Under Italian law, misconduct during negotiation could give rise to pre-contractual liability. Pre-contractual liability, also known as culpa in contrahendo (see article 12 of the Rome II regulation), refers to the breach of the principle of good faith during negotiations.
In this Quickguide we will cover some of the events that might give rise to pre-contractual liability under Italian law.
Pre-contractual liability under Italian law
Pre-contractual liability under Italian law is a non-contractual liability. It occurs when a contract is being negotiated and there is no contractual relationship between the parties. The pre-contractual liability refers to any violation made by one party that negatively impacts on its counterparty’s freedom of contract. Sanctioned are all those behaviors that contravene with the principle of good faith.
The framework for the pre-contractual liability is set out in articles 1337 and 1338 of the Italian Civil Code. Regarding the principle of good faith, article 1337 of the Italian Civil Code provides that:
Parties must act in good faith during negotiations and the formation of the contract.
The provision aims to protect a party’s interest not to be wrongfully harmed by its counterparty’s actions during contractual negotiations. Even though article 1337 does not clarify which actions breach good faith during negotiations, Italian courts consider the following actions to be in breach of good faith:
a) Concluding an invalid contract
Article 1338 provides for an obligation to inform the other party to a contract of circumstances that may affect the validity of the contract that is to be concluded.
Each party has a duty to verify that there aren’t any causes that could undermine the validity of the contract (i.e., make the contract void or voidable). If such a cause does exist and the contract is nonetheless concluded, the party that withheld the information must compensate its counterparty for the occurred damages deriving from the conclusion of an invalid contract.
b) Failure to comply with the duty to inform
The general duty to inform derives from the good faith principle. Both parties are bound to provide to the other all necessary information related to the essential elements of the contract. Not all type of information fall within the realm of this obligation, but only those that might influence performance of the contract.
c) Wrongful termination of negotiations
Parties are free to decide if and when to proceed with the negotiations leading to the conclusion of the contract. However, if negotiations have reached a point where one of the parties relies on the conclusion of the contract, the breakdown of negotiations represents a pre-contractual liability for breach good faith.
Damages concerning pre-contractual liability are determined having regard to the so-called negative interest, meaning the detriment occurred to the party for having relied in good faith on the conclusion of the contract. Compensation will therefore include any incurred expenses during negotiations and the loss of chance, i.e., the loss of alternative business opportunities.