The Integration of Advertising Statements into the Content of the Contract
© Springer International Publishing Switzerland 2015Javier Plaza Penadés and Luz M. Martínez Velencoso (eds.)European Perspectives on the Common European Sales LawStudies in European Economic Law and Regulation410.1007/978-3-319-10497-3_5
5. The Integration of Advertising Statements into the Content of the Contract
University Pablo Olavide Sevilla, Sevilla, Spain
Francisco Infante Ruiz
The ultimate goal of the advertising message is to promote, directly or indirectly, the contracting of goods, services, rights and obligations. Because of its great significance, most European systems contain rules for the integration of advertising into contracts. The European Community legal precedent is the Sales Directive. Currently, art. 69 CESL deals with the question of what are the necessary requirements of the professional supplier’s pre-contractual statements, or the statements of a third party about the characteristics of the product to be incorporated into the content of the contract. This provision partially matches the corresponding text in the DCFR (II.-9:102 and IV.A-2:103). However, an analytical study of the rule contained in the CESL compared to some national laws reveals the existence of certain defects in it. For example, some national laws give greater protection to the consumer in the application of this rule than does the CESL. Moreover, it is submitted that a correct regulation of the subject is already provided by the DCFR. Therefore, future improvements of the CESL should take this regulation into account more closely.
KeywordsIntegration of advertisingGood faithOfferPre-contractual informationConformity of the goodsLiability to the consumer
This part has been prepared within the framework of the Research Project DER2009-08705 (“The impact of EU directives on law of contract: critical analysis and proposals for reform”), funded by the Spanish Ministry of Science and Innovation.
Following the antecedent of art. 2(2) Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees, art. 69 CESL of the Proposal for a Regulation on a Common European Sales Law contains a rule covering the integration of advertising into contracts. In paragraph 1 of this article, it states that this rule is established for any contract, both B2C and B2B. The statement that the business makes to the other party, or makes publicly, on the characteristics of the goods in question is incorporated as contract term. This integration will not take place if either of the two exceptions mentioned is present: (a) ignorance of the inaccuracy of the statement by the seller at the time of concluding the contract, and (b) lack of influence of the statement on the buyer to conclude the contract. In paragraph 2 of art. 69 CESL, the application of this rule is also maintained in cases where the statement was made by a person engaged in advertising or marketing on behalf of the merchant. In paragraph 3, the application of this rule, in the B2C contracts, is extended when the statement has been made by a producer or any other person involved in the transaction chain. In these cases the statement is attributed to the trader, unless he did not know of such a statement or could not be expected to have known it at the time of the contract. The last paragraph of art. 69 CESL declares the character of these provisions as being a mandatory rule in B2C relationships. If the goods received by the purchaser do not comply with the characteristics stated in the advertising, there is a lack of conformity [art. 100(f) CESL]. This responsibility is not affected by any consideration of the conduct of anyone who advertises or makes the product or service available to the consumer (negligence or wilful misconduct). It is a strict liability .
The result of this regulation, from the point of view of consumer protection , has a special significance. The consumer may rely on the features announced in any advertising, regardless of whether the advertiser is his contracting party or not, when a mismatch with the contract document exists and the professional does not perform as promised according to the advertising. From a more general perspective where a consumer is not involved, any deviation from the content of advertising (publicity, brochures, advertisements in newspapers or on television, etc.) can also be relied on by any buyer because this must be integrated into the contract, but not when the statement was made by the producer or anyone else who have been involved in the transaction chain.
In this context, this chapter will first analyse the basis of the rule of integration of advertising into the contract; secondly, how such advertising should be treated in connection with the contract offer; thirdly, its regulation in certain national laws; and finally, the consequence of the application of this rule, and, in particular, the issue of the advertiser’s liability ‘per se’.
5.2 Basis for the Integration of Advertising into the Content of the Contract: Good Faith
Ever since the implementation of art. 2(1) of Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising, an advertising concept has been maintained in EU law, which continues today in Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising (codified version):
‘advertising’ means the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations [art. 2(a)].
This concept of advertising, referred to as any form of representation, is independent of all media or devices used to externalise it. Therefore, all possible means of communication fall into it, no matter what their physical basis. This also includes every commercial and marketing communication transmitted through the new media of the so-called “information society” (Directive 2000/31/EC on Electronic Commerce), i.e. commercial communications via the Internet.
