Donation

From Max-EuP 2012

by Martin Schmidt-Kessel

1. General aspects

‘Donation’ numbers among the well-established forms of gratuitous transactions. The essential features of this type of transaction are recognized throughout Europe. However, the specific terminology, conceptualization and underlying policy considerations differ significantly. As a result, a comparative or uniform approach to the law of donation is not easily achieved.

a) Notion and differentiation from other types of transaction

A donation is characterized by the permanent transfer of an object without counter-performance. Donations differ from foundations or trusts in that donations establish a separate patrimony. However, a subsequent gift made to an existing foundation is often treated as a donation in the technical sense. The permanence of the transfer distinguishes donations from all forms of gratuitous use (loan). Drawing a clear line between release or waiver on the one hand and donation on the other may be difficult; these legal institutions are not analysed in the same way throughout Europe. Some legal systems also differentiate between the promise of a donation and the immediately executed donation (in Germany referred to as Handschenkung) and view them as different types of transactions.

In view of the different functions attributed to the concept of gratuitousness, donation, as other types of gratuitous transactions, is characterized by a certain degree of uncertainty. Some legal systems consider the munificence of the donor to be an additional element of donation. For this reason most legal systems based on the French tradition would not analyse the transfer of an object, or the promise to transfer such an object, as a donation if an intention libérale was not the cause of the transaction (indicia of seriousness). There is, however, no general consensus as to such an additional element being inherent to the concept of donation. The only clear case seems to be the scenario of gifts made with the intention to harm, as in the classical example of the Trojan horse; such an intention deprives the person gratuitously rendering performance of any legal privilege whatsoever.

Consensus is also lacking as far as additional intentions pursued by the donor are concerned. At least for the continental legal systems it is generally accepted that an intention to remunerate the donee—without an underlying obligation to do so—does not exclude such transactions from being qualified as donations; however, the rules governing donations are significantly modified in such cases. On the other hand, the rules governing donation often do not apply to promotional gifts. In practice, the legal relevance of those transactions is normally confined to the rules on unfair commercial practices (unfair competition (basic principles); unfair competition (consequences); unfair competition and freedoms of movement). As regards movable objects, the question has arisen as to whether the fact that the donated objects were given with the intention to dispose of them as waste should exclude the applicability of the rules on donation as well as the privileges normally granted to donors. The famous Kartoffelpülpe case of the German Federal Supreme Court (20 November 1984, Iva ZR 104/83, BGHZ 93, 23) concerns such a situation without, however, openly addressing the problem. Conversely, conditions concerning the use of a donated object are unproblematic as long as they do not include a potential return of the object to the donor.

b) Mixed situations

As is the case with all gratuitous transactions, mixed situations have proven to be the subject of particularly thorough discussion. Sometimes referred to as negotium mixtum cum donatione or ‘mixed donations’, a significant portion of the court decisions and academic scholarship addressing the law of donations is dedicated to their treatment. It should be noted, however, that in English law mixed situations do not attract particular attention as general contract law applies here due to the presence of consideration.

The most important question in the context of mixed transactions in practice is the substantive scope of rules—motivated by policy considerations—which limit the effectiveness of donations (invalidity) in order to protect third parties. Included here are limitations on the right to conclude gratuitous transactions to the detriment of creditors, by means of the so-called actio Pauliana as well as functional equivalents usually to be found under insolvency law or in the rules on the enforcement of judgments. At stake is, moreover, the protection of persons entitled to a compulsory portion (compulsory portion; gratuitous transactions) and beneficiaries under contracts of inheritance and joint wills, as well as the preservation of positions under matrimonial property law (matrimonial property law; marital agreements). Further, the protection of the holder of a property right against the disposal of that right by an unauthorized individual may depend on whether good faith acquisition of the object in question fails due to the (partial) gratuitousness of the transaction (acquisition of ownership from a non-owner). However, the formerly widespread bans on donation, eg between husband and wife, and their application to mixed transactions, are much less important nowadays. Generally speaking, a tendency for broadening the scope of third party protection is noticeable.

A special question is presented by donations subject to a charge (donations sub modo), which have traditionally been considered to constitute a special case of donation. The concept was known already in classical Roman law where it bore strong relations to succession law, in which detailed rules for testamentary charges on the beneficiaries of a will were developed. The continued existence of donations subject to a charge is due, first and foremost, to the fact that pertinent rules were established at an early stage, long before the general enforceability of ancillary agreements was recognized; apart from that the systematic connection between the law of donation and the law of succession existing in many legal systems played a role. Unlike the designation of a person as one’s successor or the conferral of a legacy (legacies), the distinction between donations subject to a charge and (partially) synallagmatic contracts constitutes an almost insoluble problem. In any case, the charge attached to the donation cannot—in contrast to the law of succession—be aimed at just any sort of act or omission. It is therefore only a matter of time until the concept will be abandoned.

