor damage —> unenforceable: penalty clause put by the court on the contract). Liquidated damages clauses cannot be enforced if their aim is to punish the breaching party rather than compensate the injured party. Too high amount —> parties are forced to perform —> penalty clause not enforceable. Reasonable chosen amount —> enforceable Courts look at the chosen amount of money and determine whether it represents a good-faith pre-estimate of potential damages. Civil law: Civil law jurisdictions usually give judges the power to reduce the amount determined by the parties if it is manifestly excessive or in case of partial execution of the contractual obligation. The rule is mandatory: any agreement that has the effect of excluding the power of reduction is invalid (power of reduction is a mandatory rule); the court shall reduce the amount to a reasonable one. —> Always enforceable. Civil law usually does not distinguish between penalty and liquidated damages clauses. CDFR: Stipulated payment for non-performance of 21 48 1) Where the terms regulating an obligation provide that a debtor who fails to perform the obligation is to pay a specified sum to the creditor for such non-performance, the creditor is entitled to that sum irrespective of the actual loss. 2) However, despite any provision to the contrary, the sum so specified in a contract or other juridical act may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances. Case from common law: U.S. BETHLEHEM STEEL CO. The government contracted with Manufacturer to supply gun carriages. Speed was extremely important to the government, and it had therefore passed up lower bids on the gun carriages because Manufacturer had promised the fastest delivery. Government and Manufacturer agreed that for each day a given delivery of the gun carriages was delayed, a sum of $35 would be imposed on Manufacturer, payable to Government. This sum was reached by a computation based on the average difference in price between Manufacturer and cheaper, but slower, suppliers. Manufacturer delayed the delivery of some of the gun carriages. Is the clause enforceable? Yes, the aim of the clause was to compensate the government, by means of a reasonable formula (losses sustained: higher price for a speedy delivery) The amount had been decided comparing the options of the Government —> liquidated damages clause: enforceable. Impossibility: Is an excuse for the non-performance of duties under a contract, based on a change in circumstances (or the discovery of pre-existing circumstances), the non-occurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. TORT LAW UNIT 17: FUNCTIONS OF TORT LAW, GROUNDS FOR LIABILITY Tort: an obligation comes form a tort when something is not voluntarily taken from a party and damages it. Law is made of remedies granted to the suffering person; it identifies when a harm should be paid by somebody different from the suffering person. To be considered part of tort law, the victim should have suffered for a harm which is relevant in economic terms, thus transferrable in money (if your boyfriend cheats on you, you won’t receive a compensation for the harm he caused you as it is not relevant in economic terms). Tort law deals with tragedies, individuals’ misfortunes, it consists of remedies granted to the harmed persons by those who have caused the harm. The person associated with the harm must provide for remedies to give relief to the person suffering from them. Torts are considered as sources of legal obligations: the tortfeasor has the duty to provide relief for the harm suffered by the injured party (by paying a pecuniary sum or through material restoration of the statute quo). of 22 48 Grounds for liability Fault: cases in which a tortfeasor acted wrongfully and has to compensate for the damage that resulted form the wrongful behavior (liability for one’s fault) Vicarious liability: cases in which someone is liable for the damage that was wrongfully caused by a different tortfeasor (liability for a tortfeasor’s fault). 
 ex. parents have to pay for damage caused by their son A to C: A behaves bad and should pay for the harm imposed, B (parent) pays and C is relieved. 
 Insurance works perfectly for vicarious liability. Strict liability: cases in which a tortfeasor is liable for the damage caused by an animal or by an object for which the tortfeasor is responsible. Any damage caused by something has to be paid by someone else. FAULT: Fault is a wrongful act for which the agent can be blamed. The parameter of fault has been considered an essential condition for tort liability for many centuries: It is not the damage which obligates compensation, but the fault. Levels of fault: wrongful act from an agent who can be blamed: 1. Intentional behavior: the harmful event is foreseen and desired by the agent as a consequence of his own act or omission. 
