Disputes between legal entities and citizens on the fulfillment of contractual obligations

When resolving disputes arising between legal entities and citizens engaged in entrepreneurial activities related to the conclusion, amendment, termination of an agreement and the fulfillment of contractual obligations, the requirements of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code) and the requirements of other regulatory legal acts of the Republic of Kazakhstan governing the relevant groups, types, subspecies and forms of obligations are lawfully guided.

When resolving issues related to the jurisdiction and jurisdiction of cases of this category, it reasonably proceeds from the norms of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the CPC).

The subjects of applying to the court to resolve disputes related to the conclusion, amendment, termination of an agreement (transaction) and the fulfillment of contractual obligations were legal entities and citizens engaged in business activities without forming a legal entity.  With the definition of the jurisdiction and jurisdiction of such cases, since by virtue of Articles 24 and paragraph 1 of Article 30 of the CPC, they are subordinate to the courts and belonged to the jurisdiction of specialized interdistrict economic courts (hereinafter referred to as the SMEC).

A study of judicial acts issued by the courts of the Republic of Kazakhstan indicates that the content of lawsuits filed by legal entities and citizens engaged in business activities was overwhelmingly the claims of business entities to collect debts from counterparties due to their failure to fulfill or improper fulfillment of the terms of contracts for payment for goods, works or services.

According to the legal definition contained in clause 1 of Article 378 of the Civil Code, an agreement between two or more persons on the establishment, modification or termination of civil rights and obligations is recognized as a contract.

A contract is considered concluded when an agreement has been reached between the parties in the form required in the appropriate cases on all its essential terms.

Essential are the terms of the subject of the contract, the terms that are recognized as essential by law or are necessary for contracts of this type, as well as all those conditions regarding which, at the request of one of the parties, an agreement must be reached.

If, in accordance with legislative acts, the transfer of property is necessary for the conclusion of a contract, the contract is considered concluded from the moment of transfer of the relevant property. The general requirements for the form of transactions apply to the form of the contract.

However, if the parties have agreed to conclude a contract in a certain form, it is considered concluded from the moment it is given a conditional form, even if this form was not required by law for this type of contract.

The written form of the contract is considered to be fulfilled if the written proposal to conclude the contract is accepted by performing actions for the shipment of goods, provision of services, performance of work, payment of the corresponding amount, etc.

Since a contract is a legal fact entailing the emergence, modification or termination of civil rights and obligations, Clause 1 of Article 380 of the Civil Code contains a general rule according to which coercion to conclude a contract is not allowed, except in cases where the obligation to conclude a contract is provided for by this Code, legislative acts or a voluntarily accepted obligation. This rule follows from the principle of freedom of contract stipulated in clause 1 of Article 2 of the Civil Code.

Based on the principle of freedom of contract, the courts of the Republic of Kazakhstan lawfully refuse to satisfy claims for coercion to conclude a contract when the obligation to conclude a contract was not provided for by the Civil Code, legislative acts or voluntarily accepted obligations.

For example: Thus, Urker Vostok LLP filed a lawsuit against BOR LLP to force it to conclude a land purchase and sale agreement. In substantiation of the stated claims, the plaintiff indicated that under the terms of the preliminary purchase and sale agreement dated November 25, 2013, the defendant undertook to sell him a part of the land located in Ustkamenogorsk, 70/2 Satpayev Ave., no later than 10 working days after receiving the documents on its division. After the division of the land plot, a notification was sent to the defendant about his readiness to conclude the main contract with the attachment of two copies of the purchase agreement.

However, the defendant refused to conclude a land purchase agreement, as a result of which the plaintiff asked the court to force the defendant to conclude a land purchase agreement. By the decision of the Council of Economic Cooperation of East Kazakhstan Region dated June 3, 2014, the satisfaction of the claims of Urker Vostok LLP against BOR LLP for forcing them to conclude a land purchase and sale agreement was refused.

In substantiation of its conclusions, the court legitimately pointed out that in accordance with paragraph 1 of Article 390 of the Civil Code, under a preliminary agreement, the parties undertake to conclude in the future an agreement on the transfer of property, performance of works or provision of services on the terms stipulated in the preliminary agreement.

When the party that concluded the preliminary agreement evades the conclusion of the contract provided for by it, it is obliged, by virtue of clause 5 of Article 390 of the Civil Code, to compensate the other party for the losses caused by this, unless otherwise provided by law or contract.

It is not provided for by the requirements of Article 390 of the Civil Code, other legislative acts and the terms of the preliminary purchase and sale agreement dated November 25, 2013, to force the party to the preliminary contract to conclude the main contract.

