Towards a European Civil Code

Fourth Revised and Expanded Edition

Editors
Arthur S. Hartkamp
Martijn W. Hesselink
Ewoud H. Hondius
Chantal Mak
C. Edgar du Perron

Authors
Christian von Bar Christian Joerges
François Barrière Konstantinos Kerameus
Jürgen Basedow Martine Kloepfer-Pelèse
Klaus Peter Berger Ole Lando
Michael Joachim Bonell Yves-Henri Leleu
Mauro Bussani Marco Loos
Fabrizio Cafaggi Brigitta Lurger
Claus-Wilhelm Canaris Hector MacQueen
John Cartwright Chantal Mak
Aurelia Colombi Ciacchi Dieter Martiny
Katalin Cseres Mustapha Mekki
Ulrich Drobnig Peter-Christian Müller-Graff
Sjef van Erp Vernon V. Palmer
Michael Faure Edgar du Perron
Fernando Gomez Jacobien Rutgers
James Gordley Rodolfo Sacco
Michel Grimaldi Vincent Sagaert
Hans Christoph Grigoleit Arthur Salomons
Stefan Grundmann Christoph Schmid
Arthur Hartkamp Alain-Laurent Verbeke
Martijn Hesselink Gerhard Wagner
Ewoud Hondius Stephen Weatherill
David Howarth Franz Werro
Geraint Howells Thomas Wilhelmsson
Richard Hyland Reinhard Zimmermann

Law & Business

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 Summary of Contents

About the Authors xxxvii

Preface to the Fourth Edition xlv

Abbreviations xlvii

Part I
General Issues 1

Chapter 1
Towards a European Civil Code 3
Ewoud Hondius

Chapter 2
Roman Law and the Harmonization of Private Law in Europe 27
Reinhard Zimmermann

Chapter 3
European Private Law, Lex Mercatoria and Globalization 55
Klaus Peter Berger

Chapter 4
American Private Legislatures and the Process Discussion 71
Richard Hyland

Chapter 5
Private Regulation in European Private Law 91
Fabrizio Cafaggi
Summary of Contents

Chapter 6
The Influence of Primary European Law on Private Law 127
Arthur S. Hartkamp

Chapter 7
EU Directives as a Means of Private Law Unification 149
Peter-Christian Müller-Graff

Chapter 8
Interpretation of the Directives: The Role of the Court 185
Stephen Weatherill

Chapter 9
Competition and Contract Law 205
Katalin Cseres

Chapter 10
Principles of Contract Law 239
Arthur S. Hartkamp

Chapter 11
Procedural Implications of Civil Law Unification 261
Konstantinos D. Kerameus

Chapter 12
Towards Proceduralization of Private Law in the European
Multi-Level System 277
Christian Joerges and Christoph Schmid

Chapter 13
European Competence and a European Civil Code, a Common
Frame of Reference or an Optional Instrument 311
Jacobien W. Rutgers

Chapter 14
Constitutional Aspects of a European Civil Code 333
Chantal Mak

Chapter 15
The ‘Social’ Side of Contract Law and the New Principle of
Regard and Fairness 353
Brigitta Lurger

Chapter 16
The Notion of Damage 387
Christian von Bar

vi
 Summary of Contents

Chapter 17
Some Law and Economics of Harmonizing European
Private Law 401
Fernando Gomez

Part 2
Substantive Law 427

A – Family Law and Law of Succession 427

Chapter 18
Is Unification of Family Law Feasible Or Even
Desirable? 429
Dieter Martiny

Chapter 19
Harmonization of the Law of Succession in Europe 459
Alain-Laurent Verbeke & Yves-Henri Leleu

B – Contract Law – General Issues 481

Chapter 20
Formation of Contracts 483
Rodolfo Sacco

Chapter 21
The Pre-contractual Stage 493
J.H.M. van Erp

Chapter 22
Agency 515
Michael Joachim Bonell

Chapter 23
Defects of Consent in Contract Law 537
John Cartwright

Chapter 24
Illegality and Immorality in Contracts: Towards European
Principles 555
Hector L. MacQueen

Chapter 25
Standard Form Conditions 571
Thomas Wilhelmsson

vii
Summary of Contents

Chapter 26
Interpretation of Contracts 587
Claus-Wilhelm Canaris and Hans Christoph Grigoleit

Chapter 27
The Concept of Good Faith 619
Martijn W. Hesselink

Chapter 28
Hardship and Modification (or ‘Revision’) of the Contract 651
Mustapha Mekki with collaboration of Martine Kloepfer-Pelèse

Chapter 29
Non-performance (Breach) of Contracts 681
Ole Lando

Chapter 30
The Foreseeability Limitation on Liability in Contract 699
James Gordley

Chapter 31
Limitation Periods 715
Michael Joachim Bonell

C – Contract Law – Specific Contracts 733

Chapter 32
The Case for a European Insurance Contract Act 735
Jürgen Basedow

Chapter 33
Service Contracts 757
Marco B.M. Loos

Chapter 34
European Law and Principles on Commercial and
Investment Banking Contracts: An Advanced Area
of Codification 787
Stefan Grundmann

Chapter 35
Suretyships by Private Persons 819
Aurelia Colombi Ciacchi

viii
 Summary of Contents

D – Tort 843

Chapter 36
The General Conditions of Unlawfulness 845
David Howarth

Chapter 37
Product Liability: A History of Harmonization 889
Geraint Howells

Chapter 38
Vicarious Liability 903
Gerhard Wagner

Chapter 39
Liability for Harm Caused by Things 921
Franz Werro

Chapter 40
The Frontier between Contractual and Tortious Liability
in Europe: Insights from the Case of Compensation
for Pure Economic Loss 945
Mauro Bussani and Vernon Valentine Palmer

Chapter 41
Economic Analysis of Tort Law and the European Civil Code 977
Michael Faure

E – Property 1001

Chapter 42
Transfer of Property 1003
Ulrich Drobnig

Chapter 43
Security Rights in Movables 1025
Ulrich Drobnig

Chapter 44
Harmonization of Security Rights on Immoveables:
An Ongoing Story 1043
Vincent Sagaert

ix
Summary of Contents

Chapter 45
Good Faith Acquisition of Movables 1065
Arthur F. Salomons

F – Trust 1083

Chapter 46
Trust and Fiducie 1085
Michel Grimaldi and François Barrière

Index 1107

x
 About the Authors

Christian von Bar

FIELD OF SPECIALISATION: Tort Law; Property Law; Private International
Law. CORRESPONDENCE ADDRESS: European Legal Studies Institute,
University of Osnabrück, Süsterstraße 28, D-49074 Osnabrück, Germany.
E-mail: [email protected]

François Barrière
FIELD OF SPECIALISATION: Contract Law, Security Interest Law, Corporate &
Finance Law, Trust Law. CORRESPONDENCE ADDRESS: Magistère de juriste
d’affaires-DJCE, Centre Vaugirard II, Université Panthéon-Assas (Paris II), 122
rue de Vaugirard, 75006 Paris, France. Email: [email protected]

Jürgen Basedow
FIELD OF SPECIALISATION: Private International Law, Economic and Private
Law of the European Union, in particular Insurance Law, Competition Law, Trans-
port Law. CORRESPONDENCE ADDRESS: Max-Planck Institute for Comparative
and International Private Law, Mittelweg 187, D – 20148 Hamburg, Germany.
E-mail: [email protected]

Klaus Peter Berger

FIELD OF SPECIALISATION: Contract Law, Private International Law,
International Commercial Arbitration Law, Banking Law, Comparative Law.
CORRESPONDENCE ADDRESS: Banking Law Institute, Center for Transna-
tional Law (CENTRAL), Universität Köln, Albertus-Magnus Platz 1, D-50923
Köln, Germany. E-mail: [email protected]
About the Authors

Michael Joachim Bonell

FIELD OF SPECIALISATION: Comparative Law, Uniform Law, International
Trade Law. CORRESPONDENCE ADDRESS: Unidroit, Via Panisperna 28, I-
00184 Roma, Italy. E-mail: [email protected]

Mauro Bussani
FIELD OF SPECIALISATION: Comparative Law, Tort Law, Legal Globaliza-
tion. CORRESPONDENCE ADDRESS: Facoltà di Giurisprudenza, Università di
Trieste, P.le Europa, I–34100 Trieste, Italy. E-mail: [email protected]

Fabrizio Cafaggi
FIELD OF SPECIALISATION: European Private Law, Comparative Law. COR-
RESPONDENCE ADDRESS: European University Institute, Law Department,
Via Boccaccio 12, 50133 Firenze, Italy. E-mail: [email protected]

Claus-Wilhelm Canaris
FIELD OF SPECIALISATION: Private Law, Commercial Law, Banking Law,
Philosophy of Law. CORRESPONDENCE ADDRESS: Institut für Privatrecht und
Zivilverfahrensrecht der Universität München, Prof.-Huber-Platz 2, D-80539
München, Germany. E-mail: [email protected]

John Cartwright
FIELD OF SPECIALISATION: English and Comparative Contract Law; Tort
Law; Land Law. CORRESPONDENCE ADDRESS: Christ Church, Oxford,
OX1 1DP, United Kingdom. E-mail: [email protected]

Aurelia Colombi Ciacchi

FIELDS OF SPECIALISATION: Comparative law, European private law, Con-
tract law, Tort law, Public interests in private relationships. CORRESPONDENCE
ADDRESS: Groningen Centre for Law and Governance, University of Groningen,
Law Faculty, P.O. Box 716, 9700 AS Groningen, the Netherlands. E-mail: Aurelia.
[email protected]

Katalin Cseres
FIELD OF SPECIALISATION: Competition Law, Consumer Protection; Law and
economics. CORRESPONDENCE ADDRESS: Amsterdam Center For European
Law and Governance, University of Amsterdam, Oudemanshuispoort 4-6, 1000
Amsterdam, the Netherlands. E-mail: [email protected]

Ulrich Drobnig
FIELD OF SPECIALISATION: Security Rights (Personal and Proprietary);
Comparative Civil Law. CORRESPONDENCE ADDRESS: Max-Planck-Institute
for Comparative and International Private Law, Mittelweg 187, D-20148 Ham-
burg, Germany. E-mail: [email protected]

xxxviii
 About the Authors

Sjef van Erp

FIELD OF SPECIALISATION: methodology of European private law,
comparative and European property law, private international law. CORRESPON-
DENCE ADDRESS: Maastricht University, Department of Private Law, Institute
for European private law, P.O.B. 616, 6200 MD Maastricht, the Netherlands.
E-mail: [email protected].

Michael Faure
FIELD OF SPECIALISATION: economic analysis of accident law, environmental
(criminal) law. CORRESPONDENCE ADDRESS: Metro, Faculty of Law, Maas-
tricht University, PO Box 66, 6200 MD Maastricht, the Netherlands. E-mail:
[email protected]

Fernando Gomez
FIELD OF SPECIALISATION: Law and Economics, Contract Law, Tort Law
CORRESPONDENCE ADDRESS: Facultad de Derecho, Universitat Pompeu
Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain. E-mail: fernando.
[email protected]

James Gordley
FIELD OF SPECIALISATION: Comparative Law, Private Law, Legal History.
CORRESPONDENCE ADDRESS: Tulane Law School, 6329 Freret Street, New
Orleans, LA 70118, USA. E-mail: [email protected]

Michel Grimaldi
FIELD OF SPECIALISATION: Private Law. CORRESPONDENCE ADDRESS:
Université Panthéon-Assas (Paris II), 12 Place du Panthéon, F-75231 Paris Cedex
05, France.

Hans Christoph Grigoleit

FIELD OF SPECIALISATION: Contract Law, Corporate Law, European Private
Law, Private Law Theory. CORRESPONDENCE ADDRESS: Institut für Priva-
trecht und Zivilverfahrensrecht der Universität München, Prof.-Huber-Platz 2,
D-80539 München, Germany. E-mail: [email protected]

Stefan Grundmann
FIELD OF SPECIALISATION: Contract Law, Company Law, Banking Law,
European Private Law. CORRESPONDENCE ADDRESS: Humboldt University
Law School/European Law School, Unter den Linden 6, 10099 Berlin, Germany.
E-mail: [email protected]

Arthur Hartkamp
FIELD OF SPECIALISATION: European Private Law. CORRESPONDENCE
ADDRESS: Department of Private Law, Faculty of Law, Radboud University

xxxix
About the Authors

Nijmegen, PO Box 9049, 6500 KK Nijmegen, the Netherlands. E-mail: a.hart-

[email protected]

Martijn Hesselink
FIELD OF SPECIALISATION: European Contract Law. CORRESPONDENCE
ADDRESS: Centre for the Study of European Contract Law (CSECL), University
of Amsterdam, PO Box 1030, 1000 BA Amsterdam, the Netherlands. E-mail: m.w.
[email protected]

Ewoud Hondius
FIELD OF SPECIALISATION: Consumer Protection; Contract Law; Tort Law.
CORRESPONDENCE ADDRESS: Centre for European Private Law, Molen-
graaff Institute, Nobelstraat 2a, NL-3512 EN Utrecht, the Netherlands. E-mail:
[email protected]

David Howarth
FIELD OF SPECIALISATION: Tort, Comparative Law, Economic Analysis of
Law, Sociology of Law, Environmental Law. CORRESPONDENCE ADDRESS:
Clare College, Trinity Lane, GB-Cambridge CB2 1TL, United Kingdom. E-mail:
[email protected]

Geraint Howells
FIELD OF SPECIALISATION: Consumer Law, Product Liability, European
Private Law. CORRESPONDENCE ADDRESS: School of Law, Williamson
Building, University of Manchester, Manchester, M13 9PL, United Kingdom.
E-mail: [email protected]

Richard Hyland
FIELD OF SPECIALISATION: Commercial Law; Comparative Law; Gift
Law; Legal Theory. CORRESPONDENCE ADDRESS: Rutgers Law School,
217 N. Fifth St., Camden, New Jersey, USA. E-mail: hyland@camden.
rutgers.edu

Christian Joerges
FIELD OF SPECIALISATION: European Private Law, Competition Law. COR-
RESPONDENCE ADDRESS: Zentrum für Europäische Rechtspolitik an der Uni-
versität Bremen, Universitätsallee, GW 1, 28359 Bremen, Germany. E-mail:
[email protected]

Konstantinos Kerameus
FIELD OF SPECIALISATION: Civil Procedure; International Civil Litigation;
International Arbitration; European Civil and Procedural Law. CORRESPON-
DENCE ADDRESS: Kanari Street 8, GR-10671, Athens, Greece. E-mail:
[email protected]

xl
 About the Authors

Martine Kloepfer-Pelèse
FIELD OF SPECIALISATION: Private Law. CORRESPONDENCE ADDRESS:
Sciences Po. 27 rue Saint-Guillaume, 75337 Paris Cedex 07, France.

