Nemo potest venire contra factum proprium. The coherence principle in European contract law

Codrea, Codrin Article Nemo potest venire contra factum proprium. The coherence principle in European contract law CES Working Papers Provided in Cooperation with: Centre for European Studies, Alexandru Ioan Cuza University Suggested Citation: Codrea, Codrin (2018) : Nemo potest venire contra factum proprium. The coherence principle in European contract law, CES Working Papers, ISSN 2067-7693, Alexandru Ioan Cuza University of Iasi, Centre for European Studies, Iasi, Vol. 10, Iss. 3, pp. 357-370 This Version is available at: https://hdl.handle.net/10419/198550 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ CES Working Papers – Volume X, Issue 3 This work is licensed under a Creative Commons Attribution License 357 Nemo potest venire contra factum proprium. The coherence principle in European contract law Codrin CODREA* Abstract The coherence principle was elaborated by the legal scholar Dimitri Houtcieff in the field of contract law of the French legal system as an instrument for overcoming those contradictions regarding the contract or the contractual behavior which may be damaging for the other party or even for third parties. The coherence principle relies on the hypothesis that a contract, as the agreement of the parties, is a coherent system, and that whatever contradictions it may contain are irreducible oppositions within the system, deriving either from certain explicit provisions in the contract or from the behavior of the party, which can affect the dynamics of the contract in various ways. The article intends to elaborate on the notion of contractual contradiction as it was developed in the French doctrine, to analyze such contradictions in the French contract law and to verify, on the one hand, if there can be established any relation of equivalence between the legal notions employed in the French legal doctrine and the Romanian one, and, on the other hand, if the coherence principle may prove to be applicable in the Romanian contract law as an equally useful tool. Keywords: principle of coherence, contradiction, contract law, interpretation Introduction Following a thorough analysis of a multitude of legal practices which start from the formation of contracts and their performance to the febrile litigation point where the decisions of the courts articulate judiciary practices, Dimitri Houtcieff, professor at Faculty of Law and Political Sciences of Aix-Merseille, managed to identify an overarching principle which has the effect of restoring the contract or the specific inconsistent, heterogeneous conduct of a party to its coherence, when applied to any prejudicial contradiction to either the other party or third parties (Houtcieff, 2001). The notion of contradiction which he elaborates consists in an irreducible opposition within a system and at this level of abstraction it can only have an invariable and objective nature, due to its logical and formal characters, regardless of whether it affects the contract itself or the conduct of the contracting parties. However, if the contradiction may be identified as an invariable formal deviation, the resulting * Codrin CODREA is Assistant Lecturer PhD at the Faculty of Law, Alexandru Ioan Cuza University, Iasi, Romania, email: codrin_cod[email protected]. CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Codrin CODREA 358 incoherence may have various degrees, and as such, may also have different effects on the contractual dynamics. The points Houtcieff analyses refer to somewhat disparate contractual aspects, such as the interpretation of contracts, the situation of conditional obligations, especially those under a condition potestative, the contractual provisions regarding the reduction, limitation or ease of the liability of the debtor, the formation of contracts through both negotiations and offer-acceptance mechanism, or the contractual remedies for breach of contract a party understands to make use of. For all these aspects where occurrences of contradictions within the contract or related to the contractual conduct of the parties can be identified, he proposes the application of the coherence principle as a means to overcome the damaging effects of incongruities and redress the contract (Pătulea et al., 2008, p. 118). Since the coherence principle elaborated by Houtcieff is a result of precise transversal interpretations of nuanced aspects of contract law, which finds its particular application within the French legal system, the question of whether such a principle could be acculturated somewhere else, if it would prove useful or even plausible within a different legal system bears a significant relevance. However, the Romanian legal system heavily relies on French civil institutions, since the former Romanian civil code of 1865 was inspired by the 1804 Napoleon Code and the transformations that the French civil code underwent were also considered in the elaboration of the current Romanian civil code in force since 2011. As such, the success of a legal transplant in the Romanian legal system of the French coherence principle can be anticipated, since it relies on the general resemblance of the legal contractual architecture in both legal systems. Nevertheless, the scope of the principle, as it was outlined on the basis of the French civil code and French judiciary practice, may be subjected to specific variations on specific marginal aspects of the contractual dynamics in Romanian civil law, which the article also intends to analyze. 