 There is a damage that I wanted to create. Acted consistently to produce a desired damage 2. Negligence: the event, even though foreseeable is not desired by the agent and occurs because of carelessness, imprudence, lack of skill or failure to observe regulations. How do legal systems assess fault? Common law: breach of a duty of care Civil law: statutory interpretation Case; United States v Carroll Towing (1947): Common law: New York harbor: breach of a duty of care: The case was the result of the sinking of the barge Anna C that took place on January 4, 1944 in New York Harbor. Before the accident, the Anna C was moored at Pier 52 on the North River along with several other barges. On the day of the accident the tug Carroll was sent to remove a barge from the Public Pier. In the process of removing the barge, the line between the barges at Pier 52 and the barges at the Public Pier was removed. After the removal of the line, the barges at Pier 52 broke free. This resulted in the sinking of Anna C. The United States, lessee of the Anna C, sued Carroll Towing Co., owner of the Carroll in an indemnity action. Judge Learned Hand formula: “Since there are occasions when of 25 48 every vessel will break from her moorings, and since, if she does, she becomes a menace to those about her; the owner’s duty, as in other similar situations, to provide against resulting injuries is a function of three variables: (1) The probability that she will break away; (2) the gravity of the resulting injury, if she does; (3) the burden of adequate precautions In common law they ask themselves if there was a breach of a duty of care: before this case courts decided. Cost of injury + burden (costs for precautions / put in place all measures= avoid damage). —> Compare cost of taking precautions to avoid the damage with the entity of the damage. No cost to avoid damage for the boat = check the rope worked properly: Carrol Towing had to put in place measures to avoid the damage. In civil law we don’t investigate duty of care: broad concept: The civil law approach to torts differs from the common law approach in that the basic rules for tort liability are formulated in statutes and that these rules appear to be relatively uniform. Liability for one’s fault in civil law: There must be an act or an omission that unlawfully violated a legally protected interest. The unlawful act or omission must have caused damaged of a type that qualifies for compensation. In civil law, as far as tort law is concerned, case law interpretation plays a relevant role. In the codice civile: “Any willful or negligent conduct that causes an unjust damage to another obliges he who has caused the damage to compensate it”. Act that violates some rules important to the legal system and qualifies for compensation. Tort law belongs to private law; courts have broad and non specific rules, they rely on precedents (similar to common law courts). Sometimes we don’t do anything but we are responsible for what somebody else does. Vicarious liability: Cases in which someone is liable for the damage that was wrongfully caused by a different tortfeasor. The fundamental elements to have vicarious liability are: There must be a relationship between the tortfeasor and vicarious liable person and there must be a connection between this relationship and the tort committed (behavior causing the damage). Ex: Liability of employers, of parents, of school teachers and of subjects who control activities of mental handicapped persons. Ex: a child gets hurt at school —> liability is on the school. of 26 48 Ex: employers have to pay for any damage caused by its employees to somebody else: if we have an activity that can cause damage, and we are aware of it, we are responsible for any damage caused during the activity. VICARIOUS LIABILITY IN CIVIL LAW: —> Section 832 BGB Liability of a person with a duty of supervision 1) A person who is obliged by operation of law to supervise a person who requires supervision because he is a minor or because of his mental or physical condition is liable to make compensation for the damage that this person unlawfully causes to a third party. Liability in damages does not apply if he fulfills the requirements of his duty to supervise or if the damage would likewise have been caused in the case of proper conduct of supervision. 2) The same responsibility applies to any person who assumes the task of supervision by contract. DCFR: Accountability for damage caused by employees and representatives A person who employs or similarly engages another is accountable for the causation of legally relevant damage suffered by a third person when the person employed or engaged: (a) caused the damage in the course of the employment or engagement; and (b) caused the damage intentionally or negligently, or is otherwise accountable for the causation of the damage. Was the employee working? Was he in the course of employment or engagement or not? VICARIOUS LIABILITY IN COMMON LAW: “In principle, liability in tort depends on proof of personal breach of duty. To that principle there is at common law only one true exception, namely vicarious liability. Where a defendant is vicariously liable for the tort of another, he commits no tort himself and may not even owe the relevant duty, but is held liable as a matter of public policy for the tort of the other” The liability of employers for their employees is the main species of vicarious liability in English common law Century Insurance Co. Ltd v. Northern Ireland Road Transport Board 1942: DRIVER OF PETROL TANKER Davison was driving a petrol tanker for his Transport Board. While petrol was being pumped from his truck into the underground tank of a petrol station, he lit a cigarette and threw the match on the ground. The match ignited some material left on the ground. The fire caught up with the tanker and the ensuing explosion caused significant damage to property. The act was done in the course of the employment. The conduct must be examined in the light of surrounding circumstances and must not be taken in isolation. “The duty of the workman to his employer is so to conduct himself in doing his work as not negligently to cause damage either to the employer himself or his property or to third persons or their property, and thus to impose the same liability on the employer as if he had been doing the work himself and committed the negligent act” —> Driver of petrol tanker: Davison is liable: he threw a cigarette on the ground: problem the petrol station wanted to be refunded: petrol firm did not want to pay because they said he was taking a break: was the employee working? The act was done in the course of employment: taking a break but was working. of 27 48 According to this approach, limitation of the legal interest that can be protected by tort law is set ex ante by the law - Principle based (Atypical) approach in tort law: broad formulation of abstract rules, courts should understand whether damage is compensable —> higher discretion. (French and Italian systems).