Ole Lando
FIELD OF SPECIALISATION: Comparative Law, Contract Law, Private
international law. CORRESPONDENCE ADDRESS: Skovlodden 26, DK 2840
Holte, Denmark. E-mail: [email protected]

Yves-Henri Leleu
FIELD OF SPECIALISATION: Family Law, Family Property Law, Comparative
Law, Notarial Law, Bioethics and Medical Law. CORRESPONDENCE
ADDRESS: Université de Liège, Faculté de Droit, 7 Boulevard du Rectorat,
Bâtiment B31, B-4000 Liège, Belgium. E-mail: [email protected]

Marco Loos
FIELD OF SPECIALISATION: Dutch and European Contract Law, Dutch and
European Consumer Law. CORRESPONDENCE ADDRESS: Centre for the
Study of European Contract Law, PO Box 1030, 1000 BA Amsterdam, the Neth-
erlands. E-mail: [email protected]

Brigitta Lurger
FIELD OF SPECIALISATION: Consumer Protection; Contract Law; CISG;
European Private Law; Private International Law. CORRESPONDENCE
ADDRESS: Institut für Zivilrecht, Ausländisches und Internationales Privatrecht,
Rechtswissenschaftliche Fakultät, Karl-Franzens-Universität Graz, Uni-
versitätsstraße 15/D4, A-8010 Graz, Austria. E-mail: [email protected]

Hector MacQueen
FIELD OF SPECIALISATION: Contract Law; Unjustified Enrichment; Intellec-
tual Property; Legal History. CORRESPONDENCE ADDRESS: Scottish Law
Commission, 140 Causewayside, Edinburgh EH9 1PR, Scotland, United King-
dom. E-mail: [email protected]

Chantal Mak
FIELD OF SPECIALISATION: European Contract Law. CORRESPONDENCE
ADDRESS: Centre for the Study of European Contract Law (CSECL), University
of Amsterdam, PO Box 1030, 1000 BA Amsterdam, the Netherlands. E-mail:
[email protected]

Dieter Martiny
FIELD OF SPECIALISATION: Family Law; Private International Law;
Comparative Law. CORRESPONDENCE ADDRESS: Max-Planck-Institut für

xli
About the Authors

ausländisches und internationales Privatrecht, Mittelweg 187, D 20148 Hamburg,

Germany. E-mail: [email protected]

Mustapha Mekki
FIELD OF SPECIALISATION: Private Law, Legal Theory, Sociology of Law,
Banking Law. CORRESPONDENCE ADDRESS: Faculté de Droit, Université
Paris 13, 99, Avenue J.B. Clément, 93430 Villetaneuse, France. E-mail:
[email protected]

Peter-Christian Müller-Graff
FIELD OF SPECIALISATION: Private Law, Commercial Law and Eco-
nomic Law, Law of the European Communities and the European Union,
Comparative Law. CORRESPONDENCE ADDRESS: Ruprecht-Karls-Universität
Heidelberg, Institut für Gesellschafts- und Wirtschaftsrecht, Friedrich-Ebert-
Platz 2, D-69117, Heidelberg, Germany. E-mail: [email protected]
heidelberg.de

Vernon V. Palmer
FIELD OF SPECIALISATION: Comparative Law, Civil Law, French Law, Obli-
gations, Delict, European Legal Studies. CORRESPONDENCE ADDRESS:
Tulane Law School, 6329 Freret Street, New Orleans, LA 70118, USA. E-mail:
[email protected]

Edgar du Perron
FIELD OF SPECIALISATION: European Tort Law. CORRESPONDENCE
ADDRESS: Centre for the Study of European Contract Law (CSECL), University
of Amsterdam, PO Box 1030, 1000 BA Amsterdam, the Netherlands. E-mail: c.e.
[email protected]

Jacobien Rutgers
FIELD OF SPECIALISATION: European private law, in particular the interaction
between European law and private law, Contract Law, Security Interests, Private
International Law. CORRESPONDENCE ADDRESS: Department of Private
Law, Faculty of Law, VU University, De Boelelaan 1105, 1081 HV Amsterdam,
the Netherlands. E-mail: [email protected]

Rodolfo Sacco
FIELD OF SPECIALISATION: Contract law; Comparative law; African law.
CORRESPONDENCE ADDRESS: University of Turin, Dipartimento di Scienze
giuridiche, Via S. Ottavio n. 54, 10124, Torino, Italy.

Vincent Sagaert
FIELD OF SPECIALISATION: Property Law, Security Law, Law of Obligations.
CORRESPONDENCE ADDRESS: Institute for Property Law, Tiensestraat 41,
3000 Leuven, Belgium. E-mail: [email protected]

xlii
 About the Authors

Arthur Salomons
FIELD OF SPECIALISATION: Dutch and European Property Law.
CORRESPONDENCE ADDRESS: Centre for the Study of European Contract
Law, Faculty of Law, University of Amsterdam, PO Box 1030, 1000 BA,
Amsterdam, the Netherlands. E-mail: [email protected]

Christoph Schmid
FIELD OF SPECIALISATION: European Private and Economic Law. CORRE-
SPONDENCE ADDRESS: Zentrum für Europäische Rechtspolitik an der
Universität Bremen, Universitätsallee, GW 1, 28359 Bremen, Germany. E-mail:
[email protected]

Alain-Laurent Verbeke
FIELD OF SPECIALISATION: Contract and Property Law; Estate Planning;
Negotiation and ADR. CORRESPONDENCE ADDRESS: University of Leuven
Faculty of Law, Tiensestraat 41, B 3000 Leuven, Belgium. E-mail: alain.verbeke@
law.kuleuven.be; www.alainverbeke.be

Gerhard Wagner
FIELD OF SPECIALISATION: Tort Law; Contract Law; Civil Procedure;
Dispute Resolution. CORRESPONDENCE ADDRESS: Universitaet Bonn,
Rechts- und Staatswissenschaftliche Fakultaet, Adenauerallee 24-42, D-53113
Bonn, Germany. E-mail: [email protected].

Stephen Weatherill
FIELD OF SPECIALISATION: European Law, Consumer Law, Competition
Law. CORRESPONDENCE ADDRESS: Somerville College, Oxford OX2
6HD, United Kingdom. E-mail: [email protected]

Franz Werro
FIELD OF SPECIALISATION: Contract Law; Tort Law; European and
Comparative Private Law. CORRESPONDENCE ADDRESS: Département de
droit privé, 11, Avenue de Beauregard, 1700 Fribourg, Switzerland. E-mail:
[email protected] or [email protected]

Thomas Wilhelmsson
FIELD OF SPECIALISATION: contract and tort law, private law theory, european
private law. CORRESPONDENCE ADDRESS: University of Helsinki, POBox 4,
00014 University of Helsinki, Finland. E-mail: [email protected]

Reinhard Zimmermann
FIELD OF SPECIALISATION: The law of obligations and succession in histor-
ical and comparative perspective; mixed legal systems. CORRESPONDENCE
ADDRESS: Max-Planck-Institut für ausländisches und internationales Privatrecht,
Mittelweg 187, D-20148 Hamburg, Germany. E-mail: [email protected]

xliii
 Chapter 26
Interpretation of Contracts
Claus-Wilhelm Canaris* and Hans Christoph
Grigoleit**

1. THEORETICAL BACKGROUND

1.1. GENERAL CHARACTERISTICS: INTERPRETATION AS AN ELEMENT

OF HERMENEUTICS

The issue of interpretation arises when there is an ambiguity in the content of a

contract. This is an omnipresent phenomenon of contract law: Even a thoroughly
drafted and apparently precise contract may, under close scrutiny, prove to be in
need of interpretation. Virtually every understanding of a contract presupposes and
is – albeit often unsaid – based on interpretation. In fact, the mere statement that a
contract does not require or allow interpretation constitutes in itself an act of
interpretation and the result of such an interpretation. From a philosophical
point of view, the topic of interpretation of contracts forms a part of hermeneutics,
i.e., the general theory of understanding human expressions. Indeed, there are some
general hermeneutic insights which also guide the interpretation of contracts.
The founding principle of hermeneutics, for instance, that the interpretation of a
word is influenced by its context, applies to a contract just the same as to a piece of

* Professor emeritus of Law, University of Munich.

** Professor of Law, University of Munich.

Arthur S. Hartkamp, Martijn W. Hesselink, Ewoud H. Hondius, Chantal Mak & C. Edgar du Perron,
Towards a European Civil Code, Fourth Revised and Expanded Edition, pp. 587–618.
# 2011 Kluwer Law International BV, The Netherlands.
Claus-Wilhelm Canaris and Hans Christoph Grigoleit

literature. The idea that a text can be ‘more intelligent than its author’ and, accord-
ingly, often has a meaning which the author was totally unaware of sometimes
proves as useful for contracts as for other sorts of texts.
More important, however, than such connections with the general theory of
hermeneutics are the peculiarities of the interpretation of contracts. For the
recipient of a love letter, for example, it only matters whether its author really
meant his or her words, even if this understanding has found no outward expression
but has remained purely inward. On the contrary, a contract could obviously not
fulfil its legal and economic function if the purely internal understanding of the
author were decisive in every case. A similar statement can be made about the
ambiguity of words. For example, a poet may use ambiguities on purpose as a
stylistic device so that the interpreter has to highlight them whereas the parties of a
contract, and therefore also its interpreter, should avoid ambiguities as far as pos-
sible. Finally, the autonomous significance of interpreting contracts as compared to
other fields of hermeneutics becomes obvious if one looks at the phenomenon of
lacunae. While a lacuna in a contract may potentially be filled by ‘constructive’
interpretation (cf. 3.3.2), a scholar of literature would thoroughly misunderstand
his job if he supplemented a drama by a scene which the author himself failed to
write or whose text was lost. The interpretation of contracts is therefore primarily
determined by legal requirements and value judgments. Consequently, the legal
principles on which contractual interpretation is based have to be considered first.

1.2. SELF-DETERMINATION AND FREEDOM OF CONTRACT AS

STARTING POINT

The interpretation of contracts must comply with their function which is primarily
to allow the parties to settle their legal relations at their discretion. Nowadays, the
principle of freedom of contract applies as a general rule in all European legal
systems.1 This is aptly expressed in Article II.–1:102 DCFR (Draft Common
Frame of Reference): ‘Parties are free to enter into a contract and to determine
its contents, subject to any mandatory rules’. Similarly, Article 2.1. CEC (Code
Européen des Contrats) states:
Les parties peuvent librement déterminer le contenu du contrat, dans les lim-
ites imposées par les règles impératives, les bonnes mœurs et l’ordre public.2
While the Treaty of the European Communities does not explicitly guarantee the
principle of freedom of contract, it is generally accepted as a fundamental

1. Cf. the overview in PECL, 2000, 99 seq.

2. A caveat for ‘ ‘‘the requirements of good faith and fair dealing’’ ’ was also stipulated in Art. 1:102
(1) PECL which was the model for Art. II.–1:102 DCFR and in the ‘ ‘‘interim outline edition’’ ’ of
the DCFR, where it has been eliminated in the final revision. For a critique see H. Eidenmüller
et al., JZ 2008, 529, 537 seq.; OJLS 2008, 659, 678; RTD eur., 695, 781.

588
 Interpretation of Contracts

underlying idea3 because the exercise of the expressly stated Community freedoms
is only conceivable on the basis of freely negotiated contracts.