c) Donation and contract law

In European private law the classification of donations as contractual and the resulting applicability of contract law rules are not self-evident. Because of the doctrine of consideration the English and Irish contract laws are geared entirely towards reciprocal agreements. The formalization of a promise to donate through the device of a deed leads to its binding force (indicia of seriousness; formal requirements) but does not lead to the application of the rules of contract law, at least not without limitations. If the donor fails to perform he is liable for breach of covenant, not for breach of contract. In some legal systems, eg English law and in some Spanish foral laws, the case of immediately executed donation is not considered as a contract, but as a juridical act concerning the transfer of property, the return of which cannot be claimed by the donor in view of the character of the transaction as a donation. In Scottish law donations are considered to be unilateral juridical acts subject to a right on the part of the donee to reject the donation; rules of contract law are not normally applicable to donations. German law recognizes a similar construction, § 516(2) Bürgerliches Gesetzbuch (BGB), though without comparable systematic consequences.

In a situation involving several persons, the donee is often appointed as the beneficiary of a trust. Similar to this is the idea of an indirect donation (donation indirecte, donazione indiretta), allowing legal systems of the Romanistic family to use a contract in favour of a third party for the purpose of circumventing the form requirements relating to donations. Whether the same may be said in English law under the Contracts (Rights of Third Parties) Act 1999 has yet to be determined.

In the continental codifications, donations often are systematically linked to the law of succession. This classification prevailing in the Code civil and other codifications based on it, originates from the desire to consolidate all kinds of libéralités in one part of the code; it can have substantive legal consequences, eg in the case of a charge (see 1. b) above).

2. Tendencies in legal development

In various regards, donations share the reduced binding force of other gratuitous transactions. In the case of donation, this predominantly results from Napoleon’s police de libéralités. Specific hurdles for the conclusion of the contract are followed by far-reaching possibilities on the part of the donor to challenge the binding force of the contractual obligation. Moreover, the donor’s duties are considerably restricted as compared to those envisioned in general contract law and also to those incumbent upon a seller. Finally, the remedies of the donee against the donor are restricted.

Current legislative activities reflect an increasing tendency to deformalize donations; this is particularly evident in the reduction of the notarial form to a mere means of evidence of the intention to be legally bound (eg Art 7:176 Burgerlijk Wetboek). The traditional form requirements remain in place, particularly with respect to real estate contracts or transactions relating to company shares as these transactions require mandatory registration independent of their gratuitous nature. National legislatures and courts of late have tended to weaken the protection of family assets by relaxing restraints placed upon the freedom of potential donors. But this has not affected the general protection afforded to creditors against the consequences of their debtors’ donations.

3. Regulatory patterns in detail

a) Form requirements

In many European states donations are subject to requirements in respect of form; frequently a notarization is required. For some legal systems written form is sufficient (eg Switzerland, except for land). In some countries (eg Denmark, Norway and, more recently, the Netherlands) no requirement of form exists.

As far as a specific form is required, there are numerous exceptions. The most important of these is the immediately executed donation (Handschenkung), which is recognized everywhere and sometimes even considered to be a separate type of transaction. By contrast, curing a lack of form by rendering performance is only exceptionally recognized. The substantial difference between curing and renewed execution of the donation lies in the case of a donor who erroneously thinks that he is bound and therefore renders performance: if a legal system does not recognize the concept of curing the lack of form by rendering performance, the donor is protected in view of his lack of intention to be bound. Further exceptions exist in some countries for professional donors and also for public announcements of donations. Apart from that, particularly the legal systems of the Romanistic family developed ways of avoiding form requirements by means of indirect or hidden donations. Further, if a donor induces the donee’s reliance on the validity of an informal promise to donate, reliance damages are occasionally awarded.

b) Prohibited donations

In addition to the form requirements, which generally exist to protect the donor, in numerous European legal systems the very idea of donation is met with a firmly entrenched suspicion which may be traced back to Napoleon’s police de libéralités. This is demonstrated by the extension of form requirements which do not appear to be required by the interests of the donor, eg requiring a special form for the donee’s acceptance. The law traditionally recognized a number of prohibitions on donation, though the best known one of them—that between husband and wife—no longer exists. Still in existence—though also on the retreat—are rights of revocation and rules on the disregarding of donations under matrimonial property law (see 1. b) above). Other prohibitions, such as those concerning donations to a doctor or a lawyer providing services to the donor, aim to protect the donor in situations of dependency or reliance and, thus, functionally correspond to rights of avoidance due to defects of consent (fraud; duress; mistake). Further prohibitions apply to the donation of a person’s entire present or future assets, as well as to the donation of objects which belong to a third party.

c) Defects of consent

A widespread phenomenon is that the scope of rights of avoidance based on defects of consent is extended. The rules in the national legal systems diverge considerably on this point: as additional types of mistake (eg mistake in motivation in Austria and Italy, as under the law of succession), or causes for mistake (eg Scotland—mistakes arising only in the donor’s sphere) provide a rationale for the right of avoidance (mistake).

d) Capacity

Many special national rules concerning donations exist with regard to legal capacity. Often minors and other persons with limited contractual capability are either partly or entirely precluded from making donations. Conversely, there are sometimes special rules on the ability of legally incapacitated persons to receive donations. Donors can thus be granted the—questionable—possibility to oust parents or other legal representatives from the administration of the donated object and instead establish a separate patrimony managed by the donor.

e) Rights of revocation

Legal systems with a strong Roman heritage additionally weaken donations by recognizing rights of revocation. This does not (any longer) entail the mere reclaiming of the object in question; rather, the right to revoke constitutes a right to dissolve a contract (termination of a contract) which accrues if essential circumstances upon which the contract was based have materially changed (change of circumstances). This idea is not completely alien to English, Irish and Scottish Law, though significantly restricted in comparison to the Continent.