Since legal entities, in accordance with the provisions of Article 380 of the Civil Code, are free to conclude a contract, while the rules of Article 399 of the Civil Code on concluding a contract are not necessarily applicable to the legal relations that have arisen between the parties, the court came to the correct conclusion that there are no legal grounds for forcing the defendant to conclude a contract for the sale of land.

If the obligation to conclude a contract is provided for by a voluntarily accepted obligation, coercion to conclude a contract is allowed.

For example: RIC Maximum LLP filed a lawsuit against Amirnurkairat Agricultural Company for debt collection and coercion to conclude a pledge agreement, arguing that the defendant does not pay the debt under individual loan agreements and evades the conclusion of a pledge agreement.

By the decision of the Sairamsky District Court of South Kazakhstan Region dated June 1, 2015, the claims of RIC Maximum LLP were partially satisfied.

The court decided to recover from Amirnurkairat Agricultural Complex in favor of RIC Maximum LLP the debt in the amount of KZT 8,482,688 and court costs in the amount of KZT 254,480, as well as to compel Amirnurkairat Agricultural Complex to conclude a pledge agreement with RIC Maximum LLP for movable property in the form of drip irrigation system equipment located in on a plot of land with an area of 30 hectares, located at the address: South Kazakhstan region, Sairamsky district, village of Kutarys, with the provision of title and legal documents.

To refuse to satisfy the rest of the statement of claim.

During the court session, the court found that RIC Maxim LLP and Amirnurkairat Agricultural Company had concluded a general loan agreement No. 29/GKS-2011 dated April 20, 2011 (hereinafter referred to as GKS), under which the defendant under loan agreements No. 29/IDZ-2011/1 dated 04/28/2011 and No.29/IDZ-2011/2 dated 05/27/2011, funds were received for the laying of a vineyard using modern drip irrigation technology and for the purchase of grape seedlings in the total amount of 17,635,200 tenge, for a period of 84 months, at 7% interest per annum.

In addition, a pledge agreement was concluded between the parties dated 04/20/2011, under the terms of which, in order to ensure the fulfillment of its obligations to the plaintiff, the defendant undertook, after 6 months from the date of conclusion of this agreement, to conclude a pledge agreement with the plaintiff with the provision of title and title documents for the pledged property, i.e. drip irrigation system equipment, located on a plot of land with an area of 30 hectares, located at the address: RK, South Kazakhstan region, Sairamsky district, Kutarys village.

As a result of the defendant's improper fulfillment of obligations under loan agreements, the court, taking into account the requirements of Articles 272 and paragraph 3 of Article 722 of the Civil Code, satisfied the plaintiff's claims to recover debts from the defendant, which as of March 20, 2015 amounted to 8,482,688 tenge.

When deciding to force the defendant to conclude a pledge agreement, the court did not properly motivate its conclusions, limiting itself only to referring to the requirements of paragraph 1 of Article 386 of the Civil Code, according to which the agreement enters into force and becomes binding on the parties from the moment of its conclusion. However, this conclusion did not contradict the requirements of paragraph 1 of Article 380 of the Civil Code, according to which coercion to conclude a contract is not allowed, except in cases where the obligation to conclude a contract is provided for by this Code, legislative acts or a voluntarily accepted obligation.

It follows from the case file that the obligation to conclude a pledge agreement was voluntarily accepted by the defendant when he entered into a pledge agreement dated 04/20/2011 in which the defendant indicated that he was assuming an unconditional and irrevocable obligation to pledge real estate by 10/20/2011 and the obligation to conclude a pledge agreement with the plaintiff with the provision of title documents and title documents for the mortgaged property.

Thus, the court's coercion of the defendant to conclude the contract was carried out correctly, because in accordance with paragraph 4 of Article 399 of the Civil Code, if a party for whom, in accordance with this Code or other legislative acts, the conclusion of the contract is mandatory, evades its conclusion, the other party has the right to apply to the court with a demand to compel the conclusion of the contract.

The requirements of Article 399 of the Civil Code provide for a specific procedure for concluding a contract in cases where one of the parties is required to conclude a contract by virtue of legal requirements.

If a party for which the conclusion of the contract is not mandatory applies with an offer to another party for which the conclusion of the contract is mandatory, the latter, within thirty days from the date of receipt of the offer, unless another deadline is established by law or agreed by the parties, must send the offeror a notice of acceptance, or refusal of acceptance, or acceptance of the offer (draft agreement) on other terms (protocol of disagreement to the draft agreement).