 This limitation derives from case-law interpretation of the general clause introducing tort liability. In civil law, courts have discretion: they can change their mind to evolve with time (be in tune). BGB (German civil code): A person who, intentionally or negligently, unlawfully injures the life, body, health, freedom, property or another right of another person is liable to make compensation to the other party for the damage arising from this. French Civil Code: Any act whatever of man, which causes damage to another, obliges the one by whose fault it occurred, to compensate it. Everyone is liable for the damage he causes not only by his intentional act, but also by his negligent conduct or by his imprudence. Scope of protection / scope of tort liability: Principle: any damage caused by someone causes the person to pay. Courts have to identify if the case qualifies for compensation or not. How? According to rules set ex ante or according to case-law interpretation. Notwithstanding the differences in the approach to tort law, all the western legal systems allow for compensation of: - physical injuries - Personality and privacy rights - Damage to property These are regarded as “absolute rights” in civil law tradition and they are protected in every civil law legal system. Tort liability in Italy has progressively expanded over the last half century in a number of ways, including the award of damages for economic losses deriving from relative rights. An example are these two cases that occurred with 19 years of difference in time (Corte di cassazione both) Associazione calcio Torino v. Soc. A.L.I. 1949 On 4 May 1949, an aircraft (Italian Airlines), carrying the entire Torino football team, crashed into the walls at the back of the Basilica of Superga, on the hill of Turin, with 31 victims. 
 Torino soccer team sued the airline asking compensation for the extinction of its credit rights with football players caused by their death in the air crash. Legal relations between Torino an its players were based on contractual/relative rights. Liability was denied, because plaintiff was not suing for injury to some asset falling within the protected category of “absolute subjective rights”. Associazione calcio Torino asked Alitalia to pay back damage because team could not have money because those players could not play anymore. Courts claimed there was not a violation of an absolute right but of a relative one namely a credit right: liability was denied because, for that jurisdiction, credit was not eligible for compensation. S.p.a. Torino calcio v. Romero 1971 Luigi Meroni was a famous Italian professional footballer who played as a winger for Torino. On 15 October 1967, Meroni died at the age of 24, hit by a car driven by Mr. Romero. Torino of 30 48 soccer team sued Romero asking compensation for the extinction of its credit rights with the football player. 
 After 18 years that separate the two cases which present strikingly similar issues and fact patterns, the Court reverses itself. Relative rights may be protected through tort law. —> credits now are eligible for compensation. Between Merino and Torino calico S.p.a. there was a relation, Torino was compensated for damages. Courts can change their minds in legal systems where there is not a specific way to solve the problem. UNIT 19. REMEDIES AND PRODCUT LIABILITY REMEDIES Remedies are solutions taken to give relief to a damaged party (eg. The victim of a breach of contract). • Monetary damage is the pecuniary compensation amounting to the value of the loss suffered by the plaintiff (the loss sustained and the lost profits resting on causation). 
 The compensation should be such as to put the plaintiff in a situation as if the tort had not occurred. Monetary damage covers the loss as far as money can achieve and as far as it is feasible. • Restitution of the original position: implies the restoration of the situation the plaintiff would have been in, had the fact grounding tortious liability not occurred. —> Giving back what is damaged (when it is materially feasible) or use money if the first possibility is impossible, as far as it is not too burdensome for the debtor. Compensatory damages: Should equal the harm suffered by the victim). (Recall that the scope of tort law is that of compensating the victims of the suffered harm). The purpose is to help the victim to recover what was lost. Idea of distributive justice is the base of the compensation in tort liability: go back to the equilibrium destroyed by the tortfeasor. The injured party must prove the suffered damages, damages will amount to what the parties will be able to prove in front of courts. Punitive damages: amount which is higher than the loss suffered by the victim —> we also punish tortfeasor on top of giving back money to the victim; punitive damages are used when the amount of money would be too high —> punishment is designed to make an example and deter others from doing same conduct and recent the tortfeasor from repeating conducts. The aim is to compensate the victim for an otherwise non-compensable loss. High threshold of money: compensate victims for something not compensable by law + intended to pay the attorney’s fees of the harmed person. Common law: punitive damages awards are usually recognized and very frequent; the most widespread use is in the USA. of 31 48 Civil law: in principle, damages are intended only for compensation and should not be used to punish or deter. In the last 10 years, courts have accepted the idea of damages to be repaid throw punishment and to deter. Case: BMW OF NORTH AMERICA, INC. v. GORE, 517 U.S. 559 (1996) Gore bought a new BMW and later discovered that the vehicle had been repainted before he bought it. BMW revealed that their policy was to sell damaged cars as new if the damage could be fixed for less than 3% of the cost of the car. Over a multi-year period of time, BMW repaired damaged vehicles and sold them as new to unsuspecting buyers as a matter of routine business operation. Gore sued BMW, and an Alabama jury awarded $4,000 in compensatory damages (lost value of the car) and $4 million in punitive damages, which was later reduced to $2 million by the Alabama Supreme Court 4 million in punitive damages: to compensate for something different than simple damage at stake (attorneys) BMW said 4 million was too much —>they went in front of US supreme court and the amount was reduced to 2 million dollars. Do high punitive damages violate the “Due process clause” of the constitution? (namely, is there a threshold not to be overrun as the amount required for compensation) Due process close (by US supreme court): US constitution: state cannot deprive a citizen of anything without respecting the due process cause: branches of the state must apply law with fairness. Process must apply fairly the law. Excessively high punitive damages in this case violate the Due Process clause. For punitive damages to stand, the damages must be reasonable to vindicate the State’s legitimate interest in punishment and deterrence. 
