by Hein Kötz
1. Importance and historical development
All legal systems in Europe have rules which invalidate or make unenforceable certain transactions if specified formalities are ignored. Such rules mostly apply to contracts (including marital agreements and contracts of inheritance and joint wills), but may also apply to other juridical acts, such as wills. They are commonly regarded as exceptional, the general rule being that no formalities are required. Legal history shows, however, that this principle has by no means always been accepted. Indeed, the further back into the past one goes, the more the validity or enforceability of legal acts is found to depend on external formalities. To begin with, legal consequences ensued only from formalized conduct. Older Roman law and the Germanic Codes (Germanenrechte) offer many examples. It is only when the law matured and the economy developed that the general idea was accepted that what mattered was the consent of the parties and that formalities were simply an extra requirement, over and above the consent, needed in some cases for the validity of the agreement.
Modern contract law rests on the general principle that no form is required for a valid contract. Nonetheless the man in the street generally only regards a contract as valid if it is in writing. This is a perfectly understandable attitude, for really the only contracts which are still made orally are everyday transactions which parties perform on the spot. In almost all other cases parties sign a form, possibly with handwritten or typed additions. There are two reasons for this. First, firms need to have every piece of business in writing because so many different departments are involved in checking the stock, in procuring, preparing, packing and dispatching the goods, and in managing the customer’s account. Secondly, firms want to do business on terms they themselves have worked out, and this can only be done if these terms are laid down in a prepared form and signed by the customer. Consequently, written contracts are already dominant in business today so that the law’s insistence on them for an ever-increasing number of contracts in order to protect the consumer may not make much difference.
2. Types of formalities
When contracts or other legal acts have to be in a particular form, the form required is, as a rule, in writing. Usually the text must be embodied in a document signed by the party or parties. Sometimes the writing requirement is qualified in some way. Contracts of suretyship are valid and enforceable if only the guarantor’s declaration is in writing; on the other hand, some jurisdictions require that the declaration, alongside his signature, contains in handwritten form (en chiffres et en toutes lettres) the maximum sum he is prepared to guarantee (see eg Art 1326 French Code civil). The writing requirement is also satisfied by what is called an electronic document containing, in addition to the text of the declaration and the declarant’s name, his electronic signature (Dir 1999/93). Modern consumer protection legislation increasingly requires that certain information be brought to the consumer’s notice. In such cases it will often be sufficient for the other party to make this information available to the consumer in textual form, ie in a text which, while not signed, records the information in readable form and discloses the other party’s identity (see § 126 b German Civil Code, Art 1:304–307 Acquis Principles; Art I-1:105 (2) DCFR).
Another special form of the writing requirement is known as the notarial document or acte authentique. The parties to the declaration must report to a notary—an independent legally trained state-appointed professional with public functions—and make their declarations in his or her presence. The notary then draws up a document and reads it out to them; if they approve then the parties and the notary sign it.
In common law jurisdictions, notarial documents are unknown. In the early days the English Statute of Frauds (1677) provided that certain statements and contracts should not be actionable ‘unless the agreement, … or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith’. Today the only type of contract to which the formal requirements imposed by the Statute still apply is the contract of suretyship. An indirect formal requirement is laid down in the doctrine of consideration (indicia of seriousness). It renders promises unenforceable unless the promisee has promised or rendered some requested counterpart. If no such consideration has been provided, the promise is not binding unless it is clothed in a deed. This is a signed written document which makes it clear that it is intended to be a deed, and the signature must be attested by a witness.
3. Reasons for formal requirements
Traditionally formal requirements were enacted by the legislature to make sure that parties did not forswear themselves in court or did not bring along corrupt witnesses. According to its preamble the purpose of the Statute of Frauds (1677) was therefore ‘the prevention of many fraudulent practises which are commonly endeavoured to be upheld by perjury and subornation of perjury’. This is also why the even older Ordonnance de Moulins (1566) laid down that witnesses could not testify to the formation of contracts worth more than 100 livres (Art 54; now Art 1341 French Code civil). While formal requirements of modern law do not primarily seek to prevent fraud in litigation, they do serve an evidentiary function since disputes over what was agreed by the parties will be less likely if they must put their agreements and undertakings in writing.
Other formal requirements have the additional purpose of warning the parties. If a pen is put in their hands, their minds are concentrated on the question whether they really want to engage in a legally enforceable transaction. This is why writing is required, for example, for the guarantor’s declaration in a contract of suretyship, for jurisdiction clauses and for arbitration agreements. Continental legal systems require the ‘notarial form’ for gift promises, sometimes for contracts for the sale of real estate, and for marital agreements and contracts of inheritance. The notarial form is required not only for evidentiary reasons and in order to protect the parties against impulsive generosity or exposure to unconsidered risks, but for the additional purpose of making sure, by requiring the presence of a notary, that the parties fully understand the legal effect of the business in question, that errors are removed and doubts cleared up and that inexperienced parties are not prejudiced. Finally, formal requirements may have the purpose of marking the transition from negotiation to contract. If the contract has to be in writing, the parties know that they may break off negotiations without liability and that they will not be bound in law unless they have put their signature to a document, sometimes in the presence of a notary.
