COMMERCIAL OBLIGATIONS Generally Commercial obligations relations based on

COMMERCIAL OBLIGATIONS Generally • Commercial obligations: • relations based on contracts entered into between entrepreneurs in connection with their business activities • relations based on typical commercial contracts listed in the Commercial Code regardless of whether the parties to the contract are entrepreneurs • relations based on contracts the parties to which agreed upon applicability of the Commercial Code 1

COMMERCIAL OBLIGATIONS • Commercial obligations are governed • by the Commercial Code and, • in the absence of specific regulations in the Commercial Code, by the Civil Code • If a party to a commercial contract is a “consumer” • specific protection of consumers granted in the Civil Code and public laws regulating consumer protection is applicable in addition to the Commercial Code 2

COMMERCIAL OBLIGATIONS Commercial Contracts • Definition • Contract, in general, is a bilateral or multilateral legal act aimed at creation of a relationship between (among) the parties consisting of mutual rights and obligations • Process of entering into contracts • Subject mainly to the Civil Code. Typical contracting process consists of two steps (unilateral legal acts): • the offering party submits an offer, and • the other party accepts the offer 3

COMMERCIAL OBLIGATIONS • At the moment when the offer and acceptance meet the contract is concluded (executed) • This applies only if the offer is accepted without any reservations or modifications • In case the acceptance contains proposals for a change of originally offered conditions the contract is not created and the acceptance constitutes a new offer 4

COMMERCIAL OBLIGATIONS • Both offer and acceptance must meet general requirements for valid legal acts • Offer: • must determine the subject matter of the contract and define the main parts of the contract • must be delivered to the other party • the offering party is bound by the offer for a certain period of time, i. e. the offer cannot be revoked • if the offering party declared that the offer is irrevocable • for a time period the offering party determined for acceptance of the offer 5

COMMERCIAL OBLIGATIONS • Acceptance: • must clearly state that the offer is accepted without reservations • must be delivered to the offering party within the deadline stipulated for the acceptance • the delayed acceptance has a legal effect only if the offering party agrees with the delay and informs the accepting party thereof • Both offer and acceptance must be in writing only if required for the respective type of contract by law or agreed 6

COMMERCIAL OBLIGATIONS • The above process applies to all contracts in private law relations; it is not specific only to commercial contracts • The specifics of contracting process under the Commercial Code: • the parties may determine certain parts of the contract by • reference to general terms and conditions drawn up by professional or special-interest institutions, or • reference to terms and conditions drawn up by one of the parties known to both parties, i. e. they must be appended to the offer 7

COMMERCIAL OBLIGATIONS • Under certain conditions the accepting party may accept the offer by performance of the offer without prior formal advising the offering party about the acceptance • Protection of information exchanged by the parties during the contracting process is ensured • no confidential information may be disclosed to a third party or used contrary to the purpose of contract negotiation regardless of whether the contract is concluded or not 8

COMMERCIAL OBLIGATIONS Special forms of contracting • Agreement on future agreement • Definition - agreement to enter into a future contract with an object of performance determined at least in a general manner • Purpose - make sure that the contemplated transaction will take place on “pre-agreed conditions” • Preparatory agreement of binding nature 9

COMMERCIAL OBLIGATIONS • Mandatory content of agreement on future agreement: • obligation of one or both parties to enter into future contract • time limit for entering into future contract • subject matter of the future contract determined at least in general terms • If the obligated party refuses to enter into future contract the authorized party may request the court: • to execute the contract by its decision, or • to award the authorized party damages sustained as a result of a breach of the obligation to enter into contract by the other party 10

COMMERCIAL OBLIGATIONS General legal requirements for validity of commercial contracts • Form of contract • Principle of “informality” of commercial contracts must be made in writing only if it is specifically required for the pertinent type of contract • Changes to the contract entered into in writing should be made in writing only if explicitly required by the contract 11

COMMERCIAL OBLIGATIONS • Content of contract • Commercial contract must fulfill general requirements of the Civil Code • The contract must be made in free will and in earnest, it must be expressed in understandable and definite way • The content and subject matter of the contract must not contradict or circumvent the law and good morals • The performance required by the contract must not be impossible • Contracts made in contradiction with these requirements are as a rule null and void 12

COMMERCIAL OBLIGATIONS Changes to commercial contracts • Changes may relate to the parties themselves or to the content of contract • Change of parties - assignment of rights • Creditor may assign its claims (receivables) from contract by written agreement to another party • Consent of debtor is not required • As from the moment the debtor learns about assignment it is obligated to perform the contract vis-a-vis the assignee 13

COMMERCIAL OBLIGATIONS • Change of parties - assignment of obligations • Third party may agree in writing with debtor on taking over the debt from debtor • Third party steps into shoes of debtor provided the creditor consents to this change • Changes in content of contract • Parties may agree on any change of their mutual rights and obligations 14

