1. Civil Law Contracts
Jul 01, 2012 QuickCounsel
By Christopher Meldrum, ACC
Overview
In the wake of globalization and the growth of the international marketplace, in-house lawyers increasingly find themselves advising
their clients on contracts governed by foreign law. Often these legal systems will differ not only on the substance of their legislation,
but in their approaches to the formation, execution, breach, and compensation of contracts. A misunderstanding of the basic contract
principles of these systems or an assumption that contract methods and forms can just be exported from jurisdiction to jurisdiction can
result in costly consequences for corporations. Accordingly, it has become increasingly important for corporate counsel to have at
least a tangential familiarity with the approach to contracts used by the foreign jurisdictions in which his client wishes to operate. This
QuickCounsel highlights some of the key differences in contract law between civil law and common law legal systems.
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Classification of Contracts
The common law approach to contracts is primarily concerned with predicting the impact and potential binding legal consequences of
a party's promises. Essentially, it is not so important what the contract is for or how it structured, but whether the promise of
performance that it is based upon is enforceable. This is not the case with civil law, which places a much higher importance upon the
classification of its legal principles. Under civil law, every concept must fit into distinct legal categories that define the principle's
relationship to other legal precepts. This classification system makes these principles easy to identify and record in the respective
nation's contract law. Accordingly, civil law contracts are divided in to several different categories. The four most important
classifications for common law lawyers to understand are the bilateral, unilateral, onerous, and gratuitous contracts.
Bilateral and Unilateral Contracts
Although the names are similar to those most common law lawyers encounter in a first year contracts course, civil law unilateral and
bilateral contracts are very different. Where the common law focuses on the irrevocable promises of the contracting parties, the civil
law instead focuses on the parties' obligations to each other. For example, under a civil law bilateral contract, such as a lease, one
party is obliged to provide rent while the other party is obliged to provide the use and enjoyment of the property for a period of time.
Similarly, under a civil law unilateral contract, such as a donation or inter vivos gift, only one party is obliged to provide the money or
service, without a corresponding expectation of performance. This distinction between the systems may create required contractual
obligations for a party under the civil law system (e.g. such as paying donative gift) that would not otherwise exist under the common
law.
Onerous and Gratuitous Promises
Another civil law classification relates to the advantage each party expects to receive from the agreement. A contract, such as a sale of
goods, in which both parties expect to receive an advantage in exchange for the service or item they provide, is considered onerous. A
contract where one party provides an advantage without receiving anything in return, such as a donation, is a gratuitous contract. This
is an important distinction. Under the common law only onerous promises are enforceable, since gratuitous promises lack
consideration. However, under the civil law, where a gratuitous promise can be enforced, it would be entirely possible for a party to
be obligated to deliver on the promise of gift or action.
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2. Creation of a Contractual Agreement
One of the principle divergences between the common law and civil law is in their approach to contract formation. The common law
seeks to establish at what point in time a promise was made and when that promise begins to have legal implications. In order to
conduct this analysis, the common law focuses on three basic principles: Offer, Acceptance, and Consideration. In addition to the
common law elements, civil law focuses on several elements necessary to demonstrate that the agreement was the result of an exercise
of the parties' free will.
The first of these elements that a court will examine is consent. Like a common law jurisdiction, civil law courts will look for
evidence of mistake, adhesion, duress, or fraud to determine whether the parties freely consented to the agreement. In conducting this
examination, they will analyze the respective offer and acceptance of the parties. This method has certain similarities to the common
law approach, such as the requirement that the offer have the real intent to contract and that acceptance conform to the contract terms.
However, civil law contains many nuances that substantially affect contract formation. For instance, many civil law jurisdictions (e.g.
Germany) only recognize acceptance when the offeror knows or can reasonably learn of it. In the common law countries, like the
U.S., it is usually effective upon the offeree's dispatch of the acceptance.
The second element that must be present in civil law contracts is capacity. Like common law, civil law recognizes classes of
individuals incapable of entering into a valid contract. These individuals, however, cannot under pretext of incapacity impeach their
own contracts, except in the cases provided for by the law.
