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Wednesday, Jan 26th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 4.3.1

Duty to achieve a result and duty of best efforts

1. To the extent that an obligation of a party involves a duty to achieve a specific result, that party is bound to achieve that result.

2. To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances.

1. The distinction in OHADAC domestic systems

The distinction drawn between the “duty of best efforts” or “duty of specific result” is based on the content and scope of the obligations assumed by the obligor in the contract. It may be an obligation to exert best efforts or an obligation requiring a specific result. This classification is a standard of French origin, which has been subsequently embraced by case law and is reflected in one way or another in the continental European civil law, although not does always formally bear the same name.

In the case of continental European civil law, the distinction is an important aspect related to the general method of allocating contractual liability based on fault. Continental European civil law has been built on the basis of fault as a criterion to measure the extent of the obligor's duty and default or the attribution of responsibility (Article 1.147 of the French Civil Code). In the case of the duty of best efforts, the diligence of the obligor is included in the content of the obligation so that the accreditation of a lack of diligence determines, per se, a breach of contract. However, in the case of the duty to achieve a specific result, the “fault” is of particular relevance as an autonomous element. It is usually seen as a circumstance “external” to the very content of the obligation, introducing a cause of exoneration from liability even in cases where the breach has been proved (e.g., the failure to obtain the result). Nevertheless, it is true that the various domestic laws have gradually shifted towards an objective approach to contractual liability (regardless of subjective attribution criterion) through presumptions of fault with respect to the duty to achieve a specific result which, in practice, require the obligor to prove his care to exonerate him from liability.

Conversely, the “obligation of means” category was unknown in common law systems. The “obligation of means” involves an analysis of the obligor's conduct with regard to more or less strict parameters of care. Such an element is not strange to civil law traditions, based on the requirement of fault as a criterion for the breach of contract or, where appropriate, for the attribution of responsibility for non-performance. It has meant, however, an innovation in common law systems, based on strict liability linked to the achievement of a result in the contract. Its starting point is the absolute commitment of the contracting parties for the implementation of the contract (strict liability) and therefore not achieving the intended purpose shall be deemed a breach of contract and it will result in the corresponding liability of the obligor, exclusively based on objectives criteria. Under these assumptions, the contract content is essential to determine the extent of the obligor's duties, forcing to define accurately and ex ante the commitments made and the causes for responsibility exemption mutually accepted. Taken to its logical conclusion, the definition of any obligation as an obligation of result, regardless of the diligence of the obligor, could be too burdensome for it, particularly in those contractual arrangements in which either difficult to define its result or achieve it directly is beyond the sole control of the obligor. On this basis, case law introduced modulations to the “strict liability”, especially using the technique of implied terms and recognising cases in which the commitment does not ensure the result but only requires the best efforts and consequently, non-achievement does not determine a default by the obligor.

These facts show that clauses of best efforts lighten the duties of the obligor by introducing a parameter analysis of subjective performance, traditionally not found in common law systems. This results in a dual liability system: the strict liability and liability based on best efforts, which resembles the continental law model with its distinction between duty to achieve a specific result and duty of best efforts. The Supply of Goods and Services Act 1982 therefore contains provisions of a sales contract as an example of a performance agreement falls within the scope of a commercial agreements and with the implied term that the goods will be delivered with a satisfactory quality (Sect. 14, Part I); on the other hand, in service contracts, the obligor is obliged only to carry out the service with reasonable care and skill but generally does not assume a result (Sec. 13 of Part II). In American law, Sections 2-306 of the UCC and 379 of the Restatement (Second) of Agency set out obligations, not of specific result, but which only determine the assumption of a commitment to act with a certain diligence.

From this perspective, the scope of the obligations of means assumed by the obligor in the continental systems matches the common law duty of best efforts. Insofar as civil law systems are progressively incorporating the unitary nature of the concept of non-performance and the tendency to objectify liability, the liability of the duty to achieve a specific result is also identical. In both cases, there is non-performance if the result does not meet any of the contractual obligations. With the introduction of fault into contractual non-performance, the initial characterisation of fault as an element of contractual liability has gradually lost its meaning, and this criterion is more linked to liability for tort. From this point of view, the common law duty of best efforts obligations and the diligence obligations in civil law are essentially similar. Differences between both systems will exist insofar as civil law regimes keep, in cases of obligations of result, diligence of the obligor as a criterion for attributing contractual liability.

One can find a similar pattern within the OHADAC legal systems. On the one hand, the civil law systems do not have a rating and a general definition of duties of best efforts and duties to achieve a result. This distinction is only obtained from the analysis of the various types of contracts incorporated in most civil codes, where obligations that may compromise a certain result and those in which the obligor only undertakes diligent conduct are identified. On this basis, a ranking of contract types is possible; an example of obligation of result is the contract of sale (transfer of ownership of the good) and an example of an obligation of best efforts is the contract of mandate or commission (the entrusted business management). The clearest civil code in this regard is the Guatemalan Civil Code, which distinguishes between work and service contracts (Articles 2.000, 2.032 and 2,033) and establishes a duty to achieve results for the first and a duty of care for the second. Similarly, service contracts are regulated in Article 2.615 of the Mexican Civil Code, the performance of which is measured by the level of care developed by the obligor. However, it is common to find both kinds of obligations in the same contract. This is, for example, the case of bailment contracts that contain both an obligation of delivery (of result) and an obligation to save and preserve the goods in a prudent and responsible manner (see, in this sense, among others, Article 1.928 of the Dominican Civil Code).

For its part, Commonwealth Caribbean law incorporates, similarly to English law, a delineation of duties based on sale and agency contracts, which correspond essentially to the obligation of a result or the mere duty of care by the obligor. With respect to the first cases, legal rules set implied conditions on the appropriateness of the product for the purpose of the contract, which will depend on the performance of certain established requirements [Section 16 (Ch. 393) of the Sale of Goods Act of Antigua and Barbuda; Section 16 (Ch. 337) of the Sale of Goods Act of Bahamas; Section 15 of the Sale of Goods Act of Barbados; Section 16 (Ch. 261) of the Sale of Goods Act of Belize; Section 15 (Ch. 349) of the Sale of Goods Act of Jamaica; Section 16 (Ch. 15.18) of the Sale of Goods Act of Montserrat; Section 16 (Ch. 82:30) of the Sale of Goods Act of Trinidad and Tobago]. By contrast, in the field of contracts such as agency, obligations of the agent are subject to reasonable care and skill, involving liability for damages for any breach of those obligations.

2. The distinction in the texts of contractual harmonisation

The various texts of contractual harmonisation include the distinction between duty of best efforts and duty to achieve a specific result. Article 5.1.4 UP shows the idea of a “transposition” of institutions based on the equivalence between the common law duty of best efforts and the continental obligation of means, as opposed to the obligations to achieve a result. The revision of the PECL proposed by the Association Henri Capitant incorporates the distinction between obligations of result and obligations of best efforts, introducing in the new Article 6:103 a similar regulation to the UNIDROIT Principles.

But it is in the DCFR that the distinction takes on a special relevance to determining the extent of the obligations in service contracts. These contracts usually aim at obligations of care (Section IV.C.-2: 105) and obligations to achieve a specific result (Section IV.C. - 2:106), aside from subsequent developments depending on the specific contractual agreements. Obligations to achieve a specific result are identified if they are established in the contract or if it is a result that the party could reasonably expect under the contract or it had no reason to believe that there was a substantial risk which would jeopardise obtaining that result with the agreed service. The importance of the model in the DCFR derived from the new concept on service contracts has a similar wording in the European Principles of Contract Services (Articles 1:107 and 1:108). Indeed, in these models the “radical” underlying distinction in domestic law between works contracts (usually linked to the performance contract) and services itself (usually linked to the means) is modified. In the DCFR, the definition of service contracts is broad and cross-cutting. They include contracts as diverse as construction, maintenance, storage, design, information, advice and medical treatment. As a consequence of this scope and cross-cutting nature, a direct and automatic association of service contracts to a mere obligation of best efforts is not possible. Moreover, it is not only provided, as a general rule, that service contracts produce results, but also that they establish presumption of results for certain specific service contracts, as it results in Subsection (1) of said Article IV.C.-2: 106.

The CESL shows a different approach from DCFR for service contracts related to sales [Article 2 (m) of the Proposal]. Such contracts are presumed to be obligations of best efforts, so that, unless they include a specific result, whether as a result of an express or implied obligation, the service provider is only bound by an obligation of care and skill. This article has been criticised for introducing a treatment clearly favourable to the service provider in a broad spectrum of contracts (contracts for installation, maintenance and repair, etc.), in contrast with a model of strict contractual liability. The position of the client, who assumes the burden of proof of the lack of diligent conduct of the obligor in each case, is weakened. However, it should also be noted that the CESL partially clarifies the characterisation of the contract in terms of relationships between professionals or consumers, imposing obligations to achieve a result in the second case. For example, installation contracts are considered obligations to achieve a specific result (section 148.4 in relation to Article 101 CESL and Annex I).

3. Relevance of the distinction and position of OHADAC Principles

The characterisation of an obligation as an obligation of best efforts or obligation to achieve a specific result is essential to determine the extent of the duties of the obligor and, therefore, to identify cases of breach of contract. This characterisation may be of the contract as a whole or of its principal duty (the result of the delivery of goods and transfer of ownership in sales) or on some of its obligations (e.g., the obligation to deliver “within a reasonable time,” which transforms the time of the performance into an obligation of best efforts). It is important to link the obligations of best efforts and obligations to achieve a specific result to the criteria of responsibility for damages. Under the UNIDROIT Principles non-performance implies a right to compensation for the obligee, unless the breach is excused under the Principles themselves (section 7.4.1). The causes of exemption of liability are provided for in the contract (section 7.1.6) and force majeure (Article 7.1.7), that is an institution midway between the common law frustration and force majeure of civil law systems. The advantage of the construction is that it introduces a system of objectification of responsibility (outside the criteria of the fault of the obligor) that primarily corresponds to the common law model. Outside the contractual framework, only force majeure can excuse the breach of contract, as an element that is external to the contract itself and beyond the control of the parties. A similar model follows in Article 9:101 of the PECL proposed by the Association Henri Capitant.

The characterisation of the obligation also directly affects the object and the burden of proof of the breach of contract. Strictly speaking, any breach (whether of result or of best efforts) needs to be proved by the obligee, especially when under current contract trends everything is related to the lack of conformity. It happens, however, that the character of each obligation determines the difficulty to prove: in the obligations of result, if suffices that the obligee proves that the result was not obtained in the agreed terms; in the obligations of best efforts, the obligee must prove that the obligor acted without the required care. Such a difference related to the test of infringement is expressly envisaged in Article 6:103 of the PECL revised by the Association Henri Capitant.

