6. Law of Obligations

Recht - Deel I: Grondwettelijk recht en Procesrecht

Overview

• Chapter 1: General Introduction
• Chapter 2: Constitutional Law & Belgian Institutions
• Chapter 3: European & International Law
• Chapter 4: Persons & Family Law
• Chapter 5: Property Law
• Chapter 6: Law of obligations

Law of Obligations: Definitions

• The law of obligations is a branch of private law under the civil law legal system.
• It organizes and regulates the rights and duties arising between individuals.
• Specific rights and duties are referred to as obligations.
• This area of law deals with their creation, effects, and extinction.

Obligation

• An obligation is a legal bond ($vinculum iuris$) by which one or more parties (obligants) are bound to act or refrain from acting.

Obligor

• An obligor is a person who is contractually or legally committed or obliged to providing something to another person.

Obligee

• An obligee is a person who is to receive the benefit of someone else's obligation.

Duty to Perform & Right to Demand Performance

• An obligation imposes on the obligor a duty to perform.
• It creates a corresponding right to demand performance by the obligee.
• Obligations can be:
  • Civil: Enforceable by action in a court of law.
  • Natural: Imply moral duties but are unenforceable unless the obligor consents.

Types of Obligations

• Obligations derived from contract.
• Obligations derived from quasi-contract.
• Obligations derived from tort.

Contract Law

Forming a Contract

• What is a contract?
  • An agreement between two or more parties (debtor (SA) and creditor (SE)), in which the contracting parties promise to do/give/not do something in exchange for something in return.
  • This agreement creates obligations enforceable by law.
• Multiple types:
  • Sales contract
  • Lease contract
  • Loan agreement
  • Labor agreement
  • Non-competition clause
  • Rent contract
• Requirements:
  • Two legal actions necessary:
    • The offer (specific enough; otherwise, it's an invitation for doing business).
    • The acceptance of the offer.
• Which legal rules apply?
  • Common law vs. Civil law
  • Belgium: Civil law: the ‘contractual intention’ (or the ‘will theory’).
  • Offer: Revocable until accepted; however, damage compensation may be claimed when the offer is revoked before it expires (‘reasonable expectation?’).
  • Time must be specified; if not: offer will be valid for a ‘reasonable time’ (courts).

Types of Contract

• Simple contract
• Solemn contract
• Unilateral contract
• Synallagmatic contract (reciprocal contract)
• Contract as a gift
• Contract for consideration

Simple Contract

• A contract, the evidence of which is merely oral, or in writing, not under seal, and without special formalities having to be observed.

Solemn Contract

• A contract that requires a special form or method of formation (creation) in order to be enforceable.

Unilateral Contract

• A unilateral contract is one in which only one party is bound by obligations under the contract.

Synallagmatic Contract

• A ‘synallagmatic’ contract is a contract in the civil law where reciprocal obligation exists; each party to the contract is bound to provide something to the other party.

Contract as a Gift

• A contract by means of which property is transferred or a performance is promised by the obligor with nothing given in return by the obligee.

Contract for Consideration

• A contract for consideration benefits both parties to the contract.
• Almost all synallagmatic contracts are formed as contracts for consideration.

Basic Principles of Contract Law

• 1) Performance of the contract: principle of good faith
  • Parties have the responsibility to deal with one another in an honest and fair way.
  • The obligations should be fulfilled in good faith towards one another.
  • Principle is widely accepted (common and civil law).
  • Application of this principle in all contract stages: even during the negotiations: $culpa in contrahendo$!
  • E.g.: NDA, gentlemen’s agreement, letter of intent, …
• 2) Contractual freedom
  • Regarding the content: As long if the mandatory law is not violated, contractual freedom is absolute. Principle recognized in all EU Member States. Nuances however!
  • Regarding the form: Oral contracts have the same legal weight as written contracts. Practically however: evidence? Requirements concerning delivering evidence in Belgium lower in business law than in civil law. Civil law in Belgium: contract >$3500$ EUR? Written evidence with formal requirements are necessary!
• 3) Binding force of contracts
  • Since the contract has binding force, parties are bound to perform all the obligations arising form it, whether they have been expressly laid down or not.
  • A contract may only be cancelled on specific grounds:
    • Revocation of the contract by mutual consent.
    • Termination grounds provided under the law.
    • Breach of contract => contractual liability (differs from contracts that are null and void!).
    • Exception: Force Majeure => force majeure provision or clause. Unavoidable, unwanted, unforseeable, makes the fulfillment of the obligation definitively impossible.
• 4) Consensualism (‘occurrence of wills’)
  • The contract is concluded by the agreement of the parties without any further requirement.
  • Contracts are formed by the manifestation of intention by way of offer and acceptance.

