Presentazione PPT - Lezione Insubria 29022016

Civil law and
common law
A comparison between two legal systems
Università degli Studi dell'Insubria
29 February 2016
Avv. Andrea Zoccali

1© 2016 Studio Associato - Consulenza legale e tributaria, an Italian professional partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights
reserved.
Contents
CIVIL LAW AND COMMON LAW: COMPARISON BETWEEN TWO LEGAL SYSTEMS
a. Introduction
b. The origin of the common law systems
c. The origin of the civil law systems
d. The role of the judges and the way in which they make their decisions
e. Different branches of law in civil law and common law jurisdictions
THE CONTRACT: MAIN DIFFERENCES BETWEEN CIVIL LAW AND COMMON LAW
a. Introduction
b. Formation of contract: offer and acceptance
c. Form of contract
d. Causa del contratto and consideration
e. Vices of the will: error, fraud and moral violence
f. Contractual liability, remedies and damages
g. Interpretation of the contract
h. Applicable law
i. Further comments on the contractual models

reserved.
Civil law and common law: comparison between two legal systems
A. INTRODUCTION
■ Civil law is characterised by (i) strong influence of Roman law and Germanic law; (ii) importance of the written law and (iii) written codes. Instead, common law is
based on: (i) customs; (ii) pre-dating written rules and (iii) judicial precedents.
■ In civil law countries, the law is binding on everyone, including judges: judges cannot create law but must apply the rules established by the legislator. In this
regard, civil law systems are based on deductive reasoning, in which the general and abstract rules, set by the legislator, are applied to each case.
■ In common law systems, the case-law is very important: the courts have to respect the stare decisis principle, that means that, when judges decide a particular
case, they are bound by the rules that judges, before and in an identical case, has already applied. If the specific case they have to decide is different from a
previous case already decided by other judges, the courts can reach a different decision. In this regard, common law systems use inductive reasoning, in which
the legal reasoning proceeds from the specific case to the general rule.
B. THE ORIGINS OF THE COMMON LAW SYSTEMS (1/2)
■ Common law has its origins in English law, established by the Westminster courts since the Norman conquest in 1066, when King William of Normady defetead the
last Saxon king at Hastings. King William sought to consolidate his power by controlling the territory and rewarding the knights who had fought with him. The
Norman feudal system included the king, the lords and sub-tenants. The lords depended on the king, who allocated them land in return for military and political
support; the sub-tenants depended on the lords for their land, but they also owed military and political allegiance to the king..
■ The unitary structure of the state was also reflected in the administration and organization of justice. Under the original feudal system introduced by King
William, the law differed from fiefdom to fiefdom: it was the local lord who decided which law had to be applied in a particular case. Later on, the king asserted his
power at the expense of the feudal lords. This process of centralising justice in the hands of the king, which led to the creation of a royal law common to the
whole kingdom, was implemented through: (i) establishment of royal courts (curia regis); (ii) itinerant justice and (iii) the writs system.
(i) Curia regis
■ It was a central authority, whose powers derived directly from the king; gradually, three bodies were created within these Westminster courts. They were:
– the Exchequer of Pleas, created to administer the royal treasury and collect public revenues;
– the Court of Common Pleas, where disputes between commoners, i.e. private citizens, were heard;
– the Court of King’s Bench which was originally presided over by the king and then began to have a fixed place in Westminster.

reserved.
B. THE ORIGINS OF THE COMMON LAW SYSTEMS (2/2 – follows)
(ii) Itinerant justice
■ Justice was defined as itinerant since, to avoid creating dangerous local centres of power, the Norman king did not establish courts in his kingdom’s
provinces but went there with his judges, or sent them there, to carry out justice. Itinerant justice contributed decisively to the decline of the local courts.
(iii) The writs system
■ The writ was a royal order that represented a direct command from the king to the sheriff or the lord who presided over a court and curtailed their powers. The writ
was an essential legal safeguard, so much so that an individual right could be said to exist insofar as there was a writ that made it enforceable.
■ The writs system began to falter when the power of the barons started to decline because of royal jurisdiction. The barons retaliated and their opposition to the
increased power of the royal courts is represented by three key documents in the history of the English institutions: (i) the Magna Carta of 1215 that made the
king subject to the law; (ii) the Provisions of Oxford of 1258 which forbade the king and the courts to create new writs, and (iii) the Statute of Westminster of
1285, which was a sort of compromise between the king and the barons, in the sense that, while maintaining the ban on new writs, it enabled the courts to use the
formulas already known in similar cases (in consimili casu).
■ Nowadays, the writ system has been greatly simplified, since all the previous writs have been replaced by a single writ, the writ of summons (which is now called a
claim form), which is used to start a lawsuit.
C. THE ORIGINS OF THE CIVIL LAW SYSTEMS (1/2)
■ The legal tradition of civil law spread from the end of the eleventh century, when the first universities began to be established. In particular, in 1147, Eugene III
issued a seal to officially recognise the first university in Bologna, making the title of doctor subject to recognition by the bishop. This university was founded in 1088
on the initiative of law students who had begun to pay doctores to teach them the law.
■ Before the twelfth century, the situation was not the best. The West Roman Empire had fallen centuries before, accompanied by a progressive decline in
Roman law, which had been replaced by a law of the people, applied spontaneously, based on oral tradition and customs (such as the habits of individual
populations, the precepts of the Church, and merchant practices), and decentralised.
■ Oral tradition was the most important characteristic of this new law, as no one could read or write except members of the clergy and, for this reason, law
based on the precepts of the Church became very important. The basic rule governing society was the law of the strongest, imposed by the sword or by appealing
to a bishop or arbitrator (and not to those who applied the law). However, the memory of the Code of Justinian − published between 529 and 534 A.D. − was still
strong even if it could not be applied as it was too erudite. In conclusion, the context in which civil law began to develop was disorganised and fragmented
and the law itself was underdeveloped.