It is clear that the obligee's interests are more protected in obligations of result and that the proof of non-performance is simpler, using objective parameters defined in the contract on the contents of the agreed performance. Therein lies the difference between civil law and common law systems: civil law systems observe the conduct of the obligor, while common law focuses on the satisfaction of the obligee. It is true, however, that the traditional understanding of civil law based on fault, in the terms already mentioned, requires additional proof of the lack of care of the obligor's as well as for the duty to achieve a specific result. However, it is precisely in this context that the trend to objectify contractual liability on the basis of the rebuttable presumption of fault and, therefore, reversing the burden of proof becomes significant: the obligor must prove its diligent conduct. These are called “attenuated obligations to achieve a result”: they are obligations to achieve a result because fault is presumed; but they are qualified because the obligor may be released if it proves its diligence. In this way, authentic irrebuttable presumptions for obligations of result are finally established; these in fact lead to the elimination of fault as a criterion for attribution of responsibility and prevent the obligor from being exempted from its commitments even demonstrating diligent conduct.

In obligations of best efforts, the failure to achieve the result is irrelevant and the object of proof should be focused on the lack of diligence of the obligor in the performance of the contract. In this case, the position of the obligee is weaker and it must make a greater effort to prove the standard required and then to demonstrate its compliance by the obligor, unless a reversal in the burden of proof is established in this area.

In this context, OHADAC civil codes are based, in general, on two rules: firstly, the requirement of fault related to the breach of the contract (characteristic in obligations of best efforts) and, secondly, the presumption of this fault (generating reinforced duty of best efforts or attenuated duty to achieve a result).

The basic rule is that the attribution of liability to the obligor is only possible when there has been fault on its part (considered under criteria or more or less strict diligence). A relationship between liability for non-performance and causes that exempt from liability occurs: force majeure and also fortuitous event. Therefore, generally there will not be a strict liability for breach of contract. Thus, in most cases there will be a duty of best efforts that limit the obligor's liability to cases of lack of diligence in performing the obligation (Article 1.604 of the Colombian Civil Code; Articles 702 and 703 of the Costa Rican Civil Code; Articles 293 and 298 of the Cuban Civil Code; Article 1.147 of the Dominican and French Civil Code; Article 1.436 of the Guatemalan Civil Code; Article 1.360 of the Honduran Civil Code; Articles 1.852 and 1.864 of the Nicaraguan Civil Code; Article 990 of the Panamanian Civil Code; Articles 1.054 and 1.056 of the Puerto Rican Civil Code; Article 1.003 of the Saint Lucian Civil Code; Articles 6:74 and 6:75 of the Dutch and Suriname Civil Code. Only of the Venezuelan Civil Code opts for what seems a strict liability system (Article 1.264 Civil Code), close to the common law regimes, where the obligor can only be exonerated if it proves that the failure comes from a cause that is not attributable to it, even if it has not acted in bad faith (Article 1271 Civil Code).

However, duties of best efforts appear in many cases reinforced by the rule of presumption of fault, which, in practice, requires that the obligor itself proves its diligence in performing the obligation. This system shows a tendency to objectify liability, which is close to duties to achieve a result, although mitigated, insofar as the proof of the absence of fault and of the presence of unforeseen circumstances releases the obligor from liability (Article 1.733 of the Colombian Civil Code; Article 1.171 of the Colombian Commercial Code; Article 298.2 of the Cuban Civil Code; Article 1.423 of the Guatemalan Civil Code; Article 1.461 of the Honduran Civil Code; Articles 2.647 et seq. of the Mexican Civil Code; Article 1.271 of the Venezuelan Civil Code).

The wording of Article 4.3.1 OHADAC Principles includes the distinction between duties of best efforts and duties to achieve a result in the line established in the UNIDROIT Principles. The inclusion of contracts in each category depends essentially on the scope of the obligations stipulated by the parties; alternatively, the criteria laid down in Article 4.3.2 of these same Principles may be considered. It is not possible or convenient to make a catalogue of contractual agreements and a characterisation of its obligations. For the purposes of the OHADAC Principles it is important to emphasize, considering its scope in the field of business excluding consumer contracts, that there are no special reasons to opt for duties to achieve a result, which are more protective of the obligee's interests. A neutral option between both obligational models is legitimate in the context of relations between traders and makes it possible, without constraints, to accommodate both civil law and common law Caribbean systems.

Article 4.3.1 makes no reference to the proof of non-performance. However, this aspect is governed by Article 6:103 PECL revised by the Association “Henri Capitant”, which provides, in case of duties to achieve a result, that the mere fact of not achieving the intended result is enough to demonstrate non-performance, while in cases of duties of best efforts, the non-performance must be proved. This distinction in the rules of evidence is consistent with the distinction between the two types of duties, but their reflection in the article of the OHADAC Principles could interfere with civil codes which reverse the burden of proof by establishing a presumption of fault and, thus, of the breach of contract. This means, in essence, that if the obligor does not prove their diligence, their liability is assumed by default. In other words, in these cases what should be proved is performance (and not non-performance). The inclusion in the OHADAC Principles of a similar rule to that in PECL would actually mean, although the provision says nothing on the burden of proof, a requirement on the obligee to prove such a breach (i.e. the lack of diligence of the obligor). Therefore, silence on this point in Article 4.3.1 prevents distortions in domestic laws that reverse the burden of proof of the contractual performance.

Commentary

Article 4.3.2

Criteria to determine the kind of duty involved

In determining the extent to which an obligation of a party involves a duty of best efforts in the performance of an activity or a duty to achieve a specific result, regard shall be had, among other factors, to

  1. Express and implied terms of the contract.
  2. The nature and purpose of the contract.
  3. The degree of risk normally involved in achieving the expected result.
  4. The ability of the other party to influence the performance of the obligation.

1. Express and implied terms of the contract.

Determination of whether contract implies duties of best efforts or duties to achieve a result can clearly result from express or implied terms of the contract [Article 5.1.5 UP; Article 6:103 (3) (a) PECL]. Article 4.3.2 of the OHADAC Principles establishes, as a first criterion of interpretation, the express and implied obligations under the contract. The reference to implied obligations should be understood in accordance with the criteria for integration of the contract under Article 4.2.1 of these Principles.

The terms according to which the object of the contract is described are essential to identify if, for example, the obligor agrees to deliver the goods or agrees to make the best effort to deliver goods. There are types of contracts that are usually considered as contracts to achieve a result such as the contract of sale in which the goods must be delivered with the quality agreed in the contract; loan contracts also should be understood as containing duties to achieve a result. Other contracts are usually considered as characterised by obligations of best efforts. This is the case of commercial expansion contracts (such as franchise agreements, distribution or agency) which are usually considered, unless otherwise is agreed, as contracts including duties of best effort through clauses of diligence obligations of the franchisee, dealer or agent in performing their obligations. Within the Caribbean law, the different kinds of mandate contracts, business commission or agency contracts would clearly be included under contracts characterised by duties of best efforts (Article 255 of the Cuban Commercial Code : Article 1.705 of the Guatemalan Civil Code; Article 1.898 of the Honduran Civil Code; Article 3.309 of the Nicaraguan Civil Code; Article 1.410 of the Panamanian Civil Code; Article 1.610 of the Puerto Rican Civil Code; Article 1.692 of the Venezuelan Civil Code). In any case, the contract practice shows a hybrid system of attenuated duties to achieve a result and reinforced duties of best efforts, and often contracts include obligations of both types.

Example 1: Company A sells goods to Company B, to be delivered on August 1, 2014 (this is a pure duty to achieve a result); it could also be agreed that the goods should be delivered “within a reasonable time” (in this case this would be an attenuated duty to achieve a result).

Example 2: A agrees attorney services of B for advice to start a business (it is a pure duty of best efforts). Otherwise, manufacturer A agrees with Company B the distribution of its product, promising B to make all necessary investments to increase sales (reinforced duty of best efforts).

The introduction of a specific OHADAC rule that establishes the distinction between duties of result and duties of best efforts forces means that special care must be taken in the drafting of contracts, primarily in determining the impact of the obligor's conduct on the contract performance. The contract clauses that will be particularly important in outlining the exact scope of the obligor's obligations will be those that will serve to exactly determine the extent of the obligor's obligations, i.e. clauses that extend the scope of the obligor's liability, and clauses warning the obligee about the risks of the transaction.

Depending on the type of contract, it may be advisable to include specific clauses in the contract that define the exact extent of the obligor's liability. Such an inclusion is particularly relevant in cases such as those relating to the contract of carriage, whose obligations might assume, in accordance with the law of the contract, the form of duties of best efforts or duties of result, for example in relation to damage to persons or goods. In this respect, Article 982 of the Colombian Commercial Code presupposes a result; however, Article 362 of the Cuban Commercial Code assumes a duty of best efforts, in so far as the carrier's liability is conditioned by the proof of its negligence.

Contracts may also include clauses that extend the obligor's liability to cases of force majeure, where obligation consists in a duty of result as far as diligent conduct of the obligor is not relevant for determining responsibility. This possibility is explicitly provided, for example, in Article 1.732 of the Colombian Civil Code, Article 703 of the Costa Rican Civil Code and Article 1.928 of the Dominican and French Civil Code.

Finally, the introduction of compliance, warning and information clauses by the service provider to the other party also makes it possible to define the scope of their duties and the alleged breach of contract, considering the risks involved, if any, by the recipient of the service.

Together with express terms of the contract, another determining factor in qualifying the type of obligation is the existence of an implied obligation that may arise from the contract. It therefore has a special impact in the field of security obligations or in obligations to obtain export or import licences related to sale or distribution contracts. When there are no express terms, American case law has moved from implied terms to duties of best efforts in sale or exclusive distribution contracts. In some cases the courts have used implied terms to prove the existence of genuine links and commitments between the parties. In other cases, use of implied terms has served to qualify the extent of the commitment, but always based on an analysis from the perspective of the particular contract and trying to discover the actual intent of the parties. The case Wood v Lucy, Lady Duff-Gordon (Courts of Appeals of New York, 1917, 222 NY 88, 118 NE 214) is a landmark in American case law. Firstly, Lucy had entrusted Wood with the distribution of haute couture gowns, but Wood sued Lucy when she decided to sell the clothes herself, deeming that Lucy had violated his exclusive rights, The defendant denied this since there was no commitment. The judge did not grant the request of the plaintiff, who had to pay a percentage of the profits to the defendant, to establish a real contractual obligation on its part and a duty to use its best efforts to make the marketing profitable.

Implied obligations are also derived from the DCFR in relation with certain types of contracts in which one party has a “reasonable expectation” of a specific result. Concretely, the nature of these various contractual practices suggests “reasonable expectation” for construction, design, release or supply of information contracts. This presumption is not established, in principle, for maintenance contracts, advice contract that include recommendations or medical treatment. In relation with the OHADAC Principles, such “reasonable expectation” can be considered as included within the “business common sense” as a source of implied obligations.

