Текст бизнес-книги "Russian business law: the essentials"

Автор книги: Evgeny Gubin

Раздел: О бизнесе популярно, Бизнес-книги

In certain scenarios, the CC of the RF and other laws provide for an obligation of a party to conclude a contract. For example, such an obligation is set forth for organizations supplying energy, regarding the conclusion of power supply contracts.[49]49
  See Clause 3 of Article 15 of the Federal Law No. 190-FZ “On Power Supply,” dated July 27, 2010, // “ConsultantPlus” Legal Directory System.


[Закрыть] In case the party/parties have an obligation to conclude a contract, it has to be concluded, in accordance with Article 445 of the CC of the RF. In the event of disagreements regarding the individual terms of the contract, the parties have the right to bring the case to the court, within six months from the moment the conflict arose.

If the party obligated to conclude a contract avoids its conclusion, the counterparty has the right to ask the court to coerce the party to conclude the contract. In this case, the contract is deemed to be concluded with the terms that are determined by the decision of the court, and from the moment that decision has come into force.

Unless otherwise implied from the nature of the contract, it can be concluded at an auction. General provisions on the conclusion of a contract at an auction can be found in Articles 447–449.1 of the CC of the RF. The order of organizing auctions in different domains is regulated in specific legislation.[50]50
  See for example, Bankruptcy Law // “ConsultantPlus” Legal Directory System; Federal Law No. 229-FZ “On Enforcement Proceedings,” dated October 2, 2007, // “ConsultantPlus” Legal Directory System;


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The auctions shall be held in the form of a tender, auction by bidding, or in another form prescribed by law. The latter category includes, for example, “reverse auctions” (reductions).[51]51
  The terms “reverse auction” or “reduction” are not used in Russian legislation. These forms of auctions, however, are prescribed in Federal Law No. 44-FZ, “On the System of Public Procurement Contracts for Products, Works, Services for State and Municipal Needs” dated April 5, 2013, and in Federal Law No. 223-FZ, “On Purchases of Goods, Works and Services by Certain Types of Legal Entities,” dated July 18, 2011. In these laws the term “auction” is used for the identification of such procedures.


[Закрыть] It can be organized for acquiring goods and services for state, municipal, and private needs.

The contract is concluded with the winner of the auction. Some laws and regulations provide the possibility (or obligation) to conclude a contract with the second place winner, in case the first place winner avoids the conclusion of the contract.

An auction conducted in violation of the rules may be declared invalid by a court, based on a complaint brought by an interested party, or in certain cases by the competition authorities. The declaration of an auction as invalid shall entail the invalidity of the contract concluded with the winner of the auction.

The amendment and termination of a contract are possible by an agreement of the parties, or by a court decision.

An agreement to amend or terminate a contract shall be made in the same form as the contract that has been concluded, unless otherwise implied by the laws, regulations, customs of trade, or by the contract.

Upon one of the parties’ request, a contract may be amended or terminated by a decision of a court in case of:

– a substantial breach of the contract by the counterparty (Article 450 of the CC of the RF). A breach of a contract by one party shall be recognized as substantial, if it entails damages for the counterparty that significantly deprive the party from what they had the right to expect upon conclusion of the contract;

– a substantial change of circumstances (Article 451 of CC of the RF). A change of circumstances shall be recognized as substantial when they have changed the contract to the extent that the contract would not have been concluded, or it would have been concluded on significantly different terms, if the parties could have reasonably foreseen these changes;

– or in other cases provided by law or contract.

Before applying to the court, the party intending to amend or terminate the contract shall comply with the rules of pre-trial procedures, which includes the submission of a proposal to the counterparty to amend or terminate the contract. The court shall consider the request to amend or terminate the contract, if the counterparty rejected such a proposal, or the response has not been received in due course. Non-compliance with the rules of pre-trial procedures shall result in leaving the claim without consideration (Article 148 of the Arbitration Procedural Code of the RF). This, however, does not deprive the claimant from the right to apply again after complying with those rules.