The ultimate goal of the advertising message is to promote, directly or indirectly, the contracting of goods, services, rights and obligations. Therefore, the significance of the social phenomenon of advertising for law can be viewed from two perspectives. The first is the competition between companies, where advertising is a powerful weapon in the coexistence of competitors, and where the rules established by the legislator tend to develop mechanisms to combat unfair competition. The other perspective, of which this chapter is concerned, is the protection of consumers from advertising that provides untruthful information.1 An example of this, and of the reason why advertising is subject to criticism on many occasions, is that outside of its legitimate communication aspect of the business with potential consumers and facilitation or information on the essential characteristics of the products, it is often false or inaccurate, being more suggestive and influential than it really should be (a factual statement), and does not infrequently harm the rights of competition.2
According to the Directive 2006/114/EC (art. 2(b)) and previously to the Directive 84/450/EEC (art. 2(2)), advertising cannot mislead people by affecting their economic behaviour. Therefore, it is defined as misleading “any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor”. From these provisions the criterion of “veracity” can be extracted, under which advertising must respect the truth, avoiding the facts being deformed or misled.3 Misleading basically means two things. First, a wrong advertising message encourages, if not causes, a party to enter into a contract; as if the recipient had known the truth, he probably would not have contracted. Secondly, the signed contract is a contract in which the interest of this subject is not satisfied. In the face of advertising, as in many other cases, the consumer is in a position of imbalance. This imbalance is manifested mainly by two facts: first, the information provided to the consumer through advertising that will not always be complete and adequate to inform its decision on the subject of the contract; and secondly, through the use of methods of incitement based more on the appeal, the appearance, and the exaggerations of improving life and social success than on the intrinsic quality of the product, and that attracts the consumer to the product as if it were an “object of desire”.
The rule of integrating of advertising into the contract is founded on the general principle of good faith,4 which is recognised in most European systems, and is part of the common core of the EU legal system.5 Thus, advertising content hetero-integrates the content of contractual regulation—and is therefore enforceable—not by derivation of the presumed or implied intention of the parties, but by the objective requirements of the legal system.6 Agreeing with Hesselink, it can be said that this would be a “concretisation” of good faith.7 Article 69 CESL and art. II.-9:102 DCFR, as well as other equivalents, then concretise the principle of objective good faith. However, if the rule of integration of advertising can be deduced from the general principle of good faith, what is the need to expressly regulate it in law? The reasons are twofold. First, good faith is not expressed as a general principle in all European systems, as in the case of English law.8 In addition, not in all systems it is possible to derive the rule of integration of advertising from the principle of good faith.9 Secondly, according to the current expression of this rule in Community law, the range of application is larger. The integration of the contract by applying the principle of good faith can only be demanded by the contracting party as opposed to his counterparty, while in art. 69 CESL, art. II.-9: 102 DCFR and equivalent provisions, in the event that the advertiser and the professional supplier are not the same subject, the integration may also be required by the consumer face-to-face with the professional supplier who has contracted with him although not being responsible for advertising. In fact, it is not in accordance with good faith to take advantage of misleading advertising or publicity in order to achieve the conclusion of the contract without being responsible for its contents.
The protection afforded to the party under the rule of the integration of advertising into the contract is based on the appearance and confidence that the advertisement message arouses in him. According to the wording of art. 69 CESL and art. II.-9:102 DCFR, it is required that advertising has previously generated confidence in the recipient. The rule does not apply when the party knows or could be expected to know the inaccuracy of advertising (exception a), or when the statement could not have influenced his decision to contract (exception b).
5.3 The Legal Consideration of Advertising in Connection with the Contract Offer
5.3.1 Advertising, Pre-contractual Information and Offer
False or misleading advertising also has an undeniable relationship to the subject of pre-contractual information when this is defective,10 since it can also influence someone who trusts its content to enter into a contract for the advertised product. If advertising informs, it does so basically to promote the product, highlighting its features over the other products of the same nature that competitors offer on the market. The duty to inform the other party of the contract guarantees objectively (“truthful and sufficient information”) in that the party knows the essential characteristics of the goods or services at the time of concluding the contract.11 If the advertising is misleading by omission, because it does not announce the normal characteristics of products or services, these expected features could be demanded.
In this case, faulty pre-contractual information in contravention of duties incumbent on the professional will determine the application of its consequence under the law (e.g. art. 69 CESL and art. II.-9:102 DCFR): that is, the integration of the correct information with the contract so that the party may require the performance or characteristics of the product on which the professional should have informed correctly. Advertising also has an “informational” value.12 This approach is evident in the new contract law texts, both in the PECL-DCFR system and the CESL.