Behind all this is emerging a new conception of contractual non-performance, which not only starts with the unitary approach as defined in the UNIDROIT Principles and PECL, but also adds the criterion of “conformity” as a defining factor of non-performance in all contracts. To this extent, any contract may be converted into a contract of obligations to achieve a specific result. However, obvious practical reasons on the viability of service contracts make it impossible to link them to the success of their performance. For this reason, the “result” must be “reasonably expected” by the other party, who must not have accepted those risks through informed consent. From this point of view, the presence of “risk” and the duty to inform and warn imposed on the provider are the two parameters that finally modulate the intensity and the scope of the duties assumed by it.

2. The nature and purpose of the contract

In the absence of an agreement between the parties, the overall characterisation made by domestic laws of labour or service contracts has traditionally served as a guideline for distinguishing duties to achieve a specific result and duties to best efforts. From this point of view, there has been some consensus, acceptable for both common and civil law systems, that some contracts for professional services (such as doctors and lawyers) should be considered duties of best efforts. The type of duty assumed by architects or engineers has been more controversial. Under the DCFR, the characterisation of each type of contract allows the identification, in each case, of the scope of the duties assumed by each party and whether they imply getting a result or not. As far as no duty of care is established in sale or cession contracts, these are considered as implying obligations of specific result, in which the seller or the transferor is obliged to transfer the ownership of the property or assign its use temporarily. Loan contracts (part F), personal guarantees (part G) and gifts (part H) are also considered as duties to achieve a specific result. For its part, mandate (Article IV.D.-3: 103) or agency agreements, franchise and distribution (Article IV.E.-1:101) are clearly envisaged as duties of best efforts, subject to the obligor's diligence.

In Caribbean legal systems, obligations arising from the sale, duties under loan contracts, delivery duty in deposit contracts or the duties under supply contracts are considered as duties to achieve a specific result. Duty of custody of goods in deposit agreements, different forms of business mandate (through brokers, factors, sellers) or commercial agents, whose duties are generally linked to the instructions of the principal or, in any case, they are to be performed with due diligence, are also characterised as duties to achieve a specific result. Carriage contracts, which adopt different characterisations in domestic laws, seem more controversial in this respect.

Example: If the carrier A is liable to shipper B for any damage caused to the goods during the course of transport, it has assumed a duty to achieve a result. However, if A can be exempted from liability for damages if it carries out the transport with care, then it has assumed a duty of best efforts.

The characterisation of duties to give, to do or not to do, which is usual in several domestic laws, cannot be used as a definitive characterisation criterion. These types of duties are found in Article 629 of the Costa Rican Civil Code; Articles 234 and 298 of the Cuban Civil Code; Articles 1.136 and 1.142 of the French and Dominican Civil Code; Article 1.319 of the Guatemalan; Article 927 et seq. of the Haitian Civil Code; Articles 1.351, 1.357 and 1.359 of the Honduran Civil Code; Articles 2.011, 2.027 and 2.028 of the Mexican Civil Code; Articles 1.845 et seq. of the Nicaraguan Civil Code; Article 973 of the Panamanian Civil Code; Article 1.041 of the Puerto Rican Civil Code; Article 995 of the Saint Lucian Civil Code. An obligation not to do is usually a duty to achieve a result. However, although an obligation to give is usually a duty to achieve a result, it can be sometimes interpreted as a duty of best efforts. Meanwhile, characteristic obligations to do in lease or service contracts may lead to a duty of result besides of a duty of care. Examples of service contracts with a duty to achieve a result are engineering, car repair, dry-cleaning of clothing or building contracts. However, a duty of care is generally assumed in consulting contracts or accounting advice.

There are other terms of the contract which may entail duties of best efforts or to achieve a specific result. This happens, for example, with the agreed price, whose amount or form of payment can determine the kind or the obligation. This is precisely one of the criteria explicitly used in the Article 5.1.5 UP and it is also found in the Article 6:103 (a) PECL proposed by the Association Henri Capitant. Meanwhile, the inclusion in the contract of a hardship clause can be interpreted as indicating a duty of best efforts as far as it allows the adaptation of the obligation under some events.

Under common law, the basis of liability in the strict liability suggests the inclusion of a specific best efforts clause in the contract in order to limit the duties of the obligor. Only in cases where the guarantee of the result is clearly outside the power of the obligor or it does not depend solely on it, case law has shaped a system of presumption about duties of best efforts in relation with some professional service contracts.

3. The importance of the risk

Case law and texts on contractual harmonisation share an approach about the importance of risks (defined as the absence of exclusive control by the obligor) in order to characterise obligations as duties of best efforts [Article 5.1.5 (c) UP; Article 6:103 (3) (b) PECL revised by the Association Henri Capitant; Article IV.C.-2: 106 DCFR]. But what matters to characterise obligations is not so much the presence of risks that could jeopardise the result but the attribution of which party assumes them (or which party should assume them). Different combined factors play here to lead to one or other characterisation: the quality or expertise of the obligor, which may have been a determining factor for concluding the contract; the condition of the obligee, as a trader or a consumer and the needs it aims to meet with the contract; and, in this regard, the scope of the obligations of information and warning about the risks and possibilities of failure to obtain the intended result.

Example: If A agrees with the clinic B to undergo a sterilisation operation, and nothing is noted in the contract, A can legitimately believe that B is committed to achieving that result in any case, so that a subsequent pregnancy will cause breach of contract. However, if at the time of conclusion of the contract, B gives A proper information on the chances of failure of the intervention, which A accepts, that informed consent of the patient is equivalent to a risk-taking and, therefore, the B obligation becomes clearly a duty of best efforts.

Therefore, the duty of information and warning about the risks incurred by the obligor, the absence of which can transform a duty of best efforts into a duty to achieve a result, is particularly significant. On the contrary, a duty characterised as a duty to achieve a result, but in which the service recipient's is informed about the chances of failure, becomes a duty of best efforts. This is obviously all linked to the “reasonable and foreseeable” expectations of the obligee in relation with the performance of the contract, which becomes essential for the purposes of verifying the scope of the duties of the obligor and is therefore a parameter for assessing contract performance.

Regarding Caribbean law, assumption of force majeure by the obligor can play an essential role here, as established, among other legal regimes, in Article 1.732 Colombian Civil Code. Thus, the obligor assumes the liability for external and unforeseeable circumstances that may determine the breach of its obligations. The commitment is then considered as a true duty to achieve a result.

4. The ability of the obligee to influence the performance of the obligation

Finally, the participation of the obligee in the performance of the obligation through technical assistance, management or advice, may also affect the characterisation as a duty of best efforts, as far as its conduct has been relevant in obtaining or failing to achieve the intended result [Article 5.5 (d) UP; Article 6:103 (3) (b) PECL in the proposal by the Association Henri Capitant].

In the law systems of OHADAC countries, the direct influence of the obligee in the performance of the contract emerges in relation with the instructions given by the principal. Insofar as the broker or agent is limited to complying with the instructions received, it is not responsible for the success or failure of the efforts carried out. This is included, for example, in the Article 254 Cuban Commercial Code.

In this regard, obligations assumed by the obligee under the contract that determine its performance are also important, as it happens with delivery of material in case of a construction contract or transfer of know-how relating to the subject of the contract.

Example: Company A agrees with B to build a warehouse. If A is obliged not only for construction but also must provide all materials, it will be liable for any defect or damage on the building. On the contrary, if A is obliged for the construction but the materials are given by B, A's responsibility is limited to the appropriate use of building materials, but it will not be responsible for the final result.

Commentary

Article 4.3.3

Quality of performance

Where the quality of performance is not established or ascertainable under the contract, a party is bound to render a performance of reasonable diligence and quality and not less than average in the circumstances.

The quality of what is to be supplied or provided under the contract is usually established by specifying the characteristics of goods delivered by setting specific instructions or degrees of care to perform certain obligations. However, there are also contracts in which an obligation is set without specifying a certain quality. This may occur in contracts to deliver indeterminate or generic goods. To fill in these gaps, it is useful to establish a subsidiary rule that starts from a standard medium or “reasonable” quality.

Article 5.1.6 UP establishes a similar rule as that in Article 4.3.3 of these Principles, setting a parameter of “reasonable” quality and not below average. It is specified in the comments that there is indeed a double standard: Firstly, performance must be of an average quality, which should be inferred according to the circumstances of the relevant market and the time of performance; secondly, the test of “reasonableness” is further introduced to justify, in view of the case, the performance according to the circumstances agreed in the contract.

Article 6:104 of the PECL reviewed by the Association Henri Capitant also refers to the average quality, which is established considering the nature of the contract (general economy). The average quality standard is not abstract, but it is based on the circumstances of the contract and the quality of the parties and the specific interest shown in it. This determines the assessment of quality parameters from implied obligations under the contract.

Likewise, Article II-9:108 DCFR establishes the criteria of quality that the recipient can reasonably expect in concrete circumstances. This quality can easily be verified when there are standards available in the relevant trade. Failing which, the criteria used are the nature of the service provided and the circumstances under which the contract is concluded (whether the priority is given to urgency or quality of performance, even with delay). Lastly, the use of the criterion of “reasonable expectations” derived from the contract, rather than the average quality (which could itself be understood as a general category detached from the contractual model in this case), relates to the idea of implied obligations.

For its part, Article 35.2 (a) CISG establishes as the minimum criterion of conformity of the goods under the contract, their suitability for the purposes for which goods of the same type are normally used.

Caribbean law includes, in similar terms, the standard of the average quality of the performance for the performance of the contract [Article 914 of the Colombian Commercial Code; Article 245 of the Cuban Civil Code; Article 1.246 of the French and Dominican Civil Code and Article 74 of the Proposals for Reform of the French law on obligations of 2013; Article 1.432 of the Honduran Civil Code; Article 2.016 of the Mexican Civil Code; Articles 1.922 and 2.020 of the Nicaraguan Civil Code; Article 1.054 of the Panamanian Civil Code; Article 1.121 of the Puerto Rican Civil Code; Article 1.082 of the Saint Lucian Civil Code; Article 6:28 of the Dutch and Suriname Civil Code; Section 14 (2) to (2c) English Sale of Goods Act 1979 (amended 1994); for service contracts, Section 13 Supply of Goods and Services Act]. In other cases, it is stated that if the use is stated in the contract, the product will have to adapt to it (Article 1.801 of the Guatemalan Civil Code; Article 1.426 of the Haitian Civil Code; Article 773 of the Honduran Commercial Code). To the contrary, the rules set out in the Sales of Goods Acts of the Commonwealth Caribbean, may be understood in the same sense, to the extent that they require the suitability of the product for the particular purpose established in the concrete case. Common law systems usually resolve this issue through implied obligations, considering the relevance of the goods to the particular purpose of the contract depending on whether or not the buyer's intentions or declarations have been stated [Section 16 (Ch. 393) of the Sale of Goods Act of Antigua and Barbuda; Section 16 (Ch. 337) of the Sale of Goods Act of Bahamas; Section 15 of the Sale of Goods Act of Barbados; Section 16 (Ch. 261) of the Sale of Goods Act of Belize; Section 15 (Ch. 349) of the Sale of Goods Act of Jamaica; Section 16 (Ch. 15.18) of the Sale of Goods Act of Montserrat; Section 16 (Ch. 82:30) of the Sale of Goods Act of Trinidad and Tobago].

