Optional and contractual right of withdrawal
It very often happens that the parties that conclude the contract at the same time negotiate the terms of alternative offers with other contractors. What to do when it turns out that the new offer is more attractive than the contract just signed? In such a situation, it is worth protecting yourself in the contract by ensuring the right to withdraw from it. What, then, is the difference between the waiver and the contractual right of withdrawal?
Optional and contractual right of withdrawal - how is it different?
The contractual right of withdrawal and compensation are regulated in the Civil Code in Art. 395 and 396:
Art 395§ 1 It may be stipulated that one or both parties will have the right to withdraw from the contract within a specified period. This right is exercised by a declaration made to the other party.
§ 2. If the right of withdrawal is exercised, the contract is considered null and void. What the parties have already provided is returned unchanged, unless the change was necessary within the ordinary management. Adequate remuneration is due for the services provided and for the use of things.
Art. 396. If it has been stipulated that one or both parties may withdraw from the contract against the payment of a specified sum (compensation), the declaration of withdrawal is effective only if it was submitted simultaneously with the payment of the compensation fee.
The contractual right of withdrawal is therefore a reservation that allows one or both parties to a concluded contract to withdraw from it within a specified period. As a rule, the party who exercises this right does not have to provide the reason for withdrawing from the contract, however, in accordance with the principle of freedom of contract, the parties may regulate this issue differently. It is also possible that the parties reserve the possibility of partial withdrawal in the contract (e.g. when the subject of the contract is the performance of several orders, some may be performed, and some may be withdrawn).
Reservation of the contractual right to withdraw from the contract may be made in any form, however, if the contract was concluded in a special form, this should also be the contractual withdrawal from the contract. It should be emphasized that the written form is always the safest and can then be used for evidence purposes.
The compensation fee, on the other hand, is a specific sum of money, the payment of which enables effective withdrawal from the contract. The provisions of art. 395 of the Civil Code, therefore it must also be reserved by the term. In order for the party to effectively withdraw from the contract, it is enough to pay the amount specified in the contract within the specified period.
The parties may therefore include a clause in the contract regarding one of the above-mentionedinstitution: the right to withdraw from the contract within a specified period or to withdraw from the contract, the withdrawal being more burdensome for the party withdrawing from the contract.
Contractual right of withdrawal - what is it for?
The contractual right of withdrawal is primarily aimed at mitigating the principle of pacta sunt servanda, which is regulated in Art. 354 § 1 of the Civil Code:
Art 354§ 1 The debtor should perform the obligation in accordance with its content and in a manner corresponding to his social and economic purpose and the principles of social coexistence, and if there are established customs in this respect - also in a manner corresponding to these customs.
It is also a security for the parties in the event that the circumstances of the conclusion of the contract change (thus it protects the interests of the parties to the contract) and allows the parties to choose the most advantageous offer in the event of negotiating with several competing contractors.
It should be emphasized that the institution of the contractual right of withdrawal weakens the contractual relationship between the parties, as it introduces a state of uncertainty as to whether one of the parties will exercise their right in the future.
What must the contractual right of withdrawal clause contain?
The contractual right of withdrawal clause should contain:
- indication of the party or parties to the contract that have the right to withdraw from the contract within a specified period,
- an indication of the date by which the party or the parties have the right to withdraw from the contract. The deadline should therefore be the final date (you can both provide a specific date and period of time, e.g. withdrawal from the contract is possible for 2 months from the date of signing) and a strict deadline, after which the right to withdraw from the contract expires definitively and cannot be to restore this deadline in any way. If the date is not indicated, the record will be invalid.
The optional elements of a contractual right of withdrawal clause may, however, be:
- indication of possible conditions for the existence of the right to withdraw from the contract (i.e. conditions that must be met for withdrawal from the contract to be possible)
- the need for the consent of a third party to withdraw from the concluded contract by a given party.
Exercise of the right to withdraw from the contract
You can withdraw from the contract by submitting a unilateral declaration of will to the other party. In order to be effective, this declaration should be submitted within the time limit specified in the contract. As it has already been emphasized above, in principle it may take any form, unless the contract was concluded in a specific form. However, of course, the written form is always the safest form.