reserved.
C. THE ORIGINS OF THE CIVIL LAW SYSTEMS (2/2 – follows)
■ Civil law began to flourish when the historical situation as a whole began to evolve. In 1183, in the Second Treaty of Constance (with the Lombard League),
Frederick Barbarossa recognised the autonomy of the city states and their greater independence led to an increase in commerce and wealth. As a result of this
economic growth, there was a growing need to consider culture and the law. In particular, in this more advanced society, the idea began to emerge that only
the law, instead of Christian ideals, could guarantee the order and the security required by progress.
■ Obviously, it was Roman law that was considered, for the simple reason that it was still remembered and perceived as a common heritage. However, although
Roman law was very prestigious, it was not easily accessible (being in Latin) and was too abstract and distant from the people and overly sophisticated and
complicated. Although Roman law had a significant influence, it was unable − unlike common law − to overcome local peculiarities, so that the legal tradition of
continental Europe was characterised, until the French Revolution, by a wide variety of legal sources (local laws, customs, royal actions, general
provisions, canon law, lex mercatoria).
■ Therefore, the most important features of this period, despite the penetration of Roman law, were legal particularism and lack of legal certainty. The solution to
these problems was sought in the main codifications that took place throughout the nineteenth century. The most important one was the Code Napoleon, which is
the first true modern codification, used as a model by the Italian legislator for the regulation of private law.
D. THE ROLE OF THE JUDGES AND THE WAY IN WHICH THEY MAKE THEIR DECISIONS (1/3)
■ In civil law systems, a bureaucratic concept of the judicial function has developed, in the sense that the judge is a public official, whose education is based on
the theoretical and technical study of law at university. Italian courts reason in a way that has been defined as systematic, in the sense that the main concern of
Italian courts is not to show that the final decision is right in that particular case, but rather to demonstrate that the rules have been applied and that the decision is
logically consistent with the legal system.
■ In common law countries and particularly in England, an academic system of training judges, similar to the Italian one, was almost absent in the UK until the
nineteenth century. Nowadays, members of the legal profession are university-educated, but their education and training still focus on case studies.
Judges are not regarded as public officials who apply the law in a mechanical way: they must pay special attention to the hard facts that are presented by the
parties and then, based on those facts, take a decision which is consistent with the case law.
■ The training of judges and the distinct role that they are assigned has played a large part in shaping, and continuing to shape, the way in which they make their
decisions.

reserved.
D. THE ROLE OF THE JUDGES AND THE WAY IN WHICH THEY MAKE THEIR DECISIONS (2/3 - follows)
■ In the Italian system, the bureaucratic concept of a judge’s role implies, firstly, that the judgment is issued by a state body (and not by the individual judge).
From this perspective, what characterises Italian judicial decisions is their impersonality. A judgment (and the grounds supporting it) is unique and is not attributable
to the individual judges that reach the decision, but to the court as a unitary body that expresses a power established by the Constitution. Therefore, the final
judgment is impersonal and neutral and is attributable to the court as a whole, as it is not possible to identify the opinions of the individual judges involved in
the decision-making process, those opinions not being recorded.
■ The supremacy of the law in civil law systems also explains why the grounds of Italian judgments focus not so much on the facts, but the law. Analysis
of the facts is restricted to those matters deemed to be relevant to the resolution of the dispute, while the legal arguments are very detailed, as can be seen by the
various references to the legislation on which the judgment is based, and any analyses of the issue offered by leading scholars.
■ From the viewpoint of those to whom the judgement is directed, the language used in Italian judgments is technical and legal, again a legacy of the academic
training of judges. This language is generally used in the entire judgment (including the description of the facts), with the result that the final decision no longer
seems to be directed to the parties to the dispute or to society in general, but only to jurists (judges and lawyers), the only ones who have the linguistic and
conceptual tools to comprehend the ruling.
■ None of the features of Italian judicial decisions discussed thus far are found in judgments in common law systems and, for the purposes that interest us most, in
English law. In this system the judge is not regarded as a mere public servant, called upon to apply the law almost mechanically. Instead, judges must pay
special attention to the concrete reality of the facts presented by the parties and then, based on the facts, make a decision that is consistent with the
case law. Judicial precedents – which require judges to conform to the decisions of other judges who have ruled in the past on analogous or similar cases – has a
significant influence on their decision-making. Judges have to document in great detail the factual circumstances of the case, as it is based on these facts that they
(or a subsequent court) will then evaluate whether the previous case law is applicable.
■ Stylistically and structurally, judgments in English law are always personal, in the sense that the judgement always carries the name of the judge who has
issued it, as well as a reference to all the judges who have participated in the decision-making process. The individual views expressed by the members of
the bench are disclosed (generally, in reports), whether the opinions are concurring opinions (i.e. when the judge agrees with the decision reached by the others, but
disagrees with the reasons given by the majority) or dissenting opinions (i.e. when the judge is completely at odds with the majority opinion). Clearly, the fact that
the opinions of the individual judges are recorded means that English judgments are very long and, in some passages, not easy to understand, considering
the meticulous attention paid to the circumstances of each case. We can say, then, that the judgments of English courts become scholarly opinion – comparable to
that which has developed in Italian academic, university and legal circles – since the judicial decisions, containing a detailed description of the facts and explaining
the logical reasoning supporting the different opinions, can easily be accessed and examined by anyone.

