The discussion about provisions relating to the unilateral termination of contracts becomes controversial already at a terminological level. It has been noted, not only in Polish literature, that the terminology used in this field in various national laws is ambiguous and may be misleading (P.S. Atiyah, An Introduction to the Law of Contract, Oxford 1995, p. 398). The power to unilaterally bring a contract to an end may be defined as the right to terminate, withdraw from, cancel or rescind a contract. Certainly, the unilateral termination of a contract is not as uniform as could be sought-after. Thus, it is important to set out the terminological background before presenting the legislative framework for the unilateral termination of contracts under Polish law.
TERMINOLOGY
The terminology proposed in this article is compatible with recent model laws such as the Draft Common Frame of Reference and the proposed Common European Sales Law.
The right to unilaterally cancel a contract within a specified period of time without any specific reason (for example a consumer’s right to cancel a distance sale within 14 days, or a similar clause stipulated by the parties to a contract) can be referred to as a right of withdrawal. In Polish literature in English, the terms ‘rescission’and ‘the right to rescind’ are also commonly used (see The Civil Code. Kodeks cywilny, translated by E. Kucharska, Warszawa 1011, p. 177). Hereinafter, however, they are avoided as they are more associated (at least in English contract law) with the avoidance of a contract for defects in consent (e.g. error or misrepresentation).
The right to unilaterally cancel a contract for a reason subsequent to the conclusion of the contract will be referred to as the right to terminate a contractor termination of a contract. The termination of a contract can take various forms. The Polish Civil Code (‘CC’) contains a legal regime of termination of contracts with continuous obligations by notice (the contract effectively ends after the lapse of a termination period) or without notice (immediate termination, for example the termination of services for a serious reason). Moreover, the CC contains general provisions on the termination of synallagmatic contracts (with reciprocal obligations) in specific circumstances. There are also many specific provisions on the termination of nominate contracts such as sale, loan or specific works contracts.
In Polish terminology, the right of withdrawal and the termination of a contract are both referred to by the unique term odstąpienie od umowy. Then, the various types of this right are recognised by Polish doctrine and jurisprudence. There is a certain amount of ambiguity with this terminology. What is more, in case of contracts with continuous obligations the Polish legislator introduces another term (wypowiedzenie umowy). In effect, it is often problematic to indicate which CC provisions apply to a unilateral resolution of a contract in question.
THE CONTRACTUAL RIGHT OF WITHDRAWAL
In Article 395, the CC provides a general possibility for a contract to stipulate the right of one or both parties to unilaterally bring it to an end. The parties are obliged to set in the contract a time-limit for exercising this right. According to Article 395 of the CC, if the entitled party exercises the right, the contract is to be regarded as ‘it had never been concluded’ and both parties have to restore everything they received under the contract. This institution may be defined as a contractual right of withdrawal (umowne prawo odstąpienia od umowy).
The contract must specify the time-limit for exercising the right of withdrawal. A contractual right of withdrawal that does not contain such time-limit will be regarded as invalid (Polish Supreme Court judgement of 18 October 2012, V CSK 417/11). This prerequisite is explained by the legislator’s intention to place a limit on the uncertainty that is assigned to a contract that depends on the mere will of one party. A contractual right of withdrawal does not depend ex definitione on the actions or omissions of the counterparty, it simply allows the entitled party to easily undo the transaction for no specific reason (ad nutum). Thus, the contractual right of withdrawal might be regarded as an exception to the pacta sunt servanda principle.
It is accepted that the parties are free to make a right of withdrawal conditional on a future and uncertain event (condition) specified in the contract.
EFFECTS OF EXERCISING A RIGHT OF WITHDRAWAL
The wording of Article 395 §2 of the CC is interpreted as establishing the retroactive effects of exercising the right (ex tunc efficacy). The contract should be treated as never having been concluded. The courts have recognised the possibility for the parties to determine the efficacy of the right differently, in particular, they may provide for ex nunc efficacy, with no obligations to return (Polish Supreme Court judgement of 9 September 2011, I CSK 696/10), though this is not commonly accepted in the doctrine.
A COOLING-OFF PERIOD IN CONSUMER CONTRACTS
Following the implementation of the EU consumer directives, Polish law recognises, for specific contracts, the right of consumers to unilaterally end a contract within a certain period. Both the DCFR and the proposed CESL define this right as a right of withdrawal.
According to the Consumer Rights Act of 30 May 2014 (Dz.U. 2014, item 827), a consumer has 14 days in which to withdraw from a distance or off-premises contract without giving any reason and without incurring any specific costs (a cooling-off period). Similar rules apply to financial services and timeshare contracts.