The law or the contract may allow the parties to unilaterally refuse to perform the contract (or to exercise relevant rights). In this case, the party may inform the counterparty of its refusal to perform the contract (Article 450.1 of the CC of the RF). The contract is terminated from the moment such notice has been received, unless otherwise provided by law or stipulated in the contract. From that moment forward, the contract shall be deemed to be terminated or amended.

Upon termination of a contract, the obligations of the parties shall be terminated unless otherwise provided by law, or implied from the nature of the obligations (Article 453 of the CC of the RF). The parties do not have the right to demand the return of what was performed by them under an obligation, before the time of amendment or termination of a contract, unless otherwise provided by law, or agreed by the parties. In a situation where before the termination of the contract, one of the parties has performed its obligations but the counterparty has not, the rules of unjust enrichment apply to the relationship.

The Opinion of the Plenum of the Supreme Court of Arbitration of the RF, ruled on the following stipulations, in clause 5 of Resolution No. 35, dated June 6, 2014.[52]52
  Resolution No. 35 of the Plenum of the Supreme Court of Arbitration of the RF, dated June 6, 2014, "On Consequences of the Termination of a Contract," // “ConsultantPlus” Legal Directory System


[Закрыть] According to this ruling, upon the termination of a contract, a party has the right to demand the return of property in the following circumstances:

– the party has transferred some property to the counterparty’s property as a performance of the contract;

– the counterparty has not performed its obligations properly or at all;

– in this respect, the court has found the parties to be in violation of the equality of their performance.

Moreover, all of the encumbrances (e.g. mortgage) of the returned property shall persist, which were existing at the time of being in the possession of the counterparty.

According to Article 158 and Article 434 of the CC of the RF, all transactions, and particularly contracts, may be concluded in oral or written forms (simple or notarial). Contracts, in which at least one party is a legal person, shall be concluded in written form (Article 161 of CC of the RF), with the exception of the contracts which are performed at the moment of conclusion, or those directed at the performance of a written contract. These contracts may be concluded orally (Article 159 of CC of the RF).

A written contract may be concluded by the means of drawing up a document or exchanging several documents (letters, electronic communication, etc.). In the latter case, the channels of communication must allow for the exact determination that the documents come from the party of the contract. The written form of the contract is also deemed to be observed if the party receiving the offer has taken steps towards the performance of the contract.

For a range of contracts the legislation sets forth a requirement for notarial certification. Such a requirement, for example, exists for transactions related to the alienation of a share, or a portion of a share, in the charter capital of a limited liability company. The requirement of notarial certification of contracts may also be stipulated by the agreement of the parties. Transactions shall be certified by the notary, or an official having the right to take such notarial action. The procedure of notarial certification is set forth in theFundamental Principles of Legislation on Notariat dated February 11, 2003 No. 4462-.1.

If the notarial certification of a transaction is required, the nonobservance thereof results in the transaction being void. If one of the parties to the transaction, however, fully or partially performed the contract, and the counterparty avoided notarial certification, the court may, upon the party’s request, declare the transaction as valid (Article 165 of the CC of RF).

The main methods of securing the performance of obligations are set forth in the CC of the RF. Those methods include penalty, pledge, retention of property, surety, guarantee, earnest money, and security deposit. This list is non-exhaustive, and the parties have the right to stipulate in the contract other means of securing the performance of obligations.

A penalty is a monetary sum, determined by law or contract, that a debtor must pay to the creditor, in case of nonperformance or improper performance of an obligation.

If a penalty subject to payment is clearly disproportionate to the consequences of the violation of an obligation, the court has the right to reduce the penalty. If the debtor is an entrepreneur, the court may reduce the amount of the penalty, only upon that person’s request. Furthermore, such a debtor must prove that the amount of the penalty stipulated in the contract may result in an unfair advantage to the creditor.

The creditor is entitled to claim damages for the portion not covered by the penalty (Article 394 of CC of RF). The law or the contract may identify the following scenarios:

– when only the penalty may be claimed and not the damages;

– when in addition to the penalty the damages may be claimed in the full amount;

– when the creditor may choose to claim either the penalty or the damages.