The offeror who has received a notification of its acceptance on other terms from the party for whom the conclusion of the contract is mandatory (protocol of disagreements to the draft contract) has the right to submit the disagreements that arose at the conclusion of the contract to the court for consideration within thirty days from the date of receipt of such notification or expiration of the deadline for acceptance, if the legislation on certain types of contracts does not A different deadline has been set.

If the above actions are not performed by the offeror, the contract is considered not concluded. There are no grounds for forcing the offeror to conclude a contract.

If the offer is sent by a party for whom the conclusion of the contract is mandatory, the other party for whom the conclusion of the contract is not mandatory, within thirty days, notifies the offeror of acceptance or sends him a protocol of disagreement. The performance of these actions is not mandatory for the party to which the offer has been received.

Upon receipt of the protocol of disagreement on the draft agreement, the offeror is obliged, within thirty days from the date of receipt of the protocol of disagreement, to notify the other party of the acceptance of the agreement in its wording or of the rejection of the protocol of disagreement. If the protocol of disagreement is rejected or the notification of the results of its consideration is not received within the specified period, the party that sent the protocol of disagreement has the right to submit the disagreements that arose at the conclusion of the contract to the court for consideration, unless otherwise provided by the legislation on certain types of contracts.

If a party, for whom the conclusion of a contract is mandatory in accordance with this Code or other legislative acts, evades its conclusion, the other party has the right to apply to the court with a claim to compel the conclusion of the contract.

When resolving disputes between legal entities and citizens engaged in business activities about the amendment or termination of contracts, it must be borne in mind that the termination of the contract always entails the termination of unfulfilled obligations, and the amendment of the contract results in a change only in the content of contractual obligations or the addition of new rights and obligations to the contract.

Therefore, the courts of the Republic of Kazakhstan made decisions on changing or terminating the contract only if the contract was not executed or partially executed, while they meant that the execution performed properly by virtue of art.368 of the Civil Code is an independent basis entailing termination of obligations.

When accepting claims from legal entities and citizens engaged in business activities for amendment or termination of the contract, the courts of the Republic of Kazakhstan drew attention to the fact that this category of cases is one of the few categories for which the law establishes a mandatory procedure for preliminary pre-trial dispute resolution. According to Clause 2 of Article 402 of the Civil Code, a claim to amend or terminate a contract may be filed by a party in court only after receiving a refusal from the other party to the proposal to amend or terminate the contract or failure to receive a response within the time period specified in the proposal or established by law or contract, and in its absence - within thirty days.

401, 404 of the Civil Code, it follows that modification or termination of the contract is allowed.:

1) by agreement of the parties;

2) in case of cancellation of the contract (cancellation of the contract, respectively, partially or completely);

3) by a court decision.

It should be borne in mind that the agreement on the amendment and termination of the contract is made in the same form as the contract, unless otherwise indicated by legislation, contract or business practices. The legislator does not specify whether state registration of the amendment or termination of the contract is required when the agreement is given the same form (simple written or notarized). There is no judicial practice on this issue. Therefore, the issue of the need or lack of need for state registration of an agreement on termination (amendment) of the contract must be resolved through judicial interpretation in a regulatory decision of the Supreme Court of the Republic of Kazakhstan.

Termination of the contract by agreement of the parties or unilateral refusal to perform the contract, if this is provided for by the terms of the contract or legislation, does not entail the need to file a corresponding claim with the court. The only exceptions are cases where one party disagrees with the actions of the other party to unilaterally renounce the contract. As a result, the unilateral refusal of one party to perform the contract if the other party does not agree with it may be challenged by the latter in court.

The possibility of refusal to execute it provided for by the legislation or the contract itself, as well as the possibility of termination of the contract by agreement of the parties, explains the reason why the courts of the Republic of Kazakhstan mainly considered disputes on the amendment or termination of contracts in case of significant violation by the other party.

At the same time, it should be borne in mind that the amendment or termination of the contract in case of its substantial violation is not the only reason for filing a claim for amendment or termination of the contract in court, because in accordance with paragraph 2, paragraph 2, Article 401 of the Civil Code, the court also considers claims for amendment or termination of the contract in other cases, provided for by this Code, other legislative acts or an agreement.

When resolving disputes about the amendment or termination of a contract, it is necessary to correctly apply the provisions of paragraph 2 of Article 401 of the Civil Code, according to which a violation of the contract by one of the parties is recognized as significant, which entails such damage to the other party that it is largely deprived of what it was entitled to expect at the conclusion of the contract.

 

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