Very often we are in the situation when it is impossible to resolve disputes between the parties by an agreement and to achieve voluntary fulfilment of obligations.

We will arrange for formation and incorporation of a company of any type (a limited liability company, a joint stock company, a limited partnership, a general commercial partnership)

We will offer you a suitable real estate necessary for undertaking your business activities or for housing purposes.

A contract represents the most frequent act in law creating legal relations between entities and it includes the most diverse rights and obligations.

An unpaid receivable - that is usually the most often reason why a client contacts his attorney and seeks the legal assistance.

Significant Rulings of the Supreme Court of the Czech Republic

Invalidity of arrangements on a contractual fine agreed for the case of execution of a right

Recital of law:

arrangements (an agreement, a contract) on the duty to pay a contractual fine in the case of execution of a right (withdrawal from a contract), and not in the case of breach of a contractual obligation, is contrary to the purpose of the institute of a contractual fine (§ 544 et seq of the Civil Code), and thus it is invalid according to § 39 of the Civil Code due to the contradiction with the purpose of the Act.

From the justification:

The Supreme Court of the Czech Republic based its justification on the legal opinion that the institute of the contractual fine is one of the legal instruments available for securing obligations and that the meaning and the purpose of such fine is securing performance of duties being content of the main obligation. Accessory nature of the security is given by the fact that the securing obligations cannot arise without the existence of the main secured obligation and it may not exist without such obligation. Thus, a contractual fine may be agreed only in connection with the breach of a specific obligation, or a specific duty respectively. A contractual fine may not be agreed in connection with execution of a right. The provision on the contractual fine has to include absolutely precise and definite determination of a duty in respect of which the right to claim a contractual fine will arise in the case of failure to comply with such duty or in the case of its defective performance. Withdrawal from the contract alone does not represent the breach of a duty. Thus, a party withdrawing unilaterally from a contract did not breach any contractual duty, as it only exercised the right it had under the contract.

Commentary of the law office

In this specific case, the wording of the contract was not precise - "in the case of cancellation of the purchase contract, the Buyer shall pay a contractual fine according to § 544 of the Civil Code in the amount of 25% of the contractual price of the goods".

In judicial practice, the wording "cancellation of a purchase contract" is usually interpreted as the agreed right of one of the parties to withdraw from a contract. Where one of the parties exercises the said right, it does not represent the breach of a duty and it is impossible to agree on a contractual fine in the case of exercise of such right. This is a typical case of incorrect wording of the contract, when the intended aim to be achieved does not correspond with the wording and subsequent interpretation of the contract.