On 30 June 2022 a revision of the Civil Code has entered into force, including a change in, inter alia, the use of regulated institutions. Article 388 Civil code. Its aim is to increase protection against exploitation.
The amendment responds to the need to give the weaker contractual party broader protection against exploitation. That protection is strengthened by expanding the grounds for exploitation and giving the injured party a choice of remedies: a reduction of that party’s own performance, an increase in the performance due to that party, or annulment of the contract.
New rights
Article 388 of the Civil Code sets out the rights of a contracting party that has fallen victim to exploitation. Under the previous wording, a person who, because of inexperience, infirmity or distress, concluded a contract in which that person’s performance was grossly disproportionate to the other party’s performance could request a reduction of that person’s own performance or an increase in the performance due; where both remedies were excessively difficult, that person could request annulment of the contract.
Expanded grounds for exploitation
The amendment expands the grounds for exploitation by adding “a lack of sufficient understanding of the relevant contract”, meaning a situation in which a person lacks sufficient knowledge to assess the reasonableness and consequences of a particular contract. Nevertheless, not every such lack of sufficient understanding means that exploitation has occurred. Relying on that circumstance does not automatically lead to a finding of exploitation.
Free choice of remedy
A major change gives the exploited party a free choice between remedies: a reduction of that party’s own performance, an increase in the performance due to that party, or annulment of the contract. The legislator has therefore placed a claim for adjustment of performance on an equal footing with a claim for annulment.
Under the previous law, performance was adjusted in most cases and contracts were annulled less frequently; consequently, contracts generally remained valid despite exploitation. Annulment of a contract entails an obligation to return what the parties have performed for one another.
The term “gross disproportion” has been clarified
The amendment also clarifies the concept of gross disproportion by introducing a presumption: if, at the time the contract is concluded, one party’s performance is at least twice the value of the reciprocal performance, it is presumed to be grossly disproportionate.
The time limit for invoking unfair exploitation and pursuing related claims has been extended from two to three years; consumers have 6 years from the conclusion of the contract.
As stated in the explanatory memorandum to the draft law, the amendment is intended to make it possible to sanction conduct that could not previously be classified as exploitation.
This includes inducing elderly people to buy everyday movable goods at inflated prices, so-called payday loans granted by non-bank institutions, loan agreements in which a low-value loan is secured by a transfer of ownership of immovable property worth many times more, and franchise agreements that impose disproportionately onerous obligations on franchisees.
The new wording of the provision may therefore lead persons who have in fact been exploited to use legal remedies to protect their interests more often.