European Contract Protocols - Chapter 3

Section 3 - Liability for negotiations

Article 2.301 (ex art. 5.301) - Negotiations Contrary to Good Faith

(1) A party is free to negotiate and is not liable for failure to reach an agreement.
(2) However, a party who has negotiated or broken off negotiations contrary to good faith and fair dealing is liable for the losses caused to the other party.
(3) It is contrary to good faith and fair dealing, in particular, for a party to enter into or continue negotiations with no real intention of reaching an agreement with the other party.

Article 2.302 (ex art. 5.302) - Breach of Confidentiality

If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for its own purposes whether or not a contract is subsequently concluded. The remedy for breach of this duty may include compensation for loss suffered and restitution of the benefit received by the other party.

CHAPTER 3 - AUTHORITY OF AGENTS

Section 1 - General Provisions

Article 3.101 - Scope of the Chapter

(1) This Chapter governs the authority of an agent or other intermediary to bind its principal in relation to a contract with a third party.
(2) This Chapter does not govern an agent's authority bestowed by law or the authority of an agent appointed by a public or judicial authority.
(3) This Chapter does not govern the internal relationship between the agent or intermediary and its principal.

Article 3.102 - Categories of Representation

(1) Where an agent acts in the name of a principal, the rules on direct representation apply (Section 2). It is irrelevant whether the principal's identity is revealed at the time the agent acts or is to be revealed later.
(2) Where an intermediary acts on instructions and on behalf of, but not in the name of, a principal, or where the third party neither knows nor has reason to know that the intermediary acts as an agent, the rules on indirect representation apply (Section 3).

Section 2 - Direct Representation

Article 3.201 - Express, implied and apparent authority

(1) The principal's grant of authority to an agent to act in its name may be express or may be implied from the circumstances.
(2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted.
(3) A person is to be treated as having granted authority to an apparent agent if the person's statements or conduct induce the third party reasonably and in good faith to believe that the apparent agent has been granted authority for the act performed by it.

Article 3.202 - Agent acting in exercise of his authority

Where an agent is acting within its authority as defined by article 3.201, its acts bind the principal and the third party directly to each other. The agent itself is not bound to the third party.

Article 3.203 - Unidentified Principal

If an agent enters into a contract in the name of a principal whose identity is to be revealed later, but fails to reveal that identity within a reasonable time after a request by the third party, the agent itself is bound by the contract.

Article 3.204 - Agent acting without or outside his authority

(1) Where a person acting as an agent acts without authority or outside the scope of its authority, its acts are not binding upon the principal and the third party.
(2) Failing ratification by the principal according to article 3.207, the agent is liable to pay the third party such damages as will place the third party in the same position as if the agent had acted with authority. This does not apply if the third party knew or could not have been unaware of the agent's lack of authority.

Article 3.205 - Conflict of Interests
(1) If a contract concluded by an agent involves the agent in a conflict of interest of which the third party knew or could not have been unaware, the principal may avoid the contract according to the provisions of articles 4.112 to 4.116.
(2) There is presumed to be a conflict of interest where:
(a) the agent also acted as agent for the third party; or
(b) the contract was with itself in its personal capacity.
(3) However, the principal may not avoid the contract:
(a) if it had consented to, or could not have been unaware of, the agent's so acting; or
(b) if the agent had disclosed the conflict of interest to it and it had not objected within a reasonable time.

Article 3.206 - Subagency

An agent has implied authority to appoint a subagent to carry out tasks which are not of a personal character and which it is not reasonable to expect the agent to carry out itself. The rules of this Section apply to the subagency; acts of the subagent which are within its and the agent's authority bind the principal and the third party directly to each other.

Article 3.207 - Ratification by Principal

(1) Where a person acting as an agent acts without authority or outside its authority, the principal may ratify the agent's acts.
(2) Upon ratification, the agent's acts are considered as having been authorised, without prejudice to the rights of other persons.

Article 3.208 - Third Party's Right with Respect to Confirmation of Authority

Where the statements or conduct of the principal gave the third party reason to believe that an act performed by the agent was authorised, but the third party is in doubt about the authorisation, it may send a written confirmation to the principal or request ratification from it. If the principal does not object or answer the request without delay, the agent's act is treated as having been authorised.

Article 3.209 - Duration of Authority

(1) An agent's authority continues until the third party knows or ought to know that:
(a) the agent's authority has been brought to an end by the principal, the agent, or both; or
(b) the acts for which the authority had been granted have been completed, or the time for which it had been granted has expired; or
(c) the agent has become insolvent or, where a natural person, has died or become incapacitated; or
(d) the principal has become insolvent.
(2) The third party is considered to know that the agent's authority has been brought to an end under paragraph(1) (a) above if this has been communicated or publicised in the same manner in which the authority was originally communicated or publicised.
(3) However, the agent remains authorised for a reasonable time to perform those acts which are necessary to protect the interests of the principal or its successors
Section 3 - Indirect Representation

Article 3.301 - Intermediaries not acting in the name of a Principal

(1) Where an intermediary acts:
(a) on instructions and on behalf, but not in the name, of a principal, or
(b) on instructions from a principal but the third party does not know and has no reason to know this,
the intermediary and the third party are bound to each other.
(2) The principal and the third party are bound to each other only under the conditions set out in Articles 3.302 to 3.304.

Article 3.302 - Intermediary's Insolvency or Fundamental Non-performance to Principal

If the intermediary becomes insolvent, or if it commits a fundamental non-performance towards the principal, or if prior to the time for performance it is clear that there will be a fundamental non-performance:
(a) on the principal's demand, the intermediary shall communicate the name and address of the third party to the principal; and
(b) the principal may exercise against the third party the rights acquired on the principal's behalf by the intermediary, subject to any defences which the third party may set up against the intermediary.
Article 3.303 - Intermediary's Insolvency or Fundamental Non-performance to Third Party
If the intermediary becomes insolvent, or if it commits a fundamental non-performance towards the third party, or if prior to the time for performance it is clear that there will be a fundamental non-performance:
(a) on the third party's demand, the intermediary shall communicate the name and address of the principal to the third party; and
(b) the third party may exercise against the principal the rights which the third party has against the intermediary, subject to any defences which the intermediary may set up against the third party and those which the principal may set up against the intermediary.

Article 3.304 - Requirement of Notice

The rights under Articles 3.302 and 3.303 may be exercised only if notice of intention to exercise them is given to the intermediary and to the third party or principal, respectively. Upon receipt of the notice, the third party or the principal is no longer entitled to render performance to the intermediary.
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