This article includes the summary of some of fundamental changes and recommendations concerning the area of contract law and execution of contracts introduced by the new Czech Civil Code (the „NCC“). Regarding some other changes and principles of new laws, please refer to the previous article.
1. Contractual negotiations
2.1. Pre-contractual notification obligation
Prior to entering into a contract the parties have statutory obligation to truthfully inform each other of all factual and legal circumstances that are significant for entering into a valid contract. Generally, the parties should inform each other of all information that could cause the other party to terminate the contractual negotiations or threaten the performance of the contract and that is therefore of major importance to a party and is expected to be communicated between the parties. Failure to disclose such information may be considered as wrongful trading and gives a right to the damaged party to seek compensation of damages.
2.2. Pre-contractual liability
Sometimes one of the parties may pretend to commence contractual negotiations in order to get information from the other party or buy some time or for other reasons without really wanting to close the deal and enter into the contract. It may also happen that a party suddenly terminates the negotiations without any justifiable reason and refuses to enter into the contract. These situations are addressed by Sections 1728 and 1729 of the NCC pursuant to which each party may negotiate and shall not be liable for not entering into the contract, unless it was the intention of such a party not to conclude a contract from the very beginning of contractual negotiations. If the parties advance in their contractual negotiations to the point that it appears highly likely that they will enter into the contract, the party that terminates the contractual negotiations without justifiable reasons despite expectations of the other party that the contract will be entered into, will be considered as a party acting dishonestly and will be obliged to compensate the other party for damages caused thereby. The amount of compensation will be limited to the amount of loss caused by a failure to enter into the contract in similar cases.
There are also views that possible compensation will not only include costs of the harmed party incurred in relation to the terminated contract negotiations (such as travel and administrative costs, etc.) and the loss caused by failure to enter into the contract in similar cases as stated above, but it will also include the loss of profit relating to the contract that had not been entered into.
2.3. Confidentiality duty
The parties may keep records of information disclosed to them during the course of the contractual negotiations, even if the actual contract will not be concluded. Any confidential information should be protected from their misuse or illegal disclosure. Breach of this obligation will lead to the obligation of the relevant party to return any enrichment gained as a result of such breach.
As opposed to the old law, the new statutory protection is given to all information of confidential nature regardless of the fact if such information had been marked us such by the party it belongs to. A question which information will be considered as confidential, will be subject to judicature. It is therefore recommended to mark any disclosed information during the contractual negotiations as confidential.
2.4 Contract interpretation
The parties may have different interpretation of the contract or other legal acts (e.g. testament). Any legal acts as well as any contract shall be interpreted according to the intentions of the acting party, if these have been known or should have been known to the other party. The interpretation should also reflect any common practice established between the parties, as well as any pre or post contractual negotiations or correspondence of the parties. Common practice applicable to the relevant industry area or type of business will also apply unless these are contracted out by the contractual provisions or the law, i.e. unless the parties agree otherwise. Generally applicable common practice will prevail over non-mandatory statutory provisions. The parties should take this into consideration during their contract negotiations.
By: Jiří Spoust