Legal Requirements for a Valid Contract

• 1) Genuineness of consent
  • For a contract to be valid, all contracting parties have to agree on the same matter.
  • All European legal systems acknowledge that consent may be defective.
  • Defects of consent concern the formation of the contracts.
  • Main categories of defect of consent: mistake, duress and fraud.
  • Variations exist in the different legal systems.
  • A causal relationship between the defect of consent and entering into the contract is required.
  • As a contract has to be valid before it has to be performed, the absence of defects of consent should be checked before considering whether or not the contract has been performed satisfactorily.

Mistake or Error

• One party errs in the interpretation of the contract (there is an erroneous assumption, which led the mistaken party to enter into a contract).
• The party was not aware of all material information when concluding the contract.
• Or, would the party have known something at the time of the contract, he would not have concluded it or at least on very different terms.
• Criterium: reasonable or excusable error? (‘bonus pater familias’). If not, that party cannot argue that there has been a defect in his consent.
• Result: voidability (‘the contract may be rescinded by the disadvantaged party or parents/legal guardians’) = the contract can be set aside.

Fraud/Intentional Fault

• Can affect the contract only if it is exerted by the contracting party.
• It is an untrue assertion made with knowledge of falsity and the intent to deceive.
• ‘Bonus pater familias’ is not a criterium!
• Result: voidability or damage compensation.

Duress

• A person enters an agreement as a result of threats.
• Result: voidability.

Abuse of Circumstances

• Result: voidability or damage compensation.
• 2) Legal capacity to contract
  • For both natural and legal persons.
  • The ability to understand the meaning of one’s actions depends on the mental status of the person, and his or her intellectual capacity.
  • A person who enters into a transaction has to have reached a certain minimum level of intelligence and mental maturity.
  • Capacity is the rule, incapacity is the exception: only if a statute or a judgment expressly provides otherwise, is a person incapable of contracting.
  • Problem for minors, mentally disabled people (insanity, mental illness, or mental/medical condition), people under influence of alcohol or drugs.
  • Assumption: those people cannot engage in transactions. Minors: exception for transactions that relate to the usual daily needs.
  • Result: voidability.
• 3) Object of the transaction
  • = The subject matter of the obligations created by the contract.
  • Criterium: does the object violate criminal law or the basic principles of our society?
  • Result: contract is null and void. Public prosecutor can initiate criminal proceedings.
• 4) Cause
  • = The concrete and decisive motives and objectives of the parties to enter into a contract.
  • The motives and objectives become legally relevant if they are known - or ought to have been known - and accepted (albeit implicitly) by the other party.
  • Criterium: does the cause violate criminal law or the basic principles of our society?
  • Result: contract is null and void (‘has never existed by law’). Public prosecutor can initiate criminal proceedings.

International Contract Law

• Aim:
  • To overcome the differences between legal systems and to facilitate international trade => several initiatives have been undertaken to unify the law of contracts.
• Application:
  • As a result of international private law rules.
  • Or as a result of the deliberate choice of the contracting parties.
• Substance:
  • B2B Sales contract
    • The UNIDROIT principles of international commercial contracts
    • The UN Convention on Contracts for the International Sales of Goods: CISG (‘the Vienna Convention’)
    • Rules regulating the liability between sender and receiver during international transport in a B2B contract
    • INCOTERMS (the ‘International Commercial Terms’)
• Form:
  • The International Chamber of Commerce adopted ICC Model Contracts: single formats that can be used in different kinds of B2B settings, if the contracting parties choose to use it.

