THE PRINCIPLESOF EUROPEAN CONTRACT LAWPrepared bythe Commision on European Contract Law1999text in EnglishIntroduction to the Principles of EuropeanContract LawPrepared byThe Commission on European Contract LawA businessman is negotiating a contract with a company in another State of the European Union, but neither party wishes to apply the law of the other country.A lawyer is advising parties to a contract involving parties in different States.An arbitrator has to decide a dispute under a contract "to be governed by internationally accepted principles of law".A professor of law wants his students to gain an understanding of the way in which contracts are treated by the laws of the different States of the European Union, and to learn the common principles.A legislator is drafting a code or a statute on the law of contracts. An European Union official is drafting a new Directive affecting contracts.All these need to know the principles of contract law shared by the legal systems of the Member States and to have a concise, comprehensive and workable statement of them. The Principles of European Contract Law Parts I and II(1), and part III (2) will provide this.The Books are available with Kluwer Law International seesales@You will find the text of the articles of Parts I-III in the third section below.The Principles have been drawn up by an independent body of experts from each Member State of the European Union under a project supported by the European Commission and many other organisations. The principles are stated in the form of articles with a detailed commentary explaining the purpose and operation of each article. In the comments there are illustrations, ultra short cases which show how the rules are to operatein practice. Each article also has comparative notes surveying the national laws and other international provisions on the topic.The Principles of European Contract Law Parts I and II (hereinafter referred to as PECL I and II.)cover the core rules of contract, formation, authority of agents, validity, interpretation,, contents, performance, non-performance (breach) and remedies. The Principles previously published in Part I (1995) are included in a revised and re-ordered form. Part III covers plurality of parties, assignment of claims, substitution of new debt, transfer of contract, set-off, prescription, illegality, conditions and capitalisation of interest.Throughout Europe there is great interest in developing a common European civil and commercial law. The European Parliament has twice called for the creation of a European Civil Code. The Principles of European Contract Law are essential steps in these projects.The Background of the PrinciplesThe European Union have promoted a European régime of academic lawyers whose platform is Europe and whose writings and debates are concerned with the future European law. This new European régime resembles that of the American. In the United States the writings on contract law - as on other subjects - deal with the problems and issues common to the common law states. There are considerable differences between the contract laws of the several states. These differences, however, do not prevent a debate which can be based on common concepts and a common legal method. Such a common language and a common legal method is also slowly emerging in Europe. The American and the new European régimes are inspiring each other. Together with lawyers from other countries they are in the process of becoming a world community of academic lawyers.To day, however, the domestic law is the main subject of the European law schools. And Europe has as many legal sciences as there are legal systems. This, in fact, is a great waste of efforts and talent. It will be an enormous improvement of resources and ideas and enrich the legal science considerably when in the third millennium the talents will unite to establish and later maintain a European- or a world- private law.(3)And the efforts and money which it will cost to unify the private law will be amply repaid when it is there. Much of the work to cultivate the many domestic laws will then be saved.The Commission on European Contract LawThese considerations have guided the Commission on European Contract Law. Since l982 it has been working to establish Principles of European Contract Law (hereinafter called PECL). Part 1 of the Principles dealing with performance, non-performance and remedies was published in 1995.(4) PECL Parts I and II was published in 1999 and Part III in 2003.With a few exceptions the members of the Commission of European Contract Law have been academics, but many of the academics are also practising lawyers. The Members have not been representatives of specific political or governmental interests, and they have all pursued the same objective, to draft the most appropriate contract rules for Europe.In some respects the Principles may be compared with the American Restatement of the Law of Contract, which was published in its second edition in 1981.Like the Restatements the articles drafted are supplied with comments and notes. The Restatements consist of non-binding rules, "soft law". They purport to restate the Common Law of the United States. The Principles are also "soft law", but their main purpose is to serve as a first draft of a part of a European Civil Code. Furthermore a common law does not