When and how to take advantage of the ‘preliminary contract’?

When and how to take advantage of the ‘preliminary contract’?

In everyday life occur various circumstances that prevent us from signing a contract despite the fact that the parties of this contract have the definite will to make a deal. This may be due to the economic situation of the one of the parties, the lack of documents to conclude the contract, the lack of authorization from the competent public authority (despite an initiation of appropriate procedures), the lack of a permit of an organ of a company or other legal person that needed to be obtained beforehand or the inability to maintain the requirements of the particular type of contract at the particular moment. In such situation it is advisable to use the preliminary contract. Conclusion of the preliminary contract creates a state of confidence between the parties that the agreement of certain content provided by the parties will be for sure concluded in future.
Articles 389-390 of the polish Civil Code regulates the institution of preliminary contract. In accordance with art. 389 § 1 of the Civil Code a preliminary contract is a contract by which one of the parties or both of them oblige themselves to conclude a determined contract. This provisions of the Civil Code also states that it should specify relevant provisions of the agreement. Relevant provisions of the agreement by the doctrine known as essentialia negotii vary depending on the type of agreement. Civil code does not narrow the contents of the preliminary contract, so it may precede any agreement of the civil law. When the preliminary contract precede contract of sale, decisive in determining the essential elements of such agreement will be art. 535 § 1 of the Civil Code that that foresees following obligations: an obligation of the seller to transfer to the buyer ownership of the thing, an obligation of the seller to release the thing to the buyer, the obligation of the buyer to receive the thing and the buyer’s obligation to pay a certain price to the seller. Determining the provisions of the preliminary contract of sale allows the Court on the ground of art. 390 § 2 of the Civil Code to conclude the Final Agreement, despite the subsequent lack of will of one of the parties to conclude this contract or an avoidance of concluding this contract. A convenient solution may also be the inclusion of the suspensive condition in the content of the preliminary contract. After the materialization of this condition (the removal of obstacles to final agreement) arises a definite commitment to make a statement about the conclusion of the final agreement.

Both sides of the preliminary contract or only one of them could be entitled to request the performance of the obligation of concluding the Final Contract. Parties may (but does not have to) specify the time frame within which the final contract shall be concluded.
If the parties of the contract do not specify the time frame within which the final contract shall be concluded, art. 389 § 2 of the Civil Code foresees that the an appropriate time limit shall be specified by the party entitled to demand the conclusion of the promised contract. If both parties are entitled and there was a situation in which each exercised its powers of setting a different time limit, the parties are bound by the deadline set by the party who has already filed a statement to that effect. So if one of the parties entitled to request preliminary agreement has made a declaration later than the other one, but set an earlier date, such a deadline is not binding. Itąs worth remembering that If the time limit for the conclusion of the promised contract has not been set within a year from the day of the preliminary contract’s conclusion, one may not demand its conclusion.
Basically, the validity of the preliminary contract does not require any specific form (eg. a notarial deed). However, to take advantage of the full potential offered by the preliminary contract, in a situation when the form of promised agreement is prescribed by the statue (law), the preliminary contract should be concluded in such a form. The act of avoiding of signing the promised agreement by the obliged party is the act of non-performance of its oblgation undertaken in the preliminary contract. There are however two different effects which are connected with the non-performance of the obligation undertaken in the preliminary contract – weaker and stronger. If the preliminary contract cause only the weaker effect, the creditor does not have a claim for filing by the debtor declaration of will which is part of the promised agreement. This happens when the preliminary contract does not satisfy (fulfills) all the requirements of the validity of the final agreement, in particular relating to the form of such an agreement. Entitled person in the absence of other contractual provisions has only a claim for damages suffered due to the fact that he or she counted on signing the promised contract. It means that the entitled person has the right for reimbursement of expenses incurred in connection with the conclusion of the preliminary contract and needed to conclude the promised agreement (eg. The cost of preparing the contract, costs of travel, the cost of obtaining permits, etc.). Other claims for compensation under the weaker effect of a preliminary contract are not possible. If all the requirements upon which the validity of the final agreement are fulfilled there is a stronger effect of the preliminary agreement. After an appropriate court procedure the judgment will replace the debtor’s statement of intent expressed in the preliminary contract. For example, if a preliminary contract of sale of the apartment was concluded and all the elements objectively important of such agreement were specified and it was done in the form of a notarial deed, in case of avoiding conclusion of the promised agreement by one of the sides of the contract, the entitled person may lead to the conclusion of this agreement without signature of the person liable, just using a stronger effect of the preliminary contract and performing it through the court’s procedure . Despite some differences in legal doctrine, it is stated that the contract is concluded at the time the judgment becomes final. It should be noted that when the entitled person seeks conclusion of the promised contract, he or she may not seek compensation.
According to the article 390 § 3 of the Civil Code Claims arising from the preliminary contract shall be subject to limitation upon the lapse of a year from the day on which the promised contract was to be concluded. After this date, the entitled person can not effectively claim before a court the debtor’s obligation to submit a declaration of intent (the implementation of a stronger effect) or compensation (implementation of the weaker effect). The Civil Code, however, provides special adjustment in case of dismissal by the court the requests of the debtor to make a statement about the conclusion of the final agreement, then the claims arising from the preliinary contract shall be subject to limitation upon the lapse of a year from the day on which the ruling became final.