A contract is defined as an agreement entered into by parties with the intention of creating legal obligations. As basic as this definition is, the two systems of common law and civil law differently interpret key elements of a contract. For example, one interesting and much talked about difference is that in common law, but not in civil law, consideration, i.e. anything of value promised to each other, is a prerequisite for a binding contract. Parties entering into contractual relations should bear these differences in mind, especially when negotiating jurisdiction and choice of law clauses. One particular area they should be mindful of is how common law and civil law interpret declarations of intent.
While in common law a contract is still often defined as a "meeting of the minds", common law courts have never left any doubt that, when interpreting an act under the law, it shall not so much be a question of what the parties wanted but of what they declared. This explains why common law courts, when interpreting a written contract, will keep to the wording of the contract as long as possible and only as an exception allow extrinsic evidence to be considered.
In civil law the wording even of a written agreement is less probative. In German law it is a rebuttable presumption that a written contract reflects the parties' agreement correctly and completely, however difficult it may be to rebut this. But how do German courts (exemplary for civil law courts) interpret contracts?
Continental-European jurists of the 19th century have spent a lot of spiritual energy on the question of whether a contract, or a declaration of intent as an element of contract, should be interpreted on the basis of either the "will theory" or the "declaration theory".
Declaration of intent
A declaration of intent is the utterance of a will to bring about a legal effect, but it is a matter of dispute whether a declaration of intent requires any subjective elements. German scholars (very abstractly) distinguish between:-
- the will to act as such;
- the actor's awareness that his act may be interpreted as aiming for a legal effect (declaration awareness);
- the will to declare as such; and
- the will to engage in a transaction including the will to be legally bound.
An utterance that comprises all these elements constitutes, within the confines drawn by private autonomy, an effective declaration of intent.
Although these distinctions make philosophical sense, in practice it isn't easy to separate an individual's declaration awareness from his wills to declare and enter into a transaction. There is no qualitative difference if someone does not have the will to transact at all or if he just wants a different transaction. Declaration awareness, will to declare and the will to engage in a transaction thus form a unified whole.
Declaration of awareness
An utterance made without any will to act cannot have the legal consequences of a declara-tion of intent, as this would abandon the idea of humans as autonomous beings. But what if there is a will to act but no specific declaration awareness? What if it were present at the time of the utterance, but missing when it is submitted, e.g. when completing an order form and submitting it later? Is declaration awareness necessary?
If not, then a declaration of intent could originate by merely completing an order form, whereby the act of completion could be seen as the utterance of a will to declare. Then, even filling out the order form in jest, i.e. without the honest will to declare an offer to buy, would result in a declaration of intent (and the only question would be if it ever got submitted). But if declaration awareness were required to constitute a declaration of intent, then a jest order would not be a declaration of intent (and the question would be what happened if it got placed nevertheless). A lacking will to submit a completed order form would merely allow the conclusion that the requirements of a declaration of intent may have been given when the form was completed, but not anymore when it was submitted.
The principle of autonomy
It would respect an individual's autonomy most if her declaration awareness determined if she just made a declaration of intent or not. After all, fully respecting a person's will, or the lack of it, would be what the majority think is right (the argument of the democrat). It is also reflected by rational choice theory (the argument of the economist). And, quite fundamentally, it is embedded in human dignity (the argument of the German constitutional lawyer).
This "will theory" is reflected in section 133 of the German Civil Code (GCC), which can be translated to read:
"Interpretation of a declaration of intent. When a declaration of intent is interpreted, it is necessary to ascertain the true intention rather than adhering to the literal meaning of the declaration."
Because declaration awareness, will to declare and the will to engage in a transaction form a unified whole, section 133 GCC does not just call for an investigation of an individual's will, but at the same time for an exploration of the awareness that guides the individual. This is to say that, according to "will theory", if someone fills out an order form in jest, even if he submits it by sending it to a mail order company, he does not make a declaration of intent.
The need to restrict human will - and how
Acknowledging the will of the individual as the basis of private law means one must become dialectic at times. There must be ways to restrict an individual's will, namely to the extent necessary to achieve what German scholars have called "practical concordance with the interests of fellow men", or getting along with each other.