1. Occurrences of the principle of coherence It is relevant for the purpose of this article to briefly follow the dynamic of the principle of coherence, on both diachronic and synchronic levels, thus sketching the evolution of the principle as it was constituted under different sets of norms, different denominations and as an answer to specific issues. As such, the overview proceeds from the Latin apothegm itself, which encapsulates the essence of the principle of coherence and offers its most supple and concrete phrasing, Nemo potest venire contra factum proprium. From the Roman understanding, the norms and practices of the Middle Ages come into discussion with regard to the principle, with an accent on the autonomous body of norms known under the rather broad reference of Lex Mercatoria, norms which were CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Nemo potest venire contra factum proprium. The coherence principle in European contract law 359 designed to govern particularly international commercial contracts, but gained a specific echo in the process of codification in European legal systems. From this point on, the analysis focuses on the gradual development of the principle of coherence in contemporary international commercial contracts, with an emphasis of the current set of norms of Lex Mercatoria. In order to capture a comprehensive perspective on the principle of coherence, the overview concludes with the sanctions provided in common law under the doctrines of promissory and equitable estoppel, legal solutions equivalent to those provided under the principle of coherence. 1.1. The coherence principle in international commercial contracts The latin phrase Nemo potest venire contra factum proprium is part of the standard repertory of private European law, and it was firstly used in Roman law to refer to the prohibition of a party to act in such a way that contradicts a previous act of his own on which the other party relied, thus causing a detriment to the latter (Zimmermann, 2003, pp. 57-57). The phrase would later reflect in the coherence principle, which was not explicitly articulated as such, but only implied by the duty of good faith in trading practices under Lex Mercatoria, the Law Merchant emerging from the customs of traders and merchants of the Middle Ages (Gordley, 2000, p. 108). The medieval Lex Mercatoria constituted itself as an independent body of rules that was not an emanation of a specific political authority and that compiled a roughly coherent set of principles and rules based on the particular needs, interests and risks of medieval inter-city and cross-border trade (Wolaver, 1934). The medieval Lex Mercatoria disappeared during the 19th century, when the emergence of the nation state and the issues of state-sovereignty it entailed became dominant to the detriment of the idea of an independent transnational trading law. However, since it was tailor-made after the specific needs of merchants and thus bearing a significant relevance for economic agents, the principles and rules of Lex Mercatoria were incorporated in the most important legal systems of both major legal families: in the continental- European legal systems, in the commercial law codifications such as the French Code de Commerce or the German Handelsgesetzbuch, and in the common law as well, even though, as Blackstone noted, Lex Mercatoria differed from the general rules of the common law (Blackstone, 1809, p. 75). Nevertheless, the new Lex Mercatoria managed to reorganize principles and rules of transnational trading law which are currently being used in international arbitrations by counselors and arbitrators, as well as contract drafters and academics at the international level (Berger, 2018). The TransLex-Principles is such a strain of the ongoing contemporary Lex Mercatoria, which started in 1992 and managed to compile a non-exhaustive and open list of more than 130 principles and rules of transnational trading law, such as pacta sunt servanda, duty to mitigate damages, duty to pay CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Codrin CODREA 360 interest, or compensation for expropriation (Commentary to Trans-Lex Principle). Among these general principles of international trading contract law, which can be traced back from the Roman law even to the contemporary legal systems of both continental European and common law legal families, there is also a reference to the Roman Nemo potest venire contra factum proprium, however, under a different denomination, which articulates the principle of coherence: Chapter I: General provisions, Section 1: Good faith and fair dealing I.1.2 - Prohibition of inconsistent behavior: (a) A party cannot set itself in contradiction to its previous conduct vis-à-vis another party if that latter party has acted in reasonable reliance