A consumer right of withdrawal has much in common with a contractual right of withdrawal like Article 395 CC. It should not be confused with a consumer’s right to terminate a sale contract for non-conformity of the product. Polish law regulates this institution in the recently revised Articles 556 et eq. of the CC (see below).
TERMINATION OF RECIPROCAL CONTRACTS
In Article 491 et seq., the CC grants a party to a reciprocal contract the right to terminate a contract in the event of certain types of non-performance (breach of contract). They include a delay in performance imputable to a debtor (Article 491 of the CC), an anticipatory breach (Article 4921 of the CC) and an impossibility of performance (Article 493 of the CC).
The right to terminate in these situations is generally referred to as a statutory right to terminate a contract (ustawowe prawo odstąpienia od umowy). No contractual clause providing for termination is needed. The right to terminate does not depend on a previous agreement of the parties, but on an event of a breach of contract. It is generally regarded as a remedy for a creditor and a sanction for a debtor.
In the event of a delay in performance imputable to a debtor, a right to terminate can be performed only after the unsuccessful lapse of an additional period of time granted by a creditor (Article 491 of the CC). A debtor receives a second chance to perform its obligations before a creditor can terminate a contract. There are, however, some exceptions to this rule. Firstly, if the parties stipulate in a contract a right to terminate should the debtor fail to perform by a certain date, then the creditor may terminate the contract without granting any additional time for the debtor (Article 492 of the CC). This institution is referred to as lex commissoria. Secondly, if –taking into account the nature of the contract and other circumstances –time is of the essence, the creditor can terminate immediately after the due date. It can be observed that the provisions relating to the statutory right to terminate are not based on a uniform concept of breach of contract. This is quite particular given the fact that general contractual liability (the duty to compensate for damage) is tied to the broad notion of non-performance or improper performance. A statutory right to terminate is instead given to a creditor solely in the case of specified breaches: e.g. an imputable delay.
It seems that the Polish system lacks a more general concept of termination related to other forms of non-performance. In practice, this may create serious problems for a creditor who, in spite of a serious breach of contract on the part of a debtor, is essentially forced to continue contractual relations as long as the breach does not constitute an imputable delay or an imputable impossibility of performance. This might be the case, for example, when a debtor is disclosing confidential information to a creditor’s competitor against an express contractual provision.
Certainly, such an approach to the statutory termination of a contract distinguishes Polish law from modern national regulations (the Netherlands Civil Code or the German Civil Code after the 2002 reform) as well as from the DCFR or the proposed CESL. They all base the right to terminate on the concept of a breach of contract vel. non-performance, usually excluding the right to terminate if the breach is insignificant (R. Zimmermann, The New German Law of Obligations. Historical and Comparative Perspectives, New York 2007, pp. 40-41, 50).
EFFECTS OF TERMINATING A CONTRACT
Article 494 of the CC provides that a creditor who has terminated a contract has to restore everything it has received under the contract. The creditor may claim from a debtor not only reciprocal restitution, but also compensation for damage resulting from non-performance of the contract.
Traditionally, the Polish doctrine and jurisprudence claimed that a statutory right to terminate operates retroactively (ex tunc efficacy), just as a right of withdrawal, e.g.Article 395 of the CC. However, a transformation theory hasrecently been gaining attention (see D. Mróz-Krysta, Obligacyjne skutki ustawowego prawa odstąpienia od umowy, Warszawa 2014). According to this theory, the termination of a contract does not cancel the contract, but rather transforms the mutual obligations of the parties into obligations to return (Polish Supreme Court judgement of 25 February 2015, IV CSK 395/14).
The provision of Article 494 of the CC significantly differs from Article 395 of the CC. Article 494 of the CC does not introduce the legal fiction of ex tunc efficacy (as contained in Article 395 of the CC) and it explicitly gives a creditor the right to claim damages.
SPECIFIC PROVISIONS ON TERMINATION
The CC contains several provisions on the termination of nominate contracts, for example in contracts of sale. The liability for non-conformity in contracts of sale was recently changed while implementing the EU consumer directives. A uniform regime (applicable both to B2B and –with some alterations –to B2C sales of goods) has been introduced. One of the remedies for the buyer in the case of defective goods (‘defective’ defined in the CC as ‘not in conformity with the contract’) is the right to terminate the contract. Article 560 of the CC entitles the buyer of defective goods to terminate the contract unless the seller promptly and without any significant inconvenience provides the buyer with repair or replacement. The buyer cannot terminate in the case of minor defects.
The CC provides for a right to terminate in the regime of other nominate contracts such as a specific works contract. A part of the doctrine claims that the specific provisions exclude the general regime of Article 491 et seq. of the CC. According to another view, the creditor should have the right to choose between general and specific remedies if the prerequisites of both rights are satisfied.