COMMERCIAL OBLIGATIONS Termination of commercial obligations • Fulfillment (discharge of obligation) • Debtor is discharged from its obligation arising from the contract if it fully and timely satisfies the creditor • Creditor is obligated to accept partial performance unless the agreement between the parties stipulates otherwise • In addition, the contractual obligation may cease to exist for reasons other than performance in cases set forth by law (Commercial Code or by Civil Code) 15

COMMERCIAL OBLIGATIONS • Termination by agreement • The parties may agree: • on termination of rights and obligations arising from a contract • on cancellation of the existing relationship and substituting such relationship by a new one in full or in part • on waiver of a claim; agreement must be in writing • Agreement under which a person waives rights that may arise in the future is null and void 16

COMMERCIAL OBLIGATIONS • Impossibility of performing obligation • Impossibility causing the termination of the agreement: • the obligation cannot be performed for objective reasons (nobody is able to perform the obligation - objective impossibility) • the debtor is not able to perform due to obstacle on his part (subjective impossibility), or • the performance became prohibited by legal rules or requires a special license and license was not granted to the debtor, although he exercised best effort to obtain it 17

COMMERCIAL OBLIGATIONS • The performance is not impossible if the obligation can be performed under more difficult conditions, e. g. for higher cost or within longer period of time. 18

COMMERCIAL OBLIGATIONS • Withdrawal • Either party may withdraw from contract under conditions agreed in the contract or set forth by law • The Commercial Code permits withdrawal from contract in case of a breach of contract: • if the breach of contract constitutes a fundamental breach the aggrieved party may withdraw from contract with immediate effect • it must only notify the breaching party of the withdrawal without undue delay once it has learned of the breach 19

COMMERCIAL OBLIGATIONS • Breach is considered fundamental if the breaching party knew that the other party would not be interested in performance of the obligation in the event of such a breach • In case of doubt, it is presumed that a breach of contract is not fundamental • In case of non-fundamental breach, • affected party may withdraw from the contract if the breach is not cured by the breaching party in additional time granted by the affected party 20

COMMERCIAL OBLIGATIONS • Set off • In case creditor and debtor have mutual claims (receivables) of the same type either party may set off its claim against the claim of the other party • Mutual claims cease to exist, with respect to the amount they match at the moment when both become due and payable 21

COMMERCIAL OBLIGATIONS Prescription, statute of limitation • Existence of rights and obligations arising from commercial contracts depends not only on acts of the parties to the contracts but also on passing of time • Right becomes statute-barred upon expiry of the limitation period (negative prescription) set forth by law (statute of limitation) • Right which is “statute-barred” becomes unenforceable with a court, it does not cease to exist • The obligated party may fulfill its obligation voluntarily 22

COMMERCIAL OBLIGATIONS • Limitation period begins to run on the day when it was possible to assert the right before a court – as a rule • The general limitation period is four years, in certain cases is shorter • Parties are not allowed to shorten the limitation period and change its commencement • Parties can extend by agreement the limitation period up to four years • Obligated party may extend the limitation period by unilateral act up to ten years 23

COMMERCIAL OBLIGATIONS Security obligations • Special legal remedies providing means for fulfillment of contractual obligations • Purpose and concept – security obligations strengthen legal position of creditor • by creating additional (accessory) legal relationship • in which creditor acquires specific remedies against debtor • Several categories of security obligations • personal • in rem 24

COMMERCIAL OBLIGATIONS • Suretyship • Definition – whoever declares to creditor to satisfy him if debtor fails to perform, becomes surety for debtor • Suretyship is personal security – surety undertakes to perform in lieu of debtor • Suretyship improves position of creditor – another person’s property is available to creditor 25

COMMERCIAL OBLIGATIONS • Suretyship established – surety declaration addressed to creditor • Form of surety – must be made in writing • Content – declaration of surety, specification of secured obligation, specification of debtor • Rights and obligations of surety • Creditor may request performance of debt from surety provided debtor failed to perform although requested by creditor 26

COMMERCIAL OBLIGATIONS • Surety must satisfy the creditor in full unless suretyship is limited to certain amount or in time • Surety has the same defense against creditor as the original debtor • Surety who performed instead of debtor has a subrogation right against debtor • Suretyship ceases to exist if • original debt becomes extinct (by discharge or otherwise) • surety satisfies the creditor instead of debtor 27

COMMERCIAL OBLIGATIONS • Security interest • Definition – secures a receivable (claim) by providing creditor with a possibility to satisfy his claim from the proceeds of realization of collateral • Nature – right in rem: • attached to a thing that serves as collateral • security interest remains attached to a collateral even if collateral changes hands 28

COMMERCIAL OBLIGATIONS • Security interest established: • security contract (in writing) • another legal act depending of the type of collateral (registration, handing over) • Satisfaction of creditor through security interest: • secured creditor may only suggest that • collateral is sold in public auction or by court and • proceeds transferred to creditor for satisfaction of his claim • secured creditor may not keep collateral or sell it by himself directly 29