The Main Features of the New Lithuanian Contract Law System Based on the Civil Code of 2000

Author:Valentinas Mikelenas
Position:Professor, University of Vilnius, Member of the Study Group on a European Civil Code

1. Introduction - 2. The place of contract law in the structure of the Civil Code - 3. Principles of Lithuania's Contract Law - 4. Types of contracts - 5. Pre-contractual relationships - 6. Formation of contracts - 7. The form of contracts - 8. Interpretation of contracts - 9. Content, performance, and termination of contracts - 10. Conclusions


Valentinas Mikelenas

Professor, University of Vilnius, Member of the Study Group on a European Civil Code

The Main Features of the New Lithuanian Contract Law System Based on the Civil Code of 2000

1. Introduction

The Seimas (Parliament) of the Republic of Lithuania adopted the new Civil Code of Lithuania on 18 July 20001. The new code entered into force on 1 July 2001, replacing the Civil Code of 1964. The adoption of the new Civil Code was a great event in the life of Lithuanian society, as this legal act must be described as the 'Constitution of Private Law', which establishes the main principles of the civil relationships between legal and natural persons. Many new rules were introduced by the Civil Code in company law, family law, law of succession, property law, law of obligations, and other areas. However, from the economic point of view, the most important changes took place in the area of contract law. The Civil Code of 1964 provided only a few general rules and some special rules regarding specific contracts. For example, the Civil Code of 1964 had no General Part of Contract Law, and it did not establish the principle of freedom of contract. Such a situation caused by the planned economy was understandable because the main role in the planned economy belonged not to the contract but to the plan.

In the market economy, contract law plays a crucial role. A contract is the legal form of business relationships. The market economy, based on private property and private initiative, needs effective rules concerning contracts. These must provide legal mechanism for a fair and equal realisation of such private initiatives. Therefore, the main task in the process of drafting the new Civil Code was to create new, modern and effective contract rules, which had to correspond to the changedeconomic situation. On the other hand, contract law is an institution of private law in which the ideas of unification and harmonisation of law are realised in the broadest manner. Thus, the creation of new national rules for contracts means in fact the transformation of results of the regional or transnational unification and harmonisation of contract law at the level of the national legal system. This is true in respect of the new Civil Code of Lithuania - many contract law provisions of this code were borrowed from such well-known instruments of unification and harmonisation of contract law as the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law2.

The aim of this article is to describe the main rules of Lithuania's General Part of Contract Law and to demonstratehow some results of international unification and harmonisation of contract law have been integrated into the new Civil Code of Lithuania3.

2. The place of contract law in the structure of the Civil Code

The contract as a bilateral legal transaction is one of the sources of obligations. This means that contract law is one of the institutions of law of obligations. Naturally, the main rules of contract law are contained in Book 6 of the Civil Code, titled 'Law of Obligations'. Due to the systematic nature of the Civil Code, the contract law provisions are divided into two portions in Book 6 - the General Part (arts. 6.154-6.228) and the Special Part (arts. 6.305-6.1018) of Contract Law. The rules of the General Part provide the notion of a contract; kinds of contracts; principles of contract law; and the main requirements involved in the formation, interpretation, and performance of contracts. The rules of the General Part are lex generalis and are applicable to all kinds of contracts except in cases where special rules establish different provisions.

The Special Part, which regulates specific contracts, provides lex specialis rules for a number of specific contract types. These are foreseen in this part as being traditional contracts, such as contracts of sale, loan, and lease, and, secondly, modern contracts, like factoring, franchising, and leasing contracts. In total, the Special Part includes rules in respect of 53 specific contract types. In addition, article 6.155 of the Civil Code provides that special rules for certain contracts may be established by other laws. This provision is already being realised in practice; for example, public procurement contracts, contracts for the public sale of securities, and some other specific contract types are regulated not by the Civil Code by but special laws.