 The degree of reprehensibility of the defendant’s conduct, the ratio to the compensatory damages awarded (actual or potential harm inflicted on the plaintiff), comparison of the punitive damages award and civil or criminal penalties that could be imposed for comparable misconduct Non pecuniary losses: Compensation for non-pecuniary damage is justified in cases where the victim has suffered personal injury; or injury to human dignity, liberty, or other personality rights. Non pecuniary damage can also be the subject of compensation for persons having a close relationship with a victim suffering a fatal or very serious non-fatal injury. Personal injury—> not easily transferrable into an amount of money. You kill my parent: I can go in front a court and ask for compensation. The non-pecuniary damage does not involve a diminution of the victim’s patrimony. All European tort systems provide rules for compensation of this type of loss, though the scope and details of the regimes vary considerably How do courts assess non-pecuniary damages? It is impossible to draw up a rigid tariff of awards. Courts take into consideration the degree of comparability in the treatment of essentially similar cases; typically, the gravity, duration and consequences of the grievance will be the central issues in determining an appropriate sum. Some tort systems take into account the conduct of the tortfeasor in determining what amount of damages must be granted. Finally, methods of assessment are different: usually judges rely on schedules which quantify the different impairments (loss of an eye, loss of a leg, etc.), sometimes the law fixes precise amounts. of 32 48 According to the aforementioned directive, a product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including the presentation of the product, its reasonable use and the time when the product was put into circulation (if a product was later found out to be toxic, the producer is not liable as at the time fo manufacturing this was not known). We have three categories of defects: - Manufacturing defects (manufacturing = assembling things mechanically) - Defective design (design = instruction on how to create the product; difficult to control, a problem in the product’s design makes the product dangerous or useless even if manufactured perfectly). - Failure to warn (I put in circulation product without saying the harms it may cause, this is equal to put into circulation a defective product. The party can be held liable for injuries caused to another if the party had the opportunity to warn the other of the hazard but failed to do so) According to the same directive, the producer is not recognized as liable if he proves that: - He did not put the product into circulation, - The defect appeared after the product was put into circulation - The product was not manufactured to be sold or distributed for profit (maybe a sample) - The defect is due to compliance of the product with mandatory regulations issued by the public authorities. (No technical knowledge of the defect). Product development clause: Does the ‘product development clause’ apply to ‘manufacturing defects’ or does it only apply ‘to design defects’? Development risks are only present in those cases in which the harmful characteristics that caused the damage could not be discovered by scientific and technological means at the time of circulation of the product (Member states can take measures by way of derogation in cases where the knowledge at the time of the production was insufficient to identify the defect). Development risks are only dangers that emanate from the design of a product, but not defects which cannot be avoided during the manufacturing process. There was agreement during the works on the EC-Directive on Product Liability that only design defects but not manufacturing defects would qualify for consideration. Case: Mineral bottle of water explodes (1995) A nine-year old girl suffered serious eye injury when a mineral water bottle exploded as she was carrying it. It appeared from the evidence that the explosion resulted from the presence of a 4 mm chip in the bottle. The particular bottle that caused the injury has been somehow damaged during the refilling process. The manufacturer had alleged that the defective bottle was the “odd unit” which suffered from a manufacturing defect despite all the precautions taken in the refilling process. The manufacturer argued that it should be exonerated under the Directive, due to the product development risk clause. No technological ground to know if it was defective and product development clause can be applied only to design defect. The Directive applies to damage: • caused by death or by personal injuries; • caused to an item of property intended for private use or consumption 
