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ВЕСТНИК ПЕРМСКОГО УНИВЕРСИТЕТА. ЮРИДИЧЕСКИЕ НАУКИ
2016 PERM UNIVERSITY HERALD. JURIDICAL SCIENCES Выпуск 33
Information for citation:
Bondarenko N. L. The Principle of Freedom of Contract in Civil Law of the Republic of Belarus. Vestnik Permskogo universita. Juridicheskie nauki - Perm University Herald. Juridical Sciences. 2016. Issue 33. Pp. 281285. (In Eng.). DOI: 10.17072/1995-4190-2016-33-281-285.
UDC 347.1
DOI: 10.17072/1995-4190-2016-33-281-285
THE PRINCIPLE OF FREEDOM OF CONTRACT IN CIVIL LAW OF THE REPUBLIC OF BELARUS
N. L. Bondarenko
International University «MITSO»
21/3, Kazintsa st., Minsk, 220099, Republic of Belarus
ORCID: 0000-0003-3947-728X
ResearcherID: D-8364-2016
DOI: 10.5829/idosi.wasj.2013.24.01.13176
e-mail: [email protected]
Introduction: according to the author of the article, the principle of freedom of contract, secured among fundamental principles of civil legislation of the Republic of Belarus, is not fully implemented in the current legislation. Purpose: to identify legal rules incoherent with the requirements of the principle of freedom of contract and to work out proposals for their correction. Methods: the methodological framework of the research is based on a set of universal, general scientific and specific scientific methods of cognition. For the purposes of this research, the leading role is assigned to analytical, critical and systemic methods, methods of analysis and synthesis, abstraction and concretization. Results: the author proves that the principle of freedom of contract is not confined within the scope of law of obligation. Being a fundamental principle of civil legislation, it extends to its whole array, its manifestations being found in all branches of civil law. One should not limit the principle of freedom of contract to the freedom of entering into a contract only because freedom of contract manifests itself at all stages of contractual relations until termination thereof. So far as the principle offreedom of contract is a base for civil law regulation in relation to rules of contract law, including the regulation on freedom of contract, the author suggests distinguishing between restriction of freedom of contract as a principle and restriction of certain elements of freedom of contracting parties. Conclusion: freedom of contract, as any freedom, should obtain guarantees. That is why it is essential for its limits to be set under the law only providing private and public interests are balanced.
Keywords: civil law; principles; contract; freedom of contract; legal rules; restriction of principles;
mixed contracts; non-defined contracts
Introduction
The Civil Code of the Republic of Belarus (hereinafter referred to as the CC) first mentions the principle of freedom of contract among the fundamental principles of civil law1. Since the principle of freedom of contract is only inherent in countries with a market economy, its statutory determination has marked the beginning of a new phase of devel-
© Bondarenko N. L., 2016
1 Civil Code of the Republic of Belarus: adopted by the House of Representatives on October 28, 1998: approved by the Council of the Republic on November 19, 1998. Available at: http://www.pravo.by/ (accessed 15.04.2016).
opment for the Belarusian civil legislation and become testimony of its progressiveness. At the same time, legislators have faced a significant challenge - the necessity to bring the law in line with the declared principle. Regretfully, we have to state that no tangible success has been achieved in addressing this issue. It is still rather common for this principle to be ignored when working out certain normative legal acts, which results in controversies between the requirements of the principle and the content of particular legal rules. Such "flawed" regulations can be found in abundance not only in civil legislation, but also in the text of the CC itself.
The Main Part
The primary purpose of a contract is to be an instrument of the most effective organization of public relations. "A contract is a binding agreement between two or more parties that usually results in some type of performance. Without doubt, trade and commerce could not thrive if freely made agreements were not normally carried out. Contract can be viewed as a method in which men bargaining with one another can make sure that their promises will last longer than their changeable states of mind" [4]. Under market conditions, regulation by contract becomes an important independent legal way to organize economic actors' relationship existing alongside with normative and legal regulation. As for the focus of the principle of freedom of contract, it is intended to stimulate contract activity of entities of civil life enabling them to determine the strategy of their behavior in civil life and, in particular, determine the terms and the future of contracts concluded by them. Thus, freedom of contract is a socially significant phenomenon because it is a prerequisite for development of entre-preneurship, it facilitates new economic ties and fosters conquering of new markets, identifying new ways to meet societal needs. As E. A. Farnsworth notices, "From a utilitarian point of view, freedom of contract maximized the welfare of the parties and therefore the good of society as a whole. From a libertarian point of view, it accords to individuals a sphere of influence in which they can act freely" [1, p. 20].