In addition to capacity, civil law contracts also require the presence of subject matter or purpose of the contract. This subject matter or
purpose is usually the agreed upon good or service for which the parties are contracting. For example, the "purpose" of a contract for
a sale of goods is the purchase of the respective goods. Likewise, the purpose of a rental agreement is for the use of the premises.
This subject matter is based off of the set classification that the civil law assigns to different contractual forms. The classification may
in turn further define additional structural requirements that the parties must comply with in order to give the contract full legal force.
Finally the contract must have a legal cause, i.e. the determinative reason of the parties entering into the agreement must be legal.
However this reason should not be confused with the party's individual motive for entering into the contract or the legality of the
contract. Legal cause is instead more akin to the common law principle of consideration. It is the objective and standard motive that
any party entering into an agreement would have for that type of legal contract. For example, the legal cause of the sale of goods
would be to exchange the good in exchange for a set price. Furthermore, in the civil law, just as with the common law, this reason for
entering into the contract must both be serious and find a corresponding obligation made by the other party. However, unlike the
common law, in which a party may still claim reliance when consideration is not present, a lack of legal cause renders a civil law
contract unenforceable.
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Performance Damages
Another principle difference between the common and civil law systems is in their approach to performance damages and remedies.
For most common law lawyers, "specific performance" is an equitable remedy reserved for only the most extraordinary circumstances,
such as the transfer of unique property. Because of the common law courts' cautious approach to its use, specific performance is
usually backed by the full enforcement power of the judiciary when invoked. Noncompliance includes fines, penalties, and even
possible contempt charges. Instead of making use of such an extreme remedy, common law courts will instead award monetary
damages calculated based on either the inured party's reasonable expectation of reward or restitution of their loss. Simultaneously, the
common law system will also require the injured party to mitigate damages, thereby encouraging economic efficiency through the
completion of the envisioned transaction rather than delaying and seeking a windfall judgment. Under this approach, it is very
common for contractual parties, with the full blessing of the court, to more efficiently allocate their resources by breaching an
agreement and settling for less than the contract amount.

3. The civil law system takes the opposite approach to specific performance and monetary damages. Because of the civil law's desire to
enforce the parties voluntarily enacted obligations, specific performance is a statutory remedy that the civil law courts are expected to
turn to first. It may be replaced by monetary damages only in those cases where specific performance is either unfeasible or
inadmissible. Although it is frequently awarded, however, specific performance is less likely to be enforced in civil law countries
because of the relative weakness of the remedial measures available to their courts. For example, under the French System, where
contempt charges are usually limited to criminal proceedings and are therefore unavailable in civil actions, French courts must make
use of astreinte, where the courts seek to end a party's resistance to its decision through a fee payable to the state for each day of
delay. In many civil law jurisdictions, only after a claim for specific performance has been issued may the defendant, through a
complicated process, convert it into a claim for monetary damages.
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Conclusion
The civil law and common law approaches to contracts are similar in many respects. There are, however, certain nuances between the
two systems that international practitioners should be aware of in order to ensure that they properly advance and protect their client's
needs and interests. These differences affect not only the types of contracts that are enforceable under each system, but also the steps
of creating a contractual agreement and the damage available upon its breach. A basic understanding of these nuisances will allow
counsel to spot potential issues and efficiently advance the client's business objectives.
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Additional Resources
Web Resources
- World Fact Book (U.S. Central Intelligence Agency) (providing a list of countries and a description of the
respective legal systems)
- Guide to Law Online (Law Library of Congress)
- International Resources (Washburn School of Law)
- Contract Law (The Canadian Encyclopedia)
Book and Article Resources
- Alain A. Levasseur, Comparative Law of Contracts: Cases And Materials (2008)
- Julian Hermida, Convergence of Civil Law and Common Law Contracts in the Space Field, (2004)
- Giuditta Cordero Moss, International Contracts Between Common Law and Civil Law (2007)
- Henrik Lando, The Myth of Specific Performance in Civil Law Countries (2003)
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Published on July 1, 2012
http://www.acc.com/legalresources/quickcounsel/clc.cfm