When the essential elements of a future contract appear in the advertisement or public statement, there is a genuine offer; so its simple acceptance will give birth to the contract. In most jurisdictions a public statement made by a professional, that contains enough features to bind it, is considered a contractual offer. Italian law13 clearly reflects this perspective, while in other systems it is reached by way of interpretation (e.g. German law), or the integration of the contract (e.g. Spanish law).14 This view is prevalent in the new European contract law.15
This duty is especially relevant when the agent is a professional and makes a statement to the other party, or publicly, regarding the product characteristics before the conclusion of the contract. This statement must be integrated into the content of the contract , unless there are objective reasons to exclude it.
5.3.2 PECL-DCFR System
220.127.116.11 Framework of the General Regulation of Contract
The regulation of this issue is structured in the DCFR in this way: (a) general rule of integration of advertising for all business contracts (II.-9: 102(2)), (b) exceptions (II.-9: 102(2)(a) and (b)), (c) rule of liability for ancillary or dependent agents (II.-9: 102(3)), (d) extended liability rule in consumer contracts (II.-9: 102(4)), (e) right of indemnity against the advertiser in cases covered by paragraph (4)(II.-9: 102(5)), (f) mandatory rule for consumer contracts (II.-9:102(6)).
(a) General rule of Integration and (b) Exceptions
Article II.-9:102 DCFR,16 relating to “certain pre-contractual statements regarded as contract terms”, establishes in paragraph (2):
If one of the parties to a contract is a business and before the contract is concluded makes a statement, either to the other party or publicly, about the specific characteristics of what is to be supplied by that business under the contract, the statement is regarded as a term of the contract unless:
(a) the other party was aware when the contract was concluded, or could reasonably be expected to have been so aware, that the statement was incorrect or could not otherwise be relied on as such a term; or
(b) the other party’s decision to conclude the contract was not influenced by the statement.
In this article a “special rule for professional suppliers” is established relating only to statements made to the other party or made publicly (e.g. in advertisements or in the course of marketing) by a professional supplier about specific characteristics of what is to be supplied under the contract. Under this rule any statements by a supplier becomes part of the contract unless one of the exceptions applies. The Comments on DCFR explain this as follows: The first exception applies if the other party was aware when the contract was concluded, or could reasonably be expected to have been so aware (e.g. public correction of a misleading advertising statement before the contract was concluded). The second exception applies if the other party’s decision to conclude the contract was not influenced by the statement. The Comments clarify that this is essential in order to introduce a causal connection between the statement and the decision to conclude the contract.17 It is submitted that this exception will not have any real application in the future. It requires very difficult proof as to the psychological status of the contracting party. At most, it may lead to a judgment about whether advertising or a declaration has not been enough to sway an average contracting person. However, this is not what is required in the article, at least on its wording.
(c) Rule of Responsibility for Ancillary or Dependent Agents
Article II.-9:102 DCFR, in paragraph (3),18 establishes a sort of liability rule for other third parties:
For the purpose of paragraph (2), a statement made by a person engaged in advertising or marketing on behalf of the business is treated as being made by the business.
This rule is no more than a specific precision of the general rule on the liability of the professional for the actions of its ancillary or dependent agents. This article seems to refer to cases where the professional has contracted out to a third party the embodiment of the advertising or marketing of his product or service. It can also be applied when advertising activity or marketing comes from an internal agent (a manager or other authorised agents), because the foundation of the rule is that the advertising is done “on behalf of the business”.
(d) Extended Liability Rule in Consumer Contracts
In B2C contracts an “extended liability” is established in paragraph (4);19 this applies only to contracts between professional suppliers and consumers and extends the liability to public statements made by other relevant people such as the producer or any person in the business chain between the producer and the consumer. This paragraph provides:
Where the other party is a consumer then, for the purposes of paragraph (2), a public statement made by or on behalf of a producer or other person in earlier links of the business chain between the producer and the consumer is treated as being made by the business unless the business, at the time of conclusion of the contract, did not know and could not reasonably be expected to have known of it.
As the Comments to DCFR identify, this article is similar to that underlying art. 2(2) of the Consumer Sales Directive 99/44.20 Nevertheless, it should not be forgotten that the scope is wider in the DCFR, extending not just to consumer purchases, but also to any consumer contracts.
This rule does not apply if, at the time of the conclusion of the contract, the professional supplier did not know and could not reasonably be expected to have known of the statement. This last requirement significantly reduces the number of cases in which the exception applies. The professional is not liable for third party advertising that is very disconnected from his activity, but in most cases it will be very difficult to prove that he could not reasonably be expected to know of the advertising statement.