In the event of debtor’s nonperformance, or the improper performance of its obligations, the creditor (pledgee) has the right to receive satisfaction from the value of the pledged property, with priority over other creditors of the pledger.

In cases defined by law, and according to the procedure prescribed therein, the pledgee may have his/her claim satisfied by means of transferring the pledged property to the pledgee. A pledge arises by virtue of a contract between the pledger and the pledgee, or on the basis of law.

In the event that the rights on the pledged property have been transferred by the pledger to a third party, as a general rule, the pledge remains valid, with the exception of the following cases:

– when the pledged property has been acquired for compensation by a person who did not know and could not have known that the property was the subject of a pledge (No. 2 of Clause 1 of Article 352 of the CC of the RF);

– of the alienation of goods in commerce being the subject of a pledge (Clause 2 of Article 357of the CC of the RF).

The CC of the RF contains general provisions on pledges, and provisions regulating specific types of pledge (pledge of goods in commerce, pledge of securities, pledge of the rights of the shareholders of legal persons, etc.). A mortgage (pledge of real estate) is regulated by a special federal law.[53]53
  Federal Law No. 102-FZ “On Mortgage (pledge of real estate),” dated July 16, 1998, // “ConsultantPlus” Legal Directory System


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In case of nonperformance by the debtor, a creditor who has property subject to transfer to a debtor, or a person indicated by a debtor, shall have the right to retain the property until the performance of the obligations. If the parties are not entrepreneurs, the retention of property is allowed only for the purposes of securing the obligation to pay for that property, or for the compensation for the creditor’s losses in relation to that property. If, however, the parties to the contract are entrepreneurs, other obligations may also be secured by retention of property.

Under the contract of “suretyship,” the surety undertakes the duty to the creditor of another person to be fully or partially liable for the performance of its obligations.

The terms of the suretyship, as related to the main obligation, are deemed to be agreed on if the suretyship contract refers to the contract from which the secured obligation arose or will arise. If the surety is an entrepreneur, then the suretyship contract may secure all existing and/or future obligations of the debtor, in a predefined amount.

As a general rule, the debtor and surety are jointly and severally liable towards the creditor. The law or the contract may also establish subsidiary liability of the surety.

The surety who has performed the obligation, obtains the rights of the creditor in relation to this obligation and the rights of the creditor as a pledgee, to the extent that the surety has satisfied the initial creditors’ demands.

By virtue of a guarantee, the guarantor, upon the principal’s request, undertakes an obligation to pay, to the person indicated by the principal (the beneficiary), a monetary sum in accordance with the terms of an obligation set by the guarantor. This is irrespective of the validity of an underlying secured obligation.

The obligations of the guarantor towards the beneficiary do not depend on the main obligation for the security of which the guarantee was issued, as well as on the relationship between the principal and the guarantor, or any other obligations, even if a reference to such obligations is made in the guarantee.

A guarantee may be issued by banks or other credit organizations (bank guarantees), as well as by other commercial organizations. Before June 1, 2015, the CC of the RF only regulated bank guarantees. Guarantees issued by other commercial organizations are new to Russian law.

Earnest money is a monetary sum given by one of the contracting parties to the other towards payments due under the contract. If the party giving the earnest money is liable for the nonperformance of the contract, the earnest money remains with the other party. If the party receiving the earnest money is liable for nonperformance of the contract, it has the duty to pay the other party twice the amount of the earnest money.

Monetary obligations may be secured by a security deposit given from one party to the other (security deposit). When the circumstances described in the contract arise, the amount of the security deposit is set off towards the performance of the corresponding obligation. If such circumstances do not arise in the period stipulated in the contract, or if the secured obligation is terminated, the security deposit has to be returned, unless the parties agreed otherwise.

2. Types of Contracts under the Russian Law

The CC of the RF identifies a variety of contracts, which allow the transfer of property, by its owner or another person legally holding that property, to a third person. Such contracts include contracts of sale, barter, donation, and rent. These contracts are regulated in Chapters 30–33 of the CC of the RF.

