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News

May one deviate from the statutory rescission-of-contract rules in commercial agreements?

19.09.2022
Company: bnt attorneys-at-law s.r.o.

Supreme Court decision 23 Cdo 2637/2020 of 29 March 2022 has made clear that the parties to a contract may agree to deviate from the general rules on withdrawal, and that agreeing on the effects of a withdrawal from contract is entirely optional.

Withdrawal from a contract is one of the main ways in which an unconsummated obligation may cease to exist, and is commonly used as soon as one party or the other comes to assume that the obligation in question will no longer fulfill its purpose. Seeing as it gives fairly substantial powers to one of the contractual parties, this legal concept is closely tied to the requirement that one be able to cite one’s grounds for withdrawal, whether in law or in contract. The general statutory framework for withdrawal is set out in Sec. 2001 through 2005 of the Civil Code[1], though the Civil Code also provides in numerous places for special rules for the withdrawal from contract – e.g. in the event of default (Sec. 1977 et seq.).

Discussions as to whether or not the general rules for withdrawal from contract are non-mandatory in character have been going on ever since the new Civil Code came into force, which is built on the very principle of negotiability – everything which is not forbidden is allowed. While the Civil Code stipulates at the outset, in Sec. 1 (2), that “Unless expressly prohibited by law, persons may agree on their rights and obligations in deviation from the law”, it hastens to rein in this freedom by postulating corrective restrictions: “prohibited are arrangements which violate the good morals, the public order, or rights concerning the status of persons, including the right to the protection of one’s personality[2]. The rescission-of-contract rule in Sec. 344 of the Commercial Code used to be optional, but was made part of the list of mandatory provisions pursuant to Sec. 263 by way of amendment No. 370/2000 Coll. The institution of withdrawal from contract in the new Civil Code thus ought to be built upon the former Commercial Code[3].

Professor Karel Eliáš, the mastermind behind the new Civil Code, himself considers Sec. 2001 to be mandatory because it is built upon the Commercial Code, and because denying the possibility to walk away from a contract would be against the good morals[4]; in this sense, Eliáš agrees with the relevant 2007 Supreme Court decision[5] (which was however based on the above-mentioned, since-superseded Commercial Code of 1991). In that decision, the Supreme Court did not specifically deal with the optional or mandatory nature of Sec. 344 of the Commercial Code (a provision which at the time of contracting had been clearly optional), but it did state explicitly that ruling out the possibility to withdraw from a contract is contro bonos mores. To quote from the decision, “such an understanding would make it impossible to walk away from the contract even in the event of a flagrant breach of contract by the other party, and would force the erstwhile party to remain for a long time within the contractual obligation without being able to defend its rights[6]. Hence, according to the Supreme Court, such a contractual arrangement must be considered invalid.

A dissenting view is held by assistant professor Josef Šilhán: While he does believe that Sec. 2001 is of mandatory character, he says it can generally be excluded, in spite of the above-mentioned decision by the Supreme Court. Šilhán would argue that such an act is impermissible only if and when it leads to a pronounced imbalance, or inequality, between the parties[7].

Yet another, third, opinion is being proffered by assistant professor Ivana Štenglová, who considers the provision of Sec. 2001 in question as entirely optional – according to her, the letter of the law makes it clear that the scope of grounds for rescission may not only be expanded but also be narrowed, if the parties so wish[8].

Only in spring this year did the Supreme Court attempt to split this Gordian knot. However, it ultimate gave only a partial answer. According to the Supreme Court, “the statutory rules regarding the effects of a withdrawal from the contract and regarding the settlement between the parties in the wake of such a withdrawal should principally be considered subject to contractual modifications. The parties may (within the limits of the general backstops in place) agree on the potential right to withdraw from the contract, and the effects of such withdrawal, and the manner in which their mutual obligations shall in such an event be settled, all in deviation from the framework contained in the Civil Code[9]. It added that the Civil Code contains no implicit injunction not to deviate from statutory law, and that the contractual provisions in question must not a priori be considered in breach of the good morals, the public order, or personality rights[10]. Finally, the court noted that “the lawmaker has presumed that the parties may agree on recission-of-contract rules which are different from the statutory ones[11].

Hence, according to the above-referenced Supreme Court decision, it is possible to agree on rescission-of-contract terms which deviate from the general rules set out in the Civil Code, as long as the corrective concepts of bonos mores, public order, and protection of personality are being taken into account, which are all very closely related to the issue at hand. Also, according to the decision, one may agree on effects of the withdrawal from the contract which differ from the statutory ones because the latter are fully optional, and such an arrangement cannot be automatically considered in conflict with the good morals. The Supreme Court was silent on the issue whether a contract may entirely rule out the possibility of withdrawal, and it is in this area in which there is still some leeway for discussion. Personally, I am inclined toward Josef Šilhán’s view, as I believe that contractual freedom is greater in B2B relations (as opposed to, say, relationships with consumers); as long as this does not lead to some sort of exceptional disproportion between the parties, I cannot see why the provisions in question could not be excluded from contracts (or how this could result in a violation of the good morals). At the same time, we find no – explicit or implicit – prohibition in the law of such deviation / exclusion of statutory provisions, as was the case after the amendment to the Commercial Code by Act No. 370/2000 Coll. At the same time, disallowing such deviation would go against one of the fundamental principles on which the Civil Code rests: the principle of optionality. Last but not least, it is fair to conclude that in the eyes of the practitioner, the provisions in question may be left out simply because it happens so often in the case of contracts. However, all these arguments notwithstanding, we will have to wait for the “official” interpretation from the hands of the Supreme Court, or for a change to the law which will provide clarity.

[1] Act No. 89/2012 Coll., Civil Code
[2] Act No. 89/2012 Coll., Civil Code, Sec. 1
[3] Act No. 513/1991 Coll., Commercial Code
[4] Eliáš: http://www.bulletin-advokacie.cz/k-pojeti-dispozitivniho-prava-v-obcanskem-zakoniku
[5] Supreme Court decision 32 Odo 1043/2004 of 28 July 2007
[6] Supreme Court decision 32 Odo 1043/2004 of 28 July 2007
[7] HULMÁK, Milan et al.: Občanský zákoník V. Závazkové právo. Obecná část (§ 1721-2054). Komentář. [The Civil Code V. The law of obligations. General Part (Sec. 1721-2054). A commentary]. 1st ed. Prague: C. H. Beck, 2014, p. 1194
[8] ŠTENGLOVÁ, Ivana. Odstoupení od smlouvy o dílo [Withdrawal from contracts for work]. Právní rozhledy, 2017, No. 1, pp. 1-6
[9] Supreme Court decision 23 Cdo 2637/2020 of 29 March 2022
[10] Supreme Court decision 23 Cdo 2637/2020 of 29 March 2022
[11] Supreme Court decision 23 Cdo 2637/2020 of 29 March 2022

 

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