- Lawyers involved in international transactions should be aware of the tendency to insert irrelevant common-law concepts into contracts governed by the law of a civil-law jurisdiction.
- How can lawyers avoid using confusing common-law terminology in contracts governed by civil law?
A key distinction in international transactions has been whether a contract is governed by the law of a civil-law jurisdiction or the law of a common-law jurisdiction. For purposes of contracts, the structural distinctions between civil law and common law have diminished in significance, but use of common-law terminology in contracts governed by the law of a civil-law jurisdiction remains a source of confusion. After considering the historical difference between civil-law and common-law contracting, this article suggests how to avoid that confusion.
Civil Law and Common Law
Civil law is primarily derived from Roman law. In civil-law jurisdictions, codified principles serve as the primary source of law. By contrast, common law is based on medieval English law. In common-law jurisdictions, judicial decisions serve as the primary source of law.
The primary English-speaking jurisdictions—the United States, the United Kingdom, the English-speaking parts of Canada, and Australia—are common-law jurisdictions. Civil-law jurisdictions can be divided into the Romanistic (including Italy, France, and Spain), the Germanic (including Germany, Austria, Switzerland, and Taiwan), and the Nordic (Denmark, Finland, Norway, and Sweden).
Shorter or Longer Contracts
The conventional wisdom is that contracts drafted in common-law jurisdictions are longer than those drafted in civil-law jurisdictions because civil-law drafters are able to rely on codified default rules.
For example, section 121, paragraph 1 of the German civil code defines the word unverzüglich to mean “without culpable delay.” When that word occurs in contracts, it is generally understood to express its statutory meaning, subject to caselaw relating to how it is to be interpreted—it need not be defined in a contract.
And although common-law contracts often spell out what constitutes an event of default for purposes of the transaction and what the resulting consequences are, that’s addressed in the German civil code. Generally, the parties to a contract may deviate from such default rules in their contract.
But this distinction between common-law and civil-law contracts is blurring—English-language drafters used to common-law drafting apply a more exhaustive approach even for purposes of contracts governed by the law of a civil-law jurisdiction. And civil-law drafters exposed to common-law drafting are prone to replicating it. Nevertheless, it would always be prudent to make clear how contract provisions relate to the codified default rules. For example, if the words “without culpable delay” are used in the contract, an explicit reference to section 121, paragraph 1 of the German Commercial Code should be included to indicate that these words are used to convey that meaning.
Whether Interpretation Is Limited to the Wording of the Contract
It’s also the conventional wisdom that common-law judges, in reliance on the parol evidence rule, are likely to interpret a contract based solely on the contract text, whereas civil-law judges also take into account subjective considerations like the parties’ presumed intent, even if that requires departing from the wording of the contract.
For example, in a famous German court case from 1916, the parties intended to conclude a sale contract for whale meat. But their contract referred to håkjerringkjøtt, the Norwegian word for the much cheaper meat of the Greenland shark. The court had no difficulty finding that the contract was for whale meat.
But this distinction is less clear-cut than it seems. For example, courts and commentators in the United States have swung back and forth between an approach that relies exclusively on the text and one that takes context into account. And the parol evidence rule is subject to exceptions.
Law and Equity
Traditionally, common law distinguished between law and equity. Even though in the United States the distinction has been eliminated in federal and most state courts, courts retain many of the differences between legal and equitable principles. In particular, courts have continued—with exceptions—to grant specific performance only when money damages are inadequate. By contrast, the distinction between law and equity doesn’t exist under civil law. The statutory default remedy for breach of contract under civil law is to have the defaulting party perform. For example, if a seller delivers nonconforming goods, by law the buyer’s initial remedy is delivery of conforming goods.
So in a civil-law contract it would still be unnecessary to refer to equitable remedies. In fact, it might be counterproductive: because the word equity, in translation, can be equated with fairness, a judge might take use of the word equity as an invitation to instead apply general considerations of fairness.
Contracts for international transactions are usually drafted in English even if no party to the transaction is based in a jurisdiction where English is an official language. And the overwhelming majority of standard contracts promulgated by trade groups for international transactions (for example, the FIDIC standard forms) are in English.
Because the primary English-speaking jurisdictions are also common-law jurisdictions, it’s commonplace for English-language contracts governed by the law of a civil-law jurisdiction to incorporate, by a process of cross-contamination, common-law terminology. Some of that terminology is confusing for those with a civil-law background. That risks causing greater annoyance and uncertainty than the broader differences between civil law and common law.
The standard advice is not to use problematic common-law terminology. That’s our advice, too, but with a difference—the problematic common-law terminology is problematic for common-law drafting as well, so you should eliminate it from all your drafting.
We consider below some examples of this problematic terminology.
Referring to Consideration
The Common-Law Feature: The traditional recital of consideration, which appears to say that there is consideration for the transaction. It usually consists of grotesquely archaic language of this sort:
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows.