(e) Right of Indemnity
Paragraph (5) confers on the professional, who must respond to the consumer in accordance with the conditions mentioned above, a right to be compensated by the person who made the advertising statement, namely:
In the circumstances covered by paragraph (4) a business which at the time of conclusion of the contract did not know and could not reasonably be expected to have known that the statement was incorrect has a right to be indemnified by the person making the statement for any liability incurred as a result of that paragraph.
The application of this right of indemnity requires that the professional incurs liability for an incorrect statement made by the advertiser. It does not deal with a mismatch between the final contract and the contents of the statement. In this case there would be direct responsibility for the professional, generally resulting from the integration rule of para. (2).
This rule does not have an equivalent in the PECL ; but it is similar, as Comment E recalls, to the underlying policy to Section 4 of the Consumer Sales Directive, which provides for an action when the final seller is liable to the consumer for a lack of conformity resulting from an act or omission by the producer or the previous intermediaries in the contracting chain.
(f) Mandatory Rule for Consumer Contracts
Paragraph (6) provides as follows:
In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.
The effect of this article cannot be displaced by a clause inserted into the contract concluded with a consumer. However, it can be displaced by a merger clause in B2B contracts stating that the terms of the contract are to be found exclusively in the contract document itself.21
18.104.22.168 Framework of the Particular Regulation of Sales
Under the rules governing the contract of sale, the integration rule of advertising can be found twice. On the one hand, in art. IV.A.-2: 303 DCFR (statements by third persons)22 lays down that the statements concerning the features of the product made “by a person in earlier links of the business chain, the producer or producer’s representative by virtue of II.-9:102” form part of the sales contract. This article contains a reference to art. II.-9:102 because it obviously establishes the same rule. It refers only to the statements made by others, but not to those made by the seller himself. However, in this latter case the result should be the same. On the other hand, in the definition of a consumer goods guarantee in art. IV.A.-6: 101 DCFR, in para. (2)(b), it is provided that “the goods will meet the specifications set out in the guarantee document or in associated advertising”. The connection between this rule to the above mentioned, supposes, therefore, the integration of the guarantee within the advertising content. The possible discrepancies between the guarantee document and the associated advertising should be resolved through the interpretation that is the most favourable to the consumer in the given circumstances.23
5.3.3 Proposal for a Regulation on a Common European Sales Law (CESL)
22.214.171.124 Article 69 CESL: Which Public Statements Made by a Trader Should be Implied in the Terms of the Contract?
The regulation of this matter in the CESL is very similar to that of the DCFR , though obviously limited to sales contracts. Article 69 CESL deals with the question of what are the necessary requirements of the professional supplier’s pre-contractual statements, or those of a third party, concerning the characteristics of the product under the contract that are to be incorporated into the content of it. The relevance of advertising, which was already covered in art. 2(2) of the Consumer Sales Directive, underlies this article.24
The legal formulation has a very similar structure to that seen earlier in the study of this matter in the DCFR: (a) general rule of integration of advertising for all business contracts (para. (1)), (b) exceptions (para. (1)), (c) rule of liability for statements from ancillary or dependent agents (para. (2)), (d) extended liability rule in consumer contracts (paragraph (3)), (e) mandatory rule for consumer contracts (para. (4)).
(a) General Rule of Integration and (b) Exceptions
Paragraph (1) establishes:
Where the trader makes a statement before the contract is concluded, either to the other party or publicly, about the characteristics of what is to be supplied by that trader under the contract, the statement is incorporated as a term of the contract unless:
(a) the other party was aware, or could be expected to have been aware when the contract was concluded that the statement was incorrect or could not otherwise be relied on as such a term; or
(b) the other party’s decision to conclude the contract could not have been influenced by the statement.25
Here, there is no substantial difference with the regulation of art. II.-9: 102(2) DCFR, except with respect to its scope. Article II.-9: 102(2) DCFR provides a framework for general application to all parties to the contract, while art. 69 CESL is limited to the seller.26 The general rule applies to both B2B and B2C contracts. Obviously, it corresponds to art. 2:203(2) PEL-Sales.
This article also applies to a contract concluded with another party where there exists a public statement (advertisement offer) or statement addressed to the other party (individual offer) prior to the conclusion of the contract; and it also requires that this statement is misleading, that the content of this statement refers to the characteristics of the product to be delivered, and that neither of the two exceptions mentioned is present. According to the Sales Directive and the national laws, the European Parliament’s Amendment No. 140 proposes the inclusion of another exception: the correction of the statement by the time of conclusion of the contract27. With regard to the applicability of the exceptions, as compared to art. II.-9:102(2) DCFR, the burden of proof is reversed in the CESL: the statement is always binding unless the other party knew, or must have known, that the statement was wrong or unreliable, or the statement could not possibly have causally influenced the other party’s decision to enter into the contract.28 The European Parliament’s Amendments introduce a new clearer wording about the burden of proof by expressing that the trader must show the existence of any contemplated exception29. All these Amendments seem to be necessary and match the existing European law.
