Case law

  • Case Details
    • National ID: 855/98
    • Member State: Portugal
    • Common Name:link
    • Decision type: Other
    • Decision date: 06/10/1998
    • Court: Supremo Tribunal de Justiça (Supreme court)
    • Subject:
    • Plaintiff:
    • Defendant:
    • Keywords:
  • Directive Articles
    Unfair Contract Terms Directive, ANNEX I, 1.
  • Headnote
    Any term that provides for payment of compensation (20% of the total leasing charges outstanding) as a result of the termination of a leasing credit arrangement because of failure to pay the leasing charges should not be regarded as unlawful as per articles 12 and 19 (c) of Decree 446/85 of 25 October.
  • Facts
    One commercial enterprise, whose business was based on providing financial services, such as leasing credit arrangements, agreed a leasing credit arrangement with another commercial enterprise. The contract covered equipment for hotels, which the financial services company provided to its client for a 57-month period. The client, for its part, was required to make 19 monthly repayments.
    When its client failed to adhere to the terms of the contract, the financial services company terminated the contract, as it was entitled to under term 12 no. 1 of the contract’s standard terms and conditions. However, under no.2 of this term, the financial services company was entitled to a one-off payment of 20% of the leasing charges outstanding on the termination date, where the contract was being terminated because of breach of contract as stipulated in no. 1.
    Thus, the financial services company took legal action to secure payment of the compensation provided for in the contract. The defendant argued that this term was null and void on the grounds that it contravened article 12 no. 2 (c) of Decree 446/85.
  • Legal issue
    Although the dispute was between two companies, article 17 of Decree 446/85 of 25 October stipulated that the law governing unfair terms in the Decree applied in this case. The question to be considered by the court centred on whether the term restricting application of the law applied, since the defendant was arguing that the compensation term was invalid because it contravened article 19 (c), which bans compensation that is disproportionate to the damages incurred.
    In the view of the Supreme Court, any interpretation and assessment of the validity of contract terms subject to Decree 446/85 must be in line with the bona fides principle (articles 15 and 16). By applying the bona fides principle to the case under examination, the court was able to conclude that there was no breach of article 19 (c). In fact, this provision merely places a ban on compensation that is disproportionate to the damages incurred (the question of proportionality being assessed according to the bona fides principle). Setting compensation at one fifth of the charges outstanding could not be regarded as disproportionate.
    Even if the compensation were regarded as disproportionate, it would not be for the court to declare the term invalid, but rather to determine a fair reduction, as per article 812 of the Civil Code.
    As such and because the contract term under examination was setting a level of compensation, the creditor was entitled to terminate the contract (article 801 no. 2 of the Civil Code) when the debtor defaulted on the contract. At the same time, he was entitled to compensation, as laid down in the contract, to offset any damages he had incurred. Furthermore, this provision stipulated that it was not the injured party who carried the burden of proof. Rather, the other party had prove that no damages had been incurred.
  • Decision

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