reserved.
D. THE ROLE OF THE JUDGES AND THE WAY IN WHICH THEY MAKE THEIR DECISIONS (3/3 - follows)
■ Italian judges have to follow the law, in accordance with article 101 of the Italian Constitution.
■ English courts may, in certain specific circumstances, reach a decision by combining legal reasoning with other sciences (such as economics, according
to the "law and economics" model), evaluating what impact (also in economic terms) the application of a legal rule may have in the actual circumstances.
■ In relation to the law and economics model, which developed as a field of study in the 1980s, first in the US and then in the UK, looks at the effects of laws in actual
practice. The leading case in the US was Escola v Coca Cola Bottling Co. (1944). Escola (plaintiff) worked as a waitress in a restaurant. One day, she was
placing bottles of Coca-Cola that had been delivered thirty-six hours earlier in the restaurant’s refrigerator. The bottles were filled by Coca-Cola Bottling Co. of
Fresno (Coca-Cola) (defendant). As Escola was handling the fourth bottle, it exploded in her hand and caused her severe injuries. Escola brought suit against Coca-
Cola on the ground that the company was negligent in allowing excessive pressure or gas to build up in the bottle, or using defectively-manufactured bottles which
were dangerous and likely to explode.
■ The judges recognised the liability of Coca-Cola, based on legal reasons but also an economic analysis of law since, in terms of economic efficiency,
Coca Cola could absorb the cost of the damage and pass it on to its consumers («Even if there is no negligence, however, public policy demands that
responsibility be fixed wherever it will most effectively reduce the hazards to life and health inherent in defective products that reach the market. It is evident that the
manufacturer can anticipate some hazards and guard against the recurrence of others, as the public cannot»).
■ Although economic analysis of law is a field specific to common law, it is also true that, in this respect too, civil law and common law are drawing closer. There have
been recent examples of economic analysis of law in Italy, one example being the case law on the legitimacy of notices of assessment signed by public
officials declared to be no longer eligible for office. The Constitutional Court, in judgment no. 37/2015, cancelled the appointments of 767 managers at the
Revenue Agency because they had not won their posts by taking part in a public competition in accordance with articles 3, 51 and 97 of the Italian Constitution. As a
result of this judgement, paperwork already signed by the managers was also declared to be null and void. However, the Court of Cassation then passed
judgments (nos. 22800, 22803 and 22810 of 9 November 2015) in which, to the contrary, it declared the notices of assessment signed by the officials to
be valid, not only on legal but also social and economic grounds. In particular, the court stressed the economic and social impact of these notices of
assessment and ruled that, if they were to be declared null and void, this could be detrimental to the coffers of the state, since public revenues would fall, with a
consequent reduction in public financing.

reserved.
E. DIFFERENT BRANCHES OF LAW IN CIVIL LAW AND COMMON LAW JURISDICTIONS
■ Before providing a comparative analysis of one of the most important institutions of private law, that is the contract, it should be noted that civil law and common
law also differ considerably in the way they are divided.
■ The first point to note is that in common law jurisdictions the division between public law and private law, although it does exist to some extent (as we
shall see), has an importance and significance that is quite different from the division made in civil law, where there is even a separate justice system to
reflect the distinction.
■ The basic division in common law is between private law and criminal law. The boundaries of criminal law are generally similar to those of Roman law, with a
focus on the nature of the punishments and the defendant’s rights (favor rei).
■ Other branches of law with which a civil lawyer will be familiar have not been a traditional part of common law, although the two systems are now drawing closer.
One of the real developments in modern common law has been the growth of public law. The importance of constitutional law in the American system and
the expansion of the state apparatus in England have spawned a class of lawyers who are specialists in public law. Therefore, public law has begun to differentiate
itself from private law, emerging as a third category beside private law and criminal law.
■ Still on the topic of public law, the differences between common law and civil law also spring from different cultural backgrounds, closely connected with the
different models of public administration on which the systems are based.
■ For civil law countries, like Italy, the prototype of public administration is still the French system, designed by Napoleon and based on strong centralisation,
ministerial responsibility and asymmetry between the public administration and other bodies and individuals, justified by the fact that the former pursues the
common interest while the latter pursue their own interests. For historical and cultural reasons, the public administration has developed differently in common law
systems, where there is no such asymmetry.
■ Generally, civil law systems regulate the activities of the state through administrative law; instead, in common law systems, the relationship between
the public administration and other bodies and individuals are regulated by common law (which also regulates relationships between private citizens).
■ This distinction is gradually fading but still expresses the typical vision of civil law countries: that the state sits at the top of the hierarchical order. A corollary of this
principle is the idea that the actions of the state should not be subject to criticism by the normal courts, which is why, in many civil law countries, responsibility for
ascertaining the legality of the public administration’s activities is devolved to a special court or an administrative court. In common law countries, on the other hand,
such issues do not arise.

