COMMERCIAL OBLIGATIONS 1 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

COMMERCIAL OBLIGATIONS 2 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

COMMERCIAL OBLIGATIONS 3 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

COMMERCIAL OBLIGATIONS 4 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

COMMERCIAL OBLIGATIONS 5 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

COMMERCIAL OBLIGATIONS 6 Acceptance: must clearly state that the offer is accepted without reservations must be delivered to the offering party 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

COMMERCIAL OBLIGATIONS 7 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

COMMERCIAL OBLIGATIONS 8 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

COMMERCIAL OBLIGATIONS 9 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

COMMERCIAL OBLIGATIONS 10 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

COMMERCIAL OBLIGATIONS 11 General legal requirements for validity of commercial contracts Form of contract Principle of “informality” of commercial contracts - 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

COMMERCIAL OBLIGATIONS 12 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

COMMERCIAL OBLIGATIONS 13 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

COMMERCIAL OBLIGATIONS 14 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

COMMERCIAL OBLIGATIONS 15 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)

COMMERCIAL OBLIGATIONS 16 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

COMMERCIAL OBLIGATIONS 17 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

COMMERCIAL OBLIGATIONS 18 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.

COMMERCIAL OBLIGATIONS 19 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

COMMERCIAL OBLIGATIONS 20 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

COMMERCIAL OBLIGATIONS 21 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

COMMERCIAL OBLIGATIONS 22 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

COMMERCIAL OBLIGATIONS 23 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

COMMERCIAL OBLIGATIONS 24 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

COMMERCIAL OBLIGATIONS 25 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

COMMERCIAL OBLIGATIONS 26 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

COMMERCIAL OBLIGATIONS 27 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

COMMERCIAL OBLIGATIONS 28 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

COMMERCIAL OBLIGATIONS 29 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