(c) Rule of Liability for Ancillary and Dependent Agents
Article 69(2) CESL provides a rule of attribution of responsibility for statements from ancillary or dependent agents:
For the purposes of paragraph 1, a statement made by a person engaged in advertising or marketing for the trader is regarded as being made by the trader.
Here again a particular realisation is to be found of the general rule of assigning liability to the professional for the actions of its subsidiary or dependent. With the aim of improving the legal construction, the European Parliament’s Amendment propose the suppression of this article, since its content should be included in paragraph 1.30 This rule is applied only in consumer contracts.31 In addition, this article can also be applied when the advertising or marketing come from the settler’s internal sphere of operation; the essential question being that the advertising was made on behalf of the seller (“person engaged in advertising or marketing for the trader”).
(d) Extended Liability Rule in Consumer Contracts
In art. 69(3) CESL a rule of extension of liability to certain persons in consumer contracts is established, and this rule clearly comes from art. 2(2)(d) of the Consumer Sales Directive 99/44. Paragraph (3) provides:
Where the other party is a consumer then, for the purposes of paragraph 1, a public statement made by or on behalf of a producer or other person in earlier links of the chain of transactions leading to the contract is regarded as being made by the trader unless the trader, at the time of conclusion of the contract, did not know and could not be expected to have known of it.
As with the equivalent rule in the DCFR , this rule does not apply if, at the time of conclusion of the contract, the trader did not know and could not reasonably be expected to have known of the statement. The European Parliament’s Amendment intends to achieve the clarity of this paragraph by including an explicit reference to the burden of proof that the trader is expected to carry.32 The situation is the same as discussed for the DCFR: the last requirement mentioned in this rule significantly reduces the number of cases in which the exemption is applied, because in most of them it will be extremely difficult to prove that the trader could reasonably be expected to know of the advertising statement.
(e) Mandatory Rule for Consumer Contracts
The paragraph concludes with a mandatory rule for consumer contracts, namely:
In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.
This regulation does not exclude a merger clause in B2B contracts that states that all the terms are included in the document of the contract.
126.96.36.199 Article 100(f) CESL: Pre-contractual Statements (Qualities and Performance Capabilities) as Criteria for Conformity
Article 100 CESL indicates a number of different criteria that the goods and digital content must fulfil in order to comply with the contract (criteria for conformity) .33 In its letter (f) this regulation provides that “goods or digital content must possess the qualities and performance capabilities indicated in any pre-contractual statement which forms part of the contract terms by virtue of Article 69”. Zoll considers, with good reason, that this Article is superfluous, because the qualities and capabilities of the goods promised in the pre-contractual statements by the seller or by a person engaged in advertising or marketing for the trader according to art. 69 become a part of the contract and are covered by art. 99(1).34
Article 69 CESL omits a general rule that is normally applicable to all pre-contractual statements made by either party (its rule only applies to sellers); while this omission is not found in its precursors such as the PECL and DCFR .35 There is a glaring lack of an indemnity rule that allows the professional, who had to answer to the consumer for an incorrect or misleading advertisement by the producer or other person in the earlier chain of transactions, to proceed against the advertiser by demanding compensation for the damage. This should be taken into account in order to improve the final version of a future European regulation. It is also noteworthy that the CESL does not introduce any consideration of the inclusion of information on product features into the contract. This information should be part of the contract without being subject to the limits contained in art. 69 CESL. In this sense the criticism expressed by the Statement of the European Law Institute (ELI) on the Proposal for a Regulation on a CESL can be supported: “It is necessary to state that the information provided under Chap. 2 forms part of the contract terms and is not only implied by virtue of Article 69(ELI Art. 67) under the restrictive conditions mentioned therein. This is particular true of information concerning the characteristics of what is to be supplied”.36
5.4 Overview in Certain National Laws
5.4.1 General Profiles
In most European jurisdictions there are legal provisions or court decisions that establish the rule of the binding nature of advertising and its subsequent incorporation into the contract. The regulations vary according to the extent of the rule; some jurisdictions apply it in all contracts, others only in consumer contracts. However, in English law this rule is not generally known. There are then, grosso modo, two opposing models, the English common law in which an integration rule is not expressed, and the civil law where particular manifestations of the principle of good faith generate different rules of advertising integration into the contract.