1.2.1. The Justification of Freedom of Contract

The principle of freedom of contract has several roots. From an ethical point of
view, it is based upon the idea that the state must respect the autonomy of the
individual. This assumption can be derived from the dignity of man and his right of
‘free development of his personality’, of ‘pursuit of happiness’ or similar concepts.
These rights are violated if the state does not generally leave it to the individuals to
regulate their relations themselves, but prescribes every detail of their interaction;
by doing so the state turns into a guardian of the individual, and this is
irreconcilable with its dignity – a notion that has won nearly complete recognition
in Europe since the age of enlightenment. Thus, freedom of contract is an expres-
sion of the legal self-determination of the human being and, as such, a sub-category
of the autonomy of the individual.
In addition, the principle of freedom of contract has a foundation in political
theory. It corresponds both to the ideas of democracy and of separation of powers.
Democracy and freedom of contract are based upon the same basic values: on legal
liberty and on the equality of the citizens. Hans Kelsen justly called the contract a
‘markedly democratic method of creating rights and duties’ because the ‘subjects
that are to be bound participate in the creation of the binding rule’.4 The link to the
idea of democracy also becomes obvious if one considers the classic wording of
Article 1134 CC: ‘Les conventions légalement formées tiennent lieu de loi (!) à
ceux qui les ont faites’. The notion of separation of powers is strengthened con-
siderably by a free contractual exchange5 – in particular if free competition is
warranted as well. This is because freedom of contract counterbalances the con-
centration of power in the government by shifting, within its area of operation, the
competence to take legal decisions from the government to the citizen.
Finally, modern welfare economics accentuate and describe more precisely
the social function of free contracting. According to the Pareto criterion, the
voluntary exchange by contract is the paradigm of economic efficiency.
The individual exchange and its efficiency correspond on the collective level
with the institution of the market: The mechanism of the market brings the
independent transactions to perfection and, when operating ideally, creates Pareto
efficiency. Thus, contractual freedom and the market provide for an efficient dis-
tribution of resources and tend to lead to a maximization of social wealth (while, of
course, the issue of just distribution remains unsolved). Accordingly, the primary

3. Cf. ECJ Judgment of 05.10.1999 (Spain/Commission), C- 240/97, ECR 1999, I-6571, 6634 (no.
99); S. Grundmann, JZ 1996, 274, 278; 591.
4. Cf. H. Kelsen, Reine Rechtslehre, 2nd ed. 1960, 285.
5. See F. Bydlinski, Privatrecht und umfassende Gewaltenteilung, in: 2. Festschrift für Wilburg,
1975, 53, 67.

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Claus-Wilhelm Canaris and Hans Christoph Grigoleit

postulate of the Coase theorem is that a legal system should allow the voluntary
exchange of goods and facilitate it by lowering the cost of transactions.6

1.2.2. The Function of Interpretation: Ascertaining the Intention

of the Parties

If the basic function of the contract is to allow the parties to determine their legal
relations as they see fit, the function of interpretation is to ascertain the intentions
of the parties. The right of self-determination, taken seriously, necessarily includes
the freedom to pursue and to agree to something unreasonable – just as the vote in a
democratic decision is not subject to any control of reasonableness. Not reason but
the intentions of the parties, therefore, form the basis of the contract according to
the maxim: ‘Stat pro ratione voluntas’.7 This implies that the legal system only has
to make sure that the decision of the parties is as free as possible not only in its legal
but also in practical circumstances.
This assumption is in accordance with the fact that the economic goal of
efficiency is to achieve at the greatest possible compliance with individual pre-
ferences. Thus, the assessment of personal utility is left to the sole discretion of the
individual. It is no contradiction that this utility is also measured by its monetary
value because money, in economic theory, merely has an instrumental character in
relation to the individual evaluation of the utility. The individual determines the
monetary value of his utility in the context of the transaction. However, this again
does not preclude discussion on the issue of just distribution.
Accordingly, it is not legitimate to impose ‘reasonable’ solutions upon the parties
by means of interpretation. Rather, in the case of a contract the goal of interpretation is
to determine the intention of the parties – primarily the actual, alternatively the
hypothetical intention. Only if this fails may one resort to the ‘reasonable’ intention;
because then it has to be assumed that the parties are rational actors and thus intended
something reasonable in case of doubt. The prevalence of the actual over the reason-
able intention is generally acknowledged in all European legal systems8 and
also forms the basis of the rule of Article II. –8:101 DCFR (~Article 5:101 PECL
(Principles of European Contract Law)) and of the similarly phrased rule of Article 8
CISG (Convention of International Sale of Goods) (for more detail see 2.1. and 2.2.).
Under Italian law, for instance, it is widely held that the rule of Article 1366 CC ‘Il
contratto deve essere interpretato secondo buona fede’ is subordinate to Article 1362
CC ‘Nell’interpretare il contratto si deve indagare quale sia stata la commune
intenzione delle parti’.9 By contrast, it is questionable that Article 39.4. CEC rules:
En tout état de cause, l’interprétation du contrat ne doit aboutir à un résultat
qui soit contraire à la bonne foi ou au bon sens.

6. Cf. in more detail e.g., R.A. Posner, Economic Analysis of Law, 7th ed. 2007, § 1.2.,23 seqq.;
H. Eidenmüller, Effizienz als Rechtsprinzip, 3th ed. 2005, 41 seqq.
7. Cf. W. Flume, Allgemeiner Teil des Bürgerlichen Rechts II, 4th ed. 1992, § 1, 5.
8. See the overview given in PECL, 2000, 290 seq.; H. Kötz, 1996, 166.
9. Cf. G. Cian and A. Trabucchi, 2008, Art. 1366, sub. II. Some authors, however, attribute priority
to the interpretazione secondo buona fede; see, e.g., C.M. Bianca, 2000, 420, 424.

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If the parties intended such a result in an agreement it is not the task of interpre-
tation to correct it. If a correction should prove to be necessary at all, it should be
based on the rules questioning the validity of contracts as a matter of law.
The external nature of the correction and the policy reasons that justify this cor-
rection should be openly addressed as, for example, in cases of mistake, misrep-
resentation, fraud, unfair exploitation or unfair standard terms, etc.

1.3. LEGAL CERTAINTY, PROTECTION OF RELIANCE AND INDIVIDUAL

RESPONSIBILITY AS CORRELATIVES OF SELF-DETERMINATION

1.3.1. The Problem of a Diverging Understanding by the Parties

There are (at least) two parties involved in a contract. Therefore the intention of
only one party cannot form by itself the authoritative criterion for the interpreta-
tion of the contract because it constitutes a purely psychological internal state and,
as such, is generally not discernible by the other party. Thus, one cannot simply
resort to the internal intention of the declaring party if the addressee understood
the declaration differently. Conversely, the understanding of the addressee cannot
be authoritative by itself if it differs from that of the declaring party. These
statements result directly from the principle of freedom of contract and from
the idea of self-determination. If contract terms which one of the parties neither
intended nor could discern were regarded as authoritative, his freedom of contract
would be disregarded and his self-determination would virtually be turned into
heteronomy.
On the other hand it would go too far to consider a contract invalid whenever
the parties understood its terms differently. This would largely deprive the contract
of its suitability as an effective instrument for regulating the relations between the
parties. It is therefore a compelling imperative of legal certainty to hold a party to a
contract under certain circumstances even if he was mistaken about its terms.
Similarly, a party has to be protected in his reliance on the effectiveness and
the terms of the contract if he understood it ‘correctly’. It is generally fair and
reasonable to hold the erring party to the ‘correct’ terms because of, and insofar as
he is responsible for, his ‘incorrect’ understanding. Like every freedom, the free-
dom of contract and, accordingly, contractual self-determination correspond with
responsibility which restricts self-determination as far as it is necessary to protect
individual reliance and the functioning of the markets.

1.3.2. The Standard of Reasonableness and Good Faith as the

Resolution of Diverging Understandings

What is the measure to determine the ‘correct’ understanding of the contract if both
parties have a different perception of it? One could take the perspective of a non-
involved third party, but this would be in conflict with the fact that the declarations
are generally – i.e., apart from special situations such as declarations in commercial

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papers or in corporate contracts (see below 2.5.3) – not made to be received and
understood by an ‘outsider’ but by the addressee. Therefore, it is consequent to take
the addressee’s perspective as the relevant point of view because the contract is an
act of communication with this party only and it concerns only his or her interests.
To define this perspective more precisely, one has to assume that the addressee
seeks to grasp the understanding of the declaring party in a reasonable way and in
good faith. Under the postulate of individual responsibility, on the one hand, it is
not expecting too much of the declaring party to be bound by a reasonable and fair
understanding and, on the other hand, only reliance in such an understanding
deserves protection by the law.
Therefore, this view has two sides. The declaring party as well as the addressee
is held to an understanding which the latter party was able to have and ought to have
had when a standard of reasonableness and good faith is applied. The test works
equally for and against both parties: As little as the declaring party can allege his
understanding if it is unreasonable or contrary to the requirements of good faith, he
cannot be held to an unreasonable or unfaithful understanding the addressee might
have had. In this manner, the conflict described under 1.3.1 is resolved in a fair
balance. It is useful – while not crucial – to accentuate the notion of good faith in this
balancing approach besides the criterion of reasonableness. The latter concerns
mainly the aspect of rationality whereas the former has a connection to the principle
of fairness. This is to say that a self-centred understanding of the contract may still
seem reasonable from the perspective of one of the parties, but it is not an
understanding in good faith and therefore the legal order cannot take it as a standard
for the interpretation of a contract.
This view is generally shared in all European legal systems.10 Article 5:101 (3)
PECL, which is modelled after Article 8 (2) CISG, consequently refers to the
perspectives of the parties by stating that ‘the contract is to be interpreted according
to the meaning that reasonable persons of the same kind as the parties would give to
it in the same circumstances’. The corresponding rule of Article II.–8:101 (3) (a) of
the DCFR adopts the reasonableness test but lacks the reference to the individual
parties and circumstances. This variance is due to imprecise drafting rather than to
a conceptual divergence. Obviously, the main challenge of interpretation is to find
out what a reasonable and fair understanding of a contract is. To give an answer to
this question all circumstances of the individual case may be relevant (see in more
detail below subsection 2.1).
A different matter is whether a party may avoid the contract by reasons
of mistake if he has misunderstood the content of the contract. Some legal systems,
such as the German, the Swiss and de facto the Italian as well, have special rules
for such a mistake (‘Inhaltsirrtum’), whereas most legal systems and Articles II.–
7:201, II.–7:202 DCFR (~Articles 4:103, 4:104 PECL), Article 151 CEC treat such

10. Under Portuguese law, for instance, the rule of Art. 236 CC almost literally corresponds
to Art. 5:101 (3) PECL. Furthermore see the overview in PECL, 2000, 291 and the citations
in n. 19.

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a mistake like other mistakes.11 This issue belongs to the doctrine of mistake which
is the subject of another chapter of this book.12 It should be emphasized in this
context, however, that the rules of interpretation are to be applied with priority, i.e.,
a remedy on the grounds of mistake may only be taken into consideration if the
contract cannot be interpreted in accordance with the assumptions of the mistaken
party.13

1.3.3. ‘Subjective’ and ‘Objective’ Interpretation: The Will

Theory and the Theory of Declaration

A theory of interpretation which is based on the actual intention of the parties is

often called ‘subjective’ whereas a theory which emphasizes the external signs of
the communicative act, such as the literal meaning of declaration in particular, is
characterized as ‘objective’. This antagonism pervades the entire history of inter-
pretation while the prevalence of one position over the other sometimes changed.14
It is characteristic that Roman Law knew two different maxims of interpretation as
the proposition of Papinian ‘In conventionibus contrahentium voluntatem potius
quam verba spectari placuit’15 and the word of Paulus ‘Cum in verbis nulla
ambiguitas est, non debet admitti voluntatis quaestio’.16
Historically, the objective approach with its focus on the literal meaning of the
words has been the starting point. This is related to the fact that in legal systems
whose development has not yet reached an advanced level there is obviously a
strong leaning to formalism and therefore an over-emphasis of the role of the literal
meaning of contract terms. In the course of legal and judicial development,
however, the modes of interpretation have become more refined and more flexible.
Correspondingly, the idea of freedom of contract – which is the underlying
principle of ‘subjective’ interpretation – had to gain acceptance step by step against
the original notion that only certain types of contracts are admissible.
Systematically, there are different issues underlying the conflict between
‘subjective’ and ‘objective’ interpretation. The first problem is the formalism
caused by overemphasizing the literal meaning of the contract. The result of
such formalism can be that the parties are bound to the terms of the contract
even if they have mistakenly phrased them or made them cover a situation
which neither of the parties could have reasonably meant. Modern laws in principle
reject such formalism. The French Code Civil, for instance, rules in Article 1156:
‘On doit dans les conventions rechercher qu’elle a été la commune intention des
parties contractantes, plutôt que de s’arrêter au sens littéral des termes’. This

11. See E.A. Kramer, Der Irrtum beim Vertragsschluß – eine weltweit rechtsvergleichende Bes-
tandsaufnahme, 1998, 87 seqq.
12. See the Chapter in this book by J. Cartwright.
13. See, e.g., PECL, 230 seq.
14. A comprehensive historical analysis is provided by R. Zimmermann, 621 seqq.
15. Pap. D. 50, 16, 219.
16. Paul. D. 32, 25, 1.

