May 12, 2010

Unfair Terms

A contract was a supposed agreement between two parties that on a clear basis gave their consent to a certain transaction. It was perfectly understood that the parties were equal to contract or that at least a certain degree of equity was essential. A contract was then as provided in the French civil code “a law between the parties”

Unfortunately, nowadays it is obvious that with the change of economy, contractors tend to become more and more unequal, especially when an agreement is made between an individual a bigger party such as a bank, an insurance company, or a big multinational business.

Countries are now trying to implement rules where terms of a contract have then to be fair, and if they are not a court may settle the issue.

Even though provisions or at least relics of provisions remains in legal instruments to protect new means are needed all the time to adapt, a big part of legislation was adopted in the late seventies. One of those old provisions was the laesio enormis principle, or lesion beyond moiety present in old Latin Justinian Digest mentioned in Austrian BGB article934 (loss of the half “Verkürzung über die Hälfte”) or in the French code civil article 1674 (the determination of the loss of 7/12 makes it look even more archaic) .

English law is creating statutes to regulate the matter. Indeed, in English law the unfair contract terms act 1977 was adopted seeking to limit or entirely exclude liability, statute concerning all the scope.

And it is surprisingly that the countries with a more civil law approach opt on case law and the power of judges, even if new legislation and statutory instrument is created. For example it is in France a decree78-464 from March 1978 providing terms between professional and non professionals, and in Germany the Standard Contract terms Act AGBG 1977.

But in Germany as well as in France it is the judge who remains the protector of the weaker part of the contract; in Germany, armed with article such as 138, 242 of the BGB good faith and morals, in France after developing theories on obligation to inform, or obligation to achieve for example.

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