A typical case is revocation due to gross ingratitude in instances where the donee has intentionally committed a severe offence against the donor. Functionally, this is a case of breach of contract. The severity of the ingratitude required varies considerably. At a relatively early stage the right to revoke based on gross ingratitude gave rise to a right to revoke due to the impoverishment of the donor. Historically, and in many legal systems still today, this right has been based upon the idea that a failure to pay maintenance to a donor who no longer is in a position to maintain himself was a case of gross ingratitude. Today, however, it tends to be based, at least partly, upon the notion of protecting third parties as well as creditors (maintenance).

Further rights to revoke—eg in respect of engagement presents or certain wedding gifts where the engagement or wedding fails, or in respect of certain gifts made on the death bed by a donor who unexpectedly survives—are better conceptualized as cases of failure of purpose. In addition to these rights to revoke, a number of third party rights of intervention exist in order to protect third parties affected by the transaction (gratuitous transactions).

f) Restricted obligations of the donor

The donor has the obligation to deliver the object concerned and transfer the ownership in it as required by the contract; obviously, where the conclusion of the contract itself effects the transfer, the obligation to transfer does not arise.

The question as to what additional obligations, if any, the donor has concerning the quality of the donated object is answered rather differently in the European legal systems. However, where the donor has no such contractual obligations, the law of torts/delict may step in.

In many legal systems, duties resulting from a donation are completely negated. In others, the donor’s liability is limited to defects which were known to and fraudulently concealed by the donor (fraud)—an approach obviously inspired by immediately executed donations.

From a practical point of view, third party rights are of more importance. In some legal systems, the contract is rendered automatically invalid if a third party owns the donated object. If the donee is protected at all under these circumstances such protection can only be of an extra-contractual nature. If the contract is regarded as valid, most continental legal systems only hold the donor liable for third party rights that were fraudulently concealed. Similar limitations on the duties of the donor are largely alien to English law and to the Nordic legal systems.

The restricted scope of a donor’s duties is often matched by a restriction of the donee’s remedies. This is especially true as concerns the exclusion—complete (England) or partial in the case of defective goods (eg Germany)—of enforcement in kind of promises of donation. Furthermore, damages for breach are often subject to restrictive requirements such as gross negligence or fraud—eg liability existing only for fraudulently concealed defects.

Additionally, in some legal systems the scope of liability is limited. Often only reliance damages and personal injury are compensated, whereas the expectation interest of the donee remains unprotected.

4. Regulatory structures in uniform laws and uniform law projects

Up to now, donation has not been an integral component of any of the various projects on uniform law. The conceptual broadness of the notion of contract, however, would seem to result in the applicability, in principle, of the Principles of European Contract Law (PECL), the UNIDROIT Principles of International Commercial Contracts (PICC) as well as Books I–III of the Draft Common Frame of Reference (DCFR) to donations. However, these general rules, by and large, fail to address the specificities of the type of transaction.

Therefore, Book IV Part H of the DCFR contains a set of detailed rules on the law of donation. These rules define the scope of donation and propose modifications of the general rules of contract law, which reflect the protection of the donor: a special form is required (in writing or a qualified signature), and the possibility of avoiding a donation because of defects of consent has been extended. Moreover, the donor has more restricted obligations compared to a seller. The remedies of specific performance and damages are significantly restricted. Finally, the DCFR envisages rights to revoke due to ingratitude and impoverishment, as well as a general clause for revocation in case of a material change in essential circumstances.

Literature

John P Dawson, Gifts and Promises: Continental and American Law Compared (1980); Reinhard Zimmermann, The Law of Obligations (1990) 477-507; Jan Dirk Harke, Freigiebigkeit und Haftung (2006); Martin Schmidt-Kessel, ‘At the Frontiers of Contract Law: Donation in European Private Law’ in Antoni Vaquer (ed), European Private Law Beyond the Common Frame of Reference. Essays in Honour of Reinhard Zimmermann (2008) 77; Renate Barbaix, Het contractuele statuut van de schenking: hoe anders is de overeenkomst schenking en waarom? Rechtsvergelijkende studie van het contractuele statuut van de schenking (2008); Richard Hyland, Gifts: A Study in Comparative Law (2009).

Retrieved from Donation – Max-EuP 2012 on 02 October 2022.

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