 of 35 48 PROPERTY LAW UNIT 20 Property law is the branch of private law dealing with rights on goods; it is the law of things. Legal relations permit the creation and modification of obligations between the parties. Obligations and rights are complementary: one party has a right, the other an obligation. The seller of a car has the right against the buyer to be paid the price for which the car was sold. A party who has been unlawfully damaged by someone else has a right against the tortfeasor to be compensated. (i.e. Right against the tortfeasor to be paid for the damages). The owner of a car has a right against the car itself. This is not a right against a particular person such as the contract partner or the tortfeasor, it is a right on a tangible object, valid against the rest of the world (absolute right = right erga omnes). Property law establishes a relation between the legal subject and the object of the right. Why property law? The tragedy of the commons Why does the legal system need to protect parties to a contract? To provide remedies in case of a breach. We cannot live without binding contracts. Why do we need property rights? Why can’t we all share what we have? The tragedy of the commons: is a work by Hardin published in 1968 which makes clear why we do need property law by explaining through examples and metaphors how a world based on the common use of objects would not work. Experiment: grazing cows in a free-access parcel of land (common). Each herder can take its kettle to the field, the field is freely accessible by anyone and no one has any incentive to protect the land’s future value, although the protection is socially desirable. As a matter of fact, the constant and repeated use of land spoils it and prevent its future exploitation. This is what is known as “The tragedy of the commons” and it summaries the inefficient outcome determined by the overuse of rival resources when freely accessible to every individual in each given moment. The problems outlined by Hardin concerning common goods are that they are: 1. Rivalrous in consumption: their use by one consumer prevents simultaneous consumption by other consumers. 2. Non-excludable: it is not possible to prevent people who have not paid for them from having access to them. —> anyone can access the piece of land. Without contracts we don’t have property rights. Therefore we need property rights, and in particular legal rules for the allocation of exclusive rights of use and disposal of resources among individuals. Property rights regulate how individuals may use and dispose of goods. Property law acts as an incentive to work, to maintain and improve things, incentive to avoid disputes and efforts to protect things. Property and contracts are the basis for voluntary exchange of goods among individuals. Property rights are rights that can be claimed toward anyone else (i.e. valid erga omnes ex. Owner of an object). of 36 48 Basic features of property rights: The right holder is assigned an exclusive right on its item: he can exclude anybody else from interfering in his relationship with the object (and his peaceful enjoyment). If we face an interference and violation for this relationship the right holder is given specific recovery for his/her goods. To remove the entitlement from its holder it is needed to buy it from her/him in a voluntary transaction. Entitlement = I have a title, i.e. a property right, on something. Distinctions among objects of property law: Movable and immovable goods: allows a distinction between laws applicable + distinction between common and civil law traditions. Movable goods is any property that can be moved from one location to another without being altered. Ex: book, painting, vote Immovable is any property that cannot be moved from one location to another without destroying or altering it. Ex. lands and building (Also rivers). In civil law tradition we have a unitary field of property law based on the absolute right of ownership. In common law tradition we have two separate branches of law for movable and immovable goods: • Land law (Real property) for immovable • Personal property for movable goods. English common law distinguishes, US does not make any distinction between movable and immovable goods. + Distinction between tangible and intangible goods. CIVIL LAW Unitary system of property which covers all types of assets. Goods represent the potential objects of the absolute right of ownership. Ownership is the primary property right on goods, it is an absolute right. We must have a contract that declares that there has been a change in ownership of an immovable object. It is easier to change the ownership of a movable object than changing that of an immovable one. What does ownership mean? Ownership is a power that can be owned by only one person: disposability of the thing pertains only to its owner. Property on everything tangible (movable or immovable) is a right that is absolute and that may be described as an exclusive and unrestrictive right to a thing. The object of the right must be a real object/thing —> real right. Full-fledged power on goods: provided the law does not direct otherwise, an owner is free to do what he pleases. The law does not say what the owner can do with the “thing”, but provides expressly for the acts that they may not or must do. (The owner can do whatever he wants with the thing). of 37 48 • Patent law: exclusive rights of use and distribution of a novel intuition, granted by the inventor. Requirements to have a patent over something: the good must be new, a novelty, something which did not exit before the creation. It must not be obvious: not easy to be created by anybody, and it must be useful to society. 
