Prudent Businessperson

Under TCC Article 18(2), every merchant must act as a prudent businessman in all activities relating to its business. This means a merchant is expected to show more care and foresight than an ordinary person. The standard is objective: it is not the merchant’s personal abilities but the conduct expected of a prudent merchant in the same line of business that counts.

Consequences in Practice

• Contracts: A merchant must read the contracts it signs and assess their consequences. Arguments that it signed without reading, did not understand a clause or could not foresee its effect are generally not accepted.
• Defects of consent: Merchants’ claims of defects of consent and gross disparity are examined more strictly; claims of inexperience or thoughtlessness are often rejected.
• Penalty clauses: A merchant cannot seek reduction of an agreed penalty as excessive (TCC Article 22); see Contractual Penalty.
• Business dealings: A merchant bears the consequences of failing to check the other party’s solvency, product quality or delivery terms.
• Record-keeping: Tracking invoices, confirmation letters and correspondence; see Objection to Invoice.

Limits

The standard does not require a merchant to foresee every risk. In unforeseeable extraordinary circumstances, the rules on hardship or force majeure may apply, although merchants are expected to anticipate such events reasonably and reflect them in their contracts.

Directors

Board members and limited company managers are additionally held to the “care of a prudent manager”; see Directors’ Liability.