Have you ever wondered whether the lack of information regarding certain aspects of a transaction that will later be embodied in a contract could have repercussions in a future judicial proceeding in the event of a conflict of interests? I invite you to find out in the following lines.
Pre-Contractual Duties of Disclosure
It is a fact that, in commercial relationships, you are not exempt from bearing certain pre-contractual duties of disclosure during the negotiations prior to the execution of a contract. Such duties are governed by the standards of good faith and business usage, and therefore it should be understood that the duty to disclose also entails the duty that such information be provided truthfully, or at the very least, that it reflect the knowledge the disclosing party may have in that regard.
In El Salvador, it cannot be categorically stated that one party is under a duty to inform the other merely because the latter is in a position of impossibility or great difficulty in obtaining the information on its own. However, it may be admitted that, in certain cases, when there is a specific relationship of trust between the parties, such circumstance may give rise to a special duty of disclosure.
In that respect, the distinction between typical and atypical pre-contractual duties of disclosure is useful. In the former, it is sufficient to verify that the factual circumstances contemplated by the legal rule are present in order to ascertain that the duty to provide such information exists, as in the case regulated by Article 1663 of the Civil Code. In the latter, the judge lacks a clear answer in the legal system indicating the consequence of failure to comply with the duty to disclose; however, in our legal environment, the judicial authority may construct such consequence on the basis of the principle of good faith, from which the criteria justifying its imposition may be derived.
The Salvadoran Case: Lease Granted Without the Shopping Center Administrator’s Authorization
The case began because Mr. N. (lessor) and Mr. Z. (lessee) entered into a lease agreement for the purpose of installing a business owned by the defendant, in exchange for a monthly rental payment due on the first day of each month during the contractual term. The agreement took effect for a term of three years, renewable. However, although Mr. Z. paid the rent on time, he removed his property from the premises before the agreed term expired because it was impossible for him to carry out the necessary modifications, as the shopping center administrators prevented him from doing so on the grounds that prior authorization was required.
Mr. N. then sued Mr. Z., seeking termination of the lease agreement and, in addition, payment of rent allegedly due for the remaining term, maintenance fees, and electricity charges. The judge dismissed the claim, and the plaintiff appealed the judgment.
After reviewing the case, the Court of Second Instance found that, although the record included a letter signed by the lessor and addressed to the lessee authorizing him “to make the internal modifications necessary to adapt the business activity that is the object of the lease,” there was also another authorization issued by Mr. A., representative of the company managing the shopping center, stating that the continuation of the redesign work on the premises depended on that latter party, and which further stated, among other things, that “the remodeling plans for the aforementioned premises have been approved and are currently pending collection.”
For the purposes of the issue discussed here, the most interesting part of the judgment is where it states that the defendant had the obligation to inform the lessee about the legal status or situation of the property, which logically includes the requirements that had to be satisfied for any kind of physical modification—an obligation that, of course, could not have been waived, in light of the principle of good faith that must be present in every contract. The expectation is that, during the pre-contractual stage, contracting parties provide each other with all information necessary to define the terms of the contract, and that such information be aimed at properly informing the other party, in an attitude of fairness and loyalty. Since the lessor failed to timely inform the lessee of the need to obtain authorization from the shopping center administration where the leased premises were located, or to initiate the procedure on his own in order to ensure the commencement date of the remodeling works and the normal operation of the activities contemplated in the agreement, this constituted a clear breach of the essential clauses of the contract.
Conclusions
If you are about to enter into a contract, bear in mind that the failure to provide information regarding a particular aspect of the transaction is conduct that Salvadoran law treats as a breach of contract.
The judicial remedies available in the event of a breach of this duty to disclose may be multiple. Thus, I may recommend an action for nullity based on a defect in consent, together with a claim for damages, if the aggrieved party can no longer do anything to overcome the obstacle and continue with the transaction; or an action for damages, if the lack of information is not so serious and the contract remains in force.
Salvadoran legislation does not provide for an express regulation of pre-contractual duties of disclosure, and therefore, unfortunately, you will remain subject to the discretion and judgment of the court hearing your case as to whether it grants the relief sought in the claim.