 —> Usability, novelty, originality/non obviousness. • Trademark law: exclusive rights on recognizable signs, designs, or expressions which identify products, granted to entrepreneurs and firms. Angelina Jolie case: + Association for molecular Pathology v. Myriad Genetics Myriad Genetics was founded in 1994 as a startup company by scientists involved in the hunt for the BRCA genes (DNA sequences connected to certain forms of cancer). In 1994, Myriad isolated the sequence of BRCA1 and patented it in the US. Over the next year, Myriad, in collaboration with the University of Utah, isolated and sequenced the BRCA2 gene, and the first BRCA2 patent was filed in the U.S. 
 In 1996, Myriad launched their BRACAnalysis product, which detects certain mutations in the BRCA1 and BRCA2 genes that put women at high risk for breast cancer and ovarian cancer. Since 1996, Myriad’s business model has been to exclusively offer diagnostic testing services for the BRCA genes. In 2012, Myriad employed about 1,200 people, had revenue of around $500 million, and was a publicly traded company. In 2010, Association for Molecular Pathology challenged the validity of gene patents in the United States: is it possible to have private property on human DNA? (—> questioned the patent) (Angelina Jolie underwent a double mastectomy to prevent a possible cancer to her breast. She used Myriad patented products. Patent = primary property right on intangibles goods. Through Myriad’s analysis, Angelina found out she was at high risk and underwent mastectomy). Patentability requirements: novelty, usefulness, and non-obviousness (originality). Novelty and non-obviousness were the two requirements questioned by the Association for Molecular Pathology: against patent: Genes are products of nature that may not be patented since they are not artificial invention. Pro patent: The isolation of BRCA sequence is a “human-made invention” eligible for patent protection. On 13 June 2013, in an unanimous decision, the Supreme Court invalidated Myriad’s claim to isolated genes. The court held that merely isolating genes that are found in nature does not make them patentable. UNIT 21. PROPERTY PROTECTION, PROPERTY INTERESTS Ownership’s protection: Exclusivity of ownership (power to do anything and to exclude the others from using our goods) is created by the legal remedies through which the owner may be protected. Since ownership is an absolute right, it requires protection erga omnes. How to compensate the violation of a property right? of 40 48 The victim should be put in a position identical to the one occupied before the violation of the property right, a simple compensation is not sufficient. Recovery action (Reivindicatio): the right of the owner to assert his right and to claim the return of the object from any third party. (if somebody’s actions are such that take property away, the owner can ask for full restitution: owner has a burden: must prove that he is the owner, thus has full ownership over the thing). Injunctive action (Actio negatoria): the right of the owner to prevent or to remove any interference with his proprietary interests.
 If the owner of a thing is disturbed while using it: he is allowed to remove any interference. Different kind of violation presuppose different remedies to the right-holder. Recovery action: 1. Case. Cour de cassation, 22 April 1823 – Hellot v. Leclecr Hellot and Leclerc owned two adjacent buildings separated by a wall. In 1819 Leclerc demolished the wall and erected a new building. Hellot sued Lecrlerc, indicating that the new building encroached on his property by 14 inches, destabilizing it. Leclerc did not challenge the allegations, but replied that: (i) Hellot’s building had fallen into ruin and could not be repaired because of legal restrictions; (ii) Hellot has suffered only minimal losses while the obligation to remove his building would cause him considerable damage —> Cour de cassation established that Hellot was entitled to request the removal of the encroaching building and the return of his property irrespectively of the state of the properties and of the actual harm suffered. (Does not matter how big/much is the entity of the violation of the tortfeasor, what matters is only the violation of the property right). 2. Cour de cassation, 20 March 2002 Houssin v. Legrasse Lagrasse erected a fence which extended 0,50 cm into his neighbor’s property. The neighbor, Houssin, sued him. The Court of Appeal (second level of appealing), Paris, rejected the claim on the basis that such encroachment was negligible. But Cour de cassation (third and final level to challenge a decision) according to the fact that no person can be deprived of his property established that Houssin was entitled to request the removal of the encroaching fence and the return of his property. The degree of encroachment is of no relevance. —> From these cases we understand how powerful the recovery action is and how extreme can be the measure taken. Recovery action is intended in a very rigid way. Injunctive action: German supreme court 1995: Claimants purchased a parcel of land situated next to the factory premises of the defendant, in order to build there an underground car-park. Construction company detected considerable pollution by chemical substances. The disposal of the excavation waste led to high costs. The claimant requested the payment of additional disposal costs. of 41 48 In the meantime the defendant company had gone bankrupt and was run by a liquidator. The operator of a facility that caused soil contamination on a neighboring piece of land remains responsible even after the shutdown, and can be ordered to remove the contaminants interfering with the owner’s peaceful enjoyment of his property. Build an underground car park: the soil was polluted coming from the nearby factories. Can the disturbed one still be compensated? File a tort law case: prove there was a damage. German supreme court 1985 The claimant owned a parcel of land with a house. The defendant, his neighbor, let his property to a couple of spouses, allowing them to run it as a brothel. The claimant believed that his under age daughter was morally endangered and that the value of his property was debased. The claimant demanded the defendant terminate commercial sex-working in his house. The claim was denied. Injunctive action does not cover property interferences of a genuine moral nature.—> there was no damage to the under age daughter and to the property at stake. PROPERTY INTERESTS - Primary property rights: these rights encompass the full bundle of powers that the holder might have on goods. They are: 
 • Ownership and 
 • Intellectual property. - Secondary property rights (lesser property rights): These encompass only some of the powers that the owner may have on goods. 