The Problem: Consideration is defined as something bargained for and received in exchange for a contract promise. In common-law jurisdictions, consideration is required for a contract to be enforceable. Consideration is not required in civil-law jurisdictions.
The Fix: Eliminate the traditional recital of consideration, and not just for contracts governed by the law of a civil-law jurisdiction: in common-law jurisdictions, you cannot create consideration where there was none just by saying you have consideration. Say instead, The parties therefore agree as follows.
Resource: Kenneth A. Adams, Reconsidering the Recital of Consideration, New York Law Journal, Dec. 9, 2015.
Using Represents and Warrants
The Common-Law Feature: Use of the phrase represents and warrants in contracts to introduce statements of fact, and use of the phrase representations and warranties to refer to those statements of fact.
The Problem: Drafters in civil-law jurisdictions might assume that use of the word represents somehow refers to an action for misrepresentation (a tort claim) and that use of the word warrants somehow refers to an action for breach of warranty (a claim under the contract). Unsurprisingly, they are puzzled as to how common-law remedies are meant to be relevant for purposes of a contract governed by the law of a civil-law jurisdiction.
The Fix: The phrase represents and warrants is pointless and confusing. Attempts by commentators (and, in England, by a couple of courts) to justify use of the phrase in common-law contracts fail utterly. It follows that no one should have any reservations about deleting it from civil-law contracts. For any contracts, whether civil-law or common-law, if you have sufficient negotiating leverage and are not working in a hidebound practice area like mergers-and-acquisitions, consider using states instead. If you continue to use represents and warrants, don’t use it to list not only statements of fact but also obligations—that just makes things worse.
Resource: Kenneth A. Adams, Eliminating the Phrase Represents and Warrants from Contracts, 16 Tennessee Journal of Business Law 203 (2015).
Using the Verb Warrants and the Noun Warranty
The Common-Law Feature: Use of the verb warrants and the noun warranty in contracts for the sale of goods.
The Problem: Under common law, an express warranty is a seller’s affirmation of fact to the buyer, as an inducement to sale, regarding the quality or quantity of goods. When the verb warrants and the noun warranty appear in civil-law contracts, drafters in civil-law jurisdictions are understandably puzzled as to how common-law concepts are meant to be relevant for purposes of a contract governed by the law of a civil-law jurisdiction.
The Fix: It’s a simple matter to avoid using this terminology. To introduce a statement of fact, use states, as described above. Instead of using warrants to introduce a statement of future fact, use a conditional clause followed by the remedy. For example, don’t say this:
The Vendor warrants that during the six months after the date of this agreement, the Equipment will conform to the Specifications. In the event of breach of the foregoing warranty, the Vendor shall modify or replace the Equipment.
Instead, say this:
If during the six months after the date of this agreement the Equipment fails to conform to the Specifications, the Vendor shall modify or replace the Equipment.
Even common-law drafters should be willing to make these changes: under the Uniform Commercial Code, enacted in U.S. jurisdictions, a statement does not need to be called a warranty to be a warranty. But because in common-law jurisdictions the notion of a warranty for goods is widely recognized, it might be convenient to use the word warranties as a heading in a common-law contract.
Resource: Kenneth A. Adams, A Manual of Style for Contract Drafting 437–39 (4th ed. 2017).
Using a Variety of Efforts Provisions
The Common-Law Feature: Use of the phrases reasonable efforts, best efforts, good-faith efforts, and other efforts variants.
The Problem: In common-law jurisdictions, many who work with contracts accept the idea of a hierarchy of efforts standards, with, for example, an obligation to use best efforts being more onerous than an obligation to use reasonable efforts. And courts in England and Canada have accepted this notion. Drafters in civil-law jurisdictions wonder whether the gloss given to these phrases in common-law jurisdictions is relevant for purposes of civil-law contracts.
The Fix: A hierarchy of efforts provisions is unworkable for three reasons. First, imposing an obligation to act more than reasonably is unreasonable. Second, requiring that a contract party act more than reasonably creates too much uncertainty as to what level of effort is required. And third, legalistic meanings attributed to efforts standards conflict with colloquial English. Furthermore, rationales offered to validate the idea of a hierarchy of efforts standards fall short. Drafters, whether in civil-law or common-law jurisdictions, should use only reasonable efforts and should structure efforts provisions to minimize the vagueness.
Resource: Kenneth A. Adams, Interpreting and Drafting Efforts Provisions: From Unreason to Reason, 74 The Business Lawyer 677 (2019).
Although anyone involved in international transactions should be aware of the historical distinctions between civil-law contracting and common-law contracting, those distinctions have become less significant. But a cause of annoyance remains: the tendency for drafters to insert irrelevant common-law concepts into contracts governed by the law of a civil-law jurisdiction. Because the primary examples of such terminology are also suboptimal for purposes of common-law drafting, the simplest fix is to express the intended meaning more clearly, without relying on obscurantist terms of art.