Contractual Liability: Legal Remedies

• If the principle of good faith is not respected in Belgium:
  • In cases of non-delivery of goods, non-performance of services, non-payment,…
    • First step: a default notice (tip: registered!).
    • Second step: if it’s a mutual agreement: ENAC (‘I suspend the fulfilling of my obligations until…’) or retention right (the right to withold the object).
    • Third step: you initiate court proceedings against the counterparty (you summon before the competent court).
    • ‘In natura payment’ (+ damages?) vs. ‘By equivalent’ payment (damage compensation).
    • So: ultimately it’s possible to request the authorities to seize and sell property of the debtor in order to settle: but first you always need a judgment (which is enforcable, cf. a public notary deed).
    • (Never an option: forced labour. Solution: judgment ‘on pain of periodic penalty’).

Addressing Justice Backlog and Reputation Management

• Problem: justice backlog, reputation management (confidentiality), no guaranteed expert knowledge, appeal possibility.
• Solution: waterproof contractual clauses; arbitration proceedings (e.g. ICC, Cepani in Belgium).
• Disadvantage: extremely expensive.

Culpa in Contrahendo

• Praetorian doctrine
• Negotiators have to act as reasonable persons in the precontractual stage (according to the principle of good faith).
• If they act negligently, they are liable on the grounds of tort law (tortious liability).
• Information provided during negotiations must be correct.
• Unlawful termination of negotiations implies tortious liability.

Interpretation of the Contract

• Common law and Civil law interpret key elements of a contract differently
  • Civil law: interpretation of the contract on the basis of the “will theory”: ascertain the true intention rather than adhering to the literal meaning of the declaration
  • Common law: when interpreting an act under the law, it shall not so much be a question of what the parties wanted but of what they declared

Performance of Contract

• Two different levels to consider:
  • Consequences between contracting parties
  • Consequences for third parties
• Consequences between contracting parties
  • The contract is the law between the parties and should include all the things they are supposed to have agreed upon
  • The general principle of conduct in good faith (“good faith and fair dealing”), is recognised in most European legal systems

Breach of the duty of performance

• Remedy for all contracts:
  • Specific performance
  • Damages
• Specific remedy for reciprocal contracts:
  • Cancellation of the contract
  • $Exceptio Non Adimpleti Contractus$: an exception in a contract action involving mutual duties or obligations, to the effect that the plaintiff may not sue if the plaintiffs own obligations have not been performed
  • Right of retention: the right which the possessor of a movable has, of holding it until he shall be satisfied for his claim either against such movable or the owner of it

Consequences for third parties

• Relativity of contract
  • The contract shall not harm the interests of third parties and may benefit them only in specific circumstances under European continental civil law
  • Exceptions:
    • Concept of “porte-fort”: undertaking by the agent constituting a promise that the principal (i.e. third party) will ratify the act
    • Stipulation for the benefit of a third party
    • Direct action: an action of the obligee against the obligor of his own obligor

Concept of "Porte-Fort"

• Party A promises to Party B that Third party C will perform to the benefit of party B

Stipulation for the benefit of a third party

• Party A makes Party B engage to perform to the benefit of third party C

Direct action

• Third party C, obligee in the relation with party A (obligor) has a direct action against party B, obligor in the relation with party A (obligee)
• Liability of Party A derived from contract or tort

Modality of rights and obligations

• Conditional rights and obligation
• Time-limited rights and obligations
• Alternative obligations or methods of performance
• Plurality of debtors and creditors

Conditional rights and obligation

• The terms regulating a right, obligation or contractual relationship may provide that it is conditional upon the occurrence of an uncertain future event, so that it:
  • takes effect only if the event occurs (suspensive condition);
  • or comes to an end if the event occurs (resolutive condition)
• Upon fulfilment of a suspensive condition, the relevant right, obligation or relationship takes effect
• Upon fulfilment of a resolutive condition, the relevant right, obligation or relationship comes to an end

Plurality of debtors and creditors

• Plurality of debtors implies that two or more debtors are bound to perform one obligation
• Plurality of creditors implies that two or more creditors have a right to performance under one obligation

Solidary obligation

• An obligation is solidary when each debtor is bound to perform the obligation in full and the creditor may require performance from any of them until full performance has been received