Based on the content analysis of the principle of freedom of contract, it is fair to say that freedom in civil law of the Republic of Belarus has been reduced to the sphere of contract law, which is explained by the significance and volume of the institution of contract in civil legislation, to which over a half of legal rules contained in the CC refer. However, it would be erroneous to say that the principle of freedom of contract is limited within the scope of law of obligation. Being a fundamental principle of civil legislation, it applies to the whole of its array. Manifestations of the principle of freedom of contract are found in any branch of civil law. Thus, in the institution of ownership, it is implemented in the requirements of the law on enabling the owner to possess, use and dispose of their property freely. In the regulations of law of obligation, it is implemented in the right of the parties of contractual relationship to ensure enforcement thereof by other means provided for by the law or the contract. In the institution of legal persons, the principle of freedom of contract guarantees participants of civil matters a possibility to act as founders of legal entities, ensures freedom of expression in concluding articles of incorporation. All corporate
organizations emerge and function by virtue of the principle of freedom of contract. "A corporation involves a set of bilateral and multilateral agreements with parties such as workers, unions, managers, stockholders, customers, bankers, suppliers, retailers, creditors, etc." [2].
The Belarusian legislator has provided the principle of freedom of contract with the following content: "Citizens and legal entities are free to conclude a contract. Compulsion to conclude a contract is not allowed, except when the obligation to conclude a contract is provided for by the law or a freely assumed obligation" (Article 2 of the CC). Such wording of the law should be declared unfit. The principle of freedom of contract cannot be reduced to the freedom to enter into contractual relationships only. It works at all stages of contractual relations until termination thereof. Freedom of contract enables parties of contractual relationship to initiate succession, entering into a claim assignment or debt transfer agreement. The parties' right to limit the debtor's liability (except when the liability for a certain kind of obligation or for a certain breach is provided for by the law) shall be viewed as manifestation of the principle under study, as well as the right to early termination of the contract or repudiation of the contract.
A serious flaw in the content of the principle formulated by the legislator is the reference to admission of compulsion to conclude a contract by virtue of the law. The list of legislation embodied in the Article 3 of the CC is rather large. Apart from the CC and laws of Belarusian legislation, it also includes orders of the President of the Republic of Belarus, regulations of the Government of the Republic of Belarus, acts of the Constitutional and Supreme Court, of the National Bank of the Republic of Belarus, as well as those of the Ministries and other national bodies of local and central authorities. Thus, any of the listed regulations can contain rules that restrict application of the principle of freedom of contract, which, in our opinion, is not compliant with its fundamental nature as the core principle of civil legislation.
Freedom of contract is enshrined twice in the CC: in Article 2 of the CC as a basic principle of the CC having a comprehensive and fundamental nature, and in Article 391 of the CC as a legal rule. Principles and rules have a unifying basis, which is normalization. However, a principle, as woven throughout the fabric of civil law, has a greater normalization, sustainability and stability as compared with other legal rules and appears to be a special institution of civil law that allows for achieving the goals of comprehensive civil law regulation [3]. The freedom of contract as a principle (Article 2 of the CC) ensures unity of all rules of
civil law, while the rule on freedom of contract (Article 391 of the CC) stipulates certain capacities of entities to conclude civil contracts. Consequently, one should distinguish between restriction of the freedom of contract as a principle, and restriction of certain elements of freedom of the contracting parties. With respect to the rules of the contract law, the principle is a basis for civil law regulation, that is why, as Martijn W. Hesselink noticed it right, sometimes it is more sensible to refer to the principle, not the rules [3, p. 17].
The content of freedom of contract with regard to concluded contracts is revealed by the Belarusian legislator in the text of Article 391 of the CC, which, in fact, enshrines three main capacities of the contracting parties: freedom to enter into a contract, freedom to choose a contract model (however, in a partial form) and freedom to determine the contract terms. Freedom to enter into a contract means that the core of contractual relations is a freely expressed will of parties that act by virtue of their interests. Persons under civil law are entitled to make independent decisions regarding feasibility of the contractual relations. The possibility to coerce into conclusion of a contract can be envisaged by law or by a freely assumed obligation and is associated with special constructs of certain types of contracts. Conclusion of a contract is a must in the following cases: award of public contracts (Article 396 of the CC); conclusion of a contract with the entity that has won the bid (Articles 417 and 418 of the CC); in other instances provided for by the law. Claims for transfer on the claimant of a party's rights and liabilities under a contract concluded in violation of the claimant's priority right are a type of coercion into a contract (par. 3 of Article 253, par. 1 of Article 592 of the CC). Should the party to which conclusion of a contract is mandatory evade it, the other party shall have the right to apply to the court with a claim to force conclusion of the contract.