 they are: 
 • Secondary Right of Use
 • Secondary Security Rights. Limited property rights: Are property rights with erga omnes (absolute) effect derived from a right of ownership on a movable or immovable things. They can be seen as real rights on someone else’s property run with the latter, or can be intended as fragmentation of ownership. They are limited /minor, in contrast with full fledged property rights (full bundle of power: power to use and destroy the good), allow only part of these rights. The creation of limited rights by the owner may be understood as a process of subtraction of particular rights from his/her original bundle, and granted to third parties. Two categories of limited property rights: 1. Limited property rights of enjoyment (possession rights): they grant to their holders specific, though limited (as compared to ownership) rights to make use of the object.
 Ex: usufruct, servitudes. 2. Limited property rights to security: are created to secure the payment of a claim. They are usually created by the debtor/owner of an object in favor of his creditors. 
 ex. Hypothec and mortgage, pledge. Common features of limited property rights: of 42 48 Example pledge (movable things): I give diamond ring to my creditor as a pledge, the creditor can do nothing until the moment in which I fail to pay my debt; if I fail to pay back the debt, the creditor can sell the ring and he must give me the difference between what he gets from the sale and what I should have given him. Two prerogatives of security property rights: 1. Run with the asset (as all other property rights) (think back to usufruct): if an object has been burdened with a security by its owner in favor of his creditor (pledge or hypothec), and is sold to a subsequent purchaser, this latter party receives the object still encumbered by the security. 
 ex. if I buy the house, I know that I should pay the bank for the debt, every new owner has to respect and be aware of the burden. —> find houses with cheap price, why? Maybe cause limited property rights. The former owner still hasn’t pay the house tot he bank, I, that buy it, have to pay for the debt. 2. Priority (special feature of security property rights): secondary security rights give their holder the right of priority in insolvency. 
 As a general rule, creditors are treated equally in insolvency. However, holders with a property security right may claim money before the creditors who hold only personal rights. 
 ex. Suppose that John is the owner of a house. He owes €100,000 to a bank and €50,000 to a supplier. (Debtor to two different creditors). 
 If there is no security right for any of these credits and the house is sold to satisfy the creditors, the bank will receive 2/3rds of the proceeds, and the supplier 1/3, proportional to the claims they had against Joan (paritas creditorum). —> apply proportion to the distribution of money.
 If the bank has a right of hypothec over the house, the proceeds of the house will first be used to pay the bank; If the house brings in €80,000 the bank will receive all that money and the supplier will receive nothing (because the debt of the bank is 100 000 —> bank has priority because of property right). 