Under the contract of sale, one party (the seller) undertakes an obligation to transfer property (goods) to the ownership of the other party (the buyer), and the buyer undertakes the obligation to accept these goods, and to pay a defined monetary sum (the price) (Article 454 of CC of the RF). Chapter 30 of the CC of the RF includes general provisions on purchase and sale, as well as specific provisions pertaining to individual types of this contract. Those types include contracts of retail sale, supply of goods, supply of goods for state needs, sale of agricultural produce, power supply, real estate sale, and sale of enterprises.

Under barter contract each party undertakes the duty to transfer certain goods to the ownership of the other, in exchange for other goods (Article 567 of CC of the RF).

Under the contract of rent, one party (the rent recipient) provides the other party (the rent payer) with property, and the rent payer undertakes the duty to periodically pay the recipient a certain amount, or to provide money for its maintenance in a different form (Article 583 of the CC of the RF).

Under donation contract the donor shall, without consideration:

– transfer, or undertake to transfer something to the ownership of the recipient;

– transfer, or undertake to transfer to the recipient, property rights of the donor or a third person;

– release, or undertake to release the recipient from the property obligation towards the donor or a third person (Article 572 of CC of the RF).

The contracts of sale, barter, and rent are compensated contracts. The only uncompensated contract in this category is the contract of donation. It should be taken into account that donations between commercial organizations are expressly prohibited under Clause 1 of Article 575 of the CC of the RF.

The CC of the RF specifies the following contracts of property use: lease, rental of housing premises, and gratuitous use. With the transfer of the property under these contracts, the lessee obtains the legal title to that property. The rights of the rent payer are protected by proprietorial means – through vindicative and negatory claims (Article 301–304 of the CC of the RF). Furthermore, the rent payer has the right to protect the property, even from its owner (Article 305 of the CC of the RF).

Chapter 34 of the CC of the RF is dedicated to the regulation of the lease. Under the lease agreement (contract for the lease of property), the lessor shall undertake to furnish (for a charge) the leaseholder with property, for temporary possession and use, or for temporary use (Article 606 of the CC of the RF).

The provisions governing the rent of premises can be found in Chapter 35 of the CC of the RF. Under a rent contract of housing premises, one party – the owner of the housing premises or an authorized person (the lessor), undertakes the duty to provide (for payment) the other party (the lessee) with housing premises for possession and use for housing purposes (Article 671 of the CC of the RF). The difference between this contract and the lease contract is the object, which is being transferred to the possession of the counterparty. In this contract the object can only be used as housing premises.

The gratuitous use is governed by Chapter 36 of the CC of the RF. Under the contract for gratuitous use, one party (the lender) undertakes to transfer, or transfers something for gratuitous use by the other party (the borrower). The latter undertakes to return the object of the contract in the same condition with due account for normal depreciation, or in the condition stipulated in the contract (Article 689 of the CC of the RF). Commercial organizations do not have the right to lend property for gratuitous use to their founders, shareholders, directors, members of management, or control bodies.

The CC of the RF regulates two types of work contracts: contracts of work for hire (Chapter 37 of the CC of the RF), and contracts of scientific research works, experimental designs, and technological works (Chapter 38 of the CC of the RF).

Under the contract of work for hire, one party (the contractor) undertakes the duty to do certain work at the order of the other party (the customer), and to transfer the results to the customer within the established period of time. The customer, on the other hand, undertakes the duty to accept the results of the work, and to pay for it (Article 702 of the CC of the RF). There are several types of work for hire contracts: consumer work, construction work, design and exploratory work, and work for state and municipal needs. These specific types of contracts are regulated in Chapter 37 of the CC of the RF.

Chapter 38 of the CC of the RF incorporates the regulation of two types of contracts: contracts of scientific research, and contracts of experimental designs and technological works. Under a contract for the performance of scientific research work, the performer undertakes the duty to conduct scientific research, based on a technical order of the customer. Under a contract for the performance of experimental design and technological work, the performer undertakes the duty to develop a model of a new manufacture, draft documentation for it, or for a new technology. In both contracts, the customer undertakes the duty to accept the work and to pay for it.