on such conduct. (b) Violation of this Principle may result in the loss, suspension, or modification of rights otherwise available to the party violating this Principle or in the creation of rights otherwise not available to the aggrieved party. The placing of the principle of coherence in the section regarding good faith in the TransLex- Principles is not a singular occurrence. Good faith is a well established principle in international commercial law, as it is explicitly stated in art. 7 (1) of the 1980 Vienna Convention for example, and it is usually correlated with the principle of fair dealing in trade. The fair conduct is to be evaluated abstractly, objectively, considering the behavior of a reasonable trader in a similar situation. The Uniform Commercial Code of United States of America, as well, regulates both the good faith and the fair dealing principle in art. 1-304, which states that every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement, and in art. 2-103, which states that good faith in the case of merchants means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Also UNIDROIT Principles of International Commercial Contracts focus on the good faith, which it relates to the fair dealing in art. 1.7 of the first chapter, referring to the general provisions regarding international trading contract law. This imperative principle demands from each party to act according to good faith and fairness in trading and that the parties cannot exclude nor limit this obligation, thus the mandatory nature of the provision. The notion of good faith and fair dealing in international trade is to be applied considering especially the conditions of international trade and not according to regular standards adopted by different national legal systems, which can be considered only if it is proven that those standards are generally shared by different legal systems (Sitaru, 2008, pp. 517-518). A remarkable aspect is that within or alongside the principle of good faith and fair dealing in international trade, the coherence principle was also introduced, even though the latter was not directly deduced from the first. The deduction was mediated by the notion of abuse of rights, which also derives from good faith as it is stated in the 2016 version of the UNIDROIT Principles, and which consists in a specific conduct of a party who exerts his contractual right in order to damage the other party, for any other purposes other than the ones for which the right was given or when the CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Nemo potest venire contra factum proprium. The coherence principle in European contract law 361 exercise of the right is disproportionate to the result initially considered by the parties. The introduction of the coherence principle in the UNIDROIT Principles occurred only in the 2004 version, in art. 1.8, which sanctions the inconsistent behavior, stating that a party cannot act inconsistently with an understanding it has caused the other party to have and upon which the other party has reasonably acted in reliance to its detriment. As it is stated in the first comment on the provision 1.8, the coherence principle derives from the principle of good faith and fair dealing and imposes a responsibility on a party not to produce a detriment to another party by acting inconsistently with an understanding regarding their contractual relationship which it has caused the other party to have and upon which the latter has reasonably acted in reliance. The second comment states that there is a variety of ways one party may cause the other to have an understanding concerning their contract, regarding either its performance, or its enforcement. The understanding may result, for example, from a representation made by the party, from his conduct or silence, when the other party would reasonably expect an intervention in order to correct either a known error or a misunderstanding that was being relied upon. The comment also states that the understanding may refer to any area of the contract and it is not limited to any particular subject-matter as long as it relates in some way to the contractual relationship of the parties. It may relate to a matter of fact or of law, to a matter of intention, or to the way in which one or other party can or must act. The only limitation regarding the understanding is that it must be one on which the other party can and does reasonably rely on in those circumstances. The reasonable character of the reliance is a matter of fact related to those circumstances considering, in particular, the communications and the conduct of the parties, but also the nature and setting of the parties’ dealings and the expectations they could reasonably have from each other. 