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Claims on breaches of contracts



04.07.2002

Meaning:

Modern civilization is based on the aspiration of freedom for physical and juridical persons. Freedom of physical and juridical persons in commodity circulation is expressed by freedom of good will in the form of a contract.

Any contract can be breached in the process of carrying it out.

Contract breaches are the reason why companies lose dozens, hundreds, or millions of dollars, and why the economies of different countries lose dozens or hundreds of millions of dollars every year.

Contract breaches in international trade hamper dynamic development of world trade, as well as further expansion of trading companies and national economies.

Problems:

In case of the disclosure of a contract breach, the contractor who has discovered, or ought to have discovered, the said breach, must give notice of it within a "reasonable time after he has discovered it or ought to have discovered it," as is provided by Articles 39 and 43 of the UN Vienna Convention on Contracts for the International Sale of Goods and Article 483, Part 1 of the Civil Code of the Russian Federation (RF).

The contractor who was supposed to have disclosed a contract breach and who has not submitted his notification about that contract breach to the other contractor within a reasonable time after he ought to have discovered the said breach loses his rights to claim damages, to request either a change in the goods or a cut in their price. He also loses all other rights in connection with the relevant contract breach.

On the adoption of the Vienna Convention, representatives of developing countries came out against short and clearly defined periods for presenting a notice of reclamation on breach of contract, being mainly buyers (manufactured products) making efforts in the absence of specialists in their countries who could keep to such short time periods. Unfortunately, the debate was resolved by a compromise.

Citing the absence of knowledge of the legal and technical situation in developing countries, Article 44 of the UN Convention on Contracts for the International Sale of Goods has stated the right of a buyer to "reduce the price in accordance with Article 50 or claim damages, except for loss of profit, if the buyer has a reasonable excuse for his failure to give the required notice" of the contract breach, as stipulated by Articles 39 and 43 of said Convention.

With regard to the knowledge of Russian business personnel in the area of contract and reclamation law, there is a very distinct phenomenon, which I call the “empty iceberg phenomenon.” This phenomenon is characterized by the presence in Russia of several tens of specialists and scholars in contract law of the highest international standard, followed by the absence of the tens of thousands of required specialists with a high level of knowledge of contract and reclamation law, who would prevent possible breaches of contracts and protect the interests of various enterprises, banks, establishments, and Russia itself in the event of breaches of trade contracts.

Specific character of the educational group:

The said Convention and national codifications of Civil and Contract Law contain contractors' rights and obligations in making contracts and in cases of contract breaches.

These conventions and codifications are used equally by commercial experts and lawyers.

This determines the character of group training in contract and reclamation law.

In the period of transition to a market economy, an educational group seeking to transfer knowledge from the spheres of contract and reclamation law will include, besides students of Law and Economics, lawyers, managers, and commercial experts from trading and manufacturing companies.

Experience:

In 1989, the author of this presentation became the first foreign author to sign a contract with the Juridical Literature Publishing House in Moscow, which printed the book RECLAMATIONS IN INTERNATIONAL TRADE by Bozhidar MITROVICH in 1991.

Following the recommendations of Bozhidar MITROVICH, the Juridical Literature Publishing House printed a book by Prof. Dr. Radomir Jurovich entitled MANUAL ON CONCLUSION OF CONTRACTS IN INTERNATIONAL TRADE.

In 1991, an international seminar and conference TRADE MARKS AND MARKETING IN THE USSR, which received the highest possible 10 points in the English educational systems "E" and "U," was organized on the basis of the book THE TRADE MARK by Bozhidar MITROVICH.

Education for both managers and lawyers undertaken by Bozhidar MITROVICH demonstrated that, given the market conditions in Russia and the CIS, education in the form of a book or a conference and seminars was not sufficient, especially if the different educational levels of the audience and the ability of commercial workers to comprehend knowledge from very complex spheres of contract law, which was primarily intended for commercial experts, was taken into consideration.