reserved.
The contract: main differences between civil law and common law
A. INTRODUCTION
■ In the civil law countries, the term "contratto" identifies all financial agreements conferring rights and placing obligations on the contracting parties, who may have
reciprocal obligations (under contratti bilaterali or contratti a prestazioni corrispettive) or unilateral ones (under contratti unilaterali). In particular, article 1321 of the
Italian Civil Code defines a contract as an agreement between two or more parties to establish, regulate or extinguish an economic relationship (rapporto
giuridico patrimoniale).
■ In the common law countries, the term "contract" generally refers only to bilateral contracts or reciprocal performance contracts. An essential element of
these is the consideration, which consists in an exchange of services between the contracting parties and is comparable to the element of the contract that is
defined in Italy as causa del contratto, pursuant to article 1325 of the Italian Civil Code. From this perspective, a contract (in common law systems) can be
defined as an agreement between two or more parties in which there is an exchange of performance and services, as a result of which both parties
assume certain obligations.
■ An act that does not involve an exchange of performance does not qualify as a contract and, in fact, is called a deed. A deed is therefore a formal act which
does not provide for an exchange of services between the contracting parties − such as a donation (deed of gift), unilateral promises (deed of covenant) or
remission of debt (deed of release) − and must be completed in compliance with certain formal requirements (written format, signature and seal of the party, now
replaced by the phrase ‘sealed’ or ‘under seal’, the presence of a witness, delivery of the document to the other party).
■ A further difference between the two legal systems is that, in common law, the acts by which parties agree a transfer of property cannot be considered as a
contract; however, in our legal system they are automatically considered as contracts (generally classified as contratti aventi efficacia reale). In English
law, for example, the act of transferring immovable property is defined as conveyance, while the transfer of movable property is delivery.
■ Furthermore, civil law systems, unlike common law, acknowledge the existence of contratti reali, which, unlike contratti consensuali, require, in addition
to the consent of the parties, delivery of the property that is the subject of the contract from one party to the other (traditio rei). Instead, in common law
systems, the cases that in our system are classed as contratti reali are called bailment, indicating a legal relationship under which the party that delivers the asset
(bailor) can claim the money back from the party receiving it (bailee) not by virtue of a contractual obligation but by virtue of ownership or possession of the asset.

reserved.
B. FORMATION OF CONTRACT: OFFER AND ACCEPTANCE
■ In all legal systems, there is the general principle that a contract is an act that is realised thanks to willingness, on two sides, to contract (or two
matching statements of intent), i.e. offer and acceptance. Consequently, it is precisely in the match between offer and acceptance that the agreement between
the contracting parties lies; an agreement that is an essential pre-condition of a valid contract in all Western legal systems. As a general rule, operating in both civil
law systems and those of common law, the offer must contain the essential details of the contract (otherwise it would simply constitute an invitation to treat) and the
acceptance must match the offer (as otherwise it would be considered as a new offer).
■ In common law systems, a contract is concluded when the offeree communicates its acceptance to the offeror. The mailbox rule (‘principio della spedizione’)
applies, meaning that the contract is concluded not when the acceptance reaches the offeror, but when it is sent (i.e. delivered to the post office if
written acceptance is sent). The reason for this is to deprive the offeror as soon as possible of its right to revoke the offer since, in common law, the offeror is
entitled to withdraw its offer before it has received the acceptance.
■ Moreover, in common law systems an offer is always considered to be revocable (even if the offeror has declared it to be irrevocable), unless it has
been signed under seal (i.e. it is a formal offer) or there is what is defined as consideration.
■ Instead, in civil law countries (including Italy) the relevant principle is principio della cognizione, according to which a contract is concluded when the
offeror becomes aware of the offeree’s acceptance. That principle is expressly established in article 1326 of the Italian Civil Code, is based on the idea that a
contractual relationship can arise only if the parties are fully aware of it, and that the offeror can only be aware of it when he learns of the offeree’s full acceptance of
the offer.
■ Moreover, in accordance with article 1328 of the Italian Civil Code, an offer may be withdrawn until the contract is concluded. However, if the offeree has
begun to perform the contract in good faith, before being notified of the offeror’s withdrawal of the offer, he will be entitled to receive compensation for the expenses
and losses he has incurred. Notwithstanding that principle, article 1329 of the Italian Civil Code provides that an offer is irrevocable if the offeror has expressly
undertaken to maintain the offer (without revoking it) for a certain period of time.
■ Obviously, in both civil law and in common law countries, the willingness of the parties to enter into an agreement may be inferred from their behaviour.
In this case, the conclusion of the contract is based on comportamenti concludenti, i.e. behaviour that indicates that a party is acting as if a contract had been
concluded, even though there was no expression of willingness to contract. Even the English common law system envisages this possibility, distinguishing between
acceptance by declaration and acceptance by conduct.