The parties can restrict the freedom to enter into a contract on their own initiative, concluding a preliminary contract, and then claim conclusion of the main contract by virtue thereof (Article 399 of the CC). The preliminary contract is an independent agreement which expresses, in the form required by the law, the parties' obligation to enter the main contract under certain conditions in the prescribed time limit. Should a party that has concluded a preliminary contract avoid conclusion of the main contract, there provisions are applied set out for mandatory conclusion of contracts (par. 5 of Article 399 of the CC). It should be noted that the consequences of breach of a preliminary contract differ from the consequences of breach of the main one. Since the content of a preliminary contract is the parties' obligation to enter into a certain contract in the fu-
ture to transfer property, perform works or render services, the legislator assumes that the main contract shall be concluded under the terms and conditions provided for by the preliminary contract. Inasmuch as the preliminary contract predetermines the content of the main one, it must contain all the material conditions of the main contract (par. 3 of Article 399 of the CC). Nevertheless, when concluding a contract, the parties cannot determine with confidence all the material conditions of the main contract, that is why we regard as more appropriate the requirement brought by the Russian legislator that alongside with the conditions for the subject, the preliminary contract shall contain the conditions of the main contract, which, at the request of one of the parties, shall be agreed on when concluding the preliminary contract (par. 3 of Article 429 of the CC of the Russian Federation)1.
An important element of freedom of contract is the freedom to choose its model and possibility to conclude the contract that is most consistent with the interests and needs of the contracting parties. However, par. 2 of Article 391 of the CC restricts this right allowing the contracting parties to only conclude the contract that contains elements of various contracts provided for by the law (mixed contract). Combinations of "mixed" elements can be different providing that they are not in conflict with one another (for instance, a gift agreement cannot contain a provision on consideration to the gift giver) and have been taken from contracts that are known to the legislator. These can be contracts that include elements of supply and storage agreements, supply and commission agreements, rent and storage agreements, rent, commission and fee-based services, etc. Exercising this right in civil circulation, the parties construct different variants of mixed contracts that are most compliant with the essence of the legal relationship between the counterparties. We believe that the contract constructs that have the highest demand of persons at civil law and that are most widespread shall obtain normative consolidation with a view to set uniformity in established practice in applying the law. Thus, among the mixed contracts that are well-established in the Belarusian civil circulation there is an agency contract. This contract traditionally includes elements of commission and mandate agreements, but can include elements of other contracts (for example, a purchase and sale contract). This statutory concept is convenient since within the framework of a single contract the agent can
1 The Civil Code of the Russian Federation (Part One): Federal Law of the Russian Federation of November 30, 1994 № 51-FZ (in force as of July 13, 2015). Collected Legislation of the Russian Federation. 1994. № 32. Art. 3301.
act simultaneously in its own name in some transactions, and in the principal's name in others. The agent's way of participation in relations with third parties, being a differentiation criterion for commission and mandate agreements, has no material significance for an agency contract. Such activity is very common in the field of production and trade, where in the interests of their clients (principals) entrepreneurs-agents (dealers) perform both legal and physical acts.
The commodity credit agreement also deserves legal recognition. A classical commodity credit agreement is a special "hybrid" of a credit contract and a loan agreement with elements of a purchase and sale agreement. Its content includes conditions that are most preferred by both parties based on the nature of their economic activity. That is why this form of contract is used for goods (raw product, materials and component parts) procurement operations on commodity credit terms, which have become a frequent practice. Commodity credit agreements (unlike credit contracts) can be concluded by any entities of loan relationships, not only banks or other credit institutions that have a relevant license. Under such an agreement, instead of money the purchaser (borrower) obtains things with certain generic characteristics (goods). As a rule, such an agreement is concluded by the parties instead of a traditional purchase and sale agreement (supply agreement). For the supplier, such a contract is a sort of insurance against the impossibility of receiving payment for the goods supplied under the contract. Where the purchaser does not pay for the goods, the supplier (merchant) shall be entitled to claim return of the unpaid goods together with interest payable, and sell them in a different way. As for the purchaser, when facing difficulties in realization of the goods or when being unable to pay, they can return the goods or the part of the goods that have not been realized. In addition, the purchaser receives a deferral of payment or an installment of date. This enables the purchaser who lacks the necessary funds to pay for the goods in installments, including the use of funds received from the realization of the goods. The absence of the parties' ability to enter into such a contract would mean a necessity to enter into a traditional supply contract. Herewith the CC provides a comprehensive list of circumstances when the purchaser can refuse the goods and return them to the supplier (original owner thereof). Thus, the purchaser has no other lawful ground to return the unrealized quality goods to the seller, except by way of concluding a new supply contract. This transaction is not effective both in terms of civil circulation and tax legislation because the parties to the contract shall have to pay again taxes associated with realization of the goods.