The wording of Article 4.3.3 of the OHADAC Principles obeys, firstly, the systematic internal consistency of the Principles themselves and, moreover, a common denominator among Caribbean legal systems.

Quality may be determined explicitly or inferred from the content of the contract either as a result of express or implied obligations under the contract, or its object and purpose, or the intention of the parties, or the commercial common sense or professional qualifications of the parties. That happens, for example, with the obligations of warranty and security inherent in the exercise of certain activities or in the performance of certain services.

Example: If A concludes with B a contract under which B must transport a shipment of meat, although not expressly stated in the contract, it is implicit that the truck used for transport should have adequate cooling conditions to ensure that the product arrives at its destination in good condition.

It is also considered, as implied obligation, the fitness of the service or goods delivered for the purpose or intended use stated in the contract. This implies that, at least, the performance or supply of the contract must be consistent with the object and the purpose corresponding to the nature of the contract or the use explicitly established between the parties. In this connection, special uses that have been expressly or implicitly made known to the seller at the time of conclusion of the contract must be considered, as set out in Article 35.2 (b) CISG. From this point of view, the criteria used for the construction of the contract (Article 4.2.1), which make it possible to infer the implied contractual obligations are particularly useful for assessing the “reasonableness” of the quality of the performance and expectations considered “reasonable” from that contract.

The rule on the quality of the performance established in this Article 4.3.3 of these Principles must be applied to contracts, including obligations to give or deliver goods, as well as service contracts, characterised by obligations to do. The first case is usually applicable to contracts to deliver goods of indeterminate or generic quality. The second case applies to contracts that create duties of best efforts, which do not include specific instructions for the performance of the obligation or impose specific standards of due diligence on the obligor.

The establishment of average quality or reasonable care is simple when there are rules of minimum quality of the goods of the contract or technical requirements for certain professional branches that bind the obligor as, for example, in the areas of construction or engineering (as expressly provided in Article 2.033 Guatemalan Civil Code). In other cases, it is common to use pre-defined parameters or technical standards of evaluation, which can shape professional practice through protocols of action such as the rules of the lex artis in the medical field even if they are not formalised in normative texts. The question to be asked in this case is whether or not the standard set by substantive law is liable to become universal. The answer will depend on each professional sector. It will therefore be advisable to refer to the local or regional standard in cases where the level of care taken by an agent, licensee or distributor for a given area has to be examined [e.g. Section 379 (1) of the Restatement (Second) of Agency]. A different response will provided to measure medical diligence, the standards of which must be more or less similar, all the while taking into account the technical resources available in each state or region.

In any case, regardless of any industry-specific requirements that may exist, it is essential to measure the average or reasonable quality “given the circumstances”, as indicated in Article 4.3.3 of the OHADAC Principles. This means adapting and relaxing the quality criteria for each contract depending on several parameters. For example, the criteria set out in Article IV.C-2:105 DCFR are useful: the standards of care and skill expected from the service provider include the nature, frequency and foreseeability of risks involved in the performance of the service; the costs of any precautions to prevent damage; whether the service provider is a business; whether the price is payable and, if so, its amount; the time of performance. Meanwhile, the civil codes of the OHADAC countries also use different criteria to measure the care and skill of the obligor, depending on the nature of the obligation (Article 1.425 of the Guatemalan Civil Code; Article 1.362 of the Honduran Civil Code; Article 1.863 of the Nicaraguan Civil Code; Article 1.057 of the Puerto Rican Civil Code), whether or not the obligor's performance is paid for (related to mandate, Article 1.992 Dominican and French Civil Code; Article 1.756 Haitian Civil Code) and on the interest of the contracting parties in the performance of the obligation. Thus, if the performance is only in the interest of the obligee, the fault will be determined as culpa lata, while on the other hand if the provision is in interest of the obligor, the fault required will be the minimum (Article 1.604 of the Colombian Civil Code; Article 1.928 of the Dominican Civil Code; Article 1,363 and Article 1363 of the Honduran Civil Code). Such parameters, established for civil contracts, can be applied to business contracts with some adaptations. In this sense, in the commercial sector all contract obligations are usually remunerated and contracts are concluded in the interest of both parties.

Finally, it should be underlined that Article 4.3.3 of the OHADAC Principles only sets out the average or reasonable quality according to which, at least, the obligor must perform its obligations if nothing is written in the contract. This, of course, does not prevent the obligor from providing top quality performance, but this is not required in any case if not stipulated or established in the contract.

Commentary

Article 4.3.4

Price determination

1. Where a contract does not fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price.

2. The determination of the price shall not be left to the discretion of one of the parties.

3. Where the price is to be fixed by a third person, and that person not do so, in absence of any indication on the contrary on the contract, the price will be determined by reference to the price generally charged in the trade concerned or, if such price is not available, to a reasonable price.

4. When the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible, the nearest equivalent factor shall be treated as a substitute.

1. Supplementary rule to price determination

Contract practice, especially in business transactions, shows that the price of goods or provision to be enforced is not always initially fixed. Indeed, usual absence of price determination justifies the specific rule in Article 55 CISG, which has been incorporated essentially in the UNIDROIT Principles (section 5.1.7), the DCFR (Article II-9:104) and the PECL (Article 6:104).

The special character of this rule must be emphasized in contrast with consumer contracts, where legal certainty and protection of customers lead to the need to determine the price, either fixed or at least determinable according to factors or references specified in the contract. These reserves are not given, however, in the field of commercial contracts, where not setting an initial price is more frequent.

It is true that in some civil law systems the lack of determination of the price can be considered as an essential gap which invalidates the contract for failure to identify the object, but this rigid principle does not find a significant application in the field of business relations.

Article 4.3.4 of the OHADAC Principles introduces an element of flexibility in relations among traders, establishing subsidiary rules based on general practice and trade usages, in those cases where parties have not fixed prices or established criteria for its determination. This element of flexibility is consistent with the idea of a balanced position of the contracting parties and respects their will, whether they have agreed on a price or, could have agreed on a price, but have decided not to do so. The most important point here, at least, is the possibility of determining that this is the result of negotiations, that the contract exists per se and has been concluded. In other words, the absence of an agreement on price does not result from the lack of conclusion of the contract. This situation can only be clarified in the light of the specific circumstances and negotiations and the statements of the parties prior to the conclusion of the contract.

Example: Companies A and B start negotiations in order to conclude a contract of sale, the price being one of the controversial elements. If A later sues B for non-delivery of the goods within the stipulated period, B could argue the lack of agreement between the parties. However, if during the negotiations between A and B the price was never negotiated at all and that only the delivery of the goods at the agreed time appeared important during the negotiations, the contract will be considered as concluded even though the price was not fixed. In this case, the price will be determined according to the subsidiary rule.

The establishment of a subsidiary criterion to determine the price can be especially useful when the contracts concerned can be for the delivery of goods or provision of services, where it is common for prices to be fixed not at the beginning, but until or after the performance of delivery or of provision. In this regard, it is significant that many domestic rules consider that the absence of agreement on the price entails the nullity of sale contracts, without prejudice to cases where goods have already been delivered, in which the price will be the prevailing price at the time the contract is concluded (Article 749 of the Panamanian Commercial Code). However, in the case of service contracts, such as mandate or agency, the same legal systems establish subsidiary rules based on trade usage (Article 582 Panamanian Commercial Code). In any case, the advantages in establishing a subsidiary rule on payment of the price, failing the agreement of the parties, is clear in cases where goods are delivered or the service has already been performed, in order to avoid cases of unjust enrichment.

A principle of minimum legal certainty will always be protected due to the fact that the reference price to be considered is the current price at the time of conclusion of the contract, is a criterion shared by contractual harmonisation texts (Section 5.1.7 UP; Article 6:104 PECL; Article II.-9: 104 DCFR).

The subsidiary introduction of the rule of “reasonableness” to those cases where there are not reference prices derived from trade usage is inspired by common law regimes that often set this subsidiary parameter [Section 10 (Ch. 393) of the Sale of Goods Act of Antigua and Barbuda; Section 10 (Ch. 337) of the Sale of Goods Act of The Bahamas; Section 10 (Ch. 261) of the Sale of Goods Act of Belize; Section 9 (Ch. 349) of the Sale of Goods Act of Jamaica; Section 10 (Ch. 15.18) of the Sale of Goods Act of Montserrat; Section 10 (Ch. 82:30) of the Sale of Goods Act of Trinidad and Tobago]. It is true that this introduces a significant element of flexibility unusual in principle to the laws based on the civil law model, but this approach does not breach any fundamental principle of these systems and it is fully compatible with the general principle of preservation of contracts.

2. Prohibition of unilateral price determination

Paragraph 2 of Article 4.3.4 is a specific provision of the OHADAC Principles and obeys the most common rule in Caribbean civil codes, which prohibits a unilateral determination of the price by one of the contracting parties (Article 1865 of the Colombian Civil Code; Article 1.609 of the Honduran Civil Code; Article 2.254 of the Mexican Civil Code; Article 2.539 of the Nicaraguan Civil Code; Article 1.219 of the Panamanian Civil Code and Article 1.338 of the Puerto Rican Civil Code). Other civil codes refer only to the determination of the price by the parties and third persons, but say nothing about the determination by one of the contracting parties, while it is not expressly prohibited (Articles 1.056 and 1.057 of the Costa Rican Civil Code; Article 1.591 of the Dominican and French Civil Code; Article 1.796 of the Guatemalan Civil Code; Article 1.376 of the Haitian Civil Code; Article 1.479 of the Venezuelan Civil Code). The same applies in the regulations of the Sales of Goods Acts of the Caribbean Commonwealth.

Rules in UP (Section 2, Article 5.1.7), DCFR (Article II-9:105) and PECL (Article 6:105), however, provide the possibility of fixing the price unilaterally by one of the parties, especially in cases of service contracts where the price is not initially determined. It is also common there a provision establishing the replacement with a reasonable price of the price unilaterally fixed by one contracting party if it is manifestly disproportionate.