reserved.
C. FORM OF CONTRACT
■ In both civil law and common law systems, the parties are generally free to choose the form of contract (and, therefore, the form is not generally an
essential requirement for the validity/effectiveness of a contract), unless the law expressly provides for a particular form.
■ In all legal systems there is a distinction between the form required in order to render the contract valid (form ad substantiam) and the form required in order to
prove formation of contract (form ad probationem). For example, concerning the Italian legal system:
– article 1350 of the Italian Civil Code requires certain types of contracts to be in written form in order to be valid. These include contracts governing the transfer of
immovable property or the creation, modification and transfer of rights in rem on immovable property (diritti reali su beni immobili). If these types of contracts are
not in written form, the agreement is void (nullo);
– article 1967 of the Italian Civil Code requires a settlement agreement to be in written form so that it can be proved.
■ In common law systems, provisions that require a contract to have a specific form, as a precondition for the validity, are extremely rare. Only in relation to
free-of-charge agreements (contratti a titolo gratuito), in which there is no consideration (in the sense that there is no mutual exchange of services between the
contracting parties), it is necessary to comply with certain formalities (explained above with reference to deeds). Nevertheless, in common law systems there are
many cases in which non-observance of the written form means that the contract is unenforceable before a judge.
D. CAUSA DEL CONTRATTO AND CONSIDERATION
■ In both civil law and common law countries, one of the essential elements of a contract is what is known in Italian law as causa and in English law as
consideration.
■ In general, the causa of a contract may be defined as the social-economic function of the contract, i.e. its underlying reason and the goal it intends to
achieve. In Italy, the principle of causalità is applied, so that an agreement without a causa or based on an unlawful causa cannot produce any legal effects.
■ In common law countries, consideration is embodied in the exchange of something of value between the contracting parties, which testifies to their true
intention to create contractual obligations. Consideration is a requirement for all effective contracts, with the sole exception of contracts concluded under
seal (that is, in accordance with certain formal requirements).
■ The crucial importance of consideration is confirmed by the fact that, generally, the definition of a contract in English law is the following: “an agreement supported
by a consideration”, reflecting the fact that, for the creation of a legal obligation, there must be an exchange of services between the parties. Consideration can be
defined as an “act, forbearance or promise by one party to a contract that constitutes the price for which that party buys the promise of another”.

reserved.
E. VICES OF THE WILL: ERROR, FRAUD AND MORAL VIOLENCE (1/2)
■ Vices of the will are any anomalous facts that disturb the process by which the intention of the contracting parties to create a contractual relationship is
formed, such as (i) error, (ii) fraud (dolo) and (iii) (moral) violence, which can also lead to the annulment of the contract.
(i) Error:
■ In the Italian legal system, in accordance with articles 1428-1433 of the Italian Civil Code, the error – to be cause for annulment of the contract − must be
essential (essenziale) and recognisable by the other contracting party (riconoscibile all’altro contraente). The law determines the cases in which an error is
essential (article 1429 of the Italian Civil Code), and those in which it is recognisable (article 1431 of the Italian Civil Code – “when, in relation to the content, the
circumstances of the contract or to the quality of the contracting parties, a normally diligent person could detect it”).
■ In common law countries, there is a different classification: instead of distinguishing between error and fraud, they differentiate between two different
types of errors, based on their origin (i.e. depending on whether or not the error is caused by an inexact statement on the part of one of the contracting parties):
– there is misrepresentation when one party has violated a duty to declare by failing to provide important information to the other party, thus
misleading it. Such behaviour can be intentionally fraudulent (‘fraudulent misrepresentation’, which can lead to termination of the contract and consequent
compensation) or involuntary (‘innocent misrepresentation’, as a result of which the deceived party may demand termination of the contract, although the court
may decide that it remains bound to the contract, in which case it is entitled to compensation).
– there is a mistake, the regulation of which is influenced by the distinction between the rules of common law (deriving from the ordinary law courts)
and the rules of equity, as the common law courts and equity courts have resolved cases of mistake differently. For common law courts, the mistake is
relevant only in particularly serious cases, where the remedy is nullity of the contract. In short, the contract is void/null when the mistake concerns the identity of
the counterparty, or when, despite appearances, the statement of one party is inconsistent with the other’s statement, or when, although the conduct of one party
is likely to be reasonably mistaken for acceptance of the proposal, the other party is aware of the other’s lack of intention to enter into a contract. The equity
courts, however, treat a mistake as relevant even in less serious circumstances, providing, as a remedy, the annulment of the contract.
(ii) Fraud
■ All jurisdictions recognise the principle that, when intentional deceit by one of the parties has caused the other party to contract, the latter may request the
termination of the contract regardless of the nature of the error caused.
■ In common law systems, fraud is primarily identified with fraudulent misrepresentation, discussed above. In civil law countries, if fraud by one party has
caused the other party to conclude the contract (in the sense that, without the deception, the other party would not have concluded the contract), the latter is entitled
to request the termination of the contract (dolus causam dans contractui). If the deception has only changed the content of the contract (dolus incidens in
contractum), in the sense that the party would still have concluded the contract but on different terms, it may only request damages.