to exist in the European Union. The Principles has therefore been established by a more radical process. No single legal system has been their basis. The Commission has paid attention to all the systems of the Member States, but not every of them has had influence on every issue dealt with. The rules of the legal systems outside of the Communities have also been considered. So have the American Restatement on the Law of Contracts and the existing conventions, such as The United Nations Convention on Contracts for the International Sales of Goods (CISG). Some of the Principles reflect ideas which have not yet materialised in the law of any state. In short, the Commission has tried to establish those principles which it believed to be best under the existing economic and social conditions in Europe.An attempt has been made to draft short rules which are easily understood by the prospective users of the Principles such as practising lawyers and business people. The Commission has made an analysis of the extent to which Part 1 of the Principles are applicable to the more important commercial contracts for the provision of goods and services of various kinds and the transfer of rights (licence agreements, etc.). Although the Principles cannot provide the appropriate solution to all the issues which every of these specific contracts raises the commission has found them applicable to the great majority of these issues.The Commission has made an effort to deal with those issues in contract which face business life of today and which may advance the trade, especially the international trade. However, the Principles do not intend to apply exclusively to international transactions.Which Further Parts of the Law are Planned to be Unified? The Study Group of a European Civil CodeOn the European Continent there is a traditional concept of what is private law. It covers family law, law of inheritance, law of property and the law of obligations with its three main branches, the law of contract, the law of restitution and the law of torts. The law of contract is probably the field of the law which most urgently needs unification. It is also here that we find a fragmentary European legislation enacted as directives.It has been doubted whether the Amsterdam Treaty empowers the institutions of the EU to prepare a Civil Code for the Union.(5) For a long time the Council of MInisters and the European Commission showed no intention of engaging upon a major effort to harmonize the general principles of contract law, although the European Parliament twice requested them to prepare a European Civil Code. However, in October 1999 the European Council decided that the Commission and the Council of Ministers should prepare an overall study on the need to approximate the Member States' legislation in civil law matters. On July 11 2001 the Commission published a Communication to the Council and Parliament (COM(2001) 398 final) asking them - and other stakeholders - whether a kind of Restatement, i.e. soft law rules on cotracts which are not binding on the courts, and only work by their force of persuasion should be made, or whether a comprehensive and binding Union legislation on the law of contract should be prepared. The Commission also asked whether the existing Community contract law (Acquis communautaire), most of which consist of directives on consumer protection, should be improved and co-ordinated.The Commission received responses to the Communication during 2001 and 2002. The Council of Ministers did not object to a harmonisation of contract law if a need for it was revealed. The European Parliament proposed the enactment of a binding European Contract Law in 2010 as the ultimate goal after careful studies and preparations. So did the Commission on European Contract Law and the Study Group of a European Civil Code. The other so-called stake holders, i.e. governments, courts, lawyer and business organisations, law faculties and individual scholars were divided in their views. Many of them favoured the drafting of non-bindingprinciples to be adopted by parties and by arbitrators deciding international disputes. That would not prevent national legislators from adopting these rules when revising their national contract laws. Most of the stake holders also favoured a review of the existing EC law (the Acquis communitaire) in combination with the drafting of non-binding principles.On February 12 2003 the Commission published an Action Plan as a second step in the ongoing discussion about the future European Contract Law. It suggested as a first measure the improvement of the existing and future Acguis Communautaire in the field of contract law. This could be achieved by means of a so called Frame of Reference, which contain rules on the conclusion, validity and interpretationof contract as well as performance, non performance and remedies, rules on credit securities and movable goods and on the law of unjust enrichment. This would fill in the many lacunae which the Acquis leaves open. The Plan also envisages the development of General Conditions of Business Contracts valid throughout Europe. The Commission offers to help the enterprises and their organisations to exchange information with view to drafting such conditions. Finally, the Plan discusses the possibility of having an Optional Instrument of European Contract