Under OHADAC, the incorporation of a provision of this kind would be a substantial modification of domestic laws, the relevance of which should be tested. This does not imply any gap, given that the general criteria of the applicable subsidiary rule under paragraph 1 of this Article shall be applied.

3. Determination of the price by a third person

Apart from the prohibition of unilateral determination of the price by one of the contracting parties, paragraph 3 of Article 4.3.4 OHADAC Principles admits the possibility of fixing the price by a third person, which may be of particular interest in certain areas such as the trade of artwork or jewellery. This system is clearly permitted in some European laws (Article 1.592 French Civil Code; Section 9.1 of the English Sale of Goods Act 1979). Also in the field of OHADAC territories, domestic rules usually set default rules for cases in which a third person has been appointed to determine the price and failed to do so, either through inability or unwillingness. On this point, there may be different solutions in the provisions of civil and commercial codes. Where the civil codes hold that there is no sale (Article 1.057 of the Costa Rican Civil Code; Article 1.592 of the Dominican and French Civil Code; Article 1.796 of the Guatemalan Civil Code, except only if the goods have been delivered; Article 2.253 of the Mexican Civil Code, Article 2.537 of the Nicaraguan Civil Code; Article 1.217 of the Panamanian Civil Code; Article 1.338 of the Puerto Rican Civil Code; Article 1.479 of the Venezuelan Civil Code), the solution in the field of commercial codes is usually more flexible, admitting the possibility of new appointments or even the intervention of the judicial authority to appoint an expert. In some cases, the price is fixed directly (Article 750 of the Panamanian Commercial Code); in other cases, the parties or a judge are enable to appoint a substitute (Article 134 of the Venezuela Commercial Code). In these cases of failed price determination by a third person, the solution in common law tends to the nullity of the contract [Section 11 (Ch. 393) of the Sale of Goods Act of Antigua and Barbuda; Section 11 (Ch. 337) of the Sale of Goods Act of The Bahamas; Section 11 (Ch. 261) of the Sale of Goods Act of Belize; Section 10 (Ch. 349) of the Sale of Goods Act of Jamaica; Section 11 (Ch. 15.18) of the Sale of Goods Act of Montserrat; Section 11 (Ch. 82:30) of the Sale of Goods Act of Trinidad and Tobago].

In texts of contractual harmonisation, there are slight variations in the determination of subsidiary prices can be found: while in the UNIDROIT Principles (5.1.7.3) the lack of the determination of the price by the third person implies directly the determination of a “reasonable” price, DCFR (Article II-9:106) and PECL (6:106), as long as this does not contradict the contract, enables judges to appoint another third person. It is only when the third person fixes a clearly unreasonable price, that the price is replaced with a reasonable one. This provision aims at leaving the parties with as much free will as possible (for a third party to set the price) and, at the same time, ensures the effectiveness of contractual terms, having recourse only as a last resort to the criterion of a “reasonable price”.

Paragraph 3 of Article 4.3.4 of the OHADAC Principles states an intermediate rule between the different models offered by international texts, which is halfway between the different options that Caribbean domestic laws provide. If the third party does not set the price, the subsidiary general rule of paragraph 1 of this provision is applicable. This entails considering directly the average price in the sector and, failing that, a reasonable price. As already mentioned, the determination of a reasonable price, as the last subsidiary criterion, can be incorporated into Caribbean commercial law. The proposed rule aims to be simple, in accordance with the general principle of preservation of contracts (to avoid, ab initio, the nullity of contract if the price is not determined), respects the free will of the parties and is fully consistent with paragraph 1 of Article. 4.3.4. In this sense, if the appointed third person does not set the price (for whatever reason, whether by inability or unwillingness) and, in the absence of criteria specified in the contract on new appointments or submission to courts, it will proceed directly to set the price according to general rules.

Article 4.3.4 of the OHADAC Principles tries to establish a more flexible system than that derived from PECL and DCFR rules and thus to avoid delays caused by the need for a new appointment of a third person before having recourse to the criterion of a reasonable price. This rule is also different from the UNIDROIT Principles, insofar as the criterion of a reasonable price is not directly applicable, given that it plays a residual role only where it is not possible to determine the price according to the general criteria of the trade concerned. There is no reason to take into account different subsidiary criteria depending on whether the price must be determined by the parties or by third persons.

At any event, it is important to take the free will of parties into account, insofar as the determination of the price by a third person may have been decisive for the conclusion of the contract. The absence of the determination of the price can be interpreted as a reason for nullity of the contract, if it is derived from the statements of the parties or the interpretation of the contract.

4. Determination of the price by index of reference

Finally, it is common in some specific sectors to set the price using specific indices or reference factors, which, may, be altered or cease to exist. These indices are relevant in construction contracts (related to prices of materials) or in supply contracts (e.g., reference prices for energy), the long term nature of which, together with effects of inflation, justify the inclusion of references to external factors. These indices are also usual for the calculation of interest on loan agreements. In these cases, it seems appropriate, and consistent with the principle of contract preservation, to replace the factor that ceases to exist with the nearest factor. This appears reflected in the UP (paragraph 4 of Article 5.1.7), in the PECL (Article 6:107) and in the DCFR (Article II-9:107), which adds a limit, when the price is unreasonable, by allowing for the possibility of replacement with a reasonable price (II-9:107 DCFR). Paragraph 4 of Article 4.3.4 of the OHADAC Principles does not provide, in this case, for the substitution with a reasonable price if a close index of reference is not found. In such a case, general rules on price determination in paragraph 1 of this Article shall be applied.

Commentary

Article 4.3.5

Conditional obligation

The obligation that depends on the occurrence of a future and uncertain event is conditional.

1. Treatment of conditions

The inclusion of conditions in contracts is a common practice and raises many questions regarding the effectiveness of the duties committed, the legal position during which the condition exists and the consequences of its non-fulfilment on the effectiveness of the reciprocal obligations. Such clauses are widely known in commercial practice and are treated meticulously and at length in Caribbean civil law systems. Although common law systems also have conditions, within the meaning of this article, they need be specified and differentiated from other meanings that the same term has in such systems. Specifically, conditions in the sense of this Section must be distinguished from conditions as opposed to warranties. These are both terms of the contract able to define the content of the obligations assumed, but generating different consequences depending on the breach of one or the other. International texts on contract law harmonisation are paying increasing attention to conditions in the contractual regime, as shown in its treatment in the UP version of 2010 ( Article 5.3.1), the detailed regulation given in the amended version of the PECL proposed by the Association Henri Capitant (Article 8:101 PECL) and the attention paid thereto in the DCFR (Article III -1:106).

Rules in the OHADAC Principles about conditions refer to conditions freely agreed between the parties to the contract, and leave out those from other sources. The model established by the PECL in the proposal revised by the Association Henri Capitant [Article 8:101 (2)] includes, under the same treatment, conditions of legal or judicial origin. Similarly, Section 226 of the Restatement (Second) of Contracts also explicitly refers to conditions included by the judge. For the purposes of the OHADAC Principles, only “contractual” conditions, i.e. those freely assumed by the parties and incorporated into the contract to determine the degree of involvement and the extent of the respective obligations will be considered.

Example 1: Companies A (seller) and B (buyer) sign a contract for the sale of some goods that require an export licence. If no specific clause is included in the contract, the seller has an absolute obligation (to achieve a result), so that if the delivery of goods is not performed, not having obtained the export licence (legal status for such sale), the seller is presumed to have failed to perform its obligation. However, if the contract includes a clause that says “delivery of goods will take place when the export licence is obtained”, this implies a legal condition incorporated by reference. This “contractualisation” of the condition clarifies the obligations of A, so that if the goods are not delivered because of the failure to obtain the licence, this does not automatically entail a breach of contract.

The definition of condition included in the Principles reflects a common denominator, accepted by the laws of Caribbean countries, referred to as an event or circumstance to be uncertain as to its occurrence and not only as to the time of its fulfilment. Here lies the difference between condition and “term”, to which an obligation must also be subject.

Besides the uncertain character of the event considered as a condition, this event must be a prospective event. This is assumed in most Caribbean civil law systems (Article 1.530 of the Colombian Civil Code; Article 53.1 of the Cuban Civil Code; Article 958 of the Haitian Civil Code; Article 1.938 of the Mexican Civil Code; Article 1.878 of the Nicaraguan Civil Code; Article 1.010 of the Saint Lucian Civil Code; Article 1,191 of the Venezuelan Civil Code) and unanimously required in international texts on contract law harmonisation, considering conditions as uncertain future events or circumstances). There are a few exceptions where some legal systems, notably French law (Article 1.181 of the Civil Code), include past events unknown by the parties in the conditions. In this sense, past events not known by the parties are included in the Dominican Civil Code (Article 1.181), Honduran Civil Code (Article 1.375), Panamanian Civil Code (Article 998) and Puerto Rican Civil Code (Article 1.066).

The OHADAC Principles are based on the generally accepted rule and, as such, reference to past events as condition is excluded. In addition, choosing to include only future events promotes legal certainty and transparency in contracts, without resorting to cognitive referents that require additional evidence to determine the content and enforceability of the performance committed in the contract.

Example 2: Sales contracts to test are a common case of contracts subject to condition. Company A sells machinery to company B, the contract establishing a trial period of one month in order to test the quality of the product and its suitability for the purpose intended (resolutive condition). If after one month it is found that the machinery does not conform to that expected by the buyer, the contract is rescinded.

Example 3: Company A signs a contract of sale of goods with Company B, agreeing that delivery will occur when the price has reached a given reference price in the market (suspensive condition). Until this price is reached, the contract will not be effective.

It is entirely irrelevant for these purposes whether the fact that involves the condition is a legal act, a natural phenomenon or an activity depending on a third person. It is also irrelevant that the event is composed of an event that must occur (the product reaches a certain price on the market) or must not occur (the product does not reach a given price on the market).

There are several criteria for making classifications per type of condition, as can be seen in the civil codes of the OHADAC territories. For example, there can be references to positive or negative conditions, depending on whether or not they are conditional upon the occurrence of an event. There are also causal conditions (which depend on a third party or an event), optional (depending on the will of a contracting party) and mixed conditions (which depend at the same time on the will of one party and on the will of a third party or an event). No general classification of conditions is envisaged in the OHADAC Principles, because it would be purely descriptive and could cause unnecessary interpretative problems. Because of its direct consequences on the contract regime, the distinction between suspensive and resolutive conditions is the only significant classification that deserves a specific treatment in the Principles. The regulation of optional, impossible and illegal conditions is also important, insofar as they determine an invalid conditional obligation.

2. Delimitation from other contractual clauses

The common characteristics shared by the concept of condition allow a consensus view on the classification and delimitation of clauses of the contract which, behind which the formal appearance of conditions, conceals veritable contractual obligations.