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formula is matched by the Italian rule of Article 1362 CC almost literally and,
likewise, the German Civil Code (BGB) demands in § 133 BGB ‘nicht an dem
buchstäblichen Sinne des Ausdrucks zu haften’.17 Nevertheless the historical
approach of formalism still has a certain influence today, albeit in modified
forms (see 2.5.1 and 2.5.2 below).
The term ‘objective’ interpretation serves a different function when it is used
to describe the perspective of a reasonable party as the basis of interpretation. This
perception is not about overemphasizing the literal meaning of a declaration, but
about its divergence from the intention of the declaring party. In this respect the
‘objective’ approach takes into account that the declaring party has not appropri-
ately expressed his intention and therefore the addressee cannot reasonably con-
sider the actual intention as relevant for the interpretation of the contract.
In modern contract law, this aspect of ‘objective’ interpretation has prevailed
for good reason, as we just have described above under 1.3.2. Yet, this ‘objective’
approach does not proceed ‘formalistically’ in the sense of being strictly bound to
the literal meaning, but it allows an unlimited variety of other criteria to be
considered in addition and besides the meaning of the words (see in more detail
under 2.1).
With respect to this function of ‘objective’ interpretation, one can draw a
certain parallel to the dispute between the will theory and the theory of declaration,
which played a major role in the nineteenth century legal discourse especially in
Germany. This dispute has, however, no practical consequences for the theory of
interpretation. This is to say that even the advocates of a strict will theory cannot
argue that the intention of the declaring party determines the terms of the contract
even if it could not have been recognized by the addressee. Doing so would mean to
disregard the intention of the latter and would therefore be contradictory to its own
premise. Even on the basis of a strict will theory, therefore, differences between the
intention of a party and the ‘objective’ meaning of his declaration can only have a
practical impact on the question whether the contract is invalid or subject to
rescission, which is answered to the affirmative under German law in § 119
Abs. 1 BGB (Inhaltsirrtum). The dispute between the will theory and the theory
of declaration therefore becomes only relevant for the doctrine of unilateral
mistake and does not prejudice the issue of interpretation.18

1.4. THE SCOPE OF INTERPRETATION

Interpretation is not only about the content of an agreement, but also about the
logically prior question whether or not a contract has been formed at all. In some
cases it may be doubtful whether a declaration is to be understood as an offer or just
as an invitation to the other party to make an offer of his own (invitatio ad

17. With the same wording under Austrian law § 914 ABGB.
18. To the same effect H. Kötz, 1996, 171 with n. 22; J. Ghestin, 2001, no. 386.

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offerendum), in other cases it has to be determined whether a declaration is an offer

to enter into a contract or just a declaratory message to confirm that an alleged
contract has been formed before, etc. To answer such questions, no other rules are
to be applied than those which govern the process of specifying the contract terms.
The rules of interpretation can also be applied without modification to declara-
tions that are not expressed in words, but merely through a certain conduct. It is
common currency in contract law that a conclusive form of conduct – for example a
certain motion of the head or raising a hand in a public auction – may be sufficient
to imply a binding contract. This is, for example, expressly emphasized in
Article II.–4:102 DCFR (~Article 2:102 PECL) and in § 863 (1) of the Austrian
Civil Code (ABGB). There may often be doubts about whether the conduct shown
is in fact conclusive. This, too, is a problem of interpretation and therefore one has
to ask how the other party reasonably had to understand the conduct in question.

2. RULES OF INTERPRETATION

The rules of interpretation in the different European legal systems largely overlap,
as all national approaches are based on the described fundamental principles and
their implications.

2.1. GENERAL PRINCIPLE: THE INTENTION AS SEEN FROM THE

PERSPECTIVE OF THE ADDRESSEE

According to the principles discussed above (see 1.3.), most European legal sys-
tems and the DCFR attempt to strike a balance between subjective and objective
considerations.19 The content of a contract is primarily determined by the actual
intentions of the parties (Articles II.–8:101 DCFR ~ 5:101 (1) PECL). The
fundamental goal of interpretation, therefore, is to establish what the intention
of each party was at the time of contracting. As far as their intentions correspond,
they form the content of the contract. The objective aspect of interpretation con-
cerns the perspective that is adopted in order to determine the intention of each
party. In this context, the content of each declaration has to be determined sepa-
rately and the perspective of the addressee has to be adopted (cf. above 1.3.2). It is
crucial how the addressee could reasonably understand the declaration in view of
the individual circumstances of the case (Articles II.–4:102, II.–8:101 (3), II.–
9:102 (1) DCFR ~ Articles 2:102, 5:101 (3), 6:101 (1) PECL).
In ascertaining the perspective of a reasonable addressee, it is generally irrel-
evant whether the declaring party knew or could have known that perspective.
The declaring party is sufficiently protected by the rule that his reasonable

19. See, e.g., J. Beatson, 2002, 31; G.H. Treitel and E. Peel, 2007, para. 6-01; J. Ghestin, 1993, no. 390;
J. Ghestin et al., 2001, no. 9 seqq., H. Mazeaud et al., 1998, no. 123; G. Cian, A. Trabucchi, 2008,
Art. 1362, sub X. Moreover Arts 4.1, 4.2 Unidroit Principles.

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Claus-Wilhelm Canaris and Hans Christoph Grigoleit

perspective is relevant for the interpretation of the corresponding declaration of the

other party. If the two declarations do not correspond, the parties do not consent
and no valid contract is formed.20
When establishing the meaning of a contract, the judge must consider all
circumstances which allow him to draw conclusions with regard to the intentions
of the parties at the time of contracting. Special consideration has to be given to
the circumstances of the negotiations. In certain cases, circumstances which
occurred before the state of negotiations – e.g., particular practices which the
parties have established between themselves – or after conclusion of the contract –
e.g., the specific handling of a certain aspect of performance mutually agreed
upon – may also be taken into account.21 It should, however, be emphasized
that, from a theoretical perspective, those circumstances, regardless of when
they occurred, are only circumstantial evidence as to the parties’ intentions at
the time of contracting.
The content of a declaration is to be determined objectively only to the extent
that the addressee can reasonably rely on the ‘normal’ use of language, ‘the
regular’ meaning of a certain conduct, etc. It is therefore not justifiable to use
an ‘absolutely objective’ standard, i.e., a standard which is entirely independent
from the individual situation and purely based on the declaration itself or its
wording. Moreover, it is almost impossible to obtain such an ‘absolutely objective’
perspective. In evaluating an act of communication, it is generally unavoidable to
respond to the individual circumstances of the case, e.g., the branch of trade
involved, the objectives of the parties, etc. Otherwise, one can hardly identify
the meaning of words and of other means of expression used. This approach is
consistent with the general rules of hermeneutics under which an act of commu-
nication is to be understood only with reference to its context. It is therefore rather
inaccurate and oversimplifying to contrast a subjective approach to interpretation
with an objective doctrine as it is commonly done. At a closer look, it is the
subjective perspective of the addressee that matters and this viewpoint is objecti-
fied only to a certain extent, i.e., by the standard of reasonable and faithful
understanding.

2.2. THE SIGNIFICANCE OF THE WORDING AND THE NEED FOR ITS
METICULOUS ANALYSIS

The wording, however, is necessarily the starting point of interpretation. It is the

outward manifestation of the parties’ intention. Being balanced against other cri-
teria, the language used has a particularly significant weight. The wording may not
impetuously be disregarded by arguing the reasonableness of a solution which is
far from or even not at all in accordance with the text. This point may be

20. Such a dissent, however, is rare because usually the reasonableness test defines identical per-
spectives for either party; for examples see below subs. 3.1.
21. This is substantially laid down under Spanish law in Art. 1282 CC.

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demonstrated by using an example drawn from the Comments to Article 5:101 (3)
PECL, given there as an illustration of the objective method:22
A clause in an insurance contract provides that the policy covers the theft of
jewellery only in cases of ‘clandestine entry’ into the place where the jewellery
was. An individual, A, pretends to be a telephone repairman and presents himself at
Madame B’s home to repair her telephone. A distracts B under some pretext and
takes the opportunity to steal her jewellery. The insurance company refuses to pay
arguing that there has been no ‘clandestine entry’. On a reasonable interpretation,
the commentary to the PECL argues, entry gained by fraud is a form of ‘clandestine
entry’.
This example shows the risk of not taking the wording of the contract seriously
enough and of allowing the interpreter to realize his own evaluation of what
amounts to a reasonable understanding. By its literal meaning, the term ‘clandes-
tine entry’ hardly encompasses ‘entry gained by fraud’. One would use the term
‘clandestine’ if the victim did not notice the entry of the thief, but not if she
voluntarily admitted him into her home not realizing his identity and intentions.
‘Entry gained by fraud’ can surely not be considered to be within the core meaning
of the expression ‘clandestine entry’, but at its periphery at most. Therefore, the
parties’ interests and the purpose of the contract clause must be analysed thor-
oughly. In this respect, significant differences between the two situations become
evident. If B did not suspect that an unknown person had entered her home, she had
no reason to take special care to protect her jewels from theft. On the other hand, if
she deliberately admits a telephone repairman into her home, the need to lock the
jewels away or keep an eye on them is apparent. The crucial factor in interpreting
the ratio of the expression is the aspect of control: It is immaterial whether the thief
really is or just pretends to be a telephone repairman. The decisive issue is that B,
despite being aware of an unknown person’s presence, left the jewels unguarded
and let herself be distracted. This could have happened with a real telephone
repairman as well. With respect to the purpose of the insurance, B’s legitimate
interest to be protected against theft by a pretender is almost as low as against theft
by a real telephone repairman and not nearly as high as against theft by unknown
intruders. Thus, the case is much closer to a situation which is clearly not covered
by the insurance than to one which falls into the core meaning of the clause. That is
why with respect to the purpose of the insurance contract and the clause in question
its wording is to be construed narrowly. Hence, theft after ‘entry gained by fraud’ is
not covered by the insurance. This example shows how the criteria of reasonable-
ness may be applied in a rational and methodical manner: The usual meaning of the
words and the purpose of the clause to be interpreted must be combined with a
twofold comparison of the situation in question with situations that are clearly
inside and those clearly outside the scope of the clause. Moreover, in the example,
B cannot successfully invoke the contra proferentem rule (cf. below 2.5.4). In spite
of the fact that the contract was phrased by the insurer, there are no remaining
doubts which could justify the application of the contra proferentem rule after

22. Cf. PECL, 2000, 289.

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Claus-Wilhelm Canaris and Hans Christoph Grigoleit

careful analysis of its wording and its purpose and after taking into account the
interests of the parties.

2.3. THE PREVALENCE OF THE RECOGNIZED INTENTION OVER THE

OBJECTIVE MEANING

On the other hand, if the intentions of the parties correspond, but deviate from the
regular understanding of their declarations, neither party can reasonably rely on the
objective meaning of the contract. In such a situation, the corresponding intentions
of the parties have priority over the ‘regular’ or ‘correct’ meaning of the declara-
tion (falsa demonstratio non nocet). This priority is based on the above mentioned
assumption that there is no ‘absolutely objective’ perspective underlying interpre-
tation. What matters is the individual perspective of the addressee. This perspective
is not purely shaped by the ‘bare’ declarations, but also by all those circumstances
that lead to conclusions concerning the actual intention of the other party.
The priority of the corresponding intentions over the objective meaning is
common ground in all European legal systems.23 One formula, which is often used
(e.g., in Articles II.–8:101 (1) DCFR, 5:101 (1) PECL and in Article 39 II CEC),
states that the corresponding intentions of the parties have priority over the literal
meaning of the words.24 If, for instance, the object of a sale is denominated as
‘Haakjöringsköd’ and both parties take it for granted that this refers to whalemeat,
even though ‘Haakjöringsköd’ – according to the general use of language – means
sharksmeat, then the contractual agreement is about whalemeat.25 The same
applies if the parties knowingly use the term sharksmeat in the wrong sense in
the written contract (e.g., if they fear that trading openly with whalemeat might
damage their reputation). This is in line with the generally recognized rule that
contractual simulations are disregarded and the true intentions of the parties prevail
(Article II.–9:201 (1) DCFR ~ Article 6:103 PECL).26
The objective meaning of the statement is also disregarded, if one of the
parties realizes or if it is obvious to him that there are certain intentions underlying
the other party’s declaration that contradict the normal understanding (Article II.–
8:101 (2) DCFR ~ Article 5: 101 (2) PECL).27 Even though in such a case there is
no common intention, the addressee’s reliance on the regular use of language is not
worthy of protection. Rather, the addressee can reasonably be expected to reveal
the discrepancy if he prefers not to be bound to the intention of the other party. In a

23. For an overview see PECL, 2000, 290. For limitations see below 2.5.1. Under English law the
principle of falsa demonstratio non nocet is implemented with respect to written contracts by the
equitable relief of rectification; see J. Beatson, 2002, 339 seq.
24. Cf. e.g., under French law Art. 1156 CC. Under Swiss law Art. 18 (1) OR.
25. Cf. RG 8.6. 1920, RGZ 99, 147.
26. For an overview see PECL, 2000, 307.
27. BGH 26.10.1984, NJW 1984, 721. Under English law, again, the rules on rectification
concerning unilateral mistakes lead to similar results; see Chartbrook v Persimmon, [2009]
3 W.L.R. 267; J. Beatson, 2002, 340 seq. For a comparative overview see PECL, 2000, 291.

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 Interpretation of Contracts

modified version of the example given above, this means that the seller owes
whalemeat if the buyer knows that the seller has mistakenly used the term ‘Haak-
jöringsköd’ for whalemeat, notwithstanding that the buyer intends to enter into a
contract about sharksmeat (which might be the case because sharksmeat is more
valuable).

