Difference between revisions of "Gratuitous Transactions"
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Gratuitous transactions between living persons are a widespread social phenomenon. However, they have rarely been the subject of comparative legal analysis. Each European legal system contains—albeit in diverse scopes and configurations—rules on handling transactions which are directed at the performance of one party only ([[donation; [[gratuitous use). The classification of these rules is far from consistent. Neither the notion ‘gratuitousness’ nor the affiliation of these rules to contract law have been conclusively resolved; the systematic classification in the national codifications is divergent. The same applies to the fundamental legal policy implications as well as to the systematic ordering and the individual rules. Nevertheless, from a functional perspective it is possible to discern some rough patterns.
a) Notion and classification
In the light of the various functions of the notion (see 5. below), it cannot come as a surprise that no consistent understanding for ‘gratuitousness’ prevails. The core for each definition of gratuitousness is the absence of a counter-performance, or consideration. However, already when it comes to a trivial counter-performance, opinions diverge because the purposes can differ: it can consist in the validity of an informal transaction by accepting a consideration ([[indicia of seriousness), or in the application of special rules restricting gratuitous transactions in order to protect third parties—such as under the French regime of réserve regime ([[compulsory portion; [[donation).
Gratuitous transactions often contain an element of liberality; this particularly applies to donation, but also to the pro bono activities of businesses. In some legal systems, this element of liberality becomes relevant for determining the legal qualification and the substance of gratuitous transactions. This applies especially to [[donations, where the liberality is seen as constitutive in the legal systems in the tradition of the Code civil, and to some extent also to [[gratuitous use. Closely connected with such additional elements is the question, important particularly for donations, what consequences additional (secondary) aims have, which may be pursued by rendering a gratuitous performance.
b) Mixed situations
Mixed situations, which combine non-gratuitous and gratuitous elements in one and the same transaction, attract special attention, at least in legal systems that have been influenced by → Roman law. Mixed situations are especially discussed in the context of [[donations in order to deal with the policy-motivated limitations of the validity of donations. Apart from that the scope of application of special rules concerning gratuitous contracts must be determined. Particularly relevant, in this context, are the privileges conferred on the party who renders performance gratuitously, which deviate from the general contract law rules. There are no general lines that can be determined, particularly given that the solution will depend on what special rules for gratuitous transactions a legal system recognizes.
c) Binding force despite gratuitousness
The binding effect of gratuitous promises and performances is not axiomatic. Doubts about the intention, on the part of a person who promises a gratuitous performance, to be legally bound induce legal systems to establish additional criteria for the validity of gratuitous transactions ([[indicia of seriousness). Particularly interesting, in this respect, is the new rule contained in the Dutch law of donation, which merely credits the notarial deed with the proof of the intention to be legally bound (Art 7:176 [[Burgerlijk Wetboek (BW)); however, that intention may also be established by other means. The notarial form—which is not required everywhere on the Continent and is also not required for every asset donated—can be substituted by an immediately executed donation; this is as remarkable and difficult to understand, as the distinction between the promise to make a donation, for which a particular form is required, and the formless promise of gratuitous services, or of a loan for use.
As far as form requirements exist for the promise of a gratuitous performance, the determination of the intention to be legally bound hardly presents problems. This also applies to the executed donation, which constitutes sufficient evidence of the intention of the donor to transfer ownership. By contrast, it is often difficult to determine the intention to be legally bound with regard to gratuitous services and transactions concerning gratuitous use. For the latter, this intention cannot always be seen to be inherent in the transfer of the object, as the intention of precarium (Bittleihe ie a loan recallable by the lender at will) demonstrates. In order to avoid an inappropriate juridification of the social relations of everyday life, considerable requirements—especially concerning the value of the performance rendered and the involved risks—are occasionally established for the intention to be legally bound.
d) Types of gratuitous transactions
Obviously, [[donation, [[gratuitous use and the non-interest-bearing [[loan are types of gratuitous transactions. In some legal systems the executed act and the promise to perform the act are regarded as different types of transactions; traditional differentiation between ‘real’ contracts and consensual contracts (contractus re and consensu) ([[contract; [[formation of contract), insofar, still lives on.
Considerably more confusing is the legal status of gratuitous services, where predominantly—as it is the case also for remunerated services—no uniform type of transaction exists ([[service contract). For example, the gratuitous [[deposit—at least in its variant as a ‘real’ contract—certainly constitutes a specific (gratuitous) transaction in its own right. For the rest, the treatment and classification of gratuitous services mainly depends on which path the development of the Roman mandatum has taken in a particular legal system.
Further uncertainty exists with regard to security agreements, regardless of whether they are designed to constitute personal security or real security (security in immovable property; [[security in movables; [[guarantee; [[suretyship; assumption of debt). As far as such securities are provided by the debtor of an interest-bearing loan, they are predominantly not regarded as gratuitous. The situation of securities, which are provided by a third party, may have to be assessed differently. Differentiations according to whether the third party obtains consideration—alongside the right of recourse—for the risk assumed by him are not usually drawn, unless the rules of general contract law differentiate between gratuitous and non-gratuitous transactions.
