7 Most Important Things when Drafting a Contract
From the business perspective the most important parts of the contract are the clauses on remuneration and goods or services that are to be delivered.
However, there are other parts of the contract that are very important from the legal point of view.
The Polish Civil Code provides for a few situations, in which a party can rescind from a contract. However, the safest option is to include in the contract a clause stipulating when each of the parties can rescind the contract (e.g. delay in delivery over 30 days, breach of certain terms etc.). The fact that may surprise you is that such a clause has to contain a deadline for rescission, otherwise it’s null and void!
The Polish law does provides only for a very general description of what happens when a contract is rescinded. It says that each of the parties should return the other everything that it received from it. This simple phrase does not fit more complicated contracts (e.g. for construction works – you can’t expect the investor to return the construction company parts of the building). That is why you should include in the contract a clause expressly providing for what happens when any of the parties rescind the contract. The most important matter is whether the rescission is retroactive (it can take effect e.g. from the date it was executed, but the parties may agree that rescission has the same effect as termination – it does not affect performance of the contract to date).
2. Liquidated Damages
As I mentioned in the home page, there is a huge difference between English law and Polish in respect to liquidated damages. Under Polish law even the severest penalty clauses are valid (although it may constitute an unfair term in a consumer contract). This is even reflected in terminology as in Polish a phrase „contractual penalty” is used.
While executing a contract under Polish law you may want to know that:
- you can stipulate a contractual penalty for any breach of contract, but also stipulate the a penalty is to be paid in the event of rescission due to a breach by the other party;
- if you stipulate a contractual penalty for a delay, you don’t have to include any kind of limit and the penalty will accrue until the other party fulfils its obligation; it may result in a contractual penalty significantly higher than the value of the contract; it may seem controversial, but the Polish Supreme Court recently confirmed this interpretation;
- when you claim for contractual penalty, you just need to prove the breach of contract by the other party, not the damage/loss caused by the breach.
3. Acceptance of Goods/Services
It is essential (especially in IT contracts) to provide for a detailed but clear acceptance procedure. The contract should explicitly provide what happens when the goods or works are ready to be collected. It should provide how many days the ordering party has to send a list of bugs or errors, how many days the contractor has to fix them, how long should take the next acceptance and whether this procedure is repeated in the case of discovery of further bugs or errors. This is probably the most contentious part of every contract, since it provides when the contractor will receive his remuneration.
4. Damages beyond liquidated damages
Unless otherwise provided for in the contract, parties cannot claim damages beyond the amounts stipulated as liquidated damages. That is why normally parties tend to stipulate that they have the right to claim for damages beyond liquidated damages on general rules of the civil law.
5. Rules of Liability
A contract does not have to contain any reference to rules of liability of the parties. In that case general rules of the civil code will apply. The most general rule provides that party is liable for damage caused by his breach of contract, unless the breach was caused by circumstances beyond its control. There are also provisions on situations when it is impossible to perform the contract.
Please note that the Civil Code contains detailed provisions on all the most common types of contracts, e.g. sale of goods, lease, mandate, construction works, insurance and donation.
6. Deadlines for Payment
Please note that Polish law contains a number of provisions aimed at assuring that payment due dates are rather short. This is to ensure that all payments are made swiftly and business entities have no liquidity problems.
7. Securing Enforceability
There is a number of ways, in which one can secure performance of a contract. Apart from methods known in most countries (such as mortgage, lien, bill of exchange), there is one more possibility – the other party may undertake an obligation in a specific form (in a form of an act made by a notary), which makes this obligation enforceable without obtaining a court judgement.
These matters seem most important when drafting or reviewing contracts under Polish law. However, there is a number of further issues that might be relevant in particular cases. It all depends on the nature of the contract and interests of the parties that need to be secured.