Law. However, the aim is not to impose this Instrument on the contracting parties, but to make it possible for them to choose it to replace their national laws.The Commission has asked the views on this Action Plan of the same institutions and stake holders which responded to the 2001 Communication, and is working up the responses before it takes its next step in the ongoing deliberations.It seems as if the doubts as to whether the Amsterdam Treaty allows the EU to prepare a Civil Code could be overcome.Some of the Governments have given the idea of a codification more than a moral support. In February 1997 the Dutch Government organised a symposium on a future European Civil Code in the Hague, and since then a Study Group of a European Civil Code has been established under the leadership of Professor Christian von Bar, University of Osnabrück Germany and comparative studies and ensuing drafts of a code are now carried out in centres. A centre in Hamburg in Germany is The Max Planck Institut für ausländisches und internationales Privatrect. It is dealing primarily with personal security and with secured transactions relating to moveable property (mortgage in moveables, retention of title, etc). The Hamburg centre and the Zentrum für europäisc hes Recht at the University of Innsbruck in Austria is dealing with insurance contracts.A centre in Osnabrück in Germany is treating rules on torts, unjustenrichment and negotiorum gestio. Centres in Amsterdam, Utrecht and Tilburg in the Netherlands are working on sales, long term contracts and contracts for the renditions of services, such as construction contracts and services rendered by professionals (lawyers, doctors, accountants).A centre in Salzburg Austria is treating transfer of property in moveable goods.The German the Dutch and the Flemish Research Councils and a Greek foundation have granted funds for these enterprises, Contributions have also been received from the Austrian Ministry of Education and Science and the Italian Council of Lawyers. The work started in July 1999. It is envisaged that the general principles of the law of contracts provided in the PECL will be integrated in what may eventually become a European Civil Code.Notes1.Hardbound ISBN 90-411-1305-3 published in November 1999 by Kluwer Law International P.O Box 85889, 2508 CN Hague, The Netherlands2. Hardbound ISBN 90-411-1961-2 published in 2003 by Kluwer Law International, P.O. Box 85889, 2508 CN Hague, The Netherlands.3.In 1838 Thibaut made this observation regarding Germany which was then divided in a great number of legal systems, see Über die sogennante historische und nicht-historische -Rechts-schule, Archiv für die zivilistische Praxis (1838) 39l-4l9 , reprinted in Hattenhauer, Thibaut und Savigny, Ihre programmatischen Schriften, München 1973 p 275, 279f.4. Lando & Beale (eds) Principles of European Contract Law, Part 1. Performance, Non-performance and Remedies, Dordrecht 1995.5. See Winfried Tilmann & Walter van Gerven, Die Kompetenzen det EU zur Schaffung eines einheitlichen Europäischen Schuld- und Sachenrechts und die möglichen Rechtsgrundlagen in Vergleichende Untersuchung der Privatrechts ordnungen der Migliedstaaten der EU im Hinblick auf Diskrimine rungen aus Gründen der Statsangehörigkeit sowie zurMöglichkeit und Notwendigkeit der Schaffung eines europäischen Zivilgesetzbuches, Europäishes Parlament, Generaldirektion Wissenschaft, Projekt Nr IV/98/44, 1999.THE PRINCIPLES OF EUROPEAN CONTRACTLAWPrepared by the Commision on European ContractLaw1999 text in EnglishCHAPTER 1 : GENERAL PROVISIONSSection 1: Scope of the PrinciplesArticle 1:101: Application of the Principles(1) These Principles are intended to be applied as general rules of contract law in the European Union.(2) These Principles will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them.(3) These Principles may be applied when the parties:(a) have agreed that their contract is to be governed by "general principles of law", the "lex mercatoria" or the like; or(b) have not chosen any system or rules of law to govern their contract.(4) These Principles may provide a solution to the issue raised where the system or rules of law applicable do not do so.Article 1:102: Freedom of Contract(1) Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles.(2) The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these Principles.Article 1:103: Mandatory Law(1) Where the law otherwise applicable so allows, the parties may choose to have their contract governed by the Principles, with the effect that national mandatory rules are not applicable.(2) Effect should nevertheless be given to those mandatory rules of national, supranational and international law which, according to the relevant rules of private international law, are applicable irrespective of the law governing the contract.Article 1:104: Application to Questions of Consent(1) The existence and validity of the agreement of the parties to adopt or incorporate these Principles shall be determined by these Principles.(2) Nevertheless, a party may rely upon the law of the country in which it has its habitual residence to establish that it did not consent if it appears from the circumstances that it would not be reasonable to determine the effect of the party’s conduct in accordance with these Principles.Article 1:105: Usages and Practices(1) The parties are bound by any usage to which they have agreed and by any practice they have established between themselves.