Another drawback of par. 2 of Article 391 of the CC is the absence of reference to providing the parties with the possibility to enter into contracts that are not provided for by the law but are not in conflict therewith (so-called non-defined contracts). It appears that this legislative solution fails to meet the requirements of the principle of freedom of contract. Moreover, the right to conclude contracts that are in compliance with the law, which includes also the right to create new contract models independently, follows logically from the text of par. 1 of Article 7 of the CC. The right of the parties to conclude contracts of any content and include therein any conditions that do not contradict the legislation is the gist of the principle of freedom of contract, its positive content. It stems from the purpose of the contract itself to be a form of certain private relations to serve private interests. The right to conclude non-defined contracts enables the contracting parties to express their individuality, to use their own knowledge and ideas, to unlock their potential. At present, entities of civil circulation are faced with the problem when concluding this highly-sought but legislatively unregulated outsourcing agreement. We believe that such lagging of the legal framework behind the needs of the modern civil circulation is a severe problem of the Belarusian legislation, all the more so because the rise of complex (mixed) and atypical contractual interrelations is one of the main global trends in the development of contemporary law of obligation.
An inherent element of contractual freedom is the freedom to set certain conditions of a contract. For the potential of agreement-based regulation to be realized to the full extent, the legislator has to minimize formalities that are necessary to conclude a contract, providing the contracting parties with the freedom to determine the content of their future contract. However, according to par. 1 of Article 402 of the CC, the contract is deemed to be concluded if the parties have reached agreement on all the material conditions of the contract in the form required in the applicable circumstances. Material conditions are those for the subject of contract, conditions that are named material in legislation, conditions that are necessary or mandatory for this type of contract, as well as all the conditions with reference to which one of the parties has to come to an agreement. Thus, the legislator once again refers the contracting parties to the immense array of civil legislation, while the CC itself defines the main material conditions of all the basic contractual constructs in sufficient detail.
Restriction of freedom to determine conditions of the contract is possible not only in the phase of conclusion of a contract, but also during its life
span. Thus, par. 2 of Article 392 of the CC "Contract and Law" sets: "If, upon conclusion of a contract and before termination thereof, a piece of legislation has been passed establishing rules that are mandatory for the parties and different from the ones that were in force when concluding the contract, the terms of the contract concluded shall be brought in line with the legislation, unless it is provided for otherwise by the law". Should the parties fail to amend the contract subsequent to enactment of the piece of legislation setting mandatory rules for the parties of the contract that are different from the ones that were in force during conclusion of the contract, the court, at the suit of the interested party, affirms the necessary amendments to the contract by the judgment thereof. By doing so, primacy of legislation over a contract is formalized in the law, which is applicable to both the legislation in force when concluding a contract and legislation enacted after the conclusion thereof. This should be qualified as giving retroactive effect to legislation and a direct breach of the constitutional principle of supremacy of statute law. The law of contract provides a mechanism through which private individuals can, to a certain degree, predict, control, and stabilize the future. Contracts allow people to incur reciprocal responsibilities and commitments, to make promises others can rely on, to remove some uncertainty from life, and to establish reasonable expectations for future actions. Needless to say that the provision of par. 2 of Article 392 of the CC blocks the within-named contract mechanism and destabilizes civil circulation, taking into account the above mentioned extensive list of acts of civil legislation.
It should be emphasized that, proceeding from the requirements of the principle of freedom of contract, terms and conditions of contracts cannot be "rewritten" by anyone except for the parties there-
of. Legislators and judges should refrain from replacement of contract terms agreed on by the parties with their own assertions in the circumstances when they believe that there is economic feasibility, inconsistence with rationality, breach of the balance of the parties' interests or offence against public interests. Freedom of contract shall have primary importance.
Conclusion
Freedom of contract, as any freedom, should obtain guarantees. However, it is unacceptable both to see the principle in absolute terms and to reduce it to an article of a declarative nature in the CC. In order to meet this complex challenge, it is necessary to follow the rules: first, when assessing each restriction on the principle of freedom of contract, to determine whether it is justifiable in terms of the balance of private and public interests; second, any restriction on this principle shall only be set by law and in compliance with the Constitution of the Republic of Belarus.
References
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3. Hesselink M. W. The General Principles of Civil Law: Their Nature Roles and Legitimacy. Amsterdam, 2013. 50 p. (In Eng.).
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