Modern legislation often requires that consumer contracts be put in writing or information be made available to the consumer in writing or in ‘textual form’ (consumers and consumer protection law). Such requirements are mostly laid down in EU directives and are therefore to be found also in the Acquis Principles (see Art 2:201). The information that must be provided is often so detailed, intricate and complicated, and so difficult to understand for laymen that in the view of some observers a ‘renaissance of formalism’ is underway which goes beyond man’s limited ability to process information thrust on him.
Article 1341 French Code civil prescribes, as do similar provisions in Belgium, Italy, Spain and Portugal, that all transactions worth more than €800 must be in written or notarial form, or the evidence of witnesses will be inadmissible. The result is that if a plaintiff suing on a contract whose existence is contested by the defendant cannot produce a document, the judge must dismiss the claim because he cannot hear any witness. However, the rule of Art 1341 is subject to important limitations. It does not apply, for instance, if the contract in issue was concluded by the defendant in the course of a business, or if it was ‘morally impossible’ for the plaintiff to insist that the agreement be laid down in written form, and, most importantly, if the plaintiff can offer a commencement de preuve par écrit, ie produce documents emanating from the defendant which at least suggest a probability that the contract was indeed concluded by the parties.
The situation is different when the form requirement is designed to protect a party from undue haste in entering an important or risky transaction. While a contract lacking the prescribed form is void or invalid in the continental legal systems, it is treated as valid, but unenforceable in the common law. This actually makes very little difference, since the only effect of holding the contract valid but unenforceable is that if it is performed the performance cannot be claimed back. The same solution is reached on the Continent on the ground that the invalidity of the oral promise is ‘cured’ by subsequent performance. Different rules apply where the form is required not by a mandatory statute but by an agreement of the parties, as, eg, where there is a clause in the contract requiring any modification or termination to be made in writing. Here it is generally assumed that a party cannot rely on this clause if the other party is able to prove that a later oral agreement was clearly reached and intended to be binding or that he changed his position in reasonable reliance on the oral agreement (see Art 29(2) CISG; Art 2:106 PECL).
Special sanctions apply where it is for the protection of the consumer that the law requires a contract to be in writing or certain information to be provided in writing. It would ill serve the consumer’s interest to treat the whole contract as void in these cases. The law must therefore fashion some other sanction which both encourages the provision of the required information and protects the interests of the consumer. A firm which grants credit to a consumer without specifying the ‘effective rate of interest’ may be prevented from claiming any interest or any interest above the statutory rate. If in a doorstep sale the seller did not inform the buyer of his right to withdraw from the contract, the law provides that the withdrawal period does not begin to run before adequate notification of the right to withdraw was received by the buyer (see Art 2:207 and 5:101 ff Acquis Principles, right of withdrawal).
5. Enforcement of contracts lacking the requisite form
While it is important in the interest of legal certainty not to undermine the general rule that formalities must be observed, it is also important that the law should not be so inflexible as to cause unacceptable hardship in cases of non-compliance. For this reason, a seller may not invoke the want of form if he fraudulently causes the innocent buyer to suppose that the transaction was valid, with the intention of treating it as invalid should prices rise. The courts will take into account the conduct of the parties and their relationship to each other and ask whether it would be inequitable, disloyal or faithless for a party to renege on his promise just because of a mere formality. It is also of great importance, particularly in the common law, whether the promisee made arrangements on the basis of the validity of the promise so that treating the contract as invalid would be inconsistent with the principle that justifiable reliance is to be protected.
6. Recent developments in European private law
The principle that no form is required for a valid contract has by no means always been accepted but is generally recognized these days as a starting point by all European legal systems. Consequently, formal requirements are treated everywhere as exceptions. Article 2:101(2) PECL provides that a contract need not be concluded or evidenced in writing (see also Art 11 CISG), and Art 1.2 UNIDROIT Principles says that ‘nothing in the Principles requires a contract, statement or any other act to be made in or evidenced by a particular form’; it is added, in clear contrast to Art 1341 French Code civil, that a contract ‘may be proved by any means, including witnesses’. The same rule is laid down in Art 1:303 ACQP even though it finds its basis not in the acquis communitaire, but in the acquis commun.
Rudolf von Jhering, Geist des römischen Rechts II 2 (6th/7th edn, 1923) 470 ff; Ernst Rabel, ‘The Statute of Frauds and Comparative Legal History’ (1947) 63 LQR 174; Reinhard Zimmermann, The Law of Obligations (1990) 68 ff; Tony Weir (tr), Konrad Zweigert and Hein Kötz, Introduction to Comparative Law (3rd edn, 1997) 365 ff; Tony Weir (tr), Hein Kötz, European Contract Law, vol I (1997) 78 ff; Arthur T von Mehren, ‘Formal Requirements’ in IECL VII/1 (1997) ch 10.