(2) The parties are bound by a usage which would be considered generally applicable by persons in the same situation as the parties, except where the application of such usage would be unreasonable.Article 1:106: Interpretation and Supplementation(1) These Principles should be interpreted and developed in accordance with their purposes. In particular, regard should be had to the need to promote good faith and fair dealing, certainty in contractual relationships and uniformity of application.(2) Issues within the scope of these Principles but not expressly settled by them are so far as possible to be settled in accordance with the ideasunderlying the Principles. Failing this, the legal system applicable by virtue of the rules of private international law is to be applied.Article 1:107 : Application of the Principles by Way of AnalogyThese Principles apply with appropriate modifications to agreements to modify or end a contract, to unilateral promises and other statements and conduct indicating intention.Section 2: General DutiesArticle 1:201: Good Faith and Fair Dealing(1) Each party must act in accordance with good faith and fair dealing.(2) The parties may not exclude or limit this duty.Article 1:202: Duty to Co-operateEach party owes to the other a duty to co-operate in order to give full effect to the contract.Section 3: Terminology and Other ProvisionsArticle 1:301: Meaning of TermsIn these Principles, except where the context otherwise requires:(1) ‘act’ includes omis sion;(2) ‘court’ includes arbitral tribunal;(3) an ‘intentional’ act includes an act done recklessly;(4) ‘non-performance’ denotes any failure to perform an obligation under the contract, whether or not excused, and includes delayed performance, defective performance and failure to co-operate in order to give full effect to the contract.(5) a matter is ‘material’ if it is one which a reasonable person in the same situation as one party ought to have known would influence the other party in its decision whether to contract on the proposed terms or to contract at all;(6) ‘written’ statements include communications made by telegram, telex, telefax and electronic mail and other means of communication capable of providing a readable record of the statement on both sidesArticle 1:302: ReasonablenessUnder these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case, and the usages and practices of the trades or professions involved should be taken into account.Article 1:303: Notice(1) Any notice may be given by any means, whether in writing or otherwise, appropriate to the circumstances.(2) Subject to paragraphs (4) and (5), any notice becomes effective when it reaches the addressee.(3) A notice reaches the addressee when it is delivered to it or to its place of business or mailing address, or, if it does not have a place of business or mailing address, to its habitual residence(4) If one party gives notice to the other because of the other'snon-performance or because such non-performance is reasonably anticipated by the first party, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. The notice shall have effect from the time at which it would have arrived in normal circumstances.(5) A notice has no effect if a withdrawal of it reaches the addressee before or at the same time as the notice.(6) In this Article, 'notice' includes the communication of a promise, statement, offer, acceptance, demand, request or other declaration.Article 1:304: Computation of Time(1) A period of time set by a party in a written document for the addressee to reply or take other action begins to run from the date stated as the date of the document. If no date is shown, the period begins to run from the moment the document reaches the addressee.(2) Official holidays and official non-working days occurring during the period are included in calculating the period. However, if the last day of the period is an official holiday or official non-working day at the address of the addressee, or at the place where a prescribed act is to be performed, the period is extended until the first following working day in that place.(3) Periods of time expressed in days, weeks, months or years shall begin at 00.00 on the next day and shall end at 24.00 on the last day of the period; but any reply that has to reach the party who set the period must arrive, or other act which is to be done must be completed, by the normal close of business in the relevant place on the last day of the period.Article 1:305: Imputed Knowledge and IntentionIf any person who with a party's assent was involved in making a contract, or who was entrusted with performance by a party or performed with its assent:(a) knew or foresaw a fact, or ought to have known or foreseen it; or(b) acted intentionally or with gross negligence, or not in accordance with good faith and fair dealing,this knowledge, foresight or behaviour is imputed to the party itself.CHAPTER 2 : FORMATIONSection 1 : General ProvisionsArticle 2:101: Conditions for the Conclusion of a Contract(1) A contract is concluded if:(a) the parties intend to be legally bound, and(b) they reach a sufficient agreementwithout any further requirement.