Divided obligation

• An obligation is divided when each debtor is bound to perform only part of the obligation and the creditor may claim from each debtor only performance of that debtor’s part

Solidary right

• A right to performance is solidary when any of the creditors may require full performance from the debtor and the debtor may perform to any of the creditors

Divided right

• A right to performance is divided when each creditor may require performance only of that creditor’s share and the debtor owes each creditor only that creditor’s share

Named Contracts

• These are regulated in the Civil Code in civil law legal systems:
  • Contract of sale
  • Rent
  • General mandate (agency)
  • (Independent) contracting
  • Transaction (settlement by compromise)
  • Loan

Quasi Delicts

• Definition:
  • A quasi-delict is a negligent act or omission which causes harm or damage to the person or property of another, and thus exposes a person to civil liability in civil law jurisdictions, as if the act or omission was intentional (a delict)
  • Another term for “quasi delict” is “non-contractual liability”
  • (Non-contractual liability arising out of damage caused to another roughly corresponds to tort law as it is known in common law systems, or the law of delict, a sub-part of the law of obligations in civil law systems)
• Unlawful behaviour that causes damage to another person (tort) is governed by legislation.
• It results, if the relevant prerequisites for liability are present, in the tortfeasor’s obligation to compensate for the damage
• A person who suffers legally relevant damage has a right to reparation from a person who caused the damage intentionally or negligently or is otherwise accountable for the causation of the damage
• The existence of tort and the claim for compensation from damages arising from it is verified on three different levels of the elements of a civil offence:
  • The levels of the objective elements of tort, of unlawfulness, and of fault:
    • the act
    • the damage
    • a causal relationship between the act and the damage
• Turning as it does around three concepts:
  • a loss or injury suffered by the victim
  • the legally (economic or non-economic) relevant damage
  • an event attributable to the defendant
  • a person is accountable for legally relevant damages caused either by an intentional or a negligent act on his part
  • a causal link between the two.
• A person causes legally relevant damage intentionally when that person causes such damage either:
  • meaning to cause damage either of the type caused or of another type; or
  • (in some legal systems but not under Belgian law) by conduct which that person means to do, knowing that such damage, or damage of that type, will or will almost certainly be caused (wilful misconduct)
• A person causes legally relevant damage negligently when that person causes the damage by conduct which either:
  • does not meet the particular standard of care provided by a statutory provision whose purpose is the protection of the person suffering the damage from that damage; or
  • does not otherwise amount to such care as could be expected from a reasonably careful person in the circumstances of the case
• Causation
  • Causation is the "causal relationship between conduct and result". That is to say that causation provides a means of connecting conduct with a resulting effect (damage, injury, death)
  • A person causes legally relevant damage to another if the damage is to be regarded as a consequence of that person’s conduct or the source of danger for which that person is responsible

Accountability for damage caused by children or supervised persons (pupils)

• Parents or other persons obliged by law to provide parental care for a person under age are accountable for the causation of legally relevant damage where that person under age caused the damage by conduct that would constitute intentional or negligent conduct if it were the conduct of an adult
• An institution or other body obliged to supervise a person is accountable for the causation of legally relevant damage suffered by a third party

Accountability for employers for damage caused by employees

• 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:
  • caused the damage in the course of the employment or engagement and
  • caused the damage intentionally or negligently, or is otherwise accountable for the causation of the damage

Accountability for damage caused by the unsafe state of an immovable

• A person who independently exercises control over an immovable is accountable for the causation of personal injury and consequential loss, loss suffered by third persons as a result of another’s personal injury or death, and loss resulting from property damage resulting from property damage

Accountability for damage caused by animals

• A keeper of an animal is accountable for the causation by the animal of personal injury and consequential loss, loss suffered by third persons as a result of another’s personal injury or death, and loss resulting from property damage

Accountability for damage caused by defective products

• European legislation protects consumers against damage caused by defective products. Injured persons can therefore seek compensation with regard to products put into circulation in the internal EU market
• EU Directive 85/374/EEC of 25 July 1985 establishes the principle of liability without fault applicable to European producers. Where a defective product causes damage to a consumer, the producer may be liable.