COMPARATIVE PRIVATE LAW

REASONABLESS OF CONTRACT’S CONTENT

University of Oslo

Prof. Giuditta Cordero Moss

Case I – Limitation of liability

• A software company sells an accounting programme for law firms to a law firm

• The programme turns out to be inadequate for accounting of more than 40 accounts

Liability clause

• General sale conditions:

“In case of non-satisfactory performance the buyer may request the seller to replace the programme with the newer version, to be developed within 6 months.”

Limitation of liability:Evaluation of contract’s content

• Norwegian law: law firm may request avoidance, reduction of price

• German law: law firm may request avoidance, reduction of price (?)

• UNIDROIT: law firm may request avoidance, reduction of price

• PECL: limitation of liability clause is valid (?)

• Italian law: limitation of liability clause is valid (?)

• English law: limitation of liability clause is valid

• CISG: limitation of liability clause is valid (?)

Case II – Termination for immaterial breach

• An enterprise borrows a considerable amount of money from a financial institution, to be repaid over a 10 years period

• The loan agreement contains several covenants and obligations for the borrower, i.a. to deliver to the lender two copies of the quarterly accounts not later than 2 days after the date of their issuance

• After 1 year the borrower fails to meet the delivery term by 2 days

• The lender deems this a breach of contract and requires immediate repayment of the whole outstanding amount

Termination-upon-default clause

”Upon any breach whatsoever of any of the Borrower’s obligations, the Lender shall be entitled to terminate this agreement with immediate effect and to require the immediate repayment of the whole outstanding amount. If the Borrower offers to remedy the default, the Lender shall be entitled, at its sole discretion, to refuse such offer and to proceed to termination of this agreement.”

Termination for immaterial breach:evaluation of contract’s content

• Norwegian law: The bank is not entitled to terminate

• German law: The bank is not entitled to terminate

• PECL: The bank is not entitled to terminate (?)

• Italian law: The bank may terminate

• English law: The bank may terminate

• UNIDROIT: The bank may terminate

Case III – Measurement of energy delivery

• An energy producer enters into an agreement for the supply of energy to several enterprises

• The price to be paid is calculated on the square area of each enterprise

• After some years a meter for the measurement of the actual consumption of energy is installed, and the producer requests that one enterprise starts making payments on the basis of the consumption (higher than if based on the area)

Payment clause

• The clause clearly states that payment is to be made on the basis of the receipient’s area.

• No renegotiation clause

Measurement clause:evaluation of contract’s content

• Norwegian law: Payment to be maid on the basis of actual consumption

• German law: contractual clause to be followed

• Italian law: contractual clause to be followed

• English law:contractual clause to be followed

• UNIDROIT, PECL, CISG: contractual clause to be followed

Possible aims of rules on fair terms

• Protect the weaker contractual party

• Ensure fair use of general conditions

• Ensure reasonabless of bargains

Protection of the weaker contractual party (consumer)

• Norwegian consumer sale act § 26, Formation of contracts act § 37

• German BGB § 437, 475, § 138

• Italian CC art. 1492, 1469bis

• English sale of goods act sec 14

• UNIDROIT art. 1.4• PECL art. 1:103(2)

Fair use of general conditions

Norwegian law:

• Restrictive interpretation of what one party has agreed to

• §36 avtl (since 1983): unreasonable terms may be set aside or modified

• Not for ”agreed documents”

• §37 avtl extends control to general conditions where one party is a consumer

Fair use of general conditions

German law:

• BGB §§ 305 ff. (former AGB (1976))– Ineffective clauses, if prejudice to principle of

good faith– Contra proferentem– Surprising terms– Individual terms prevail– …

Fair use of general conditions

Italian law:

• Art. 1341 General terms are binding if they were known or could have been known (diligence)

• Particularly ”oppressive” clauses to be specifically undersigned

Fair use of general conditions

English law:

• Strict interpretation of exemption clauses

• Contra proferentem

• Fundamental breach?

Fair use of general conditions

UNIDROIT:

• Art. 2.19: Rules on formation

• Art. 2.20: surprising terms

• Art. 2.21: individual terms to prevail

Fair use of general conditions

• PECL:

• Art. 2:104: can be invoked if reasonable steps were maid to bring them to the attention of the other party

• Art. 4:109: not enforceable if significant imbalance between parties

Reasonableness of bargain

Norwegian law:• Avtl. §36: unreasonable terms may be set aside

or modified• If circumstances of the specific case (also

supervening) make the performance unfair for one party

• Fairness: guidance in statutory rules, commercial practices, common sense of justice

• Restrictive use between parties with equal bargaining power

Reasonableness of bargain

German law:

• §242 BGB: ensure good faith in performance

• Applied to integrate terms, prevent application of terms, modify terms (§ 313)

Reasonableness of bargain

Italian law:

• Art. 1339 CC: replacement of clauses only if expressly provided for by specific statutory rules

Reasonableness of bargain

• UNIDROIT:

• Art. 7.1.6: exemption clauses inapplicable if grossly unfair having regard to the contract’s purpose

Reasonableness of bargain

• PECL:

• Art. 5:102(g):good faith in interpretation

Common features

• Protection of the weaker contractual party

Judge’s power to control contract’s content

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10

Norway Germany Italy England UNIDROIT PECL

Consumer

Weaker p.

g.c. Dil.

g.c.meas.

g.c.surpr.

good faith

fairness