Contracts and Commercial Law

Since a very substantial body of European contractual and commercial law derives its inspiration from Roman law, it is appropriate that modern Italian law be taken as representative of the contract and commercial law of modern Europe. This is not a new concept and is based upon the Roman concept of an international "Lex Mercatoria", long a goal within the trading areas of Europe and now a substantial reality.

Legal scholars may debate, for example, the Roman law content of ancient Germanic law collections such as the "Sachsenspiegel" (or "Mirror for Saxons", circa 1180) or the Roman law content of medieval legal reforms in England (such as under King Henry II, 1154-1189), but there can be no doubt that today the Roman concept of uniform laws, promulgated from a central legislative source (Brussels) and having sway from the Mediterranean Sea to "Ultima Thule", is a reality, and is a reality consistent with and required by European democracy, by the Single Market and by modern international commerce. For other aspects of European contract law and commercial law, please see the Chapters on "Construction", on "Corporations", on "Insolvency" and on "Real Estate".

Modern Italian law on these subjects is a very good example of European law in general, with only minor regional differences (mainly in terminology). This is today even true in the Baltic and Scandinavian countries, which do not even have such a long standing Roman law heritage as Germany, let alone Italy, but were influenced by it well before the year 1850 (in part due to the enormous influence of the French Civil Code (1804), the prime model for codes all over Europe. The New EU Accession Countries have adopted (or will adopt) this common heritage, as part of the acquis communautaire, either directly or indirectly.

An examination of the new civil codes and other legislation in the New EU Accession Countries demonstrates that this has been happening, not just because of the need to adapt national law to EU norms but under preexisting influences due to the 1980 Vienna Convention on the International Sale of Goods ("CISG") and also from other national influences, such as the substantial revisions to German contract law in the new German Law of Obligations ("Gesetz zur Modernisierung des Schuldrechts", 1 January 2002). In Estonia, to take just one example, the new laws have been closely modelled upon CISG and even upon the new German legislation while still in draft form.

Introduction. The Italian Civil Code provides detailed regulations in respect of contracts. Book 4 Title II of the Civil Code provides regulations which apply to any contract, whereas Book 4 Title III provides for specific rules for a certain number of contracts. Contracts which follow the format of the Civil Code are called "tipici" (typical) but the parties may also make contracts that are "atipici" (atypical).

All Italian contracts, even though they are not of the types that are specifically regulated by the Civil Code, are subject to the general rules contained in Title III of the Civil Code. Therefore, a contract under Italian

law need indicate only the main terms and conditions, such as the indication that the parties have reached an agreement, regarding the subject matter of the contract and the commercial terms. The law provides the rest of the essential terms.

The general rules of Title II cover the following areas: requisites of contract, agreement of the parties, consideration, form of contract, contract conditions, interpretation of contracts, representations, assignments, third party beneficiary contracts, void and voidable contracts, defects in consent, rescission, termination, remedies.

The specific rules of Title III cover the following contracts: sales, exchanges, supply contracts, leases, contracts of carriage, powers of attorney, agency, brokerage, deposits, loans, banking contracts, annuities, insurance, suretyship, gambling and wagering situations, settlements and compromises, assignments for the benefit of creditors.

Other types of contracts not specifically dealt with in detail, such as distribution contracts, franchising contracts and engineering contracts, are governed by the Civil Code, in general, and sometimes by international conventions on specific types of contracts.

Private international law (conflict of laws rules). In 1995 the Italian Parliament issued Law No. 218/1995 which amended the private international law regime in Italy. Article 1 of this law sets forth the criteria for the choice of law and regulates the effectiveness of foreign court decisions and acts, in Italy. Article 2 guarantees that the law will not interfere with the application of international conventions implemented by Italy.

Italy has implemented a number of International Conventions in respect of contracts and, among them, the following:

Vienna Convention of April 11, 1980 ("CISG") implemented in Italy by Law No. 765 of December 11, 1985; Rome Convention of June 6, 1980 on the law applicable to contractual obligations; Hague Convention of July 1, 1985 on the law applicable to trusts; Brussels Convention of September 27, 1968 on the jurisdiction and enforcement of foreign court decisions (but see EU Regulation 44/2001 and the Chapter on Dispute Resolution); Hague Convention of June 15, 1955 on the law applicable to international sales of moveables; Conventions of Ottawa of May 28, 1988 on international factoring and international financial leasing.

Choice of law. Pursuant to Article 57 of Law 218/1995, the applicable law for contractual obligations is found in the 1980 Convention of Rome, implemented in Italy by Law No. 975/1984.

