New agreement on a future contract: written or verbal, as you please
Written or verbal? Under the new Civil Code, the answer is “either”. Parties today may conclude a valid agreement on a future contract only in writing. But the new Civil Code (“NCC”) allows them to choose either form. As such, concluding a written agreement, which often complicates legal relations between private parties, is no longer necessary. The requirement was originally supported by the argument that if a written agreement were not concluded, there may be problems providing evidence of the agreement. For the authors of the NCC, this was not a sufficient reason for restricting the contractual freedom of individuals and companies.
Consider the risks
As of 1 January 2014, it will be the responsibility of the parties to be aware of the difficulty of providing evidence of a verbal agreement and to decide whether or not they wish to take on such risk, since each of the parties is entitled to insist that the agreement is concluded in writing. But it will no longer be the case that an agreement on a future contract will be absolutely invalid if not made in writing. However, a willingness to fulfill what the party undertook will need to exist both upon the execution of the agreement and during the performance and discharge of such undertaking.
This is not the only change. Whereas today it is necessary for all “material particulars” of the future contract to be settled in the agreement on a future contract (the differences between a draft and final agreement would de facto be eliminated), under the NCC it will be sufficient if at least the general contents of the future contract are agreed.
Another change in the NCC, which has been adopted from the current form of the agreement on a future contract contained in the Commercial Code, is that the request to conclude a future contract can either be made within an agreed deadline or within one year. Where the entitled party fails to make the request on time, the obligation to conclude the future contract shall terminate by law. But this is not the only case where the agreement can terminate without the obligation being fulfilled.
The other case is what is termed a “material change” of the circumstances in which the parties concluded the agreement on a future contract. This, however, is nothing new. If circumstances change such that the bound party cannot reasonably be requested to conclude the future contract, the obligation to do so terminates.
There is a new notification duty, which is a novelty in civil law relations. The bound party is obliged to notify the entitled party of any change of circumstances; otherwise, it is obliged to compensate the entitled party for any loss arising therefrom.
When one party breaches the obligation
As before, if the bound party breaches its obligation to conclude the future contract, the entitled party may request that the contents of the agreement be determined by a court or, as a new feature in civil law relations, by a person appointed in the agreement. If such person fails to determine the contents of the future contract within a reasonable time, or if he/she refuses to determine the same at all, which can well be imagined, the entitled party may propose that the contents of the future contract be determined by a court.
The contents of the future contract would be determined based in particular on the purpose at which the agreement is “most likely” aimed. The contents would be based on proposals from the parties and the circumstances in which the agreement on a future contract was concluded. It is newly provided that the rights and obligations of the parties must be determined fairly when establishing the contents of the future contract.
The statutory limitation period would apply to the right to determine the contents of the agreement and such period would expire one year from the last day of the period within which the future contract was to be concluded. The entitled party’s right to seek damages arising out of a breach of the obligation to conclude the future contract is not limited. Thus, it is possible to proceed from the fact that it will always be possible to seek damages, provided the entitled party does not apply for the contents of the future agreement to be determined by a judge or other person appointed in the agreement, which such party may do pursuant to the existing concept of the agreement on a future contract stipulated in the Commercial Code. As mentioned above, the agreement on a future contract stipulated in the NCC is based on such a concept.
We can only hope that in less than two years’ time there will be greater flexibility in concluding an agreement on a future contract than there is today.