2.4. GENERAL REMARKS CONCERNING THE DEFINITION OF

FURTHER RULES

Before we turn to the evaluation of further and more specific rules, some general
characteristics of defining rules of interpretation need to be considered.

2.4.1. The Problem of Defining Rules of Interpretation

Although the principles discussed under 2.1 and 2.2 appear to be widely accepted
and quite well founded, it is difficult to phrase them in more definite terms and to
complement them by further rules. The reason for this difficulty lies in the nature of
communication and its fundamental dependence upon the circumstances of the
individual case.28 It is possible to establish general rules, for instance by establish-
ing pragmatic guidelines based on the experience of normal communication.
However, the number of potential rules is practically unlimited. Moreover, any
rule is prone to mistakes due to peculiarities of the case and must allow for a wide
range of exceptions that cannot be formulated in advance for all circumstances.
It is therefore not surprising that, even in continental systems, interpretation is
largely governed by general principles and judge-made law.29 The recent compre-
hensive codification, the Dutch Burgerlijk Wetboek, for instance, deals very briefly
with the topic of interpretation.30 The draftsmen of the German BGB deliberately
abstained from stating detailed rules of interpretation since they wanted to avoid
instructing the judiciary in ‘practical logic’.31 Nevertheless, detailed rules can be
found in Articles 1156 et seq. of the French CC, in Articles 1362 et seq. of the
Italian CC and in Articles 1281 et seq. of the Spanish CC. The DCFR also provides
rules related to interpretation in Articles II.–4:102, II.–8:101–107, as do the PECL
in Articles 2:102, 5:101–107 and the CEC in Articles 39–41. It is noteworthy that
only limited binding force is attributed to the French rules of interpretation.32
The Cour de Cassation holds that a judgment does not have to be reversed purely
on the ground that rules of interpretation have not been observed.33 The rules in the

28. Cf. R. Zimmermann, 1990, 638 seq.

29. For an overview PECL, 2000, 290 sub. 1.
30. Article 3:35 BW refers to the perspective of a reasonable addressee.
31. Cf. Motive I, 155.
32. Cf. J. Ghestin et al., 2001, no. 35 seqq.
33. See Cass. civ., 19.12.1995, Bull. civ., I, no. 466, 324.

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PECL are – in parts – consciously drafted in a way that courts may abstain from
applying them in exceptional cases.34
One should draw a clear line between definite rules and the mere enumeration
of aspects that ought to be taken into consideration in the process of interpretation.
In Article II.–8:102 DCFR (~ Article 5:102 PECL) some factors are named that
must be taken into account when interpreting a contract.35 This kind of list is
supposed to outline circumstances that are of particular importance in determining
the perspective of the reasonable addressee. The perspective of the addressee is,
however, characterized by an indefinite number of individual factors. Moreover,
the choice of possible factors will always be the self-explanatory expression of
common sense. Thus, there is little use in enumerating the factors relevant to
interpretation in a code: where such an enumeration is specific, it will always
be incomplete; where it is general, it will only be stating the obvious, as demon-
strated by Article II.–8:102 DCFR (~ Article 5:102 PECL). By listing the relevant
factors of interpretation in a code, the law is merely pretending to offer guidance
that it cannot give.

2.4.2. Interpretation as a Balancing Approach

Generally speaking, there is no strict concept of priority between the different

aspects which play a role in the process of interpretation such as the meaning of
the words, the purpose, the context or the origins of a contractual clause. These
aspects are more or less loosely combined with one another and weighed by their
persuasiveness in the individual case. There may be cases where a ‘weak’ argu-
ment drawn from the wording of the clause has to step back behind a ‘strong’
argument derived from the purpose or the contractual context. In other cases, a
narrow understanding of the words may prevail, because the purpose of the clause
does not speak clearly enough for an opposite understanding or is even vague or
indistinct. Hence, interpretation is a process of balancing.36
Even though there is no strict priority between the different aspects of inter-
pretation, some of them carry particular weight from an abstract point of view
without regard to the individual circumstances of the case. First of all, this applies
to the meaning of the words of the agreement. The words used are usually the
manifestation of parties’ intention as well as the object of their reliance (see 2.2
above). In addition, the meaning of the wording marks the borderline with regard to
‘constructive’ interpretation, which may only be passed under certain conditions
(see below 3.3.2). Thus, to overcome the presumption in favour of the literal
meaning, very strong arguments are needed. The same is true with respect to

34. Cf. PECL, 2000, 294.

35. Similarly with regard to the question whether or not a statement constitutes a contract see
Art. II.–9:102 (1) DCFR (~ Art. 6:101 (1) PECL). See also Art. 4.3 UNIDROIT Principles.
36. With more detail concerning the burden of proof and persuasion and on the scope of judicial
review in issues of interpretation, cf. T. Riehm, Abwägungsentscheidungen in der praktischen
Rechtsanwendung, 2006, 119 seqq., 237 seqq.

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arguments that are drawn from the purpose of a contractual clause or the purpose of
the entire contract since the parties use the contract as a means to pursue specific
goals. Moreover, the focus on the purpose of legal arrangements generally prevails
in modern jurisprudence. In many cases, however, the purpose remains unclear or
can only be determined on the basis of other aspects such as the literal meaning of
the words, the context or the origin. It should be emphasized that in spite of these
abstract dimensional differences the relevant criteria should be treated as elements
within the process of balancing. Even the aspects that are most important in general
may have to step back behind other arguments if those turn out to be stronger in the
particular case. Therefore the coordination of the relevant factors resembles what is
described in legal theory as balancing diverging principles as opposed to applying a
definite rule.37
A balancing approach inevitably bears uncertainties. But this does not mean
that interpretation of contracts evades rational inspection or is even an arbitrary
procedure. Rather, balancing works as reasoning does in general: one gathers as
many arguments as are worth considering, weighs them by their persuasiveness
and strikes a balance between them if they are in conflict. Yet, the uncertainties of
the balancing approach explain why it is so difficult to develop abstract and def-
inite rules for interpretation.

2.4.3. Interpretation as a Matter of Law and Restrictions of

Judicial Review

The difficulty in setting up a scheme of definite rules also affects the question
whether interpretation is a matter of fact or a matter of law. This distinction is
relevant especially with regard to the scope of review of the trial court’s decision
on appeal. Interpretation is always based on facts, namely the subjective intentions
of the parties and other individual circumstances of the case. Yet, the core question
of interpretation – whether a binding contract has been formed on the established
facts and what its content is – necessarily requires an additional legal judgment.38
This follows directly from the assumption that the perspective of the reasonable
addressee determines the outcome of interpretation. Because of the numerous
particular circumstances that potentially need to be taken into consideration, it
is difficult to distinguish fact-finding from the application of law. As a conse-
quence, findings of trial courts concerning interpretation should be reviewed
with restraint, in a similar way as findings of fact. In order to secure the priority
of the trial judge’s verdict, some legal systems deal with interpretation as a matter
of fact, but nevertheless allow some limited review on appeal.39 It is more accurate
and therefore preferable to regard the process of interpretation as a matter of law

37. Cf. R. Dworkin, Taking Rights Seriously, 1977, 22 seqq.; R. Alexy, Recht, Vernunft, Diskurs,
1995, 182 seqq.
38. Similarly C.M. Bianca, 2000, 413.
39. For example, under French law; cf. J. Ghestin et al., 2001, nos. 14 seqq.

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while limiting revision of the trial court’s findings to cases in which the result of
interpretation is evidently inconsistent with legal requirements.40

2.5. RULES OF INTERPRETATION WITH REFERENCE TO

SPECIFIC CIRCUMSTANCES

While the balancing approach is characteristic for the law of interpretation, many
rules have been developed to give the interpretation of contracts a more definite
structure. All these more-or-less precisely defined rules do not govern the process
of interpretation in general but they derive certain conclusions from special cir-
cumstances of the contract. A choice of the most prominent of these rules shall be
put under scrutiny.

2.5.1. Clauses Claires et Précises

The Roman Law principle ‘cum in verbis nulla ambiguitas est, non debet admitti
voluntatis quaestio’41 is still effective, for instance in the French doctrine of
clauses claires et précises. If a contractual clause in a written contract is phrased
unambiguously, the Cour de Cassation holds there is no room for interpretation
and only the objective meaning is relevant. Thus, there is an irrebuttable presump-
tion that the unambiguous clause is the correct and complete expression of the
parties’ intentions.42
Prima facie, the French doctrine appears to be an exception to the rule that the
corresponding intentions of the parties have priority over the objective meaning of
the declarations. This would be irreconcilable with the principles governing inter-
pretation: If one party can prove that both parties had corresponding intentions
which deviate from the unambiguous meaning of the written declarations, none of
the parties has reasonably relied on the objective meaning. However, if one takes
a closer look at the doctrine of clauses claires et précises, it is permissible under
this rule to consider external circumstances to determine whether or not the term
in question is ambiguous.43 This is unavoidable also from a practical point of
view, as there is no purely objective standard which allows a determination of the
plain meaning of the words used. This leads to the second objection: The doctrine
of clauses claires et précises is inconsistent because it presupposes a ‘regular’
interpretation for determining the plain meaning or, respectively, an ambiguity
while claiming that interpretation is not allowed.44 This contradiction becomes

40. Cf. K. Larenz, M. Wolf, 2004, § 28 no. 132 ¼ 547 seq. For an overview see PECL, 2000, 290
sub. 1.
41. Paul. Dig. 32, 25, 1.
42. Cf. in detail J. Ghestin et al., 2001, no. 25, 28. With regard to a similar practice under Italian law
see C.M. Bianca, 2000, 420; G. Cian, A. Trabucchi, 2008, Art. 1362, sub. X 1. See also Art. 39
(1) CEC.
43. Cf. J. Ghestin et al., 2001, no. 27; H. Mazeaud et al., 1998, no. 345.
44. Cf. with more detail J. Ghestin et al., 2001, no. 25.

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apparent in a Cour de Cassation case concerning a shipment of sugar that was

damaged on transport. There was a precise term in the contract providing for an
allocation of transport risks. Contrary to the wording of the contract, however, the
buyer was willing to accept delivery and to pay in full despite the damage
the shipment had suffered because the price of sugar had risen and therefore
acceptance of the damaged shipment was preferable to rescission of the contract.
The court ruled that, on the one hand, the clause concerning transport damages
was clear but, on the other hand, that the clause, being inconsistent with the
apparent intentions of the parties in the situation given, was subject to
interpretation.45
The obvious question is why the doctrine of clauses claires et précises has
nevertheless not yet been abandoned. An important aspect might be that interpre-
tation under French law is a matter of fact and thus there is, as a general rule, no
review on appeal.46 The conclusion that a declaration is unambiguous in a certain
sense is a means to reverse the decision of the trial court on appeal. Thereby,
interpretation becomes – not openly but practically – subject to a review of evident
mistakes on appeal (see above 2.4.2).

2.5.2. Interpretation of Written Documents: Parol Evidence

Rule, Merger Clauses and Formal Requirements by Law

Related, but not identical to the doctrine of clauses claires et précises is the
parol evidence rule which has played an important role particularly in the
English legal tradition. Under this concept, the terms of a written contractual
document may, as a general rule, not be amended, varied or contradicted based
on extrinsic (parol) evidence.47 The objection mentioned above is equally valid
concerning this rule. It must therefore not be applied if none of the parties
reasonably relied on the objective meaning or if the parties agreed on further
terms of contract not embodied in the written document. Moreover, an inter-
pretation which claims to leave aside circumstances that are not embodied in the
written document is virtually impossible. It is therefore not surprising that the
rigid ban on external circumstances was loosened in English law by recognizing
many exceptions. In 1986, the Law Commission even started doubting whether
the parol evidence rule has any actual binding effect at all.48 Admittedly,
however, the parties usually consider the written document the complete
and final expression of their legal relationship. Yet, this assumption can be

45. Cf. Req., 15.4.1926, S. 1926, I, 151 seq.

46. Cf. J. Ghestin et al., 2001, no. 15.
47. For example, Jacobs v. Batavia and General Plantations Trust [1924] 1 Ch. 287, 295, recently
confirmed in Chartbrook v Persimmon [2009] 3 W.L.R. 267. Under French law a similar rule is
stated in Art. 1341 CC. This provision, however, does not apply if there is an ambiguity in the
contract; cf. Req., 31.3. 1886, S. 1886, I, 260; J. Ghestin et al., 2001, no. 28.
48. Cf. J. Beatson, 2002, 132–134, 160–163; G.H. Treitel, E. Peel, 2007, para. 6-013 fn. 61.