The contracting parties may choose the national law which governs their agreement (pursuant to Article 3 of the Convention of Rome, guaranteeing freedom of choice). When the parties do not establish the applicable law, the agreement will be governed by the law of the country with which it is most closely connected (pursuant to Article 4 of the Convention of Rome, applicable law in the absence of choice).

Similarly, the Convention of 1955 adopts "the intent of the contracting parties" as a leading criterion of connection, and recognises that this intent can manifest itself explicitly or implicitly. See, for example, the decision of the Tribunal of Verona, July 20, 1992, Giurisprudenza Di Merito 966 (1993). applying this principle.

Choice Of forum. Freedom of contract is upheld with respect to this subject as well. Pursuant to Article 28 of the Italian Civil Procedure Code, the contracting parties may choose the Court having jurisdiction to deal with any controversy in respect of the contract, except when expressly forbidden or limited by law (for instance, contracts with consumers, where the forum must be the Court of the residence of the consumer). Where the contract is silent as to the choice of forum, the plaintiff may elect a forum on the basis of some specific criteria such as the forum of residence (physical persons) or of the registered office (companies) of the defendant or, alternatively, the forum of the place where the contractual obligation should have been performed (Article 20 of the Civil Procedure Code).

Contracts: General Principles. The Italian Civil Code (Article 1325) sets forth the essential requirements of contracts, namely: (1) the agreement of the parties; (2) the consideration ("compenso", "corrispettivo") intended as the socio-economic basis of the contract; (3) the object (purpose), which must be possible, lawful, determinable; (4) the form of the contract whenever specially required by the law (a common example would be contracts for the transfer of the property of real estate, as to which please see below). If one of these essential requirements is lacking, the contract is null and void. If the "contract" was performed or partly performed, the performing party has the right to claim appropriate restitution (claim for unjust enrichment, "quantum meruit").

Classification of contracts. Italian contracts may be classified as follows: (1) contratti consensuali (consensual contracts): contracts formed

with the simple exchange (manifestation) of consent (e.g. sale of goods); (2) contratti reali (contracts formed by delivery of the asset and with the exchange of the consent of each party); and (3) contratti a effetti obbligatori (contracts with obligatory effects, that is, contracts produce the effect of specific obligatory relationships between the parties) as opposed to (4) contratti con effetti reali (contracts with real effects) that have as their effect the transfer of the ownership of a determined asset or the creation of a diritto reale (usufruct, surface rights, real estate servitudes). Whatever their classification, all contracts are binding and operate in accordance with their terms, subject to the Civil Code and to judicial interpretation following established rules of interpretation (please see below).

Interpretation of Contracts. The interpretation of contracts is focussed upon ascertaining the good faith intention of the parties, taking into account all appropriate facts and circumstances, customs and practices. According to Italian law, the applicable criteria are: (1) logical interpretation (the clauses of the contract are interpreted in context); (2) behavioural interpretation (conduct of the parties before and after execution of the contract); (3) conservative interpretation (clauses should be interpreted in such a way that they can be effective and give effect to the true and reasonable intent of the parties). Ambiguous clauses are interpreted pursuant to the general practices and customs of the place or trade. Collateral information ("parole evidence") is taken into consideration as needed.

Termination. Contracts can be terminated by mutual consent of the parties or can be terminated unilaterally if expressly provided for ("risoluzione di diritto", "clausola risolutiva espressa"). Other bases of termination include (1) rescission, (2) material breach or material supervening events which make performance impossible or (3) if the contract terms are determined to be excessively onerous and unfair (either ab initio or because of supervening events).

Procedural formalities (role of the notary, the seal, publication or registration, stamp duties, etc.). In general, Italian law leaves it to the parties to choose the form of their contract but some limits are provided by law, in particular Article 1325 of the Civil Code, which sets forth the formal requirements of certain contracts (real estate, where form is deemed "ad substantiam", or necessary for the substance of the subject matter) and also offers a mechanism for evidencing the existence of an agreement in a manner formally preferred by the parties ("ad probationem", or form showing proof).

Certain agreements must be drafted in the form of a deed ("atto pubblico", or public act). An "atto pubblico" is a document written in accordance with certain formalities by a notary public or by a public official authorised to give such a document the status of public faith. The atto pubblico is considered full "proof of its origin" (that is "authenticity") and of the statements contained therein and of all the other facts recited in the deed, before the notary (or the other public official), except for manifest error or injustice. A private (non-notarised) written document ("scrittura privata") is a document which is only written and signed by the parties. It is also considered a full "proof of its origin" but not of the truthfulness of its content, which must be proved independently. Telegrams, faxes and e-mails, for example, are each treated as a scrittura privata.

