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What will be invalid today?

What will be invalid today?

27.3.2013 17:54
Autor: Jaroslav Míkovec, KSB

The court declared the contract invalid on procedural grounds, because the shares were not designated correctly and certain covenants that the courts have required for some time were omitted. In the dispute, the courts even deduced that in place of an invalid written contract another contract was concluded between the parties. The contract was concluded – surprisingly – tacitly, simply through the act of handing over the relevant shares (even though they acted on the basis of the written contract during the handover).

I know how annoying and often unfair it can be when someone comments publicly on a court ruling, especially when the commentator is not familiar with the subject matter of the case. Moreover, the court’s efforts to protect the party that common sense suggests is in the right may be lie behind a bizarre court ruling, even if it does not follow from case law. But be this as it may, I think it is sometimes necessary to step back and look critically at where these small steps take us.

Depressing reading

I am not such a radical as to believe that the judiciary should enforce contracts and protect rights acquired in good faith to the exclusion of all else (in particular matters entered in public registers). I do not have any problem with the law and the courts also protecting other values. However, reading decisions in which the court renders certain contracts invalid is sometimes depressing, especially when after several years a signed contract is found to be completely invalid and the registered owners in the end do not own anything, very often on procedural grounds that are not necessarily implied by law.
One simply cannot see the purpose of such decisions for the public or business. In fact, it is difficult to know whether anything useful at all remains after all the scrapped contracts and worthless entries in the cadastral and commercial registers.

Whenever a legal magazine raises a new issue, we are sure to find several new reasons why various contracts were considered invalid. Often the reasons are surprising and require great imagination to see how they were deduced from the law. I find it odd that so many parties to contracts under Czech law, together with their legal counsels, would enter into contracts so bad that the courts would declare them invalid.

The only explanation I have then for the continuous flow of court decisions rendering contracts invalid is that the public simply has a terrible sense of the law - unless, that is, our judiciary does not sufficiently understand its own function and lacks sufficient knowledge of the real world in which real people agree on and execute contracts using their best efforts to agree on the best rules for their relationships.

I still believe that written contracts should be declared invalid only rarely and with good reason, for example, when it is necessary to protect a key public policy. The economy can hardly thrive in a legal environment that can cancel written contracts one after another and replace them with ones inferred by the court solely by considering the parties’ conduct and not by what they agreed in writing. And this extends far beyond the business sphere: average citizens also need some assurance that in the normal course of events the results of their work and their property are legally secured.

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