In this blog post, I will introduce the Roman (or French-Napoleontic-influenced) legal tradition, as well as the Germanic. What struck, delighted and inspired me when I worked at the Institut suisse de droit comparé (Lausanne) and later the times I was a visiting scholar in the Max Planck Institut für ausländisches und internationales Privatrecht (at Hamburg), was that Swiss legal practitioners freely use German handbooks and that pone of the main reference books on German privat law was written by a Swiss professor. Also, if you enter an Austrian legal bookstore, you will likely find lots of German handbooks. This is in my view also how the law should fit the internationalisation of business and society.
Roman and Germanic traditions. In both legal cultures, courts will come to their decisions by reverting to systematic codifications of the law (i.e. a civil or a commercial code), the meaning of which is elaborated on in parliamentary materials, doctrinal opinions and case law. These codifications have a rather abstract character, building on general principles such as ‘good faith’, ‘reasonable’, ‘fair dealing’, ‘justifiable’, ‘duty to co-operate’, which are familiar tools for each lawyer. These principles require that a party exercising its rights under a contract observes standards of proportionality and subsidiary.
In the Roman and Germanic legal traditions, courts are not strictly bound to their precedents and, exceptionally, even able to set aside unfair consequences of a law or regulation. Lawyers from common law jurisdictions would probably reject such source of uncertainty about explicit provisions, but the practical consequences are not as sweeping as it may seem. Remedies in case of breach of contract are not limited and will typically include specific performance or an otherwise effective remedy.
The two legal traditions are fundamentally different as regards contract interpretation (although the difference may seem to be of a philosophical, academic nature rather than of practical meaning). In the Roman legal culture, the rather subjective consensus between the parties is determinative for the scope and nature of the parties’ mutual obligations. This means that not the written contract but the mental, ‘common intentions’ are relevant and that a written agreement is rather a welcomed (but important) piece of evidence. In the Germanic legal tradition, an objective approach prevails in the interpretation of contracts and legal acts: important is what, under the circumstances, a reasonable and informed person in the same position would deem reflects most accurately how the parties are bound. Also in this approach, the written contract is a good starting point. Efforts to articulate a common core of European contract law resulted in the following general principle of contract interpretation (CFR):
II. – 8:101: General rules
(1) A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words.
(2) If one party intended the contract, or a term or expression used in it, to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could reasonably be expected to have been aware, of the first party’s intention, the contract is to be interpreted in the way intended by the first party.(3) The contract is, however, to be interpreted according to the meaning which a reasonable person would give to it:
(a) if an intention cannot be established under the preceding paragraphs; or
(b) if the question arises with a person, not being a party to the contract or a person who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract’s apparent meaning.
II. – 8:102: Relevant matters
(1) In interpreting the contract, regard may be had, in particular, to:
(a) the circumstances in which it was concluded, including the preliminary negotiations;
(b) the conduct of the parties, even subsequent to the conclusion of the contract;
(c) the interpretation which has already been given by the parties to terms or expressions which are the same as, or similar to, those used in the contract and the practices they have established between themselves;
(d) the meaning commonly given to such terms or expressions in the branch of activity concerned and the interpretation such terms or expressions may already have received;
(e) the nature and purpose of the contract;
(f) usages; and
(g) good faith and fair dealing.
(2) In a question with a person, not being a party to the contract or a person such as an assignee who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract’s apparent meaning, regard may be had to the circumstances mentioned in sub-paragraphs (a) to (c) above only to the extent that those circumstances were known to, or could reasonably be expected to have been known to, that person.
The above CFR articles give a well-balanced principle of contract interpretation, which would even encompass English law. It is fair to say that each European jurisdiction is somehow represented in the expressed concepts and that none is contradicted. Note that the literal meaning of contractual words is not necessarily decisive.