Finally, a number of borderline cases can be found in the European legal systems, for which the applicability of the rules on gratuitous transactions is intensely discussed. Frequently, the background of such discussions is the attempt to be able to apply the privileges granted to gratuitously performing parties. This is true, particularly for a [[release granted donationis causa and for a waiver, which is not always sharply distinguished from release. Similar attempts are found with regard to the settlement where, however, the application of the rules on donations distinctively restricting the binding effect threatens to counteract the aim of a settlement, which is to restore peace. However, for abstract undertakings, ie those given without a causa ([[promise, unilateral; [[indicia of seriousness), the converse tendency can be discerned, ie to subject them to the limitations on the validity of donations.
2. Gratuitousness and the law of contract
The classification of a gratuitous transaction as a contract, the affiliation of gratuitous transactions to contract law and, as a result, the applicability of the rules of contract law are not generally accepted. Even in as far as the common law recognizes gratuitous undertakings under deed ([[indicia of seriousness; [[formal requirements), this does not lead to the unrestrained application of contract law ([[donation).
Quite often sets of rules other than contract law are applied ([[donation). In this respect, for English law bailment is of particular importance, whose relation to contract law has not yet been conclusively determined ([[gratuitous use); apart from gratuitous use it embraces the gratuitous → deposit and other service-related transactions which involve the transfer of movables, ie for the purposes of gratuitous repair.
Finally, the application of rules on [[unjustified enrichment and the law of torts ([[law of torts/delict, general and lex Aquilia) to gratuitous transactions is widespread. In some legal systems the restoration of what has been donated under a condictio causa data causa non secuta is available if the purpose pursued with the donation has failed to materialize. Infringements of the obligations of a bailee, under English law, are usually treated as an instance of conversion, and the widespread restriction of the donor’s liability to the negative interest is justified by some with the fact that we are dealing here, ultimately, with a non-contractual liability, not aimed at the recovery of the positive interest.
3. Tendencies in the development of law
Particular rules concerning gratuitous transactions are characterized mainly by their deviation from the general standards of contract law. Thus, we encounter additional hurdles to the formation of gratuitous transactions reflecting special requirements for establishing the intention to be legally bound.
Moreover, the binding effect of the transaction is reduced as compared with general contract law. This is reflected in very liberal rights to terminate gratuitous use or contracts for the rendering of gratuitous services. These are mirrored by specific rights to refuse to render performance, or to revoke the donation, on the part of a donor, by means of which a [[change of circumstances can more easily be taken into consideration than otherwise. Furthermore, several restrictions of validity of such transactions exist for the protection of third parties. Typically they take the form of third party rights subsequently arising against the person accepting the gratuitous performance such as the famous actio Pauliana or the claims concerning a [[compulsory portion.
The reduced binding effect is often also reflected in restrictions of the recipient’s position vis-à-vis the party performing. This partially leads to a reduction of the standard of quality of the performance owed, usually to the level and extent of protection under the law of tort/delict. The recipient’s remedies are also restricted in many cases, particularly as far as specific performance and damages are concerned. However, these specificities regarding the recipient’s position cannot usually be generalized; often they are not even regulated coherently within an individual legal system. At the same time, in many legal systems—including the common law—a tendency can be observed to impose liability on persons rendering a performance gratuitously only for fault; the general inclination to push back fault-bound liability in favour of non-fault liability is not observable here.
Moreover, recent legislative activities bear witness to a general legal tendency to reduce form requirements especially in the law of [[donation. National legislatures and the judiciary also tend to weaken the protection of family assets and thereby to abolish restrictions on the autonomy of potential donors. For the general protection of creditors against the consequences of their debtors’ gratuitous transactions, the same does not apply. Finally, the new Dutch civil code ([[Burgerlijk Wetboek (BW)) is the first code that contains elements of a general part on gratuitous transactions.
4. A law concerning gratuitous transactions?
The law concerning gratuitous transactions in the national legal systems of Europe typically consists of special rules regulating individual types of transaction ([[donation; [[gratuitous use). Certain general rules for gratuitous transactions exist—apart from the doctrine of consideration—only exceptionally (the Netherlands). Although it would be possible to extrapolate general principles, most legal systems have been reluctant to do so, and also they have been sceptical concerning arguments per analogiam, eg by applying rules relating to one type of transaction to other gratuitous transactions. In addition, the comparative study of gratuitous transactions remains an important desideratum of research.