1.2. The coherence principle in common law – promissory and equitable estoppel Even if the common law does not recognize the principle of coherence as such, it employs specific institutions in order to sanction the fact that Nemo potest venire contra factum proprium through the estoppel doctrine through its both forms, promissory estoppel and equitable estoppel. The promissory estoppel doctrine was firstly introduced through the 1947 Central London Property Trust Ltd v. High Trees House Ltd. The defendant concluded in 1937 a contract with the plaintiff for renting a block of flats for 2500 pounds. During the Second World War, 1939-1945, the apartments could not have been sublet, since a great part of the population of that area left. In 1940, due to this state of war, the plaintiffs agreed to a reduced rent of 1250 pounds, without specifying the period of time in which they would accept the diminished rent. At the end of the war, in 1945, the CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Codrin CODREA 362 apartments where sublet, but the defendant continued to pay the diminished rent. The plaintiff demanded that the defendant would pay the amount of rent agreed upon before the start of the war, from the moment the apartments could have been sublet, and the Court agreed, since the conditions that justified the diminished rent ceased to exist. However, Lord Denning stated that, although the plaintiffs won, if they would have requested the full rent also for the period during the war, their request would have been denied on the basis of promissory estoppel. This doctrine does not allow a plaintiff to insist in the realization of his legal rights, even if there was no consideration given in exchange to the promise, if the following conditions are fulfilled: the plaintiff assumed a promise not to insist in his legal rights and this promise was made with the intention to produce legal effects, the plaintiff knew that the defendant was relying on the promise and acted according to that promise (MacIntyre, 2007, pp. 121-123). The equitable estoppel doctrine intends to protect the defendant who is held liable for the illegal situation resulting from the trust the defendant had relying on the affirmations or acts of the other party (Hyland, 2009, p. 462). In the judiciary practices there were established the conditions which allow the use of the equitable estoppel: the existence of representation over a state of affairs which both parties knew, but later proved to be false, the reliance of the defendant on that false representation, and the change in attitude of the plaintiff regarding that state of affairs. The legal doctrine refers to the 1862 case of Dillwyn v. Llewelyn as an application of the equitable estoppel. In this case, the father gives some land to one of his sons by making a deed in which he mentions that the gift was made so that his son can build a house, and the son, with the agreement of his father, builds a house. At the death of the father, the other son contests the transfer of land, showing that the deed was not legally valid since it did not meet all the required conditions. The Court rejected the claim and Lord Chancellor Westbury affirmed that, even though the equitable estoppel cannot save acts which are illegal under common law, if the father gave the land to his son to build a house and he did so with the agreement of his father, the son has a right to call on the donor to perform that contract and complete the imperfect donation which was made with the disregard of the law (Codrea, 2016, pp. 239-240). 2. Houtcieff’s contractual contradictions in French and Romanian legal systems Advancing the notion of contractual contradiction as a formal irreducible opposition within a contract, understood as a coherent system, in his 2001 Le principe de coherence en matire contractuelle, Dimitri Houtcieff notes that such contradictions may have a various depths (Houtcieff, 2001). Starting from the formal identification of the contradiction, deriving either from certain CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Nemo potest venire contra factum proprium. The coherence principle in European contract law 363 provisions included by the parties in the contract or from acts, facts and conducts external to the contract but closely related to it, the judge has two possibilities: either resolve the contradiction by interpreting the contract as it firstly appeared, as a heterogeneous set of opposing provisions, in a coherent manner, or, if a coherent thread through the conflicting contractual dispositions cannot be identified, eliminate the conflicting provisions from the contract, which would then be completed with the common dispositions. The first possibility can be efficiently implemented through the rules of interpretation of the contract, similar in both French and Romanian legal systems, which rely on the primacy of the internal, real volition of the parties and on the systematic interpretation of the contractual provisions. A specific set of dispositions with this regard are provided in art. 1202 of the Romanian civil code. These dispositions refer to the particular situation of the contract concluded without negotiations and consisting in standard provisions which are unilaterally established by one of the parties (Oglindă, 2017, pp. 73-74). If the contract contains both standard clauses and negotiated ones, if there is a contradiction between the first and the latter, the negotiated ones prevail over the others, as it is stated in art. 1202 (3). Art. 1202 (4) states that if both parties use standard clauses without agreeing on them, the contract