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Claus-Wilhelm Canaris and Hans Christoph Grigoleit

appropriately accounted for by regarding it as a rebuttable presumption:49 Who-

ever claims circumstances not embodied in the written document to be valid
bears the burden of proof for this claim.
This state of the law generally remains unchanged if the parties agree on a
written form clause or a merger clause. Such a clause only implies a higher prob-
ability that the parties intend to restrict the content of their agreement to what is
stated in the written document, thereby cancelling or excluding other (deviating)
agreements. Such an intention, however, is subject to modifications: There is
always the possibility that the parties – contrary to the clause – intend to leave
certain other agreements intact or to provide new terms on certain issues after
conclusion of the contract. The written form clause and the merger clause can
be justified – like any other term of contract – on the basis of mutual consent
and, therefore, they can be altered by mutual consent at any time.
It follows that a written form clause and the merger clause only strengthen the
presumption that the written agreement is complete. This is in line with tendencies
in most European legal systems50 and with Article II.–4:105 DCFR (~Article 2:106
PECL) concerning clauses that aim to exclude non-written amendments to (writ-
ten) contracts. The regulation of Article II.–4:104 (1) DCFR (~Article 2:105 (1)
PECL) which attributes unconditional validity to individually negotiated merger
clauses is, however, not fully convincing. This rule as well as the underlying
legislative purpose demonstrates, again, that a rigid rule intending to limit inter-
pretation to the written document is inadequate and inconsistent with other gen-
erally accepted requirements of interpretation. The first indication for this can be
found in Article II.–4:104 (3) DCFR (~Article 2:105 (3) PECL) stating that
declarations made at an earlier stage can be used for the interpretation of the
contract. Furthermore, the merger clause is set aside according to Article II.–
4:104 (4) (~Article 2:105 (4) PECL) if reasonable reliance of one party is infringed.
Finally, there is a reference in the comments on the PECL that a merger clause is
also ineffective with respect to stipulations made separately from the contract.51
Again, these restrictions practically qualify the merger clause as giving rise merely
to a rebuttable presumption. Thus it is less complicated and more accurate to
clearly allocate this qualification to all merger clauses as it is provided in
Article II.–4:104 (2) DCFR (~ Article 2:105 (2) PECL) concerning only not indi-
vidually negotiated clauses.
An additional problem arises if written form is required by law. Here, the
relationship between interpretation and the legal requirement of form needs to be
specified. In addressing this problem, two sub-questions should be distinguished –
a distinction that is often neglected: In a first step, the content of the contract must

49. This is substantially realized under Spanish law in Art. 1281 CC, stating the prevalence of the
‘intención evidente de los contratantes’ over the literal meaning; cf. Paz-Ares Rodriguez et al.,
1993, Art. 1282, sub II. To the same effect J. Beatson, 2002, 132.
50. Cf. PECL, 2000, 153 seq.
51. Cf. PECL, 2000, 152.

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be established before it can be determined whether the contract is valid with that
specific content in a second step.
With regard to the first sub-question, the content of the contract is determined
on the basis of the general rules on interpretation of written documents. At this
level, the requirement of form does not pose any restriction on interpretation.
The starting point is therefore the presumption that the written document is correct
and complete. This presumption can be rebutted if one of the parties proves by way
of external evidence that the actual intentions of the parties deviate from, or go
beyond, the objective content of the written document. At the level of interpreta-
tion, there is no need to disregard extrinsic evidence due to the form requirement52
as form requirements are generally not aimed at holding the parties to an agreement
that contradicts their corresponding intentions.
Having established the content of the contract, one may turn to the second sub-
question, i.e., whether the contract, with the terms given, is valid or invalid due to a
breach of the form requirement. Generally, there can be no breach of the form
requirement only on the ground that circumstances not embodied in the written
document are relevant in order to determine the content of the contract. For it is
practically impossible to phrase a written clause that is not in any need of inter-
pretation on the basis of external circumstances. Thus, the requirement of form
must, at least, be limited to ensuring that the actual intention is somehow indicated
in the written document.53 Yet, even if there is no such indication in the document
with regard to a certain point, the contract is not necessarily invalid.
The question of whether or not the contract is valid, should depend on the
specific objective of the form requirement in question.54 This objective may fre-
quently render the contract invalid. But this is not necessarily always the case.
For example, under German law a sales contract concerning real estate remains
valid even though the actual piece of land has been designated incorrectly in the
written document if it can be established what piece of land the parties actually
wanted to refer to.55 The requirement of form governing real estate sales aims to
alert the parties about the general risks of such contracts and makes them seek legal
advice by a notary public; this purpose is fulfilled even if the technical designation
of the piece of land is wrong.

2.5.3. Involvement of Third Parties and Commercial Contracts

As opposed to the issues discussed above under 2.5.1, it can be justified to apply a
special standard of interpretation with regard to contracts that are specifically
designated to evoke involvement and reliance of third parties (i.e., parties who
did not originally participate in the conclusion of the contract). Such contracts may
require a more objective standard of interpretation which focuses on the wording of

52. Cf. e.g., G. Cian, A. Trabucchi, 2008, Art. 1362 CC, sub. IX 5.
53. See BGH 9.4.1981, BGHZ 80, 242, 245.
54. Cf. in detail A. Lüderitz, 1966, 192 seqq.; K. Larenz, M. Wolf, 2004, § 28 no. 85 seqq.;532 seqq.
55. Cf. BGH 25.3.1983, BGHZ 87, 150, 152 seqq.

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the contract and its objective meaning while extrinsic circumstances and the
individual intentions of the contracting parties are generally disregarded. This
standard of interpretation relates most prominently (but not exclusively) to nego-
tiable instruments and corporate contracts. With regard to negotiable instruments,
for instance, extrinsic circumstances can only be considered in the process of
interpretation if they are known to anyone.56 A similar rule applies to corporate
contracts if legitimate interests of third parties, e.g., future shareholders or cred-
itors, require such a restriction.57 In such transactions, third parties typically rely
exclusively on the wording of the agreement because they have no access to the
individual circumstances accompanying the conclusion of the contract. Therefore,
the perspective of third parties will differ from the point of view of the original
parties to the contract. Accordingly, the contract will be interpreted objectively and
the original intentions of the parties do not deserve the regular safeguard of
subjective interpretation if (and because) they exchanged offer and acceptance
with a specific initial concern that third parties shall rely on their declarations.
In the DCFR, Articles II.–8:101 (3) (b) and II.–8:102 (2) are designed to
protect third parties’ reliance in the contract by accounting for their perspective
in its interpretation. Under these provisions, the contract must be interpreted objec-
tively, i.e., from the perspective of a reasonable third person. The individual
understanding of the contracting parties does not have priority if the third party
has ‘reasonably relied on its apparent meaning’. The only condition required for
referring to the third party’s perspective under the DCFR rules is that its reliance
must be ‘reasonable and in good faith’. Yet, there is no criterion that makes the
protection of third parties dependent upon the specific character of the contract.
The lack of this requirement marks an elementary58 deficiency of the DCFR rules
on interpretation. Unless the contracting parties clearly and deliberately designate
their contract as directed at third parties there is no basis for giving the third party’s
reliance priority over the contracting parties’ individual autonomy. The mere
potential of a third party’s reliance, e.g., by assignment or by creditors’ disposi-
tions, does not justify the prevalence of this party’s perspective because, as a
general rule of party autonomy, any assignee or creditor has to take the contractual

56. Cf. e.g., BGH 30.11.1993, BGHZ 124, 263; OGH 1.12.1977, OGH SZ 50/157 (1977); M.
Casper, in: A. Baumbach et al. (eds), Wechselgesetz, Scheckgesetz, Recht der kartengestützten
Zahlungen, 23th ed. 2008, Introd to WG, no. 56; G.H. Roth, Grundriß des österreichischen
Wertpapierrechts, 2nd ed., 1999, 27.
57. Cf. e.g., OGH 25.11. 1997 AG 1998, 199; J. Farrar, B. Hannigan, Company Law, 4th ed. 1998,
117; G. Resta, Gli atti costitutivi e gli statuti, in G. Alpa, G. Fonsi, G. Resta, L’interpretazione
del contratto, 2nd ed. 2001, Milan, 450. In detail see K. Schmidt, Gesellschaftsrecht, 4th ed.
2002, § 5 I, 87 seqq.
58. Minor flaws result from incoherences in the wording of Arts II.–8:101 (3) (b), II.–8:102 (2)
DCFR: The distinction between ‘a person, not being a party to the contract or a person who by
law has no better rights than such a party’ is not quite conclusive. Furthermore, only Art. II.–
8:102 (2) DCFR states an example for the second category of third parties (‘such as an
assignee’) while there is no reason that this example should not apply to Art. II.–8:101 (3)
(b) DCFR, too. The example does also not fully give sense to the dichotomous definition of the
third party.

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rights as they have been defined by the contracting parties. Based on this
understanding, one could admittedly argue that under the said provisions of the
DCFR, a third party’s reliance is only ‘reasonable’ if the contract is specifically
directed at third parties (as in the case of negotiable instruments or corporate
contracts). However, Articles II.–8:101 (3) (b), II.–8:102 (2) DCFR give no
clear indication for such a construction and they may therefore turn out to be
misleading in this very important context.
Even in the field of commercial contracts, where legal certainty is of particular
importance, an individual understanding shared by the parties will prevail, as a
general rule, over the objective meaning of a contract term. Special regard must be
given, however, to contract terms which are specified in a certain sense by a
commercial custom, like fob, cif etc. It is widely recognized across the European
jurisdictions that there is a presumption that the parties intended to give the clause
such meaning as is customary in commercial trade.59 This presumption of confor-
mity with commercial customs is in line with the general rules of hermeneutics and
with the general standard of interpretation (see above 2.1) as commercial customs
are elements of the (objective) surrounding conditions of the declarations.60 Yet,
again in accordance with the general rules, the presumption of conformity with
commercial customs is rebuttable due to the principle of party autonomy (see
above 2.3): If both parties understood a term in a way that is different from
commercial customs, their intention and understanding will prevail over the cus-
tomary meaning even if legitimate interests of third parties are affected by the
contract.61 This prevalence of individual autonomy is not sufficiently respected by
Article II.-1:104 (2) DCFR (~Article 1:105 (2) PECL) as this provision implements
‘common usage’ as a binding objective standard (‘the parties are bound by’) rather
than a supplemental tool and it therefore suggests that ‘common usage’ has priority
over the private agreements of autonomous parties.62
As a result, third parties who are affected by the contents of a contract, such as
assignees or creditors, are only protected by the rules of interpretation if the

59. See C.-W. Canaris, Handelsrecht, 24th ed. 2006, § 22 no. 13; H.J. Sonnenberger, R. Dammann,
Französisches Handels- und Wirtschaftsrecht, 3rd ed. 2008, 14, 45; K. Lewison, The Interpre-
tation of Contracts, 4th ed. 2007, 172; R. Goode, Commercial Law, 3rd ed. 2004, 88.
60. See C.-W. Canaris, Handelsrecht, 24th ed. 2006, § 22 no. 2; J. Neuner, ZHR 157 (1993), 243,
271.
61. See BGH 22.1.1957, BGHZ 23, 131, 136 f.; C.-W. Canaris, Handelsrecht, 24th ed. 2006, § 22
no. 14 (with reference to the rule of ‘falsa demonstratio non nocet’); Großkomm, I. Koller,
HGB, 28th ed. 1984, Vor § 373 no. 168. Third parties’ interests can be served to a quite limited
extent by granting commercial customs priority over constructive interpretation (see below
under 3.3.2) as in the relevant cases the custom does not conflict with an actual intention of
the parties but only with a hypothetical intention that in any case requires a more object
approach; for an example and more detail from the German perspective see BGH 15.6.1954,
BGHZ 14, 61, 62; C.-W. Canaris, Handelsrecht, 24th ed. 2006, § 22 no. 13; Großkomm,
I. Koller, HGB, 4th 1984, Vor § 373 no. 168.
62. With more detail H. Eidenmüller et al., JZ 2008, 529, 538 ¼ OJLS 2008, 659, 678 seq.; RTD
eur., 695, 781 seq.

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contract is specifically designated to third-party involvement, like negotiable

instruments and corporate contracts. Therefore, third parties should and do secure
their position by examining the ‘true’ content of the contract and by holding
the transferring party liable for certain contents of the contract. If one or both
of the contracting parties have specifically evoked a third party’s reliance in a
certain term, they may also be subjected to (non-contractual) liability on the basis
of the principle of estoppel.63 An objective standard of interpretation should not be
used to protect third parties with regard to ‘regular’ contracts. In doing so, one
would fail to draw a clear distinction between the actual intention of the contract-
ing parties (which is the general standard for interpretation) and the protection of
the reliance of third parties, which is based on different policy considerations and
should accordingly be expressed by different legal doctrines.