CONTRACTS WITH CONTINUOUS OBLIGATIONS
In the case of contracts with continuous obligations (in which the performance depends on the time for which the contract is concluded), the CC regulation is fragmentary.
There is a general provision on termination with notice (with a termination period) contained in Article 3651 of the CC. There are also specific provisions on the termination of some nominate contracts in specific circumstances (e.g. non-payment of rent by the tenant) or for a good reason. However, their relation to the general regime of a right of withdrawal (Article 395) or termination of contract (Article 491 et seq.) remains unclear.
On the one hand, the Polish legislator seems to distinguish terminating contracts with continuous obligations from terminating other contracts. This is visible on a terminological level, as a different term (wypowiedzenie umowy) is used to define terminating loan, rent or partnership agreements. According to a common view, this term is reserved to a unilateral resolution of contracts with continuous obligations, which is particular because it does not produce retroactive effects (it operates only to the future – ex nunc efficacy). For this reason, it is contrasted with the termination of contracts with instant obligations, which is claimed to have ex tunc retroactivity.
On the other hand, the Polish legislator has not introduced a general regime on terminating contracts with continuous obligations. The only general provision refers to termination with notice (Article 3651 of the CC), whereas situations of delay or an impossibility to perform are not considered. Hence, according to another view, the general regime of Article 491 et seq. and of Article 395 of the CC will apply to contracts with continuous obligations. While accepting this view, the Polish Supreme Court stated that the termination of such contracts affects only the future obligations of the parties – no ex tunc efficacy (Polish Supreme Court judgement of 30 May 2007, V CSK 30/07). This view is currently prevailing, though it does not entirely resolve the problem of distinguishing between two regimes – odstąpienie od umowy and wypowiedzenie umowy.
Interestingly, the German legislator, in the 2002 reform of the law of obligations, introduced a general provision on the termination of contracts with continuous obligations (Ger. Kündigung). This approach is under consideration in current codification projects in Poland (see Section 11 below).
CONTRACTUAL RIGHT OF WITHDRAWAL vs EXPRESS TERMINATION CLAUSES
In light of the dualism of Article 395 and 491 et seq. of the CC, the question arises how to interpret contractual clauses that allow one party to unilaterally resolve a contract in an event constituting a breach of contract by the other party? Should they be regarded as clauses of a contractual right of withdrawal to which Article 395 of the CC applies? Or maybe the regime of the termination of contract and its effects (Article 494 of the CC) is applicable? Part of the doctrine believes that –since the source of the power to unilaterally resolve a contract remains contractual –these clauses should be regulated by Article 395 of the CC. An opposing view claims that –despite their evident contractual source –the different role of the clauses (their ‘remedial’character), justifies applying Articles 491 et seq. of the CC (particularly, Article 494), rather than Article 395 of the CC. They may be referred to as express termination clauses or contractual modifications of a statutory right to terminate.
The wording of Article 492 of the CC, whereby the creditor may terminate the contract without granting any additional time for cure if the parties have stipulated in the contract a right to terminate should the debtor fail to perform by a certain date (known as the lex commissoria), suggests that Article 395 of the CC should not be applied to such clauses. The case law, however, is not uniform in this matter. A recent ruling regarding the nature of the lex commissoria issued by the Court of Appeal in Łódź (judgement of 7 May 2014, I ACa 1357/13) is evidence that discrepancies still exist in the jurisprudence. The Court of Appeal stated that the lex commissoria is an example of a ‘contractual’ right of withdrawal (which entails all consequences set forth in Article 395 of the CC), whereas the Supreme Court, in a previously issued ruling (judgement of 30 March 2014, SN I CSK 404/13), had claimed that the lex commissoria is a type of a ’statutory’right to terminate.
RECODIFICATION UNDER WAY?
The unilateral resolution of contracts and its various types are among the interest of the Codification Commission working on the recodification of Polish civil law. Some interesting changes are under consideration, especially concerning the termination of contracts for breach. A proposal concerning the law of performance and the consequences of the improper performance of obligations, issued in 2010 (The text of the proposal with notes by M. Pecyna and F. Zoll published in Transformacje Prawa Prywatnego 4/2010 Issue; http://www.transformacje.pl/2011/05/42010-2/), places the termination of contracts at the centre of the system of remedies for a breach of contract (non-performance or improper performance of obligations).
The 2010 proposal provides for a uniform concept of termination for a breach similar to the one that can be found in model laws, for example in the DCFR. The provisions of termination for a breach would also be applicable to contracts with continuous obligations, with the exception that, in the case of such contracts, the mutual obligation to restore will not concern the parts that were performed prior to the event constituting a breach of contract. Although another proposal containing certain improvements is expected to be published soon, this draft is a clear sign that a modernisation of the Polish law of obligations is on the way and it may improve the CC regulations in the field of the unilateral resolution of contracts.
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