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Significant Conditions of the Contract
Author article
Vladymyr Marinich

According to the provisions of the Article 638 of the Civil Code of Ukraine adopted by the Law of Ukraine dated January 16, 2003 No 435-IV, any contract is considered to be concluded upon the parties’ agreement on significant conditions of the contract, which include the following ones:

  • subject of the contract;
  • sine qua non conditions for a certain type of contracts;
  • conditions offered by one of the parties;
  • law-determined significant conditions.

The interpretation of significant conditions as "conditions specified by law as significant ", which is given by the abovementioned civil law, includes tautology. It turns out that the significant conditions are the conditions defined by law as significant.

In this case, the abovementioned norm, which is set by the Civil Code of Ukraine (which is the law in its essence), invokes to the law. But the mentioned norm is not a blanket or reference rule and not even a specific provision.

In our opinion, in such a way the legislator tried to define that the significant conditions in addition to those which are determined by the mentioned norms may be the conditions which are determined by other laws as significant. But the law-maker failed to carry out the plan properly. 

The Civil Code of Ukraine does not list the significant conditions of the contract. Vice versa, the Code determines that all conditions of the contract are significant and mandatory for approval.

In accordance with the provisions of the Civil Code of Ukraine, the significant conditions may be divided into two groups under the reason of essentiality. The mentioned groups are the conditions, which are significant under the law (we may call it for the purposes of the discussion as a "legislative significance") and the conditions, which are significant under the party’s offer (we may call it for the purposes of the discussion as a "contracting significance").

In the light of the above given explanations the contract shall contain the legislative significant conditions and in addition may contain the contracting significant conditions. Despite this, all these conditions will be recognized as significant ones precisely for a certain contract.

The "contracting significance" is sufficiently precise. Contrariwise, the "legislative significance" is still unclear.

The "legislative significance" shall be established by the legal norm. The norm shall constitute that the condition of the contract is significant.

Nowadays only the condition of the “subject of the contract” is established as significant one for all types of contracts (in accordance with the Article 638 of the Civil Code of Ukraine). The Commercial Code of Ukraine (namely the Article 189) establishes additional significant condition of the commercial contracts, which is “contract price”.

However, there are conditions of the contract that are not explicitly identified by law as significant ones. Although the mentioned conditions shall be approved under the provisions of law or customs and consequently they may be deemed as compulsory conditions for such a case and may be also determined as significant conditions of the contract.

In accordance with the provisions of the Article 202 of the Civil Code of Ukraine the contract is a specific form of a deal. Due to the mentioned fact it should be noticed that the significant conditions of the contract are implied by mandatory conditions, which are general (or basic) for all forms and types of deals. In light of this the list of conditions, which are significant under the law for all types of contracts, may be determined.

For the described purpose, the conditions of the deals, which are mandatory under the law for certain types of the deals, should be rejected. The special attention should be paid to the conditions, which are mandatory under the law for all types of the deals and the absence of which leads to an invalidity of a legal deal.

Nowadays, an essence of the deal is determined under the provisions of the Article 202 of the Civil Code of Ukraine. In accordance with the mentioned provisions of the law, the deal is a person’s action, which is intended to an acquisition, change or termination of civil rights and duties.

The provisions of the Article 203 of the Civil Code of Ukraine determine general conditions of the deal validity in particular that the deal is executed for the occurrence of legal consequence, which are provided by such a deal.

It means that the result of the deal shall be a new legal outcome for its parties. The outcome may be considered as the essence or subject of the deal and should be determined by the initiator of the deal.

As a result, any contract, which is only declarative and the result of which does not stipulate for a new legal outcome, is not a deal. Such agreements may include: an agreement of intent, affirmance or cognizance of legal results, which were established by previously conducted deals or acts of state or local authorities.

The result of the deal is meant to be new legal consequences, which occur on grounds of consummation of a deal. The mentioned fact means a change of certain rights and duties, as well as events and circumstances in time (before consummation of the deal and thereafter). The coherence of the deal results with temporal dimension gives a rise to the necessity of the establishment of such a condition as a term of the deal.

In accordance with the provisions of the Paragraph 3 of the Part 1 of the Article 208 of the Civil Code of Ukraine the mandatory condition of the deal is the written form of the deal. However, this condition occurs, depending on the deal price.

The parties should determine the price in order to define the form of the deal. The absence of the deal price does not mean that the deal is without price. It only means that that the price equals to zero and the deal is pro-bono.

Consequently, Ukrainian legislation requirements envisage the mandatory determination of three conditions of the deal - subject, price and term, upon absence of which the deal is deemed to be invalid and unconcluded. For this reason the mentioned conditions are mandatory (significant) for all types of transactions.

These conditions of the deal (subject, price and term) may be considered as significant conditions, which are general for all types of contracts. In case of deficiency of the mentioned conditions none of the act done may be considered as the deal.

The existence of the abovementioned mandatory (significant) conditions of the deal is a compulsory condition of the contract validity due to the fact that the contract is a type of a deal.

In accordance with the legislation the deals may include other conditions, which are compulsory for an approval by the parties. The mentioned conditions are inherent only to particular types of contracts.

In relation to the necessity for approval of the conditions, which are mandatory for approval under the law, the Plenum of the Supreme Court of Ukraine in the Paragraph 6 of the Item 2.6 of the ruling dated November 06, 2009 No 9 points out the following:

“…deals (contracts), which do not include conditions that are determined by the law may not be considered as the concluded contract (the parties have not attained consensus on all significant conditions of the contract; the party, that has forwarded the offer, has not received the bill of acceptance; the property has not been transferred whereas such a  transfer is required for the consummation of a deal etc.).”

 

The Plenum of the Superior Commercial Court of Ukraine upholds the analogous position in the Paragraph 3 of the Item 8 of the regulations dated May 29, 2013 No 11. In accordance with the provisions of the mentioned regulations:

“…the deals are considered to be unaccomplished (commercial contract is not concluded) if the abovementioned deals do not include conditions, which are determined by law and mandatory for the conclusion of a deal (the consensus on all significant conditions of the contract is not attained); the party that has forwarded the offer has not received the bill of acceptance; the property has not been transferred (whereas such a  transfer is required for the consummation of a deal); state registration or notarization, which are required to accomplish a deal, have not been carried out, etc…”.

Conclusion.

Summarizing the mentioned information and taking into account provisions of the article 638 of the Civil Code of Ukraine, it may be concluded that the contract may be deemed not concluded if the parties have not attained consensus on all significant conditions of the contract (which are stated by the party) or if the agreed terms do not include significant conditions, which are mandatory under the law, comprising such significant for all deals conditions as subject, price and term.

 

Managing Partner of the Law Firm "FOX" Vladimir Marinich