2.5.4. Interpretation Contra Proferentem

Another widely accepted rule states that an ambiguous term is to be construed

against the party on whose initiative it was inserted into the contract. This rule has
its foundation in the Roman law principle ‘Cum quaeritur in stipulatione, quid acti
sit, ambiguitas contra stipulatorem est’.64
This so-called contra proferentem rule is laid down in Article II.–8:103 (1)
DCFR (~Article 5:103 PECL, Article 6:203 (1) ACQP [Acquis Principles]) and
Article 40 (3) CEC with regard to terms not individually negotiated (interpretation
against the supplier). Moreover, the rule is an integral part of the already existing
Community law in Article 5 of the Directive 93/13 on Unfair Terms in Consumer
Contracts. In the European national jurisdictions, the contra proferentem rule can
be found not only in regulations that implement Directive 93/13, but also in other
contexts.65
The rationale of the contra proferentem rule is to provide an incentive to avoid
the negative effects of ambiguous terms. The party who introduces a clause into the
contract can and should ensure its transparency and, respectively, avoid the uncer-
tainty associated with ambiguous terms. This uncertainty is detrimental, since the
other party is not sufficiently aware of the scope of his rights and duties when
concluding the contract. Also, it is more difficult for the other party to evaluate the
outcome of a dispute. The contra proferentem rule, moreover, preserves the legal
status quo which would exist without the clause in question. If one party introduces
a clause, he usually worsens the other party’s existing legal position by establishing
duties or limiting rights. The contra proferentem rule aims to achieve that the other
party’s legitimate legal position is only restricted to an extent that is made perfectly

63. Cf. C.-W. Canaris, Handelsrecht, 24th ed. 2006, § 22 no. 14 and in extenso idem, Die Ver-
trauenshaftung im deutschen Privatrecht, 1971, 94 seqq. u. 130 seq.
64. Cels. D. 34, 5, 26. With regard hereto R. Zimmermann, 1990, 639 seq.
65. Cf. under English law Tan Wing Chuen v. Bank of Credit and Commerce Hong Kong Ltd [1996]
2 B.C.L.C. 69. Under French law Art. L. 133-2 C. consom.; with more details J. Ghestin et al.,
2001, no. 40. Under Italian law see Art. 1370 CC. Under Spanish law Art. 1288 CC. Under
Austrian law § 915 ABGB. Furthermore Art. 4.6 UNIDROIT Principles.

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clear in the contract. This idea is sometimes also expressed by demanding that
clauses which exclude essential duties or rights of one party have to be interpreted
narrowly.66 Accordingly, disclaimer clauses are often construed very restrictively.67
Of course, this reasoning always bears the risk that the restrictive interpretation de
facto serves to implement a mandatory rule prohibiting the disclaimer clause.
In Article II.–8:103 (2) DCFR the contra proferentem rule has explicitly been
extended to terms which have been individually negotiated. This leads to the
question whether one can still consider one party to be proferens in the sense of
the contra proferentem rule if the term has been individually negotiated. According
to Article 6:102 (2) ACQP the criterion ‘individually negotiated term’ is defined by
the ability of the other party to influence its content. Another, arguably more
persuasive, definition qualifies such terms as individually negotiated that the
other party can appropriately take into account in its own decision making
process.68 Either way, in many cases of individually negotiated terms it will be
difficult to determine the unilateral responsibility for an unclear formulation which
is characteristic for the contra proferentem-rule. Individual negotiation further-
more reduces the need of protecting the legal position affected by the term in
question. This applies in particular if the other party has received some benefit
in exchange of the term in question in the negotiation process. The conflict between
unilateral responsibility and individual negotiation is supposedly to be solved
under Article II.–8:103 (2) DCFR by ascertaining the ‘dominant influence’ of
one party with regard to establishing the term in question. This criterion, however,
is not at all suited to solve the issue as it is quite vague and virtually paradoxical.
For it is the most elementary principle of private law that individual negotiation
renders mere ‘dominance’ of one party irrelevant if there is neither a dysfunction in
the bargaining process nor in the market. Thus the extension of the contra profer-
entem rule to individually negotiated terms is highly questionable.69
Some rules combine the ‘interpretation against’ one of the parties with the role
this party plays in a specific contract. For example, there are rules in French Law
which, in case of doubt, provide for an interpretation against the creditor
(Article 1162 CC) or against the seller (Article 1602 CC). The idea of the contra
proferentem rule might provide a certain justification for these rules which orig-
inate in Roman Law. In many cases, however, the contract is negotiated in detail or
the debtor or the buyer is responsible for the drafting of the contract. If this is the
case, there is – possibly with the exception of promises without recompense70 – no
plausible reason to put the creditor or the seller at a disadvantage. In a liberal
contract system, interpretation cannot depend on social aspects, namely on the

66. Cf. H. Heinrichs, in: O. Palandt et al. (eds), BGB, 68th ed. 2009, § 133 no. 23.
67. See Hollier v. Rambler Motors (A.M.C.) Ltd [1972] 2 Q.B. 71; J. Beatson, 2002, 170–174; G.H.
Treitel, E. Peel, 2007, para. 7-015.
68. See T. Miethaner, AGB-Kontrolle versus Individualvereinbarung, 2010, passim.
69. Similarly J. Neuner, in: Festschrift für Canaris, 2007, 901, 909.
70. There are provisions specifically demanding an interpretation in favour of such promisor e.g., in
Art. 41 s. 1 CEC, under Italian law (Art. 1371 CC), under Portuguese law (Art. 237 CC) and
under Austrian law (§ 915 ABGB).

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(presumed) relative economic strength of the parties. After all, a creditor or a seller
are not necessarily economically more powerful than the debtor and the buyer.
Consequently, the rule on uncertainty contained in Articles 1162, 1602 (2) CC can,
if at all, only be justified as an inaccurate expression of the contra proferentem
rule.71

2.5.5. Prevalence of Individually Negotiated Terms and of the

Reasonable and Effective Meaning

Another important and widely recognized rule states that an individual agreement
prevails over terms which were not developed in individual negotiations (cf.
Article II.–8:104 DCFR ~ Article 5:104 PECL).72 This doctrine is well-founded
as the individual negotiations of the parties allow a more precise conclusion with
regard to the intention of both parties than an abstract reference. According to
another, equally convincing rule, an interpretation which avoids rendering the
agreement void or meaningless is generally preferential (Article II.–8:106
DCFR ~ Article 5:106 PECL; Article 40 II CEC).73 This notion is based on the
(generally justified) assumption that the parties want to achieve the goals of the
contract by reasonable and legal means.74

2.5.6. Examples of Questionable Rules in the DCFR

In spite of some essential directions resulting from the rules discussed, one should
always bear in mind that the potential for defining the interpretation process is
quite limited (see 2.4). Therefore, lawmakers should be cautious when formulating
such rules in a general and binding form. An example of too much specificity
can be found in Article II.–8:107 DCFR (~Article 5:107 PECL and Article 4.7
UNIDROIT Principles). As far as contracts in various languages are concerned, the
original version is generally authoritative under this provision. The underlying
assumption is that the original version reflects the intention of the parties most
clearly and reliably. This hypothesis is speculative and not convincing, not even as
a general (rebuttable) presumption. In particular, it fails to consider that the parties
have usually drafted the contract in different languages in order to have a better
understanding.
As another example, the provision of Article II.–8:105 DCFR (~ 5:105
PECL75), stating that the interpretation has to show consideration for the contract
as a whole, appears to be superfluous since it is not a genuine rule but only one
obvious aspect – the systematic approach – which has to be taken into account for

71. See with the same result H. Kötz, 1996, 174 seq.
72. For an overview over the jurisdictions see PECL, 2000, 295.
73. To the same effect under English law Lord Napier and Ettrick v. R.F. Kershaw Ltd. [1999]
1 W.L.R. 756, 763. Under French law Art. 1157 CC. Under Spanish law Art. 1284 CC.
74. Cf. e.g., J. Ghestin et al., 2001, no. 33.
75. Similarly in French law Art. 1161 CC and in Spanish law Art. 1285 CC.

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interpretation (see 2.3.1). Aspects like these, which are only potentially relevant to
interpretation, can be compiled into catalogues such as Article II.–8:102 DCFR
(~Article 5:102 PECL). From the point of view put forward here, however, it is
preferable to abstain from this kind of regulation for reason of the self-evidence
and almost unlimited number of such potentially relevant criteria.

3. DEALING WITH LACUNAE IN THE CONTRACT

It is not always possible to solve the problems of interpretation by reverting to the

wording of the contract or to the clear and concurring intention of the parties.
In practice, contracts often contain lacunae.

3.1. LACK OF AGREEMENT DESPITE INTERPRETATION

A gap in the contract may arise if the intentions of the parties’ diverge and if this
divergence cannot be resolved by means of interpretation. In such a case, there is
no agreement with regard to one element of the contract. As a general consequence,
the contract is void.76
Such a dissent is extremely rare. Normally, a dissent is ruled out either because
the parties notice their disagreement or because the rules of interpretation demand
that both declarations be understood in the same sense. In general, the corresponding
interpretation of both declarations is ensured by the rule that each declaration has to
be interpreted from the perspective of a reasonable recipient. In most cases, it follows
that the same circumstances of the case are decisive for both parties. The perspec-
tives of the reasonable recipient and, accordingly, the meanings of the declarations
are the same for both parties.
Under German law, for instance, a dissent has been found in a case where both
parties wanted to conclude a contract for the sale of tartaric acid by telegram. Both
parties wanted to sell but due to the shortened language they failed to notice the
equal intention of the other party.77 This case underlines how seldom such a dissent
occurs: Before the telegraphic declarations were exchanged one party had sent a
price list to the other. Thus, one of the parties had made it clear that he wanted to
sell and not to buy. Taking this into account, it would have been more appropriate
to treat both declarations as congruent with the other party as buyer on the basis of
the perspective of an objective recipient.78 By comparison, the English case
Raffles v. Wichelhaus seems to be a more justifiable example for a dissent in
contractual declarations. Here the parties entered into a contract on the sale of a
cargo of cotton ‘to arrive ex Peerless from Bombay’. Unknown to both parties,

76. Under English Law see Cundy v. Lindsay (1878) 3 App Cas 459; J. Beatson, 2002, 321–323.
Under French law J. Ghestin, 1993, no. 495. Under Spanish law Art. 1284 CC.
77. Cf. RG 5. 4. 1922, RGZ 104, 265.
78. Cf. D. Medicus, 2006, no. 438.

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there were two ships called ‘Peerless’ which arrived at the agreed port of Liverpool
at different times. If both parties really had different ships in mind and if there were
no indications which would have allowed the parties to unequivocally identify the
ship that was referred to, the contract would be void.79 Finally, in France, a dissent
occurred in a case where the parties’ intentions did not correspond with respect to
the currency in which the price was to be paid. Due to a currency reform, the
agreement could have referred either to old or to new Francs.80

3.2. THE APPLICABILITY OF SUPPLETIVE LAW IN CASE OF LACUNAE

The case of differing declarations has to be strictly distinguished from the situation
that the parties have not made any provisions at all with respect to certain questions.
This may be the case either because they did not consider the question at all or
because they deliberately abstained from dealing with it. As long as this gap does not
affect fundamental elements of the contract such as, in particular, the parties, the
subject matter of the contract, and the price, the contract is enforceable (cf.
Article II.–4:103 DCFR ~ Article 2:103 PECL). In that case, the questions for
which no provisions were made have to be solved under the rules provided by law.81
All European legal systems contain supplemental rules to complete contrac-
tual arrangements. In France, e.g., they are called règles supplétives, in England
terms implied in law,82 and in Germany dispositives Gesetzesrecht. The necessity
of these rules becomes obvious if one takes into account that the parties can never
provide for all eventualities. Thus, the existence of suppletive law prevents con-
tractual incompleteness (or voidness respectively) and thereby reduces the cost of
negotiations and drafting. Supplementary law can, however, only achieve its goals
if it responds to the typical interests which can be attributed to the parties of the
particular type of contract. Therefore, its content has to reflect the kind of arrange-
ment which reasonable parties would have made if they had considered the issue in
question. Moreover, supplementary law serves to guarantee the fairness of con-
tracts. While the parties generally do not have to justify the content of their
contracts in terms of substantive justice in a legal system governed by freedom
of contract, the opposite obviously applies to the legislator (respectively to
objective law).83 If one specifies the applicable form of justice, contract law is
primarily governed by the rules of commutative justice whereas the appeal to
principles of distributive justice is restricted to rare exceptions.84

79. Cf. 2 H & C. 906, 159 Eng. Rep 375 (1864).

80. Cf. Cass. com., 14 janvier 1969, Bull. civ. IV, no. 13, 13.
81. In order to justify the rules of supplementary law, it is inaccurate and not necessary to refer to the
actual intentions of the parties; for a more detailed discussion see J. Ghestin et al., 2001, no. 42.
82. Cf. G.H. Treitel, E. Peel, 2007, para. 6-037 et seq.
83. Cf. with more detail on the theoretical background and limitations of lawmaking in private law
H.C. Grigoleit, in: Jestaedt, Lepsius (ed.), Rechtswissenschaftstheorie, 2008, 51, 54 seqq.
84. Cf. C.-W. Canaris, Die Bedeutung der iustitia distributiva im deutschen Vertragsrecht, 1997, 45
seqq., 75 seqq., 125 seqq.

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In continental Europe, supplementary law can be found mainly in the codifi-

cations of private and commercial law. As far as these rules are concerned, it is
virtually impossible, however, to achieve a comprehensive codification because
the parties can construct the contract freely according to their own interests. More-
over, even a detailed elaboration of all known types of contracts would go far
beyond the scope of a concise codification. Therefore, the body of supplementary
law in a code will necessarily be subject to further specification by judicial case law
which will grow in importance with increasing age of the codification. The
common law shows that the supplementation of contractual gaps on the basis of
objective law is possible and necessary even in the case where the pertinent rules
are not codified at all.85

3.3. ASCERTAINING THE NON-EXPLICIT CONTENT OF A CONTRACT

The rules of supplementary law do not always offer legal results that meet the
particular requirements of the case at hand. Therefore, courts often attempt to
derive particular solutions from the actual contract itself, i.e., from the common
intention of the parties, even if the parties did not express their ideas explicitly.