reserved.
E. VICES OF THE WILL: ERROR, FRAUD AND MORAL VIOLENCE (2/2 - follows)
(iii) Moral violence:
■ In civil law systems, if a party declares its intention to conclude the contract under the threat of serious harm to itself, to its family or to its property, the
contract can be annulled.
■ In common law countries too, a contract concluded under duress is generally voidable (annullabile), except in particularly serious cases where it is void
(nullo). Generally, as duress is also used to indicate the concept of physical violence, to differentiate physical violence from moral violence, the term ‘undue
influence’ (corresponding to moral violence as understood in our legal system) is used.
F. CONTRACTUAL LIABILITY, REMEDIES AND DAMAGES (1/3)
■ All systems distinguish between liability in contract (originating from a breach of contract) and liability in tort (originating from an unlawful act). In Italy,
these two forms of liability are regulated, respectively, by articles 1218 and 2043 of the Civil Code, and are consequently subject to different rules on the burden of
proof, nature of the damage to be compensated, and statute of limitations (10 years for liability in contract and 5 years for liability in tort).
■ With regard to liability in contract, one of the parties may not fulfil its contractual obligations for reasons beyond its control, because of unforeseen circumstances
that cannot be attributed to it and that make it impossible for that party to perform: force majeure. In civil law systems, causes of force majeure exonerate the
non-performing party from liability and are already specified in law for the most serious cases in which it has become objectively impossible to perform
the contract.
■ In common law systems, force majeure, as understood in the Italian system, corresponds to the doctrine of frustration, which refers to all those
instances of non-performance due to unexpected circumstances that cannot be attributed to the defaulter. Causes of frustration include the following:
– cases where a duty or its performance becomes illegal after the contract is executed, e.g. a new law prohibits a particular service;
– physical destruction of the object on which performance hinges (as in the famous English contract law case, Taylor v Caldwell, in which the parties had agreed to
use a music hall, which was destroyed by fire before the start of the concerts, rendering the performance of the contract by either party impossible);
– the real basis of the contract no longer exists. Here, the term frustration is used to indicate an event that, because it was unforeseeable when the contract was
executed, is recognised by the law as impeding fulfilment of a contractual obligation, without either of the parties being to blame, because the circumstances in
which performance must take place would make it radically different from that agreed between the parties. An example of frustration of purpose is found in the
historic English case Krell v Henry, in which one party rented to the other, for the two days of celebrations for the coronation of Edward VII, a room overlooking
the route of the procession. Both parties agreed about the purpose of the arrangement, even if their intention was not stated in the contract. However, the
coronation was postponed because the king was ill, depriving the contract of its basis, because “the Coronation procession was the foundation of this contract”.

reserved.
F. CONTRACTUAL LIABILITY, REMEDIES AND DAMAGES (2/3 - follows)
■ Therefore, even when there is still a possibility (even though a slight one) of performance, common law courts have wider scope than those of civil law to recognise
grounds of exemption from liability for non-performance if performance would entail something radically different from what the parties envisaged when making the
contract. Such an approach is not found in Italian law, where the event of force majeure that justifies non-performance must (i) have been unforeseeable when
making the contract, (ii) not be attributable to the party that invokes force majeure, and also (iii) objectively prevent performance, without any remedy being
available.
■ In civil law and common law, there are also different rules on non-performance attributable to one of the contracting parties. In the Italian system, the relevant rule
is article 1218 of the Civil Code, which establishes that a debtor who does not render exact performance is liable for damages, if he is unable to prove
that the non-performance or delay is due to causes that cannot be attributed to him. Therefore, for the courts, it is important to ascertain that the debtor has
adequately proved that he no longer has a contractual duty because, for reasons beyond his control, it has become impossible for him to perform.
■ This approach is not followed by common law jurisdictions. In English and American law breach of contract means, generically, non-performance due to
wilful intent or gross negligence. A distinction is made between actual breach and anticipatory breach.
– actual breach is when contractual obligations are not performed, for reasons attributable to the debtor, at the agreed date. This is a fundamental or vital breach
when the non-performance is so serious that it affects the balance of the contractual relationship – i.e. it goes to the root of the contract. If the breach does not
affect the balance of the relationship between the parties, it is called defective performance.
– anticipatory breach is when the breach takes place before the agreed date of performance. One example is when a debtor explicitly declares that he does not
intend to fulfil his contractual obligations at the pre-established date (explicit repudiation). Another is when the debtor’s conduct, before the date established by
the parties for contractual performance, contradictions his intention of fulfilling his contractual obligations.
■ In common law systems, non-performance never constitutes a breach of contract if the debtor has failed to perform in good faith and has a legitimate excuse. It has
been stated that “there is no breach when non-performance of a contract is justified by some lawful excuse”.
■ However, it is interesting that a common law court, when considering a breach of contract, does not ask whether the breach is attributable to the
conduct of the debtor, but whether it falls within the scope of the promise made in the contract: in English and American law, a contract implies a
promise. What counts above all is that the debtor has not achieved the agreed result, and there is no formal difference between non-performance, inexact
performance and late performance.