(2) A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses.Article 2:102: IntentionThe intention of a party to be legally bound by contract is to be determined from the party's statements or conduct as they were reasonably understood by the other party.Article 2:103: Sufficient Agreement(1) There is sufficient agreement if the terms:(a) have been sufficiently defined by the parties so that the contract can be enforced, or(b) can be determined under these Principles.(2) However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached.Article 2:104: Terms Not Individually Negotiated(1) Contract terms which have not been individually negotiated may be invoked against a party who did not know of them only if the party invoking them took reasonable steps to bring them to the other party's attention before or when the contract was concluded.(2) Terms are not brought appropriately to a party's attention by a mere reference to them in a contract document, even if that party signs the document.Article 2:105: Merger Clause(1) If a written contract contains an individually negotiated clause stating that the writing embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the writing do not form part of the contract.(2) If the merger clause is not individually negotiated it will only establish a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted.(3) The parties' prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause.(4) A party may by its statements or conduct be precluded from assertinga merger clause to the extent that the other party has reasonably relied on them.Article 2:106: Written Modification Only(1) A clause in a written contract requiring any modification or ending by agreement to be made in writing establishes only a presumption that an agreement to modify or end the contract is not intended to be legally binding unless it is in writing.(2) A party may by its statements or conduct be precluded from asserting such a clause to the extent that the other party has reasonably relied on them.Article 2:107: Promises Binding without AcceptanceA promise which is intended to be legally binding without acceptance is binding.Section 2 : Offer and AcceptanceArticle 2:201: Offer(1) A proposal amounts to an offer if:(a) it is intended to result in a contract if the other party accepts it, and(b) it contains sufficiently definite terms to form a contract.(2) An offer may be made to one or more specific persons or to the public.(3) A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.Article 2:202: Revocation of an Offer(1) An offer may be revoked if the revocation reaches the offeree before it has dispatched its acceptance or, in cases of acceptance by conduct, before the contract has been concluded under Article 2:205(2) or (3).(2) An offer made to the public can be revoked by the same means as were used to make the offer.(3) However, a revocation of an offer is ineffective if:(a) the offer indicates that it is irrevocable; or(b) it states a fixed time for its acceptance; or(c) it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.Article 2:203: RejectionWhen a rejection of an offer reaches the offeror, the offer lapses..Article 2:204: Acceptance(1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer.(2) Silence or inactivity does not in itself amount to acceptance.Article 2:205: Time of Conclusion of the Contract(1) If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror.(2) In case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror.(3) If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by performing an act without notice to the offeror, the contract is concluded when the performance of the act begins.Article 2:206: Time Limit for AcceptanceIn order to be effective, acceptance of an offer must reach the offeror within the time fixed by it.(2) If no time has been fixed by the offeror acceptance must reach it withina reasonable time.(3) In the case of an acceptance by an act of performance under art. 2:205 (3), that act must be performed within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time.Article 2:207: Late Acceptance(1) A late acceptance is nonetheless effective as an acceptance if without delay the offeror informs the offeree that he treats it as such.(2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror informs the offeree that it considers its offer as having lapsed.Article 2:208: Modified Acceptance(1) A reply by the offeree which states or implies additional or different terms which would materially alter the terms of the offer is a rejection and a new offer.(2) A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies additional or different terms, provided these do not materially alter the terms of the offer. The additional or different terms then become part of the contract.(3) However, such a reply will be treated as a rejection of the offer if:(a) the offer expressly limits acceptance to the terms of the offer; or(b) the offeror objects to the additional or different terms without delay; or(c) the offeree makes its acceptance conditional upon the offeror’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time.Article 2:209: Conflicting General Conditions(1) If the parties have reached agreement except that the offer and acceptance refer to conflicting general conditions of contract, a contract is nonetheless formed. The general conditions form part of the contract to the extent that they are common in substance.(2) However, no contract is formed if one party:。