The declaration of withdrawal from the contract should contain such elements as: indication of the date and place of conclusion of the contract, parties, subject of the contract, reference to the provision in the contract, which provided for the possibility of withdrawing from the contract. The declaration should also include the date of withdrawal from the contract.
Effects of exercising the right to withdraw from the contract
Pursuant to Art. 395 § 2 of the Civil Code, in the event of exercising the right to withdraw from the contract, the contract is considered null and void (the withdrawal is therefore retroactively ex tunc). The parties to the contract are then obliged to return what they have already provided unchanged, except when the change was necessary within the ordinary course of business. It should be remembered that for the services already provided and for the use of things, the other party is entitled to appropriate remuneration (it may turn out that one of the parties decides to withdraw from the contract when the other party has already started to perform the service or has fulfilled it in full).
Separate - what is it for?
The derogation is primarily aimed at releasing the party from the obligation to perform the contract by withdrawing from it within the prescribed period for payment of a specified sum of money. Moreover, it performs a compensating function (it rewards the losses incurred by the other party to the contract as a result of its termination) and a disciplinary function (it motivates, increases the certainty of the performance of the terms of the contract, because the parties know that they would have to pay the amount specified in the contract if they withdraw from the contract).
What must the redemption clause have to include?
This clause must contain the following mandatory elements:
- identification of the party or parties that may withdraw from the contract by paying a compensation fee,
- determination of the amount of the compensation fee (the parties may decide that the amount of the compensation will be different for each party),
- specification of the date on which the party or parties will be able to withdraw from the contract by paying a compensation fee.
This clause may stipulate the obligation to pay compensation not to the party to the contract, but to a third party. There may also be stipulated conditions that must be met in order to be able to withdraw from the contract by paying a compensation fee.
Exercising the right to withdraw from the contract against payment of a compensation fee
In order to exercise the right to withdraw from the contract by paying a compensation fee, a unilateral declaration of intent must be submitted to the other party to the contract within the time limit indicated in the contract. As indicated in Art. 396 of the Civil Code, the declaration will be effective only if the payment of the compensation occurs simultaneously with the submission of this declaration.
If the compensation payment was made after the declaration of withdrawal was submitted, this action is invalid. If the period in which the party may exercise the right to withdraw by paying the compensation fee has not expired, it should again submit the statement of withdrawal and at the same time pay the compensation fee. If the obligation to pay the compensation was reserved to a third party, the declaration should be submitted to the party to the contract, but the compensation should be paid to the third party.
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The effect of exercising the right to withdraw from the contract against the payment of a compensation fee
As all provisions of Art. 395 of the Civil Code, the effect of exercising the right to withdraw from the contract by paying a compensation fee will be the same as in the case of exercising the right to withdraw from the contract without paying compensation.
Statutory right of withdrawal?
The contractual right to withdraw from the contract is characterized by the fact that the parties themselves decide in the contract whether or not they will have such a right. Therefore, it is an additional contractual reservation, which, if it does not appear in the contract, will not result in its invalidity.
However, is there a statutory right of withdrawal? If the right of withdrawal is not stipulated in the contract, can the parties withdraw from the contract under the Act?
Pursuant to Art. 491 of the Civil Code, if one of the parties is delayed in performing the obligation under the mutual agreement, the other party may set an appropriate additional deadline for performance, with the risk that in the event of ineffective expiry of the deadline, it will be entitled to withdraw from the contract. If, on the other hand, the services of both parties are divisible, and one of the parties is allowed to delay only in part of the performance, the right to withdraw from the contract of the other party is limited, at its option, either to this part or to the entire rest of the unfulfilled performance. This party may also withdraw from the contract in its entirety, if the partial performance would not be relevant for it due to the properties of the obligation or due to the intended purpose of the contract, aware of the party in default.
However, according to Art. 492, if the right to withdraw from the mutual agreement has been reserved in the event of non-performance of an obligation within a strictly specified period, the entitled party may, in the event of delay of the other party, withdraw from the agreement without setting an additional period. The same applies to the case when the performance of the obligation by one of the parties after the deadline would not be relevant for the other party due to the properties of the obligation or due to the intended purpose of the contract, aware of the party in default.
As it results from the above-mentioned provisions, the statutory right to withdraw from the contract is possible in the event of non-performance or improper performance of an obligation. These provisions do not apply if a party wishes to withdraw from the contract without cause.