Education approach:

In order to achieve the most systematic and productive education in contract and reclamation law, the author of this article has prepared a project and corresponding educational aids and facilities under the title WORLD RECLAMATION PROTECTION: Reclamation Law1 and Claims2 on Breaches of Contracts which provides for the following:

publication of

the book Reclamation Law and Claims on Breaches of Contracts,

the videotape Contracts and Claims on Breaches of Contracts in the International Trade,

the CD ROM Reclamation Law and Claims on Breaches of Contracts,

a computer program Contracts and Claims in International and Local Trade ("Justinian 3.1"),

articles in magazines,

the magazine Contracts and Claims.

organization of

groups of students to obtain education in the applied science of Reclamation Law,

the seminar Contract Breaches and Reclamations in International Trade,

the international conference Contract Breaches and Reclamations in International Trade,

creation of WRS consulting and educational centers

on the basis of the computer program Contracts and Claims in Commerce,

advertising and educational program

set,

videotaping,

press conference.

I hope that my project for developing reclamation law and creating the worldwide system WORLD RECLAMATION PROTECTION will contribute to the most effective communication of the required knowledge of contract and reclamation law to young business people, managers, lawyers, bankers, and all other specialists involved in the trade process and international trade and that this will promote more active development of international trade.

If you are engaged in international trade, but do not know what it is, your losses can exceed the cost of the deal by 10 times.

Several years ago, a businessman in a large state foreign trade enterprise asked his director to obtain the Code of Obligations. As this director was nominated to his post according to Party criteria and kinship connections rather than for his good knowledge of trade or shrewdness, he answered curtly that it would be improper to waste money on such a book, because lawyers used the Code and businessmen had no need of it .

Do not make this mistake! Laws such as the Swiss Code of Obligations, the French Civil Code, the US Uniform Commercial Code, the Civil Code of the Russian Federation, the Yugoslavian Code of Obligation Relationships, as well as international conventions, for example, the UN Vienna Convention on Contracts for the International Sale of Goods, contain rules of trade behavior. In this sense, they are written primarily for businessmen.

These laws and conventions confirm the rights and duties proceeding from contracts. Thus, the structure of these laws corresponds to the structure of subjective right (the right to receive ownership of a purchased commodity or the right to receive payment for a sold commodity).

You should know that each of your subjective rights proceeding from a contract consists of two sides. These sides, like those of a coin, constitute a single whole. One side of your right means a power (receiving ownership of a purchased commodity). The other side of your subjective right is a claim to be applied in the form of action by arbitration or in court if your power deriving from subjective right is violated.

However, in the case of a violation of your subjective right, prior to claiming in the form of action, you should first of all make a claim in relation to the violation of your power deriving from subjective right to the other contracting party in the form of a reclamation, immediately after you have discovered or ought to have discovered a contract violation (Fig. 2 in the book).

Proceeding from this structure of subjective right, all laws and conventions contain

basic principles of trade;

rules confirming the rights and duties of contractual parties in relation to the achievement and realization of the contract;

definition of the main contract breaches;

the rights and duties of the contractual parties in relation to a contract breach in the proceedings the contractual parties themselves.

I have systematized the rules of these and other laws and international conventions by defining

contract breaches,

the rights and duties of contractual parties in relation to a contract breach in the proceedings of the contractual parties themselves

as a specific part of contractual law, which I call Reclamation Law (Fig. 1 in the book).

Reclamation Law in the subjective sense comprises the norms of Obligation Law or, more narrowly, Contract Law, which define

procedures between contractual parties as regards contract breach;

contract breaches;

liability for contract breach and liability as regards legal reclamation duties in the reclamation procedure.

Reclamation Law in the subjective sense means the right to reclamation. The specific character of this law is that it is simultaneously a right and a duty. A reclamation is an obligation if a failure to use it when a contract is violated produces damage or increase the damage to the other contractual party.

The procedure between contractual parties as regards contract breach and its elimination is carried out by using a reclamation or its individual elements.