Obligations that depend on the occurrence of a future event that is certain to happen, are not considered as conditions. Such circumstances include obligations subject to a term (uncertain term), which deserve a specific treatment.

Example 1: A signs a lease of commercial premises to B, establishing in the contract that it will end when B dies. The death of B is a certain event but uncertain in time.

Obligations assumed by the parties according to the scope of bilateral contracts which are interlinked and mutually contingent (e.g. the obligation to deliver the goods as a precondition for the obligation to pay the price), must not be considered as conditions. However, many Caribbean civil codes consider these obligations as resolutive conditions “in the event that one party fails to fulfil its obligation” and they systematically include such regulation in the section on conditions (Article 1.546 of the Colombian Civil Code; Article 1.184 of the Dominican and French Civil Code; Article 1.386 of the Honduran Civil Code). However, apart from terminological issues, the functioning and the consequences derived from these articles is not that corresponding to the resolutive conditions, but to the breach of contract regime, giving the obligee an option to enforce the specific performance of the defaulted obligation or to terminate the contract and be compensated for damage (sections 1 and 3 of chapter 7 of the Principles). For this reason, the OHADAC Principles exclude such a provision, as it can be understood that rules including bilateral commitments actually constitute a contractual obligation, not an uncertain event.

Example 2: Company A signs a contract of sale of goods with company B, setting as essential term a delivery date of the goods (1 March) and providing payment after that time. If A does not deliver the goods on the agreed date, B may terminate the contract for fundamental breach under Article 7.3.1 (1) OHADAC Principles and it is discharged from the payment of the price. In this case, the delivery of goods is a part of the obligations of A and it should not be regarded as a condition.

The definition of circumstances that constitute conditions also make it possible to correctly distinguish conditions from other obligations that can be included in generic references under contractual type-clauses (closing dates). These provisions establish the need for the parties to have fulfilled a number of “conditions” on a date specified in the contract and, among them, there are actual conditions in the sense described herein, together with other circumstances that constitute veritable obligations assumed by the parties.

Example 3: In a contract, it is provided that the buyer's obligation to purchase goods on 1 June will be subject to fulfilment on that day of the following “conditions”: i) that on that date the goods have reached a certain price (clause incorporating a true condition, due to its uncertain nature); ii) that the seller had previously paid the taxes due (contractual obligation and not an uncertain event).

Commentary

Article 4.3.6

Void conditional obligations

Conditional obligations are void when:

  1. the fulfilment of the condition depends on the sole will of the obligor; or
  2. the obligation depends on impossible conditions or conditions contrary to law or good customs.

1. Optional conditions for the obligor

A different position is evident in the laws of the OHADAC territories in relation with the so-called facultative conditions in cases where the fulfilment of the condition depends solely on the will of the obligor. Apart from the silence of the Cuban Civil Code, the common position of the rest of the civil codes in this area is to establish that obligations that are dependent on such a condition are void, since they show a lack of commitment by the obligor and therefore the absence of a real contractual will. This is explicitly stated in the Henri Capitant revision of the PECL (Article 8:103) and in the comments on the UP and the DCFR.

This regulation has the aim of achieving a balanced protection of the parties, insofar as nullity is not provided for any facultative condition (i.e. dependent on the will of the parties), but only for those depending on the obligor's will. In addition, the nullity of such conditions and of obligations concerned takes place when its fulfilment exclusively depends on the will of the obligor, regardless of other factors. This distinguishes optional conditions from other cases where there is a significant dependence of the fulfilment of the condition on the obligor's conduct, this being influenced by circumstances beyond its control.

Example: Company A (purchaser) signs a contract for sale of goods with Company B (distributor), conditional on the fact that B wanted to acquire the goods from Company C (manufacturer), this purchase being absolutely discretionary for the distributor. In this case, there would be an optional condition for the obligor (company B) which voids the contract between A and B. A different issue is that the condition of purchase of goods depends, for example, on the fact that the price of the goods does not reach a certain price; in this case, this factor being external to the will of B, the obligation is valid.

2. Impossible or illegal Conditions

The establishment of a specific rule on impossible or unlawful conditions is relevant to the extent that it provides a specific consequence of the obligation on which it depends, in particular, its invalidity. Most European and Caribbean law systems contain similar provisions. The differences in the regulations lie, in these cases, in the extent of such invalidity. Most systems establish that illegal or impossible conditions remove the obligation concerned, and the invalidity will affect the rest of the contract only if that condition was decisive to sign the contract. However, other laws, such as the French Civil Code, directly determine the nullity of the entire contract when there are such conditions. However, the Proposals for Reform of the French law on obligations of 2013 (Article 154) provides the nullity of the conditional obligation, more in accordance with preservation of contracts.

The civil codes of OHADAC territories, with the exception of the Cuban Civil Code, regulate in great detail, impossible and illegal conditions, going as far laying down specific rules depending on whether they concern suspensive or resolutive conditions (Articles 679 and 680 of the Costa Rican Civil Code, Articles 1.200 and 1.201 of the Venezuelan Civil Code) or depending on whether they are positive or negative conditions (sections 1.532 and 1.533 of the Colombian Civil Code; Articles 1.172 and 1.173 of the Dominican and French Civil Code; Article 1.378 of the Honduran Civil Code; Article 1.943 of the Mexican Civil Code; Article 1.201 of the Venezuelan Civil Code; Article 678 of the Costa Rican Civil Code; Article 1.001 of the Panamanian Civil Code). The main difference between these provisions is observed in relation to the effect of such conditions. Sometimes the condition is removed and considered as not included, so that the concerned obligation becomes a simple one: as a general solution it is found in Article 1.271 of the Guatemalan Civil Code; Article 1.880 of the Nicaraguan Civil Code; regarding only negative impossible conditions: Article 1.533 of the Colombian Civil Code; Article 1.172 of the Dominican and French Civil Code; Article 963 of the Haitian Civil Code; Article 1.378 of the Honduran Civil Code; Article 1.943 of the Mexican Civil Code; Article 1.001 of the Panamanian Civil Code; Article 1.069 of the Puerto Rican Civil Code; Article 1.201 of the Venezuelan Civil Code). For all other cases, i.e. impossible positive conditions or unlawful conditions, the solution in these civil codes is the invalidity of the conditional obligation. The invalidity, as a sanction for any impossible or unlawful condition is the solution provided in Article 1.011 of the Saint Lucian Civil Code.

Among the international texts on contract law harmonisation, only the PECL revised by the Association Henri Capitant expressly provide for these conditions, while the UP and the DCFR do not consider them. Article 8:102 PECL of the Association Henri Capitant proposal establishes the ineffectiveness of a condition related to an impossible or illegal event, which implies the ineffectiveness of the contract on which it depends if the condition has been decisive to achieve the agreement of a party, unless otherwise provided by law.

The OHADAC Principles establish a unitary rule that comprises all cases of impossible and illegal conditions whether related to suspensive or resolutive conditions and whether related to conditions to do or not do something. It tries to avoid any kind of effect derived from an event that cannot take place (if it is impossible) or should not take place (if it is illegal). The impact of the condition on the obligation will be determined by the dynamics of the condition.

Example 1: Company A concludes a contract with Company B for the maintenance of computer equipment that includes the condition that B will upgrade all applications and computer programs that may appear in the future, without having to pay the price of the licences to their holders. Such a condition is unlawful to the extent that it violates intellectual property rights protected by law.

Example 2: In a carriage contract concluded between A and B, there is the condition that B will perform the transport only if there is no possibility of rough weather in transit. Such a condition is impossible to the extent that the weather forecast will never establish with certainty that point.

This Article includes a provision about impossible conditions. Unlike illegal conditions, this explicit reference is controversial and could be considered as superfluous to the extent that an impossible condition shall not be, in most cases, uncertain; i.e. generally the non-fulfilment of impossible conditions is certain and, therefore, they do not have the attributes of a condition. These characteristics can perfectly justify that the inclusion of “conditions” of this type is simply irrelevant and therefore they will have no impact on the future of the contract or on the conduct of the parties. However, the consequences of impossible conditions on the dependent obligation are important, and therefore they deserve special attention: if the consequence is that the condition is considered as removed, the obligation becomes a simple one and, therefore, it shall be fully effective; if the consequence is that the obligation is deemed void, this will not have effect. Obviously, each criterion radically changes the perspective respect to the obligor, in particular, when they are included as suspensive conditions: if a voiding effect occurs, the obligor is discharged; if it is removed, the obligor must fulfil the obligation undertaken regardless of the condition.

The OHADAC Principles opt for the invalidity of the obligation on which the impossible condition depends because this will more adequately ensure the protection of the will of the parties and, in particular, the will of the obligee in the case of suspensive conditions.

Example 3: In the case of example 2, it is clear that A has concluded the transport contract with B to ensure that it will have effect. To be consistent, it would not have signed the contract if had known beforehand that the condition on which the service depends was impossible to fulfil.

In a case where the parties are duly informed and have given such consent without defects (mistake, duress, etc.), it is clear that the inclusion of an impossible condition would be superfluous and it simply would have no effect or could not be understood as a determining factor in obtaining the consent of a party; therefore, there is no obstacle in finding that the condition has not been set. But the question is different if the parties, or one of them, did not know of the impossibility of the condition. In this case, considering this as a simple obligation distorts the will of the parties. Thus, it would be more consistent to consider that the obligation depending on the impossible condition as void. This would create fewer difficulties regarding the validation of the scope of contractual consent given.

The invalidity of the obligation depending on an unlawful condition, also provided in this article of the OHADAC Principles, is a consequence of the need to adapt the contract to the legal requirements set by the governing law or by a mandatory law that would be applicable within the meaning of Article 3.3.1 of these Principles. The illegal nature of the event specified as uncertain should not influence the performance of the obligations of the parties. Therefore, in this case it is reasonable that the illegality of the condition entails the invalidity of the dependent obligation. The OHADAC Principles includes as a cause of illegality not only the violation of legal rules but also public decency, following the line in the OHADAC civil codes. Obviously, this inclusion is broader than the mere reference to the laws and it is particularly relevant in the field of trade contracts, where the OHADAC Principles are destined to develop its full effect, and it allows, in fact, taking contravention of the customs and business practices as a parameter.

With respect to the scope of nullity, the OHADAC Principles establish the invalidity of conditional obligations, but not of the whole contract. This follows the trend set in Caribbean civil codes. This is a direct consequence of the principle of preservation of contract, so that the nullity will affect the entire contract only if the obligation is essential, in which case it shall be subject to the general rules on nullity.

