New opportunities: the acquisition of the right to unilateral termination of the contract

Belaya Yana
author
06 / 04 / 2018

The Law of Ukraine “On amendments to particular legislative acts of Ukraine concerning corporate agreement”, which amended the Civil Code of Ukraine, the Law of Ukraine “On joint-stock companies”, the Law of Ukraine “On securities and the stock market” and introduced new instruments, came into force: an agreement on the enforcement of the rights of the participants (founders) of the limited liability company, an agreement between the company’s shareholders, an irrevocable power of attorney for corporate rights.

On February 06, 2018, the Law of Ukraine “On limited and additional liability companies” was adopted, which regulates in more detail the activities of the limited and additional liability companies, and specifies a part of the concepts introduced by the analyzed Law.

However, the issue of the compliance of provisions of the Law of Ukraine “On amendments to particular legislative acts of Ukraine concerning corporate agreement” to the provisions of the Law of Ukraine “On limited and additional liability companies” requires the further study.

 New right

 The Law “On amendments to particular legislative acts of Ukraine concerning corporate agreement”, in particular supplemented the Civil Code of Ukraine with the Article No. 658 “The acquisition of the right to one-side termination of agreement” to read as follows:

On notice

“The parties to the purchase and sale agreement can agree that one party acquires from the other party the right to terminate this agreement unilaterally.

The purchase and sale agreement is terminated if the party, which acquired the right to terminate the agreement in accordance with the first subparagraph of this article, does not declare the requirement to fulfill the agreement for the certain period. The parties may cause the termination of the purchase and sale agreement by the performance of certain actions by the party or the occurrence of certain circumstances during the certain period or at the certain time.”

This amendment appeared in the text of the draft law only in the second reading, which means that the addition of the Draft article No.658 of the Civil Code of Ukraine does not meet the requirements of the Article No. 116 of the Regulations of the Verkhovna Rada of Ukraine, since these norms were not the subject of consideration in the first reading. This, in particular, is emphasized in the comments of the General legal department to the text of the draft law for the second reading. However, although under the different name, the article was accepted.

Please note that this article is included in the chapter of the Civil Code of Ukraine named “Purchase and Sale”, so it can be applied to the agreements of purchase and sale, supply, agreements for the delivery of agricultural products, supply of energy and other resources through the connected network, barter.

Of course, these provisions have not yet been widely applied, and the practice of their implementation in the agreements will still be developed.

As a general rule, the agreement can be terminated by the mutual agreement between the parties. Thus, in accordance with the Article No. 525 of the Civil Code of Ukraine, unilateral refusal of the obligation or unilateral amendment of its conditions is not allowed, unless otherwise provided by the agreement or law. Thus, even before the introduction of Article No. 658 the unilateral termination of agreements, including purchase and sale agreements, could be allowed, if the parties agreed.

The new article allows the counterparties (but does not obligate imperatively) to agree in the agreement the possibility of one party to acquire the right to one-side termination of agreement, so: a) the party acquires such right (it receives the fee); b) the parties may establish that the party may terminate an agreement after it has completed certain actions, certain circumstances (for example, compensation to the other party for the losses related to performance of the agreement); c) the acquired right to one-side termination of the agreement may be limited in time (term or date); d) the party that acquired the right may refuse it by stating the requirement to fulfill the agreement; e) the right of the party to refuse termination is limited to the period specified in the agreement.

As the practical matter

Let’s simulate the situation in which this rule can be applied.

The parties enter into the agreement for purchase and sale of the property rights to real estate, providing for the seller’s right to unilaterally terminate the agreement (to refuse to fulfill its obligations to transfer property rights to real estate) for the nominal fee. This will allow the seller to use the funds received from the purchaser for the construction of the object, and in the future to abandon the agreement, making the compensation the purchaser for the certain amount, and transfer the object to another purchaser (for example, after the commissioning of the house) at the higher price - the only question is the reputation of the seller and the care of the purchaser.

Thus, it is inappropriate to say that the right to unilateral termination is a novel, but now the legislator has allowed the parties to receive payment for it.

Based on: Lawyer & Law. The analytical edition