What is culpa in contrahendo?
What are the elements you need to prove in court?
What are some examples of cases where this doctrine can be applied?
We will look at what is the culpa in contrahendo meaning, its legal definition, its origin, how this is applied in civil law jurisdictions, what are the equivalent theories in common law, the elements that you need to prove in court, examples and more.
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Table of Contents
What is culpa in contrahendo
Culpa in contrahendo is a legal doctrine typically found in civil law jurisdictions imposing a duty of good faith on parties when negotiating a contract.
The objective is to prevent a party from concluding a contract to his or her detriment.
“Culpa in contrahendo” is a Latin phrase meaning “fault in the conclusion of the contract”.
In other words, a person must not induce or provide misleading information to another in the pre-contractual phase leading the other party to enter into an agreement to his or her detriment.
Culpa in contrahendo definition
According to USLegal, culpa in contrahendo is defined as:
It is an important concept in contract law and refers to the principle that parties must act in good faith during preliminary contract negotiations.
What is notable with the culpa in contrahendo legal definition is that it’s a principle of good faith governing the relationship of the parties before a contract is signed.
Origins
This doctrine was first introduced in Germany by Von Jhering in 1861 stating that a party must be accountable for his or her conduct during the negotiation of a contract when such conduct prevents the conclusion of the contract or brings about its invalidity.
He was also of the view that a careless promisor will only have himself or herself to blame when tricking another to enter into what appears to be a legally binding agreement.
The authors Friedrich Kessler and Edith Fine, in Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, indicate that:
The doctrine of culpa in contrahendo goes back to a famous article by Jhering, published in 1861, entitled “Culpa in contrahendo, oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen.” It advanced the thesis that damages should be recoverable against the party whose blameworthy conduct during negotiations for a contract brought about its invalidity or prevented its perfection.
Culpa in contrahendo elements
The jurisdictions applying the culpa in contrahendo doctrine may have varying elements to prove when seeking damages against another for breach of duty of good faith in the negotiation of the contract.
Nonetheless, the key elements a court will consider are the following:
- Preliminary negotiations of a contract
- A party’s breach of the duty to negotiate in good faith
- Damages caused
- A causal link or causality between the damages and the breach of the duty of good faith at the pre-contractual stage
Principles of culpa in contrahendo
The doctrine of culpa in contrahendo is primarily found in civil law jurisdictions such as Germany and Belgium.
German Civil Code
The German Civil Code can be used to statutorily invoke the culpa in contrahendo legal theory.
In fact, Article 311 of the German Civil Code enshrines the culpa in contrahendo principle as follows:
Obligations created by legal transaction and obligations similar to legal transactions
(1) In order to create an obligation by legal transaction and to alter the contents of an obligation, a contract between the parties is necessary, unless otherwise provided by statute.
(2) An obligation with duties under section 241 (2) also comes into existence by
1. the commencement of contract negotiations
2. the initiation of a contract where one party, with regard to a potential contractual relationship, gives the other party the possibility of affecting his rights, legal interests and other interests, or entrusts these to him, or
3. similar business contacts.
(3) An obligation with duties under section 241 (2) may also come into existence in relation to persons who are not themselves intended to be parties to the contract. Such an obligation comes into existence in particular if the third party, by laying claim to being given a particularly high degree of trust, substantially influences the pre-contract negotiations or the entering into of the contract.
Belgian Civil Code
Under Belgian contract law, Section 1382 of the Belgian Civil Code provides the statutory foundation for a party to invoke the doctrine of culpa in contrahendo in court.
Article 1382 of the Belgian Civil Code is found in the chapter of “des délit et des quasi-délits” meaning contractual offences (contractual claims) and quasi-offences (tort) causing harm to another.
Quebec Civil Code
Under the Quebec Civil Code, article 1375 lays the foundation for parties to deal and negotiate with one another in good faith when entering into a contract.
Common law doctrines
Although there are no direct counterpart to the culpa in contrahendo doctrine in American common law, other doctrines and equitable remedies can be invoked to achieve a potentially similar outcome such as:
- Promissory estoppel
- Good faith and fair dealing in preliminary negotiations
- Misrepresentation
- Fraud in the inducement
- Tortious interference
- Mistake
- Negligence
- Illusory promise
- Implied contract
For example, the promissory estoppel doctrine, rooted in equity, allows the enforcement of a person or entity’s promise when another person relied on that promise to act in a detrimental way.