Contrary to liberal ideology of the 19th century, freedom of choice can only be granted within the confines of predefined social order, and the law is one means to define and regulate this. (The other three regulators are: markets, architecture and social norms.) Where there is no legitimate third party's interest, the law need not regulate. Thus, if the owner of a movable thing acts in a way that looks like he was giving up the possession of the thing in the intention of waiving ownership, then it will be necessary-and sufficient-to measure this act against section 133 GCC: if waiving ownership is what he wants, then so be it. No third party to heed.
For the greater good though the law needs to have rules that may even decree the exact opposite of what an individual explicitly declares. As this tends to be relevant where the minds of two or more parties meet, German private law lays down this principle in its rules on contract, in section 157 GCC. This section can be translated to read:
"Interpretation of contracts. Contracts are to be interpreted as required by good faith, taking customary practice into consideration."
The correction of what an individual declares could be achieved by leaving declaration awareness as a constitutive element of a declaration of intent untouched, but to ask for a compulsorily rational interpretation. While such a corrective would reside "within" the definition of declaration of intent, it would be tantamount to abandoning individualism in favour of a purely social principle where someone's individual will is replaced by an objectified will, determined by a judge. This fails to recognise that the discussed corrective is not an end in itself, but to serve as a necessary regulator only.
What an individual declares can also be corrected by leaving the constitutive elements of a declaration of intent untouched, and by utilising a standalone corrective criterion instead by which a declaration awareness that runs contrary to legitimate interest may be bypassed. This can be done by interpreting a declaration of intent in the light of the declarer's responsibility, or in the light of the recipient's legitimate expectations. If a law system were based on such a dualistic declaration theory, then declaration awareness would still be a constitutive element of a declaration of intent. It would follow that filling out an order form in jest would still not be a declaration of intent to order something. If this order form got circulated, this would not mean an order was submitted. But it would mean that this result might have to be corrected somehow.
Section 157 GCC's reference to good faith and consideration of customary practice could be understood in such a way that the declarer's self-responsibility or the recipient's legitimate interests had to be considered in hindsight. This would seem to be compatible with a dualistic approach, but it would also mean that you would need some kind of declaration awareness to apply this rule. Where instead someone utters anything without declaration awareness at all and a third party legitimately relies on it, any remedy would have to be sought outside what is called doctrine of legal transactions ("Rechtsgeschäftslehre"). Civil law provides for situations like that, with its doctrine of legal appearance leading to facie liability ("Lehre von der Rechtsscheinhaftung"). However, this approach cannot fully replace that which has been declared because this would just not be covered by section 157 GCC, which presupposes that a contract has already been concluded before a correction is made.
Alternatively, a certain legal effect can, to the extent necessary but no further, be assigned to an act committed without (or with a different) declaration awareness by determining norma-tively if an utterance implies the existence of a respective will. Such a normative view would then decide if the interests of the declarer or those of the recipient were to prevail. If civil law systems were based on such a monistic understanding of a declaration of intent, then an objective view would determine if completing an order form was a declaration of intent to or-der something. The same would apply to the submission of that form.
Such a monistic understanding is fully compatible with section 157 GCC. Even where that which has been uttered would have to be fully replaced by something different in order to protect the legitimate interests of the other party, the corrected utterance would still be re-garded as a declaration of intent, and as such part of the contract to be interpreted. Based on such a declaration theory, legitimate interests of contractual parties could be dealt with where section 157 GCC wants it-within the doctrine of legal transactions.
Thus, when interpreting contracts in German law, actual existence of declaration awareness is not deemed constitutive for a declaration of intent. He who autonomously, but without such awareness, completes an order form, may have made a declaration of intent nevertheless. Whether this is the case or not is determined based on good faith, taking customary practice into consideration.
The basic rationale behind this is that everyone should know best what to say. This way, this solution seems to serve autonomy best: where a declaration of intent needs no recipient, it is sufficient to keep to what the actor wants. Only where another party's interests could be affected, e.g. where there is a contract to look at, emphasis should be put on what is declared.