In Comparative Law and trade, the following terms designating individual elements of a reclamation are often used in the sense of the reclamation itself:

claim, notice of breach, protest and remedies - in English

protest (Einspruch) and Anspruch - in German

protet and demande - in French

претензия - in Russian

protest and zahtev - in Serbian

However, in international trade and legislation, more complete expressions are now often used:

reclamation- in English

reclamation- in French

reclamo - in Italian

reclamacion- in Spanish

reclamation- in German

рекламация- in Russian

reklamacija- in Serbian

A reclamation consists of those commercial and legal means by using elements of which one can claim from one contractual party the right belonging to another party on the basis of the contract; it is not carried out or is carried out, in contrast to a contract, due to a contract breach.

However, reclamation is a complex legal institution, which does not only mean a claim as regards a power violation. You must apply a reclamation in relation to an obvious contract violation or simply a contract violation, in both the case when a contract violation infringes on your contractual right and when you breach the contract.

Reclamation is a complex institution of right objectivization in international trade and commerce as a whole.

Reclamation consists of the following possible legal acts and instruments:

notice of breach or evident possibility of a contract breach;

evidence of contract breach;

evidence of timely filing of a notice of breach;

the act by which certain demands are applied to another contractual party as regards contracts breach (reclamation demand in the formal legal sense as it is called in this paper, i.e., claim);

evidence of timely application of a reclamation demand in the formal legal sense, i.e., claim (evidence of claim);

demands on the other contractual party to prevent or eliminate the violation, compensate damage, and pay the penalty envisaged by the contract or law (reclamation in the material legal sense, i.e., remedies);

evidence substantiating the applied claims in the material legal sense (evidence of remedies) (Fig. 5 in the book).

By claiming a reclamation as regards the breached contract, a reclamation relationship is established on the basis of the contract (ex contractus), and the reclamation procedure begins. When a contract breach, in relation to which a reclamation is claimed, leads to absolute invalidity of the contract, a reclamation relationship is established in relation to the breached contract, not on the basis of the contract (ex contractus) but rather on the basis of tort (ex delicto), because it is considered that, due to such breach, a contract was neither made nor produced a legal effect. In this sense, Reclamation Law is part of Contract Law.

Contract breaches and measures to be taken by contractual parties in claiming reclamation in order to preserve contractual rights are foreseen by the material legal norms contained in codes of Contract Law or law-based acts in the field of Obligation Law. Reclamation Law has a material legal character, notwithstanding that part of Reclamation Law is typically procedural.

Nevertheless, it is necessary to

take into account that a contract does not only mean a written instrument. For some contracts, a certain form is necessary (written text of the contract, contract text certified by a notary public, ...) in order to prove their existence or realization, but there are also contracts whose existence does not require any form (verbal contracts);

distinguish between an agreement and a contract. An agreement is the coordination of wills of two or more persons with a certain obligation legal effect. A contract is an aggregate of provisions making an agreement and the effective legal rules to be applied to the agreement. For example, reclamation questions cannot be regulated in the agreement text as such, but contractual parties have the right on the basis of applied material law to claim reclamation in the order envisaged by such applied law, unless otherwise foreseen by the agreement.

In view of this, never forget that a reclamation in case of a contract breach is not only a right but also a duty, especially in the sense of applying all reclamation elements.

Therefore, a reclamation will always have the shape of a house, about which we ask: What is it? We hope that, by using this figure, you will always remember all the reclamation elements and that this article will help develop your business and protect your contractual rights irrespective of which law is to be applied to your agreement in international trade. However, you should always assume that a businessman reads the law that defines his rights and duties in international trade.

You can order the book Reclamation Law and Claims on Breaches of Contracts or seminars Contracts and Reclamations on Breaches of Contracts given by Bozhidar T. Mitrovich for private individuals and international and Russian businesses by contacting the author by telephone/fax at 129 27 38.

 


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