3.3.1. Completion of the Contract on the Basis of Implied Intent

As stated above (cf. 1.4), the content of a contract can be derived not only from the
explicit declarations but also from the conduct of the parties. This kind of implied
intention does not necessarily have to concern the conclusion of the contract as a
whole. Rather, it is possible to derive implied provisions from the agreement
which – in addition to its express terms – have to be acknowledged as a binding
element of the contract because they reflect the actual intention of the parties (cf.
Article 6:102 (a) PECL; less clearly Article II.–9:101 (1) DCFR). In particular, this
is the case when a certain term is a necessary precondition for the meaningful
performance of the explicit agreement. Such a conclusion justifies the assumption
that the parties actually intended the provision in question. The more obviously the
explicit agreement depends on a term not explicitly agreed upon, the more likely it
is that the conclusion is justified that, according to the actual intention of the
parties, the condition is an unexpressed element of the contract as well.86 An
obvious example is the case of a car rental contract which obliges the lessor to
hand over the ignition key to the lessee even in absence of an explicit term to do so.
This kind of recourse to implied elements of a contract is an essential tool of

85. In more detail on supplementary law see H. Kötz, 1996, 176 seqq.
86. Cf. Art. 32 (1) lit. d CEC. Furthermore, see the definition of the term implied in fact in Shirlaw v.
Southern Foundries (1926) Ltd [1939] K.B. 206, 227: ‘Prima facie that which in any contract is
left to be implied and need not be expressed is something so obvious that it goes without saying;
so that, if while the parties were making their bargain, an officious bystander were to suggest
some express provision for it in the agreement, they would testily suppress him with a common
‘‘Oh, of course!’’.’

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contractual interpretation. If it were not possible to consider these supplements, the

parties would be forced into using an excessive amount of wording which would
make the drafting process unnecessarily complicated and expensive.
Another important source of determining non-explicit intentions are the usual
customs of a particular field of commerce. Provided that a solution to a specific
question is established by custom, it is generally justified to assume that the parties
were implicitly referring to the customary solution (Article II.–1:104 (2) DCFR ~
Article1:105 (2) PECL; Article 32 (1) litra c CEC).87

3.3.2. Reference to the Hypothetical Intention by Means of

Constructive Interpretation

Yet, often the connection between the express terms of the contract and a certain
problem is not compelling enough to justify a solution on the basis of the parties’
actual intention. Some jurisdictions, however, nevertheless provide for contractual
complementation by way of interpretation in such cases.88 For instance, when
filling gaps by constructive interpretation, the German Federal Supreme Court
(BGH) reverts to the rule which the parties themselves would have agreed upon
with regard to the contract and the maxims of good faith and common usage.89 On
this basis, the court ruled, for example, that two doctors who had swapped their
practices were barred from opening a new practice in the immediate vicinity of the
old one for a period of two to three years.90 The French Cour de Cassation allows
considerable freedom in the interpretation of contracts as well. For instance, in a
case where a radio station had contracted with an author to compose a radio play
and had accepted the play without objections and paid for it, the court used the idea
of contractual interpretation to find that the radio station actually had to broadcast
the play even though there was no explicit agreement on that issue.91
In such cases, the only basis of interpretation can be the parties’ hypothetical
intention. However, in many cases, the distinction between the (implied) actual and
the hypothetical intention of the parties is merely a gradual one. Therefore, a clear
line cannot always be drawn.92 It is a characteristic feature of constructive inter-
pretation that the supplementary rule cannot be deduced exclusively from the
contractual provisions. Instead, it requires an additional normative judgment
with respect to the content of the agreement which goes beyond the reasonable
recipient’s perspective. The BGH reverts to the principle of good faith and

87. Cf. under English law (‘term implied by custom’) G.H. Treitel and E. Peel, 2007, para. 6-047.
Under Spanish law see Art. 1287 CC. To the same effect under French law Art.1160 CC;
Art. 1159 CC additionally refers specifically to the custom ‘ . . . dans le pays où le contrat
est passé’.
88. See for an overview PECL, 2000, 305.
89. Cf. BGH 18.12.1954, BGHZ 16, 71, 76.
90. Cf. BGH 18.12.1954, BGHZ 16, 71, 76.
91. Vgl. Cass. civ., 1re, 2 Apr. 1974, Bull. civ., I, no. 109.
92. Critically in general on the distinction, C.M. Bianca, 2000, 412 seq.

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common usage in this context. The provision of Article II.–9:101 (2) DCFR
(~Article 6:102 PECL) points in the same direction stating that a court may
imply an additional term ‘where it is necessary to provide for a matter which
the parties have not foreseen or provided for’ on the basis of (among other
factors93) the principle of good faith and fair dealing.
It is, however, not only difficult to distinguish constructive interpretation
from the case of implied intent, but also from the provisions of supplementary
law. The reason is the additional normative assessment which is necessary in both
cases. In some instances, it can even be doubtful whether a distinction is fruitful
at all or whether the method of constructive interpretation in fact uses the contract
and its interpretation to covertly formulate rules of objective law. This objection
is not to be taken lightly.94 The reference to the parties’ intention conceals that
constructive interpretation profoundly interferes with the contract in two ways:
on the one hand, the omission of a contractual term is, generally speaking, just
as meaningful as a positive agreement. Thus, the court has to disregard this
negative exclusiveness95 of the agreement if it incorporates terms into the con-
tract by constructive interpretation. On the other hand, even if one generally
acknowledges the need for a complementing clause, there is always a certain
discretion with respect to the particular legal result. Here again, constructive
interpretation takes the solution of the pertinent issue away from the parties’
autonomy and negotiation.96 It follows that constructive interpretation is
only permissible under restrictive conditions. Constructive interpretation is, in
particular, inadequate if it can be solely based upon objective normative con-
siderations. Rather, the parties’ particular declarations or conduct have to indi-
cate clearly and specifically that the constructive interpretation would have

93. In Art. II.–9:102 (2) (a) DCFR (~ Art.6:102 (b) PECL) ‘the nature and purpose of the contract’ is
treated as consideration independent and separate from the principle of good faith and fair
dealing. This is unnecessarily complicated. Either the implied term results self-evidently
from ‘the nature and purpose of the contract’; then it follows from the actual intention of the
parties (see (a)). If this is not the case, the implied term needs an additional normative justi-
fication, which means that it has to be justified by objective principles such as good faith and fair
dealing. The same objection can be raised against mentioning ‘the circumstances in which the
contract was concluded’ in the context of Art. II.–9:101 (2) (b) DCFR.
94. See in particular the fundamental critique on constructive interpretation by J. Neuner, in: Fest-
schrift für Canaris, 2007, 901, 918 seqq. J. Neuner basically argues that the reference to con-
structive interpretation disregards the strict dichotomy between autonomous and heteronomous
obligations.
95. The aspect of negative exclusiveness is laid down in Art. 1283 of the Spanish CC. See also J.
Neuner, in: Festschrift für Canaris, 2007, 901, 909, 914.
96. Recently, it has been suggested to solve the problem of judicial interference by establishing
certain duties of the parties to adapt or amend the contract by negotiation. Cf. e.g., Art. 157
CEC; in detail Nelle, Neuverhandlungspflichten, 1994. Generally, solutions by negotiation are
always desirable. However, there is no evidence that it is possible to establish legal duties
which, on the one hand, are judicially workable and, on the other hand, can efficiently facilitate
the process of working towards a voluntary agreement. Moreover, one has to keep in mind that
duties to negotiate can never guarantee the successful conclusion of a voluntary compromise
and, thus, will never fully replace judicial interference.

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complied with the hypothetical intention of both parties at the time the contract
was concluded.97
The distinction between constructive interpretation and supplementary law
becomes particularly important in legal systems where mechanisms for the adjust-
ment of contracts in the case of unforeseen circumstances are recognized in sup-
plementary law, i.e., apart from interpretation. Those mechanisms of adjustment,
such as the German rules of Wegfall der Geschäftsgrundlage (cf. § 313 BGB), are
governed by very restrictive requirements, which should not be circumvented by
constructive interpretation. If, however, a specific mechanism for the adjustment
of contracts to exceptional circumstances is not recognized, as, for instance, still
appears to be the case in France, constructive interpretation can function as a
‘safety valve’ with respect to an overly strict reading of the principle of pacta
sunt servanda. By contrast the open acknowledgement of a legal rule for contrac-
tual adjustment is preferable because, in many cases, the recourse to the parties’
intention is merely fictitious.98

3.3.3. The Source of Collateral Duties

All European legal systems acknowledge that the contract is not only the source of
principal, but also of collateral duties which need not be described explicitly. To a
certain extent, collateral duties can be directly derived from the parties (implicit)
intentions and declarations. This is the case if the contract can only be performed if
the collateral duties are carried out. The obvious example is, again, the duty to hand
over the keys in a car rental transaction. Such collateral duties, however, have to be
distinguished from duties which cannot be derived directly from the principal duty
and which aim at a more general protection of the other party’s rights and legally
protected interests while the contract is being performed. An example of a
collateral duty that has no direct link to the principal duty is the duty of a painter
not to damage the principal’s furniture by drops of paint.99
This second group of collateral duties is also well established in the European
legal systems. With respect to the issue of interpretation, the most important
question is whether it is possible to imply from the parties’ intentions a general
contractual duty to take reasonable care. This would correspond to the French
doctrine that derives a general obligation de sécurité from the contract.100 More-
over, a famous English example for the contractual construction of such a duty is
the Moorcock case. In this case, the defendant was contractually obliged to unload
the plaintiff’s ship at his jetty. When the tide went out the ship stranded and was

97. More detailed on the necessary limitations to constructive interpretation see H. Heinrichs, in:
O. Palandt et al. (eds), BGB, 68th ed. 2009, § 157 no. 8-10.
98. For an extensive comparative analysis on the concepts governing the issue of unexpected
circumstances see E. Hondius and H.C. Grigoleit (eds.), Unexpected Circumstances, 2011.
99. With more detail on the distinction between primary and collateral duties see H.C. Grigoleit,
in: Festschrift für Canaris, 2007, 275 seqq.
100. Cf. J. Ghestin, 2001, no. 48.

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damaged. The court established liability of the defendant on the ground of breach
of his implied duty to take reasonable care.101
Yet, there are two important arguments against relying on the contractual
agreement to derive such general duties of care. First, there is generally no clear
indication to this end in the parties’ declarations. In other words: establishing such a
duty based on the contract is purely fictitious. In terms of the parties’ intentions, there
is a clear difference between a general duty of care and other collateral duties directly
aimed at achieving the contractually defined goal of performance. Accordingly, it is
sufficient to have the parties bound to the contractual goal of performance in order to
establish duties adhering directly to the principal duty whereas establishing a general
duty of care is dependent upon an objective balancing decision taking into account
the parties’ conflicting interests.102 Second, such a duty of care should not depend on
whether or not a contract was concluded. In the Moorcock case, for example, there is
no compelling reason to deny liability if the ship had been damaged at a time when
the negotiating parties had not concluded a contract yet. Even if the contract was
invalid, e.g., if the parties, without noticing, had actually reached no agreement on
the price, the question of liability should not be dealt with differently.
The reason for the widespread assumption of a general contractual duty of
reasonable care is that liability in contract can be established more easily than
liability in tort. In some European legal systems, liability in tort is restricted, as
compared to contractual liability, with respect to the principal’s responsibility for
his agent, the compensation of pure economic losses and/or the burden of proof.103
On the basis of the reasons given above, however, the question whether collateral
duties are contractual in their origin does not address the right issue. Rather, one
should ask whether the rules of contractual liability – if they in fact provide a more
accessible remedy – apply even though the duties in question are not derived from
the contractual agreement, but imputed by law. This position has gained more and
more support in recent times and was recognized by the German legislator on the
occasion of the reform of contract law in 2001 (see §§ 241 II, 311 II, III BGB).
The reason for this legally imputed liability under the rules of contract law is that
the parties necessarily grant each other special access allowing them to interfere
with the legal goods and interests of the other that goes beyond the actual con-
tractual performance and that cannot reasonably be provided for in advance.
The duty of care reflects this special potential of interference. It protects the
parties’ reliance on the beneficial effects of mutual cooperation and helps create
such reliance. The recognition of a duty of reasonable care and the resulting lia-
bility under the rules of contract law thus support and facilitate the conclusion of
contracts. This concept allows to establish a duty of care even in cases where no

101. Cf. (1889) 14 PD 64.

102. Cf. the criticism on the Moorcock decision by G.H. Treitel and E. Peel, 2007, para. 6-045.
Under French law, there is a dispute on the contractual character of l’obligation de sécurité as
well; see J. Ghestin, 2001, no. 48 and fn. 310.
103. See for a comparative analysis C. v. Bar, Gemeineuropäisches Deliktsrecht, vol. I, 1996, 405
seqq., 459 seqq. With regard to the aspect of interpretation H. Kötz, 1996, 184 seqq.

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contract has been concluded yet or where the contract is invalid. It is sufficient that
the parties – while negotiating or performing a contract – grant each other the
opportunity to interfere with the legally protected interests of the other. The details
of this issue, however, are beyond the scope of our topic in this article.104

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104. With regard to the position asserted here see C.-W. Canaris, JZ 1965, 475 seqq.; C.-W. Canaris,
2. Festschrift für Larenz, 1983, 27, 85 seqq. For a recent and detailed analysis see, e.g., P. Krebs,
Sonderverbindung und außerdeliktische Schutzpflichten, 2000.

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