For a promissory estoppel action to success, you must demonstrate certain elements, such as:
- You need a promisor (person making the promise)
- A promisee (person receiving the promise)
- Promisee’s reasonable reliance on the promise
- Facts proving a detriment to the promisee
- Damages to the promisee due to the promisor’s failure to act on the performance
- Enforcing the promise is the only way to remedy the injustice
Contractual or Extra-contractual legal basis
One interesting question is whether “culpa in contrahendo” is a contractual claim or not?
“Culpa in contrahendo” doctrine requires that parties be bound by obligations of good faith in the pre-contractual phase.
In one scenario, the parties may conclude a contract.
In this context, we can argue that the recourse can be classified as a “contractual” recourse considering a contract has been formed.
What happens if a party’s actions cause damages to another by preventing a contract to be formed?
Will the recourse be classified as “contractual” or “extra-contractual”?
Under German law, “culpa in contrahendo” is classified as a contractual recourse.
Similarly, under the Quebec law, the parties have a duty to negotiate in good faith.
A party causing damages by breaching its pre-contractual duty to negotiate in good faith can be held responsible for damages in accordance with the “culpa in contrahendo” doctrine classified as a contractual recourse.
However, under Albanian law, based on Article 674 of the Albanian Civil Code and their case law, pre-contractual responsibility may not be classified as a “contractual” recourse.
Culpa in contrahendo example
Misrepresentation at the pre-contractual phase
The courts may award culpa in contrahendo damages is when a person or entity misleads another to enter into a contract based on wrong and false information.
For example, a very large software company (Company A) enters into a partnership agreement with a small software company (Company B) having a unique technology.
Company A promises Company B that it has a large customer base, massive distribution channels and can potentially sell Company B’s technology around the world.
Company B is induced to enter into this partnership agreement on this basis.
However, after the partnership is signed, Company A methodically learns and attempts to access Company B’s trade secrets so it can develop the same technology on its own and sell it on its own.
Company A never makes any effort to promote Company B’s software in its distribution channel nor provides the technology to its customer base.
After having accessed the information needed, Company A terminates the contract with Company B.
In this case, Company B may claim compensatory damages from Company A as it was induced to enter into a partnership and tricked into giving away its trade secret under false pretense that its software will be distributed globally.
American law precontractual liability
In American law, notions such as promissory estoppel, tortious interference, good faith and fair dealing or other common law doctrines can be used to seek damages or compensation for precontractual liability.
The Pennzoil and Texaco case of 1985 is a notable example of how the American courts may deal with precontractual liability.
On November 19, 1985, a Texas jury awarded Pennzoil the sum of $10.53 billion in damages noting that Texaco illegally interfered with an “agreement in principle” reached between Pennzoil and Getty Oil where Pennzoil would purchase some of its shares.
Although the parties only had an agreement in principle and had not signed an actual contract, Texaco moved in and induced Getty Oil to sell its shares to Texaco instead.
Getty Oil eventually did business with Texaco in breach of the pre-contractual understanding it had with Pennzoil.
Texaco claimed that it moved to acquire Getty Oil in a legal way as Pennzoil did not have a formally binding agreement with them.
However, the jurors indicated that they wanted to ensure they send a clear message to Texaco and others who behave improperly at the precontractual stage and must remain responsible for the damages caused.
Culpa in contrahendo FAQ
What is the meaning of culpa in contrahendo
Culpa in contrahendo is a legal doctrine typically found in civil law jurisdictions imposing on parties to negotiate and ultimately conclude a contract non-detrimental to the other party.
“Culpa in contrahendo” is a Latin phrase meaning “fault in the conclusion of the contract”.
This doctrine requires that parties remain responsible for their actions during the negotiation and pre-contractual phase of a contract and must act in good faith.
Originally, this doctrine came into existence to protect a person from the deliberate actions of another inducing another to contract to his or her detriment, deliberately preventing the conclusion of the contract or entering into a voidable contract.
What is the equivalent of culpa in contrahendo in American contract law
In American common law, there are many legal theories and doctrines that can be used to get compensated for precontractual misconduct, misrepresentation or detrimental reliance.
The following theories are some example:
- Promissory estoppel
- Good faith and fair dealing in preliminary negotiations
- Misrepresentation
- Fraud in the inducement
- Tortious interference
- Mistake
- Negligence
- Illusory promise
- Implied contract
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