reserved.
F. CONTRACTUAL LIABILITY, REMEDIES AND DAMAGES (3/3 - follows)
■ In case of breach of contract, in civil law systems as in common law ones, the creditor is damaged by the non-performance. In terms of the remedies
available, Italian law offers the possibility of demanding performance or dissolving the contract − article 1453 of the Italian Civil Code states that, “in contracts
providing for mutual counter-performance, when one of the parties fails to perform his obligations, the other party can choose to demand either performance or
dissolution of the contract, without prejudice, in any case, to compensation for damage”. This rule indicates the importance attributed by the Italian legal system to
the right to damages, as a remedy for any breach of contract.
■ In common law countries, the main remedy for breach of contract is damages, while specific performance is used if the main remedy is inadequate.
Therefore, the basic pre-condition for obtaining specific performance is that the damages are inadequate and a court order instructing the debtor to fulfil his duty in a
specific way (a decree of specific performance) is an exceptional measure in the English and American systems, also because it has a direct impact on personal
freedom. Another remedy used in common law jurisdictions is the injunction, by which the court imposes an obligation to do something (mandatory injunction) or not
to do something (prohibitory injunction). Breach of an injunction constitutes contempt of court, which is a crime.
■ With regard to the type of damage for which compensation must be given, civil law and common law systems both distinguish between economic damage
(danno patrimoniale) and non-economic damage (danno non patrimoniale). Whatever form the compensation takes, it must recompense the performing party
for the damage it has suffered as a result of the other’s non-performance. In common law, compensatory damages are contrasted with punitive damages, which are
used to punish liability in tort (torti aquiliani). Punitive damages are not used to punish liability in contract because there is no need to punish or suppress the
conduct of the defaulting party but to remove the harmful consequences, by compensating the performing party for the damage it has suffered.
■ As in Italy, also in common law countries damage must be the immediate and direct consequence of non-performance in order to qualify for
compensation. The English and American courts exclude compensation for damage that is too remote, i.e. in terms of the causal chain, too far from the
non-performance. Moreover, the damage must have been foreseeable when the contract was concluded.
■ With regard to the amount of damages, its purpose should be “to put the victim so far as money can do it, in the same situation as if the contract had been
performed”. Hence, the general principle is that of restituitio in integrum. One of the factors that the court must bear in mind when determining the amount of the
damage to be compensated is “the disappointment, the distress, the upset and frustration caused by the breach”. Another factor that affects the calculation of the
damage is any contributory negligence.
■ Finally, with regard to clauses on damages, common law distinguishes between penalty clauses, which aim to penalise the defaulting party, and liquidated
damages clauses, in which the parties may agree in advance, when the contact is executed, the amount of money to be paid if one of the two is in
breach of contract.

reserved.
G. INTERPRETATION OF THE CONTRACT
■ A lawyer working under civil law is used to writing lean and simple contracts, since the written law (civil code and special laws) provides a basic
regulatory framework, capable of filling any gaps left by the parties, and of imposing mandatory rules, even against the wishes of the parties. In such
contracts, the lawyer tries to identify the nomen iuris, i.e. to give the contract a precise and typical legal classification (and when this is not possible, to identify the
type of contract that is most similar and to apply it by analogy). In civil law countries, however, the civil code and special legislation are applied, even if there is no
specific reference to them in the contract (in Italy, this is defined as etero-integrazione of the contract).
■ On the contrary, a lawyer working in a common law jurisdiction, where the written law is less important, is used to writing elaborate contracts, as
detailed and complete as possible, creating an autonomous and self-sufficient regulatory framework. Therefore, contracts in the common law system have
been defined as self-regulatory contracts, as they are written in detail and tend to cover all the cases that could arise during the contractual relationship. This
different approach stems from the fact that English contract law is based on the principle of freedom of contract − considered to be almost inviolable (sanctity of
contract) − which allows the parties freedom in determining the content of their contract, without interference by the legislator or the courts.
■ The concept of a self-interpreting contract is confirmed by the fact that the parties (and the court), in interpreting a contract, confine themselves to the
literal wording used in the contract, avoiding as much as possible (if not completely) the use of external sources of law and non-contractual documents.
■ In both civil law systems and common law systems, it is now common practice that, during negotiations, the parties typically sign various types of agreements or
documents (e.g. memorandum of understanding or statement of principles, letter of intent, confidentiality agreement). Generally, the documents drawn up before
the final contract do not affect its interpretation, thanks to a special merger clause, which is generally inserted into international agreements and which
excludes any binding effect of the pre-contractual documents and other non-contractual or external legal sources. Since the merger clause is usually
inserted into any type of agreement, regardless of the legal system, there is therefore a sort of convergence between the contractual approach typical of common
law and that of civil law.
■ Therefore, merger clauses aim to protect the wording of contracts from manipulative interpretation, by excluding external legal sources and interpretive sources that
conflict with the literal wording of the contract. The most important function of the merger clause is to exclude:
– simulation (side-letters)
– previous agreements
– future contracts
– pre-contractual documents (e.g. memorandum of understanding, letter of intent)
– general conditions
– representations (written or oral).