Furthermore, the nullity will be automatic, without providing any modulation depending on whether that condition was decisive or not to obtain the consent to the contract. This avoids serious disadvantages about the proof related to the scope of the consent. It is not, however, a unanimously shared solution; in fact, in the OHADAC region, Article 1.200 of the Venezuelan Civil Code provides that an unlawful resolutive condition “voids the obligation for which it has been the decisive cause”. The same idea is found in Article 8:102 PECL proposed by the Association Henri Capitant, clearly inspired by the principle of preservation of contracts.

The wording of this Article tries to avoid a differentiated casuistry depending on whether suspensive or resolutive conditions are concerned. In general, the relation of dependence will be recommended for suspensive conditions, given that the obligations subject to resolutive conditions do not depend on these conditions to exist, but precisely stop being effective. The dependent nature of the obligation on the stipulated condition could serve additionally to infer the nullity of the obligation to the extent that this dependence really shows that it has been essential to the obligation and not merely accessory.

Commentary

Article 4.3.7

Effects of conditions

1. A condition is suspensive when the existence of the obligation depends on its fulfilment.

2. A condition is resolutive when its fulfilment implies that the effects of the dependent obligation come to an end.

3. Pending fulfilment of a suspensive condition, the following rules shall be observed:

  1. If the object of the contract is entirely destroyed, without the fault of the obligor, the obligation lapses. If the object is entirely destroyed due to the fault of the obligor, he is bound to compensate the damage.
  2. If the object of the contract is damaged, without the fault of the obligor, he will perform the obligation delivering it to the obligee in its current state. If the object is damaged due to the fault of the obligor, the obligee has the choice of terminating the obligation or its performance, with compensation for damage in both cases.
  3. The obligee may perform all acts that tend to retain his right.

4. When the condition is fulfilled, the effects of the conditional obligation operate retroactively at the time it was taken, unless the effects of the obligation should be referred to a different date by the will of the parties or the nature of the act.

1. Models of retroactivity or non-retroactivity of the conditions

The distinction between suspensive and resolutive conditions is well-known in comparative law both as to its classification and as to its definition, depending on whether the event determines the start of contract effect (suspensive condition) or the end of this effect (resolutive condition). In Europe these conditions are found in many civil codes, such as the Spanish (Article 1.113), Dutch (Article 6:22) and French (Article 1.181 et seq.). These two notions are essentially equivalent to conditions precedent and conditions subsequent, characteristic in common law. The UP, the PECL revised by the Association Henri Capitant and the DCFR also recognise this distinction.

Most Caribbean civil codes also make that distinction, such as the Colombian (Article 1.536), Cuban (Article 53), Dominican and French (Article 1.168), Mexican (Articles 1.939 and 1.940), Nicaraguan (Article 1878), Panamanian (Article 998), Saint Lucian (sections 1.018 and 1.019) and Venezuelan (Article 1198). It is not mentioned in the Guatemalan Civil Code and not expressly cited in the Honduran, although it can be inferred from the wording of Article 376 Civil Code, as well as from Article 1.066 Puerto Rican (Article 1.066 Civil Code); this distinction is also implied in Panamanian and Costa Rican civil codes.

The discrepancies between legal systems on this respect deal with the determination of retroactive or non-retroactive effect of these conditions, which is crucial with respect to the scope of obligations.

A retroactive model assumes that once the event envisaged occurs as a suspensive condition, the contract is deemed to have been effective as from the time it is concluded. If, on the contrary, the resolutive condition occurs, the contract is considered as without effect ab initio and the parties must make restitution of what they have received.

For non-retroactive models, the effectiveness of the obligation that depends on the condition is suspended until its fulfilment (in the case of suspensive conditions) or will remain intact until its fulfilment (in the case of resolutive conditions). Obligations actually performed are not affected.

The choice of either one of these two models is a crucial point of divergence within European laws. The French (Article 1.179 Civil Code) and Dutch (Article 6:24 Civil Code) civil codes are examples of retroactive conditions. However, the Proposals for Reform of the French law on obligations of 2013 provide for a dual system: the retroactivity of suspensive conditions and the non-retroactivity of resolutive conditions (Articles 160-161).

For its part, the international texts on contract law harmonisation are based on non-retroactivity as a general rule. This can be seen in Articles 8:301 and 8:302 of the revised PECL, which provides that the obligation takes effect only from the date of the suspensive conditional even and it continues to have effect until the resolutive conditional event, unless the parties have agreed otherwise. A similar rule is found in Article 5.3.2 UP and paragraphs (2) and (3) of Article III-1:106 DCFR.

Most Caribbean legal systems support the retroactivity principle for both suspensive and resolutive conditions: among others the Honduran Civil Code (Articles 1.382 and 1.385), Mexican Civil Code (Article 1941), Nicaraguan Civil Code (Article 1.883 and 1.890), Panamanian Civil Code (Article 1.005), Puerto Rican Civil Code (Article 1.073), Saint Lucian Civil Code (Article 1.016) and Venezuelan Civil Code (Articles 1.204 and 1.209). As far as resolutive conditions are concerned, retroactivity is established in Article 1.544 of the Colombian Civil Code, Article 690 of the Costa Rican Civil Code, and Article 1.183 of the Dominican and French Civil Code. Article 53.2 and 4 of the Cuban Civil Code differs and includes a clear system of non-retroactivity of conditions. Although without a specific mention, Article 1.270 Guatemalan Civil Code can be interpreted in the same sense when it states that “conditional contract takes effect from the fulfilment of the condition, unless otherwise specified”, but it allows the obligee, before the fulfilment of the condition, to bring actions for the preservation of its right (Article 1.276). Meanwhile, common law leaves wide latitude for recognition of the autonomy of the parties, such that they can determine and adapt the effect derived from the fulfilment of the conditions.

However, the respective exceptions in both models mitigate theoretical differences between them. Thus, Article 8:205 of the PECL revised by the Association Henri Capitant entitles the conditional obligee to preserve its rights, particularly against fraudulent acts. The same flexibility of non-retroactivity is observed in Article 8:206 of the Henri Capitant revised PECL, which allows the conditional obligee to transfer its rights pending the fulfilment of the condition. In the same vein, Article 53.2 of the Cuban Civil Code establishes the obligation and the responsibility for acts that would defeat or damage the right of the conditional obligee.

Given that contractual conditions depend on parties' will, the OHADAC Principles, following the rule of minimal interference, merely provide for aspects that strictly require a legal treatment, the remaining issues are governed by the contract regime. In this context, it is relevant to determine and define which conditions are suspensive and which are resolutive, the effects they have on the obligations, the essential rules while the condition is pending and the transmission of risks. Particularly, the decision on retroactivity/non-retroactivity of the condition determines when the conditional obligee has acquired the right (in case of suspensive conditions) and the scope of the obligations of restitution (in case of resolutive conditions). However, it seems unnecessary to decide in the Principles on issues such as whether a right of a conditional obligee is transmissible, even if this question appears in many Caribbean civil codes (Article 1.549 of the Colombian Civil Code; Article 684 of the Costa Rican Civil Code; Article 1.890 of the Nicaraguan Civil Code; Article 1.016 of the Saint Lucian Civil Code), given that once the ownership of the credit is determined, general rules on transfer of credits will be applied.

2. Retroactive effect of suspensive conditions

The OHADAC Principles are based on the retroactivity of suspensive conditions, since this is the solution widely followed by the various domestic laws. With respect to suspensive conditions, retroactivity implies the entitlement and the allocation regime of rights and duties during, the condition pending: which party bears the risk of loss or deterioration of the object related to the condition; which party benefits from the interests and fruits; and which party has the obligation to preserve the good. These are questions deserving further regulation in the OHADAC Principles.

Example: In a retroactive model comprising a suspensive condition such as the following: “the art dealer M acquires the picture that from P, if P obtains the export licence”, once the condition has been fulfilled (obtaining the export licence), the dealer is supposed to acquire the property of the picture from the time of conclusion of the contract, which therefore implies: 1) the ineffectiveness of subsequent disposals by P, except those adopted to protect bona fide third parties; 2) possibility by M to carry out an appraisal of the picture; 3) should M die before P has obtained the licence, once this is obtained, M's heirs become the owners of the picture; 4) all acts of disposal performed by the conditional obligee (M) to third parties while the condition is pending (for example, a picture resale to a third party) are valid.

In a system of retroactivity, the allocation of the entitlement to the obligee occurs, once the condition is fulfilled, as from the date of conclusion of the contract. There may be problems as to the effectiveness of the sales and acts of disposal by the obligor made while the condition is pending. To this end, some Caribbean civil codes (e.g. Colombian and Nicaraguan) introduce specific rules on the impact of the condition in such acts of disposal, distinguishing between the alienation of movable and immovable property, with the underlying idea of the protection of bona fide third party purchasers. However, the OHADAC Principles do not include rules on this issue, so that the impact of the conditions on acts of disposal would be subject to rules about cooperation and fair dealing between the parties in relation with conditional contracts. There are two reasons for the legislative silence on this point. Firstly, the solution given by the Caribbean civil codes is not common and most of them do not resolve this issue. Secondly, the effect of the fulfilment of the condition in ownership transfer contracts goes beyond purely contractual matters and affects the legal regime of rights in rem and the rights of third-party purchasers. These issues clearly exceed the intended scope of application of these Principles.

The allocation of risks of damage or loss of the property covered by the obligation shows closer links with contractual conditions. In the field of European law, in case of loss, the rule tends to the extinction of the obligation, if there is no fault of the obligor (Article 1.122 of the Spanish Civil Code; Article 1.182 of the French and Dominican Civil Code). It seems clear that the risks of loss are borne by the obligee. In case of damage without fault of the obligor, there are discrepancies between the Spanish (the rule is that if there is no fault of the obligor, the obligee takes the risks) and the French model (the obligee has the right to terminate the contract or to receive the goods without price reduction), which in practice is equivalent here to an exception to retroactivity. These rules are essentially in line with Article 8:305 of the PECL revised by Association Henri Capitant , although this instrument is based on the general rule of non-retroactivity. Certainly, if the first case is a model of pure retroactivity, since the risks of damage are borne by the obligee who has to accept the thing in its current state, the second case is a model of moderate retroactivity, because the obligee can rescind the contract and the risks of deterioration of the thing are borne by the obligor, who is not released from the delivery of the goods and will not receive the consideration stated in the contract. This second option is followed in French law (Article 1.182 Civil Code).

Both regulatory models are also adopted by the OHADAC countries. Most Caribbean systems opt for a pure retroactivity, attributing risks of deterioration to the obligee, which is forced to take the thing in its actual condition without a price reduction (Article 1.543 of the Colombian Civil Code; Article 1.384 of the Honduran Civil Code; Article 1.948.III of the Mexican Civil Code; Article 1.882.3 of the Nicaraguan Civil Code; Article 1.075.3 of the Puerto Rican Civil Code). On the contrary, Dominican and Costa Rican civil codes (Articles 686 and 1.182, respectively) also give the obligee the option to rescind the contract.