5. Rules of European Union law
In European Union law gratuitous transactions are only marginally dealt with. Neither has a definite notion of gratuitousness been developed, nor is it settled that the notion of contract only covers non-gratuitous transactions. The term ‘consideration’ which is used in Art 157 TFEU/141 EC has a completely independent function in anti-discrimination law and does not provide any further clues for the matter of the interpretation of gratuitousness itself ([[discrimination (employment law)); the term used in tax law primarily serves to separate taxable transactions from untaxable ones for the purposes of VAT.
In contrast, the term ‘remuneration’ which is found in the definitions of services in Art 57 TFEU/50 EC and Art 4 no 1 Dir 2006/123 on services in the internal market ([[free movement of services) is of some importance for the private law of gratuitous transactions. ‘Services’, in terms of these definitions, are only those which are ‘normally provided for remuneration’. The European Court of Justice held that the ‘essential characteristic of remuneration lies in the fact that it constitutes consideration for the services’ (ECJ Case 263/86 – Humbel und Edel  ECR 5365; recital 34 Dir 2006/123). It has to have an economic value, which is not completely disproportionate to the value of the service. Who is giving the remuneration is not relevant. Attention has to be paid to the fact, however, that remuneration itself is not a precondition for applying the rules on free movement of services or the directive. The application is only excluded if typically a remuneration is lacking. The courts have recognized this for activities performed without consideration by the state or on behalf of the state in discharging its social, cultural, educational and judicial tasks and have thus exempted also services rendered by the public educational system, even if they are financed partly by fees. The possibility to typify is a question of social reality rather than of types of contract. For example, the pro bono mandates of law firms are therefore also covered by the free movement of services. However, separately organized pro bono systems concerning gratuitous legal advice offered by universities in the context of their programme of instruction is possibly outside of the protection scope of both the basic freedom and the directive.
In several EU directives, the lack of a generally accepted notion of contract has resulted in the question whether these instruments also include gratuitous transactions. The courts have affirmed their inclusion for the Directive on [[Doorstep Selling, and legal writers have stated the same for the Directives on Distance Contracts and Unfair Terms. Considerable uncertainty persists with regard to the scope of application of the Rome I Regulation, insofar as various legal systems contain special rules concerning the conflicts of law in the field of donation which possibly collide with the regulation.
To some extent, the remedies of contractual parties are also regarded as gratuitous rights. First and foremost this applies to the gratuitousness of curing a defect according to Art 3(3), (4) of the Consumer Sales Directive; the European Court of Justice in its Quelle judgment has already specified that as excluding compensation for benefits in the context of repair and replacement of the goods (ECJ Case C-404/06 – Quelle  ECR I-2685; [[supplementary performance).
Similarly, Art 32 of the Payment Services Directive requires that information the payment service provider has to give, must be gratuitous ([[information obligations).
6. Regulatory structure in uniform laws and harmonization projects
Gratuitous transactions have not received much attention by the various projects to harmonize the law. This applies also to Conventions in public international law. However, the broad concept of contract of the [[Principles of European Contract Law (PECL) as well as the [[UNIDROIT Principles of International Commercial Contracts (PICC) do not exclude the application of these model rules to gratuitous transactions; the same applies to Books I–III of the Draft [[Common Frame of Reference (DCFR). The latter defines gratuitousness in IV.H.-1:201 for the law of donation and modifies this definition in X.-1:301(2) for the law of [[trusts. A general definition in the Annex is lacking; nevertheless, there are rules on gratuitous transactions also in the remaining parts of the DCFR. Article III.-3:511(3), in particular, excludes the applicability of the rules on the unwinding of contracts following termination ([[termination of a contract; [[unwinding of contracts) in the case of gratuitousness; moreover, III.-5:110(2) refers to the rules on donation in the case of gratuitous acts of assignment. Drafts concerning [[loans for use and general rules on gratuitous transactions did not find their way into the DCFR’s final version as a result of time constraints. However, Book IV Part H of the DCFR contains rules on [[donation.
The rules of the DCFR on services and mandate apply, with appropriate adaptations, to gratuitously provided services, IV.C.-1:101(1)(b) and IV.D.-1:101(3). In the Book on mandate, two special rules can also be found: IV.D.-3:103(4)(a) (obligation of skill and care) and IV.D.-6:104(2) (termination by agent when relationship is to last for indefinite period or when it is gratuitous). X.–2:401 demarcates donation and trust; Book X also contains a number of rules on gratuitous trusts which partially correspond to the special rules on donation.
Literature. Werner Lorenz, ‘Entgeltliche und unentgeltliche Geschäfte’ in Festschrift Max Rheinstein, vol II (1969) 547; John P Dawson, Gifts and Promises: Continental and American Law Compared (1980); Reinhard Zimmermann, The Law of Obligations (1996) ch 16, 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 CFR. 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); Philip Haellmigk, Die Leihe in der französischen, englischen und deutschen Rechtsordnung—unter besonderer Berücksichtigung der Kunstleihe (2009).