reserved.
H. APPLICABLE LAW
■ Although there is a tendency (as in England), to draw up self-regulatory contracts (i.e. contracts containing particularly detailed clauses designed to regulate and
solve, in advance, any possible dispute that may arise in the course of the contractual relationship, and to minimise the possibility of the content of a contract being
regulated by external sources), it is clear that a contract cannot predict everything. That is why, in most disputes, the interpreter (whether judge or
arbitrator) has to identify the national law to be applied, in order to fill the gaps left by the contracting parties.
■ In doing this, the interpreter (whether judge or arbitrator) will refer to private international law (the conflict rules), which will allow him to establish which
law is applicable to the contract. However, this solution, can have adverse consequences in terms of its unpredictability (uncertainty). The rules of private
international law vary from system to system (and therefore from country to country); consequently, the law that is ultimately deemed to be applicable to the contract
will obviously differ according to the judge who is the first to decide, and hence the outcome of the dispute will differ too.
■ The parties can obviously reduce this risk by expressly establishing in the contract which law is to be applied in the event of disputes. This is usually
done by including a pactum de lege utenda − a clause expressly stating that the entire contract is governed by the specified law, which will govern its execution,
performance and termination, as well as its interpretation, also for the purpose of resolving disputes between the parties in relation to the contract.
■ The legal systems of most countries acknowledge the possibility that contracting parties may freely choose the law applicable to their contract. That
freedom is an expression of the parties’ autonomy (principio dell’autonomia delle parti), which is widely recognised by the legislation and codes of the main civil law
and common law countries. Under the same principle, the parties are free to identify the jurisdiction (foro competente) − in the sense that they can establish which
court will be entitled to settle any disputes arising between the parties − or to insert an arbitration clause, providing that any disputes relating to that contract will be
resolved by a single arbitrator or an arbitral tribunal.

reserved.
"Atto di cessione di partecipazioni sociali" vs. "sale and purchase agreement"
TEMPLATE OF CONTRACT – CIVIL LAW SYSTEM TEMPLATE OF CONTRACT – COMMON LAW SYSTEM

reserved.
I. FURTHER COMMENTS ON THE CONTRACTUAL MODELS
■ It is clear from our analysis of the two contractual models that, although the systems of civil law and common law are beginning to converge, their basic approach is
very different, even when the subject matter of the contracts is the same, for example, a sale of equity.
■ An Italian contract regulates only the essential details of the sale (i.e. payment, the seller’s representation and warranty that it is the full owner of the shares,
which are free from any encumbrances, and the effective date of the sale). Therefore, this type of contract is sparely worded and not very detailed; should there
be any dispute about the contract and/or its interpretation and/or its performance, or should there be any gaps in it, these will be resolved by referring to the general
rules laid down in the civil code. Hence, the concept of a contract that is regulated and complemented by the rules of the Italian civil code (the principle of etero-
integrazione in Italian).
■ Instead, an English contract is more detailed and comprehensive than an Italian one, as the parties do not merely regulate the essential aspects of the sale
but agree the precise and specific rules to be applied, adapted to their circumstances, e.g. the rules on the obligations of the guarantor, or the conditions precedent
to closing, or the rules on confidentiality. A typical approach in common law is to include a merger clause (also referred to as an entire agreement clause), in which
the parties stipulate that any other agreements made between them before or during the negotiation stage are superseded. Since an English contract, as we have
seen, can be very detailed, it is defined as a self-regulatory contract, in that construction of the contract and/or identification of the applicable rules is not subject to
or complemented and/or completed by reference to the general rules of law.
■ This different approach to contractual frameworks results in problems of compatibility in terms of the rules applicable to an individual contract. In other
words, although civil law and common law are starting to draw closer, the importance attached to the law by the Italian system means that the law is always
applicable, even if the parties have not expressly agreed so, and even if there are gaps in the contract; however, the same is not true in common law countries.
■ For instance, in a purchase and sale agreement, in both civil law and common law jurisdictions, the parties must regulate, in (more or less) detail, the
issue of warranties. Take the example of the warranty cited in article 1495 of the Italian Civil Code, against defects in items sold. Under civil law, this particular
warranty, when inserted in a contract, could be said to be redundant as article 1495 of the Italian Civil Code would apply in any case, irrespective of any reference to
it in the contract. However, it is obvious that, although this rule is a general and unconditional one, there might be problems of interpretation (e.g. of the time limit
by which the purchaser may lodge a complaint about the defects). Such issues are resolved by referring to the relevant case law and the literature. For example,
case law has specified that, generally, when defects are discovered, the seller’s undertaking to eliminate such defects gives rise to an ‘obligation to do something’,
which is separate from the obligation underpinning the purchase and sale agreement, which is to give something. It follows that the purchaser’s right to have the
defects eliminated is subject to the ordinary statute of limitations and not to the time limit indicated in article 1495 of the Italian Civil Code. Article 1495 applies solely
to actions brought in connection with building work, where defects can be remedied by reducing the price or rescinding the contract. The same does not hold true
for a contract made under common law, as the parties have to agree on the specific rules to be applied to all the separate issues that could actually
arise. It is not possible to resort to general and mandatory rules, equivalent to those established in the Italian Civil Code.

Contatti
Avv. Andrea Zoccali
Studio Associato Consulenza Legale e Tributaria
Via Vittor Pisani, 27
20124 - Milano
T: +39 02 6764 4903
Fax: +39 02 6764 4756
E: azoccali@kpmg.it

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© 2016 Studio Associato - Consulenza legale e tributaria, an Italian
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Presentazione PPT - Lezione Insubria 29022016

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