Gratuitous Use

From Max-EuP 2012

by Martin Schmidt-Kessel

1. General

Gratuitous use, like donation, belongs to the well-established types of gratuitous transactions in European private law. Its core element—providing the recipient with a temporary right of use without consideration to be given for it—is consistently recognized although there are remarkable differences considering concept and construction. Divergences on matters of policy are—in contrast to the law of donation—more marginal.

a) Notion and delimitation

Gratuitous use is characterized by granting the recipient a temporary right of use without any consideration. Consequently, the recipient is obliged to return what has been given to him when the period of use comes to an end. Gratuitous use is a transaction that usually only confers a right to possession but no right in rem (usus fructus, usufruct). It must thus be distinguished from trusts.

The limited period of use, and the duty to return the object received, set gratuitous use apart from donation, although, as with all gratuitous contracts, attempts have been made to apply the rules of the law of donation, eg by presuming a non-gratuitous right of use accompanied by a release from the duty to give the consideration agreed upon. Gratuitous use differs from service contracts, although differentiation becomes more difficult where the service is connected with the handing over of an object; typically in those cases the criteria used to distinguish between the two transactions are the purpose of why the object is handed over and the interest of the parties concerned. In contrast to a deposit, the recipient is entitled to use the object. The differences between gratuitous use and non-interest bearing loans were not quite clear even under Roman law and can still not be expressed unambiguously in many languages (eg loan; French: prêt); if differentiation is chosen—in accordance with Roman law—between commodatum and mutuum, the entitlement of the recipient to return goods of the same kind leads to the contract being treated as a (usually monetary) loan. The English legal system is familiar with the distinction as well despite the use of the word loan (see Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107: ‘[the practice] is called commodatum, because the thing is to be restored in specie’).

In common with other gratuitous transactions, gratuitous use shares the uncertainties associated with the term gratuitousness; however, they are of only marginal relevance from a practical point of view because of the lack of form requirements and—as with a lease—the possibility to end the use by simply giving notice; the same can be said for mixed situations. Often, elements of liberality are present in transactions involving gratuitous use; specific legal consequences, such as the liability privileges of the lender, or the maintenance burdens, or the strict liability imposed on the recipient are sometimes justified by reference to the liberality of the lender. The liberality is, however, not regarded as a precondition of the type of transaction—in contrast to the intention libérale in the Napoleonic system of donation. Other intentions pursued by the lender thus do not play a role when it comes to the classification of a gratuitous use.

b) Obligation despite gratuitousness

The binding nature of the promise gratuitously to provide the other party with a temporary right to use as well as the handing over of the object is not a matter of course. Given the lack of form requirements, other elements are needed in order to demonstrate a party’s intention to be legally bound, which often proves to be difficult with the granting of a right of gratuitous use. Such an intention cannot be presumed merely on the basis of the gratuitous handing over of an object, as the phenomenon of precarium shows, which does not presuppose an intention to be legally bound. In order to avoid an excessive juridification of everyday social relations, sometimes rather high demands are made for the establishment of an intention to be legally bound—particularly concerning the value of the object and the risks involved. In early Roman law gratuitous use was regarded—until its recognition as a type of contract which probably occurred in the late Republic—as an act of amicitia and could, if at all, only be dealt with under the regime of non-contractual liability. The existing uncertainties in English law as to the binding nature of agreements relating to a bailment (see 3. below) may have the same origin, although this cannot be proven in detail.

c) Gratuitous use and contract law

As with the other gratuitous transactions, there is no consensus on the classification of gratuitous use as a contract, its affiliation to contract law and, consequently, the applicability of rules of contract law. This is apparent, above all, in legal systems which recognize the doctrine of consideration (indicia of seriousness; formal requirements); under English law, for example, even the binding nature of a promise by deed does not inevitably lead to the application of the rules of contract law (donation). The classification of the use of chattels as a form of bailment has in fact—in contradistinction to the development of donation—led to the emergence of a reasonably well-organized set of rules. However, the interrelation between bailment—which is similar in some respects to the continental concept of the Realvertrag (contractus rei; the term ‘real contract’ is not an adequate translation)—and contract law is still uncertain today. Infringements of bailment are remedied under the tort of conversion. The way in which gratuitous use is dealt with in England is therefore quite similar to the republican Roman law.

