Procedure for renouncing a contract may be simplified

The law is fairly rigorous when it comes to the ability to renounce a bilateral contract. A number of conditions must be met for a contract to be effectively renounced. But may the parties to the contract simplify the procedure?

The answer is yes. The solutions most often adopted are those set forth in Art. 395 and 492 of the Polish Civil Code. Art. 395 governs a contractual right of renunciation, and Art. 492 governs a specific variation on the statutory right of renunciation.

Civil Code Art. 395 enables the parties to reserve to one or both parties the right to renounce any agreement. This right is exercised by submission of a declaration to the other party, which need not contain any justification for renouncing the contract. The reasons for the renunciation are legally irrelevant. More specifically, it is not necessary that the other party gave the renouncing party any cause to renounce the contract.

Such a reservation seriously weakens the contract, because it is unknown whether the contract will ultimately be performed, or as a result of renunciation will not be performed. Therefore, it is necessary to specify in the contract a deadline by which the right of renunciation may be exercised. The period during which the contract may be renounced should not be overly long, in order to avoid an extended period of uncertainty. If the parties fail to set such deadline, the contractual right of renunciation will be invalid. Then the right of renunciation may not be exercised and the contract will have to be performed.

Another solution enabling the parties to renounce a contract more easily is found in Civil Code Art. 492. If the parties wish, they may provide in the contract that the time for performing the obligation under the contract is of the essence, in the sense that if timely performance is not made the other party will have a right to renounce the contract immediately, without the need to take any other measures, such as providing the defaulting party an additional, reasonable period in which to perform. Such reservations should be included in a contract when the party cares strongly about timely performance. Then, if the other party is late, the contract may be dissolved quickly through renunciation.

Dr Marcin Lemkowski, Dispute Resolution & Arbitration Practice, Wardyński & Partners

The Polish version of this text was published on 22 August 2012 in the “Commercial Law Academy” series in Dziennik Gazeta Prawna daily