Book 6 also contains the General Part of the Law of Obligations (arts. 1.1-6.153). The rules of this General Part specify sources of obligations, modalities of obligations, rules for the fulfilment of obligations, grounds for the nullification of obligations, and so on. Unless any exceptions from general rules are established by norms regulating contractual relationships, the provisions of the General Part that contain regulation covering general questions concerning the Law of Obligations must likewise be applied to contracts. For example, rules on the fulfilment of obligations (arts. 6.38-6.65) are, mutatis mutandis, applied in respect of contracts as well.

Rules on contractual liability are of two kinds. General rules on contractual liability are provided in Chapter XXII, 'Civil Liability', of Book 6. This chapter provides general rules, common to contractual and tortious liability, and specific rules applicable only in the case of contractual liability (arts. 6.256-6.262). Special rules of contractual liability applicable to specific contracts are provided by the corresponding articles of the Special Part of Contract Law dealing with specific contract types.

As has already been noted, due to the systematic nature of the Civil Code, other books of the Civil Code are also of great importance in contract law. Book 1, 'General Provisions', provides general rules on legal transactions, validity of legal transactions, limitation of actions, and so forth. These rules are applicable to contracts as well. For example, Part 2 of article 6.154 establishes what contracts are subject to the norms of the Civil Code that regulate bilateral and multilateral transactions (arts. 1.63-1.96). Thus, for example, the rules regarding nullity of a contract are found in Book 1, not in Book 6. There is one more reason for Book 1 being especially important for contract law. This book contains the rules on private international law, including the rules concerning the law applicable to contractual relationships (arts. 1.37-1.42).

Book 2, 'Persons', also includes some important rules relating to contract law. The relevant articles of Book 2 establish provisions addressing the legal capacity of natural and legal persons (including contractual capacity), restriction of capacity, rules on agency, and rules on the validity of contracts made by agents and by management bodies of legal persons.

The provisions of Book 3, 'Family', are linked with special rules regulating contracts and contractual capacity in the area of family law. For example, relevant articles of Book 3 establish special requirements for the form and content of a marriage contract (arts. 3.101-3.108) and special provisions on the validity of contracts related to the disposal of assets that belong to family property or are in the common ownership of spouses.

As Book 4, 'Real Rights', deals with various real rights - ownership, possession, mortgage, servitudes, etc. - its rules are important in contract law for several reasons. Firstly, the rules of this book establish provisions concerning the moment of transfer of ownership. Secondly, the rules in this book provide protection of the good-faith possessor of things acquired under an onerous contract. Thirdly, the relevant articles impose special requirements for the form and content of some kinds of contracts on real rights, such as mortgage and pledge contracts (arts. 4.170-4.228).

Some important rules for contract law purposes may be found in Book 5, 'Succession'. Examples include rules on the liability of heirs for the contractual obligations of a deceased person (arts. 5.50-5.67) and rules on the voluntary division of the estate between heirs upon succession (arts. 5.69-5.70).

3. Principles of Lithuania's Contract Law

The main principles of Lithuania's Contract Law distinguished by the doctrine of law are freedom of contract, good faith, consensualism, pacta sunt servanda, the equality of parties, etc4. Some of these principles are distinctly determined by the Civil Code. For example, article 6.156 establishes the principle of freedom of contract. According to this article, the content of the principle of freedom of contract consists of several elements. First of all, freedom of contract means that the parties are free to enter into contracts and determine their mutual rights and duties at their own discretion. Thus it is recognised that a contract is the result of the free expression of the will of the parties and it is prohibited to compel another person to conclude a contract, except in cases when the duty to enter into a contract is established by law or a free-will engagement. For example, in the event of a public contract, a legal person (businessman) who renders services or sells goods to an indefinite number of persons - i.e., to everyone who makes a request (enterprises in transport, communications, electricity, heating, gas, water supply, and other areas) - is obliged to enter into contracts with the consumers (art. 6.161).

Another element of the principle of freedom of contract opens up the possibility for the parties to...

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