 If the house brings in €140,000 the bank will receive €100,000 and the supplier €40,000 —> it will still have credit but less. First we satisfy those creditors having security property rights, then the others if anything is left. Any potential modification of property rights on immovable goods can be checked on public registers, we can check if there is an hypothec. Possession: Refers to the fact that a person has actual control over of a good, regardless of the circumstances by which he obtained such control, i.e. irrespective of whether the possessor is legally entitled to the good or not. There is possession if one can control physically a thing. Regardless of whether he is the owner or not. • Possessor and owner may coincide (they usually do)
 • He who owns a good is also in possession • Possessor and owner may be different subjects 
 • E.g. stolen goods (are in material control of the good but do not own it)
 • E.g. buyer of a good under a void contract 
 • E.g. goods taken from the owner in good faith (I mistakenly take your bottle instead of mine)
 + mechanic of my car—> he can drive the car to check if everything is okay. Requirement to have possession: If somebody acts and/or behaves as if he/she were the owner of the good, or were vested with a property interest, then he possesses the right of of 45 48 ownership or the property interest. —> distinguish the thief from the mechanic. (In the cases mentioned before, apart from mechanic, we have attitude). Once the thief stole the good, he behaves as if he was the owner, he considers himself as the owner —> possession: attitude to be the owner + has control Protection of the possessor over the good: The legal system attributes important legal consequences to the actual control over an object and grants the possessor the right to defend his position As possession refers exclusively to the state of fact, and does not consider the underlying situation at law, protection of possession works equally in defense of persons not having the right of ownership or any property interest. (Also a thief could, potentially, claim his/her right to possession). Do these unlawful possessors deserve protection? (thieves) Why protecting actual possession irrespectively of the situation at law? —> Fundamental principle that the State has monopoly on the use of force . Possession is protected in order to ensure peaceful and orderly intercourse in society —> legal system being the only mechanism to protect possession. The possessor is entitled to defend his position by self-help in a limited series of cases: • Through proportionate self-defense (against third parties violent acts) • Through physical recovery of his possession, immediately after the interfering act has occurred (defend your rights before a court if you cannot reach me while I’m running away from you after stealing something). Whenever the previous conditions are not met, legal protection is granted only through judiciary actions. Restoration action to restore possession. If the possessor has been violently or secretly deprived of his physical control over the good, he may sue the dispossessor in order to be restored in its possession Actions to protect ownership: prove you are the owner ( you bought the thing from a legitimate owner) + injunctive actions and recovery actions to protect ownership Restoration action to protect possession. . 1. Restoration of possession (state of facts) The legal system – firstly, although temporarily – orders restoration of possession, i.e. the restitution of the thing to the person who has been violently or secretly stripped of possession —> allow the possessor to be back in control of the good. (Legal system first protects me as a possessor). 2. Recovery of ownership (situation at law) Protection of possession works only temporarily, as the owner may then bring a recovery action against the possessor, i.e. the action granted to the owner in order to recover the “thing” from whoever possesses or has custody of it —> look at the law and how it says the situation should be. Having control + behave as something was mine can grants possession. Possession - movable Paul gets into an art center and buys a painting and asks the seller to keep the painting until he comes back. Bill gets into the same art center. He likes the same painting and buys it for 30 000€ (Paul had paid 5000€). Going out with the painting, Bill bumps into Paul, who recognizes the painting and claims for it. of 46 48 ** we cannot sell something which is not ours: art center guy was not in the position of selling the painting as he was no longer the owner. Protection of Paul —> using the law Protection of bill —> protection of the state of fact Paul: bought the painting from the true owner. The seller was no longer owner of the painting. Bill cannot acquire ownership from a non-owner Bill: He acquired control over the good from the seller. There were no significant reasons to believe that the seller was not the true owner. It would have been difficult for Bill to verify if the seller was the true owner. (Seller says nothing about the painting already sold). (Material + physical control of the painting—> possession). Movable good: difficult to verify who is the real owner. General principle: nobody can transfer a property right that he did not have himself in the first place. Any person to whom movables are transferred by one who is not the owner, acquires ownership provided that these requirements are met: 1. the movable is delivered to him (possession) 2. he is in good faith at the time of the transfer 3. there is a “suitable title” for the transfer of the right of ownership Bill got possession by paying for the painting, he didn’t steal it. It is a void contract but it is suitable. Rationale behind this —> protecting the circulation of wealth, transparency and reliability of transactions. By stating that the possessor in good faith acquires the right of ownership, the legal system promotes the circulation of wealth, by protecting prospective purchasers who – in good faith – relied on the state of fact (the exercise of the “power over the thing” by the possessor). It is not imposed on market participants to inquire about who is the real owner of the movable goods for which they negotiate Trying to protect efficiency of the market. And Paul? Paul will lose ownership but will have relief (money back + damages). Possession - immovables Paul owns a parcel of land in the countryside that he never exploits or even visits. Given the abandoned state of the field, Bill, Paul’s neighbor, decides to start cultivating it. As years pass by, in the absence of any reaction by Paul, Bill decides to erect a fence around the field to protect his harvest. After 20 years, Paul visits the field and finds it well farmed, but closed by Bill’s fence. Paul claims the removal of the fence by Bill, and the recovery of his land. Prescription = rights expire if it is not exercised for a long time, but not valid for ownership. Protection of Paul: he is the owner of the field. Ownership does not expire because of prescription. Ownership covers the right to do nothing at all with the property and still be the owner of the latter —> protection for the situation at law Protection of Bill: He possessed the field for a long period of time. He prevented the abandonment of the land and increased its value. He deserves more protection than an idle owner —> protection of the state of fact. —> Acquisitive prescription: of 47 48