2. Tendencies in the legal development

As with the other forms of gratuitous transactions, one can observe a tendency in the development of gratuitous use to deviate from the rules of general contract law in favour of the lender, although the contours in this area are not as well established as in the case of donations. In particular, reference has to be made to the specific requirements concerning the intention to be legally bound, the fact that termination is facilitated and generally possible at all times, restrictions on the range of duties owed by the lender and the remedies available to the recipient. Recent national legislation hardly contained anything new in this respect. The rules in most Member States are still based, structurally, upon those of Roman law created since the late Republic (see, for England, Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107). Research on the practice of loans of works of art between galleries and museums has shown that, despite all differences in detail, it functions well.

3. Gratuitous use in detail

The law on gratuitous use has only rarely been dealt with under a comparative perspective. From a practical point of view its most important field of application is the loan of valuable chattels such as works of art or investment goods free of charge. When it comes to less valuable items, the parties often lack an intention to be legally bound. Even as a binding contract gratuitous use does not recognize any form requirements; that makes it difficult to draw a hard and fast line between gratuitous use on the one hand and pure favours on the other. In England gratuitous use of chattels is categorized as a bailment which allows—at least according to the majority view—for the recognition of binding ancillary agreements even without consideration.

As long as the parties have not agreed on a specific time when the object handed over has to be returned they are generally free to terminate the gratuitous use at any time. The recipient typically retains this freedom even if a certain period of time for the use has been agreed. Furthermore, the parties often have an extraordinary right of termination for good cause. Even if the parties depart from these rules, the contract for gratuitous use remains free of any form requirements.

The lender’s duties are often limited considerably. In particular, the demands on the object’s quality are widely limited to the absence of defects deliberately concealed by the lender. The reasonable distribution of the costs for maintaining the object gratuitously handed over for use typically is a tricky issue. The basic idea is that the lender is not required to keep the object in a condition fit for use whilst the recipient usually has certain maintenance duties. The real problem in this respect is to draw a line between gratuitous use and lease where a rent is owed which exceeds the costs of the benefits associated with the use. Sometimes limitations on the remedies of the recipient can be found which resemble those recognized in the law of donation; however, the matter is approached in a less consistent manner.

The Roman custodia liability with its reference to the diligentissimus pater familias still in some countries determines the recipient’s responsibility; the reason usually given for this strict liability is the ‘principle of utility’, ie determining the parties’ liability according to the extent to which they benefit from the transaction. It is, however, also in accordance with a common form of fault liability as practised in France or incorporated in the Draft Common Frame of Reference (DCFR), the Principles of European Contract Law (PECL) and the UNIDROIT Principles of International Commercial Contracts (PICC) for obligations de résultat: Here a discharge from the duty to return the object is only possible with regard to events which could not be influenced by the recipient, ie for cases of force majeure; the exclusion of liability for the usual wear and tear, which is recognized in all jurisdictions, is consequently of considerable importance for gratuitous use transactions. From a doctrinal point of view it is of some importance for the standard of liability which duty is taken to have been breached—the duty to exercise reasonable care when handling the object or the duty to return the goods in good condition; in the latter type of situation the recipient is discharged only with regard to impediments beyond his control. The views of the national jurisdictions in Europe diverge on this point, some of them referring to the liberality of the lender as providing a relevant policy reason in addition to the principle of utility.

4. Uniform law and unification projects

There is no uniform law concerning gratuitous use. The Draft Common Frame of Reference (DCFR) Books I–III (Common Frame of Reference (CFR)) do not exclude an application to contracts for gratuitous use; nor do the notions of contract under the Principles of European Contract Law (PECL) or the UNIDROIT Principles of International Commercial Contracts (PICC), even if the norms of these model rules are clearly designed for non-gratuitous contracts. Whilst it does contain rules on donation, the DCFR does not specifically deal with gratuitous use; a respective draft chapter was not eventually included due to time constraints.

Literature

Werner Lorenz, ‘Entgeltliche und unentgeltliche Geschäfte’ in Festschrift Max Rheinstein, vol II (1969) 547; Reinhard Zimmermann, The Law of Obligations (1990) 188–205; Norman Palmer, Art Loans (1997); Jan Dirk Harke, Freigiebigkeit und Haftung (2006); Philip Haellmigk, Die Leihe in der französischen, englischen und deutschen Rechtsordnung—unter besonderer Berücksichtigung der Kunstleihe (2009).

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

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