Standard clauses and required terms. Pursuant to Articles 1341 and 1342 of the Italian Civil Code, any clause contained in a standard (preprinted) form that either limits liability (under any form, whether for wilful misconduct, or for gross or ordinary negligence), or reserves a purported right to withdraw or to suspend performance, or limits the right to object or to enter into agreements with any third parties or selects a materially unreasonable venue, must be specifically approved in writing by the party requested to agree.

If the agreement is entered into with a non-merchant (a "consumer"), Italian law for the protection of the consumers applies (EU Directive 93/13/EC). Under Article 1469-bis of the Italian Civil Code, moreover, conditions which are particularly onerous to a consumer may be declared null and void, even if they have already been expressly accepted by the consumer in writing.

Implied terms ("integrazione del contratto"). In order to determine the content of a contract (and fulfil the true good faith intent of the parties), it may sometimes be necessary to complete it where the parties have not provided clauses which are necessary for its sensible interpretation. Article

1374 of the Italian Civil Code provides that the obligations under a contract extend not only to what is expressly stipulated but also to everything which by law, equity or custom must follow from the nature of the particular contract and common sense and therefore be integrated into the contract, by operation of law. Contractual gaps may thus be filled by making reference to specific articles of the Italian Civil Code which deal with specific issues, such as the price of other goods usually sold by the seller (Article 1474), the place of normal delivery for goods (Article 1510) and the usual place and time of performance of monetary obligations (Article 1182).

Breach and remedies. Pursuant to Article 1218 of the Italian Civil Code, a party who does not perform the obligations required under the contract is liable for compensatory damages unless the party proves that the non-performance or delay was due to impossibility of performance for a cause not attributable to it. Under Italian law, non-performance may consist of defective performance or failure to perform at the time performance is due. No punitive damages are allowed under Italian law.

Moreover, if non-performance is caused by the creditor's act or omission or delay, this may have an effect on the remedies available to the creditor. When the creditor directly prevents performance (e.g., access refused to a construction site), the debtor cannot be held liable for damages deriving from the creditor's default (Article 1207 of the Italian Civil Code, the so-called "mora creditoris", or creditor's delay).

The measure of damages is such as to put the aggrieved party into the position in which it would have been if the contract had been duly performed (the so called "interesse positivo", or benefit of the bargain approach). Pursuant to Article 1223 of the Italian Civil Code, the measure of damages arising from non-performance or delay include the loss sustained by the creditor and the gain of which it has been deprived as far as the damages are a direct and immediate consequence of the non-performance or delay (foreseeability approach).

Quasi-Contracts. A quasi-contractual obligation arises without reference to and irrespective of the express intention of the parties. The heading of quasi-contracts covers a wide variety of commercial situations, such as where a person by mistake pays a debt a second time, or is wrongfully deprived of property by another who has used the property for its own benefit (unjust enrichment) and refuses to compensate the rightful owner. The Italian rules of unjust enrichment are applicable to all such and similar situations (Article 2041 of the Italian Civil Code).

Many principles of ancient Roman contract and commercial law are not only still found in Italy but the Roman names are often the names under which they are still known in many European countries. For example, the "actio pauliana" prevents a type of "unjust enrichment in reverse". It is a form of legal action designed to require the return of a debtor's property which it has sought by "'contract" to transfer without proper consideration or value, for the sake of diminishing the assets available to the debtor's lawful creditors. In French law, this is known as an "action paulienne" (in cases of fraud) and it is found in all other European countries, for instance in the Netherlands, where it is known as "actio Pauliana". It is known in Austria and Germany as the "paulianische Anfechtung" ("Paulian contestation", that is, contestation by the bankruptcy trustee of the prior, unjust transfer). Just to cite another example, in the new Estonian Bankruptcy Act, this proceduer is found in Articles 50 and 51 ("Tagasivoitmise kord").

Interesting Europe-facts: + As of May 2003, the European Patent Office (established in 1973 in Munich) had issued more than 300,000 patents.

+ "Hague Conventions": The Dutch city "The Hague" (in English) is "Haag" in Danish, Finnish, German, Norwegian, Slovenian, Swedish and in Dutch is "Den Haag". It is "Haga" in Hungarian, "An Hag" in Gaelic (Irish) and "Haga" in Polish. But it is "La Haye" in French, "La Haya" in Spanish, "La Haia" in Catalan, "Haia" in Portuguese and "L'Aia", in Italian. Hence, in German, a Hague Convention is a "Haager Abkommen", whereas in Italian it is a "Convenzione dell'Aia" but the Dutch refer to "Den Haag Conventie".

+ The official European anthem is Schiller's Ode to Joy, as set to music by Beethoven in his 9th Symphony.

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