The general rule in the OHADAC Principles states the allocation of risks to the obligee, in accordance with the general principle of retroactivity of suspensive conditions. This is widely accepted in domestic laws and it is applied in any case in the absence of agreement by the parties, which may recognise, for example, the right of the obligee to rescind the contract. The model of retroactivity has the advantage of not requiring further legal safeguards on the duty of care that the conditional obligor must adopt on the property affected by the condition, insofar as the system of transfer of risk itself determines the legal responsibility of the obligor as to its duty of preservation of the thing. For this reason, systems that follow the retroactivity principle must provide specific measures to ensure the right on the conditional credit. Pending the condition, the parties assume a duty of care in order not to frustrate contractual obligations. From that perspective, the retroactive nature of the suspensive condition allows and gives to the obligee a better protection of its rights, since it may seek the appropriate responsibilities from the obligor in case of loss or damage to its right through the fault of the obligor.

3. Retroactivity of resolutive conditions

The retroactive effect of the resolutive conditions basically involves the restitution of what has been provided from the time of conclusion of the contract, in contrast with a model of pure retroactivity, which only affects the benefits undertaken after the fulfilment of the condition, the earlier being unchanged.

The system of non-retroactivity of the international texts of contract law harmonisation, as a general rule, is moderated precisely in respect of resolutive conditions because they set rules on restitution of provisions. In this context, Article 5.3.2 UP provides a dual system, depending on whether or not the parties have agreed to the retroactivity of the condition: if retroactivity is agreed, then the rules applicable on restitution in case of contractual nullity will be applied; in the absence of agreement, the “non-retroactivity” of the condition simply means that general rules on restitution in case of contract termination will be applied. Article III.-1: 106 (5) of the DCFR also requires the restitution of benefits obtained, applying by the way of reference to Article III-3:510 the rules on contract termination for causes other than breach of contract.

In Caribbean legal systems, the general rule is the retroactivity of the resolutive conditions, according to which there is an obligation of restitution of what has been received under such condition, either because this is the general solution applicable to any condition or because it is specifically stated for resolutive conditions (Article 690 of the Costa Rican Civil Code; Article 1 of the Colombian Civil Code; Article 1.183 of the Dominican and French Civil Code). The retroactive effect of resolutive conditions is also recognised in common law. By contrast, a system of pure retroactivity is found in Cuban law, which states that “the effects produced until then do not lose their effectiveness” (Article 53.2 of the Civil Code).

The OHADAC Principles have opted for the model of retroactivity, according to the dominant approach in comparative law, imposing the obligation of restitution of the property, but with some qualifications. The rule is based on the wording of Article 1.941 of the Mexican Civil Code. Although the proposed rule opts for the first system, it should not be considered as an intolerable interference in Caribbean legal systems, including the Cuban Civil Code. The OHADAC Principles do not envisage a pure system of retroactivity of resolutive condition, insofar as this is subject to the will of the parties and the nature of the obligation.

The parties may agree on specific provisions on the restitution of property. Furthermore, the scope and consequences of the rescission of the contract, even due to the fulfilment of a condition, must be submitted to the rules on restitution applicable according to the nature of the obligation concerned. In this context, problems may arise in relation to the restitution of certain related to obligations to act or not to act. In these cases, some legal systems enable judges to determine, in each case, the retroactive effect of the condition fulfilled (Article 1.385 of the Honduran Civil Code; Article 1.008 of the Panamanian Civil Code; Article 1.076 of the Puerto Rican Civil Code). It is also important to identify whether the obligation in question is of instantaneous or successive performance. In the latter case, it will be more difficult for this to concern obligations that have already been fulfilled. The severable or indivisible character of the conditional obligation also affects the restitution: If severable, the strict retroactivity on partial fulfilments may be limited on the ground of the principles of preservation of contract; if not severable, termination will reasonably affect the whole obligation.

Example 1: Companies A and B have concluded a supply contract which is paid monthly and subject to the condition that energy does not reach a specified maximum price; once the condition is fulfilled (i.e., reached the maximum price fixed by the parties), the contract will be terminated but it does not affect energy actually provided.

Example 2: Manufacturer A and supplier B have concluded a contract of sale of goods to be delivered and paid in batches. In this case as well, once the condition is fulfilled, the termination will only affect deliveries and payments not yet performed.

Commentary

Article 4.3.8

Interference in conditions by a party

1. Prior to fulfilment of a condition, a party cannot, without legitimate interest, behave so as to prejudice the rights of the other party if the condition is fulfilled.

2. If fulfilment of a condition is prevented by a party, without legitimate interest, this party may not rely on the non-fulfilment of the condition.

3. If fulfilment of a condition is brought about by a party, without legitimate interest, this party may not rely on the fulfilment of the condition.

1. The principle of cooperation in conditional contracts

Another relevant aspect related to conditions deals with obligations of the conduct of parties when suspensive or resolutive conditions are pending. Such obligations derive from general principles of cooperation and good faith. Such principles are considered here in a positive and a negative way: Firstly, they impose obligations of conduct in favour of contract efficiency. Secondly, they state a prohibition of interference by the parties pending the fulfilment of the condition.

The positive aspect of the principle of cooperation and fair dealing between the contracting parties results in the obligation assumed by each party to facilitate the fulfilment of the condition (in the case of a suspensive condition) or to avoid its fulfilment (in the case of a resolutive condition); the starting point is the common interest of the parties to maintain their contractual relationship and to develop its effects. This duty of cooperation is clearly defined in Articles 8:202 and 8:203 of the PECL revised by Association Henri Capitant. In any case, the definition of which party must succeed (or prevent) the fulfilment of the condition (e.g., obtaining a loan) will depend on the terms of the contract. Therefore, the party that will bear the risks inherent to the condition will be determined according to the contract. The contract also shall establish the degree of commitment of the party in order to fulfil the condition: if the commitment is absolute, it assumes the risks of a breach of condition (obligation to achieve a result); if the commitment is to employ best efforts to achieve the result, the risks of the condition are assumed by the other party. It is also possible that the contract includes an express and specific obligation of one party in relation with the breach of the condition, so that the determination of non-performance will depend on the condition rather than on the main obligation.

Example: Company A (seller) has made a commitment to Company B (buyer) to obtain an export licence to deliver goods to B within the agreed time. If A does not obtain the export licence it will be in breach of contract. On the contrary, if A is obliged to make its best efforts (“everything possible”) to obtain the licence and A acts with reasonable diligence, there is no breach of contract if the licence is not granted.

2. Prohibition of interference in conditions

The negative side of the general principle of cooperation and fair dealing means, in these cases, the prohibition of interference or intrusion into fulfilment (or failure) of the conditions, so that if one party interferes in the condition it may not invoke the condition in which it has interfered to its benefit, unless it has a legitimate interest. This is clearly stated in Dutch law (Article 6:22 Civil Code). American case law also provides in this sense on the basis of good faith and fair dealing. A similar conclusion is reached in English law on the basis that an interference in conditions implies a breach of an implied obligation (implied term) of the contract. Protection of fair dealing is implied here, so that it deals with cases where the interfering party obtains some advantage from the fulfilment (or failure) of the condition. These cases are similarly dealt with in comparative law and in the international texts: the aforementioned conduct is considered as contrary to a general duty of cooperation.

Example 1: A buys machinery from B. The machinery must be tested by an expert to verify that it is functioning correctly (suspensive condition). B persuades the expert to make a positive assessment of the machinery, thereby avoiding the drafting of a negative report about the machine. In this case, the condition cannot be considered as fulfilled and therefore B cannot invoke the obligation on A.

Example 2: Insured A burns down its home for insurer B to pay the sum insured. Once demonstrated that the accident has been provoked by A acting in bad faith, B is not obliged to pay the agreed compensation.

Example 3: Interferences in resolutive conditions: A rents out equipment to B at a very advantageous price until B acquires its own equipment. After a long period, B has still not bought any equipment despite having received several offers, and it continues to benefit from the advantages offered by A.

Caribbean civil codes only envisage cases of fictitious fulfilment and none of non-fulfilment. This can be seen, among others, in Article 53.3 of the Cuban Civil Code; Article 1.178 of the Dominican and French Civil Code; Article 1.273 of the Guatemalan Civil Code; Article 1.381 of the Honduran Civil Code; Article 1.944 of the Mexican Civil Code; Article 1.889 of the Nicaraguan Civil Code. Once a general duty of cooperation is assumed as a common principle, nothing prevents both sides of non-fulfilment of conditions from being regulated (e.g. Article 5.3.3 UP; Article III-1:106 (4) DCFR; Article 8:203 of the PECL revised by Association Henri Capitant). Therefore, given that the underlying criterion is the same in both cases, the OHADAC Principles contain a generic rule, similar to the provisions in other international texts on contract law harmonisation. This Article covers the fictitious fulfilment (if the party prevents the fulfilment of the suspensive condition) as well as the fictitious non-fulfilment (if the party causes undue fulfilment of the resolutive condition).

Different approaches are found in relation with the consequences of this interference. Under the DCFR, the aggrieved party may consider the condition as fulfilled or unfulfilled (Article III-1:106). Under the PECL, the condition is considered fulfilled or breached to the detriment of the interfering party (Article 8:203). Under the UP, the interfering party may not claim the fulfilment or non-fulfilment of the condition (Article 5.3.3).

Differences in relation with bad faith of the interfering party determine the scope of the actions of the party acting in good faith and aggrieved by the fulfilment or non-fulfilment of the condition. The model of fictitious fulfilment (stated in the PECL), apart from obvious practical problems, could not respond to the interests of the contracting party, which intends to rescind the contract instead of fulfilling the condition.

Example 4: In a contract of sale of goods concluded between the seller A and the buyer B, A must obtain an export licence as a condition. However, A does not obtain the licence because of its absolute lack of diligence. If the licence has not been actually obtained and cannot be obtained it is paradoxical to consider the condition as concluded and then to infer its consequences. In this case, the presumption of a fictional fulfilment of the condition seems absurd and the buyer will be released from its contractual obligations.

To avoid these problems, other regimes are more suitable to the needs of the innocent party, preventing the party acting in bad faith from invoking the condition it has interfered in, and giving only the aggrieved party a discretionary remedy to consider the condition as fulfilled or unfulfilled according to its interests.

In any case, the OHADAC Principles avoid interpretative difficulties in determining good or bad faith of a party by objectifying the effect of interferences. Unless one party interferes in the condition on the basis of a legitimate interest, for example to protect the object of the contract, that interference in the condition that prejudices the position of the other party will have the effect mentioned in the second and third paragraphs of this Article.

Commentary

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