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The impact of constitutional rights and principles on contracts
The inclusion of social state principles and other basic rights in the constitution have sometimes strengthened the position of the ‘weaker party’ in contract law cases in a number of Member States. While basic or human rights were generally conceived to protect the individual against the state, its application in private law cases is now becoming more frequent, exerting the so-called ‘horizontal effect’ of fundamental rights. This implies that fundamental rights or basic rights are not applied in a ‘vertical’ relationship between a private person and a public body, but in the ‘horizontal’ relationship between two private parties, such as a company and an individual. 
One example of the effect of constitutional rights on contract law is the seminal German suretyship (Burgschaft) case of 19 October 1993, which was based, in part, upon the principle of the social state enshrined in the German Basic Law described in subsection 4.1.1 29 This case before the German Federal Constitutional Court concerned the validity of a personal guarantee for DM 100,000 given by a 21-year-old unskilled factory worker, with no assets of her own, for her father’s business loan. When the father defaulted the bank claimed the repayment from the guarantor (i.e. his daughter). She contested the validity of the guarantee agreement by arguing that not only had she not been informed about the consequences of signing a personal guarantee, but the financial risks had been minimized and misrepresented by the bank. She based her defence upon the German Constitution, in particular upon ‘human dignity’ (Article 1(1) GG), her party autonomy (Article 2(1) GG) in conjunction with the principle of the social state (Article 20(1) and 28(1) GG), and was successful in her appeal. As a consequence, she was able to withdraw from the contract with the bank, among other things, because she had not been duly informed of the consequences of the guarantee contract. This case will be further discussed in Chapter 5 of this book.
In Italy as well, constitutional rights have been used as arguments to strengthen the position of the weaker party in contract litigation. In Pedrazzoli v Mediolanum, the constitutional right to freedom of association led to a first pronouncement in favour of a consumer. Back in 1988 and 1994, Marcello Pedrazzoli had subscribed two insurance contracts with the life insurer Mediolanum, committing to the payment of premiums until 2008. Some time after the signing of the contracts, the majority shareholder of Mediolanum, the future Italian Prime Minister, Silvio Berlusconi, entered into politics, and his company started to support and fund his party (Forza Italia) in a direct and systematic way. Disagreeing with the political agenda of Forza Italia, Pedrazzoli argued that being bound to the insurance for another 14 years de facto limited his freedom of political association (Articles 18 and 49 of the Italian Constitution). Pedrazzoli thus claimed the rescission of the contract, and the repayment of the previously paid premiums. A first decision was in favour of Pedrazzoli, according to which the consumer could withdraw from the insurance contract, without losing his paid premiums. The ‘Tribunale di Milano’ held that the contract clause constituted a violation of freedom of association (Article 18 of the Italian Constitution) and was contrary to good faith. However, the final ruling was eventually decided in favour of the insurance company.
Despite its final outcome, the whole history of this case exemplifies the increasing influence that specific constitutional rights may have indirectly on consumer protection.
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