is considered concluded on the basis of negotiated clauses and of those standard clauses which have a common substance. Any divergent standard clause is excluded from the contract, and its disposition is replaced with the general rule provided in the civil code. However, Houtcieff is primarily concerned with the latter possibility, related to those contractual clauses and also extra-contractual conducts of the parties which would corrode the very core of the contract by breaching pacta sunt servanda, the binding force of contracts. Such contradictions imply that a party, although seems to submit to the obligatory force of the legal act, manages to elude its binding effect through provisions stipulated in the contract or through certain acts, facts or conducts related to the contract but external to it. The analysis should, then, follow the distinction deriving from the proximity of the contradiction to the contract: contradictions arising from contractual provisions, and those deriving from extra-contractual acts, facts or conducts. 2.1. Contradictions arising from contractual provisions The contradictions which arise from provisions in the contract and endanger the binding force of the contract itself usually translate an incoherence located at the level of the legal volition of a party. Such dissimulating provisions are those that encapsulate conditional obligations, like the ones assumed by the debtor under a potestative condition, which art. 1174 of Code Napoleon prohibited: The obligation is null when it was contracted under a potestative condition on the part of the debtor (Toute obligation est nulle lorsqu'elle a été contractée sous une condition potestative de la part de CES Working Papers | 2018 - Volume X(3) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Codrin CODREA 364 celui qui s'oblige). Without referring explicitly to the potestative condition under which the obligation was assumed, the French civil code in force abandons the previous phrasing and broadens the scope of the prohibition to any clause that deprives the debtor of its essential obligation, stating in art. 1170 that such a clause is deemed unwritten (Toute clause qui prive de sa substance l'obligation essentielle du débiteur est réputée non écrite). The 1865 Romanian civil code included in art. 1010 a similar provision to the one in Code Napoleon, and so does the Romanian civil code in force in art. 1403. The reason for this prohibition, common to both legal systems, is that such obligations contradict the very idea of a commitment, which can only lead to the logical conclusion of the inexistence of the legal volition to conclude the contract. The irreducible opposition is to the very core of the contract, to its binding nature, since through those clauses the debtor reserves an arbitrary power to intervene in order to make the event presupposed by the condition to occur or to stop, depending on the nature of the condition – the event either triggers the very existence of the obligation or its dissolution. The coherence principle in these cases consists in the nullity of the clauses, a sanction which saves pacta sunt servanda by constraining the debtor to execute his obligation (Pătulea et al., 2008, pp. 118-119). A different application of the coherence principle can be found in the cases of contradictions deriving from those contractual provisions which limit either the obligations or the liability of the debtor. Through these provisions the debtor assumes a certain obligation while simultaneously preserving the right to arbitrarily evaluate the circumstances which would allow the performance of the obligation. The contradiction in these cases is between the binding principle of contracts and the unrestricted power of the debtor to prevent the performance of the obligation he assumed. The application of the coherence principle would annihilate the contradiction and save the contract through the discharge of the incoherent clause. A related example is that of the clauses through which, on the one hand, the debtor assumes an obligation that he admits can only be performed by him, while, on the other hand, reduces, limits or excludes his liability. In these cases, the fact that the debtor explicitly admits the performance is entirely depending on him, means that he also admits there is no external risk in the performance of the obligation, contradicting thus the clause which limits or excludes his liability. Through the use of the coherence principle the contradiction would be annihilated and the logical dynamic of the contract would be restored. Art. 1170 of the French civil code in force, which refers to clauses that deprives the debtor of its essential obligation, contains the very essence of the coherence principle, connecting it to the essential contractual elements. The provision assumes that there is a critical point in a contract beyond which a contradiction through a reduction of the obligation or a limitation of liability attacks the very idea of the contract by emptying the content of the obligation itself. The Romanian civil code in force explicitly refers to the essential elements of the contract in art. 1182 (2), related to the formation of