Senior associate Kristel Raidla writes that the Supreme Court has recently made several rulings that provide valuable instructions on exercising one’s contractual rights if the other party has breached the contract.
Claiming late interest: a balance statement must indicate the late interest
In a recent ruling, the Supreme Court reflected on the principle of good faith. In this case, late interest was claimed on top of principal debt because of a payment delay. The contract provided that late interest is always deemed paid in the first order, and principal debt in the second order. However, the Supreme Court stated that regardless of the contract terms, submitting a balance statement indicating the arrears without late interest may justify the application of the good faith principle on the late interest if the debtor pays the indicated sum in full. Under the good faith principle, the creditor may, by remaining silent on the late interest, lose the claim altogether, if it has failed to actively draw the debtor’s attention to the fact that in addition to the principal debt, the late interest is also payable, and that under the contract priority is given to the late interest, not the principal debt.
Withdrawal from contract
In cases of material breach of contract, the Law of Obligations Act offers the injured party legal remedies, one being the right to withdraw from the contract within a reasonable period after the injured party becomes or should have become aware of the material breach. Upon expiry of a reasonable period, the injured party will lose the right to withdraw from the contract. On the other hand, the law also prescribes a general term for submitting claims (limitation period), which as a rule allows claims to be submitted within three years from the claim arising. In its ruling, the Supreme Court pointed out that the period for withdrawing from a contract and the term for submitting a claim are two different concepts. A reasonable period may be different in various types of contract. Moreover, the Supreme Court pointed out that since by law the term for submitting claims is rather long, a reasonable period should usually be shorter than the term for submitting claims. Thus, in case of a material breach, it is advisable to submit the application of withdrawal to the other party as quickly as possible.
Indicating contract terms on an invoice
Following a breach of contract, it is common to amend the contract terms. Sometimes, the amended terms are indicated on invoices or other unilateral documents. The Supreme Court stated that accepting or signing an invoice does not generally convey the approval of any new terms described therein which have not been previously agreed. It is worth to note that if the recipient of the invoice is obliged to accept or sign it, then accepting the invoice by signing or not signing does not signify acceptance of the new terms – even if the invoice expresses a clear wish to reach an agreement concerning the new terms. For instance, this is true in case of the so-called invoice/delivery forms (arve-saateleht), the signing of which by the recipient is a precondition to handing over the delivery. Therefore, any amendments to a contract should be expressly set forth in a document signed by both parties.
Thus it is useful to note that even if a contract provides otherwise, the behaviour of a party engaged in business activities may give sufficient grounds for not applying contract terms because of the principle of good faith. It is also worth to keep in mind that rights should be exercised without delay, and agreements documented with minimal chance for disputes.
Senior associate Kristel Raidla has advised on a wide range of significant acquisition and disposal transactions. She also advises on daily corporate governance issues and represents clients in merger control and market analysis proceedings in Competition Board.
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A good Contract is of help only when Contractual Rights are duly exercised
Senior associate Kristel Raidla writes that the Supreme Court has recently made several rulings that provide valuable instructions on exercising one’s contractual rights if the other party has breached the contract.
Claiming late interest: a balance statement must indicate the late interest
In a recent ruling, the Supreme Court reflected on the principle of good faith. In this case, late interest was claimed on top of principal debt because of a payment delay. The contract provided that late interest is always deemed paid in the first order, and principal debt in the second order. However, the Supreme Court stated that regardless of the contract terms, submitting a balance statement indicating the arrears without late interest may justify the application of the good faith principle on the late interest if the debtor pays the indicated sum in full. Under the good faith principle, the creditor may, by remaining silent on the late interest, lose the claim altogether, if it has failed to actively draw the debtor’s attention to the fact that in addition to the principal debt, the late interest is also payable, and that under the contract priority is given to the late interest, not the principal debt.
Withdrawal from contract
In cases of material breach of contract, the Law of Obligations Act offers the injured party legal remedies, one being the right to withdraw from the contract within a reasonable period after the injured party becomes or should have become aware of the material breach. Upon expiry of a reasonable period, the injured party will lose the right to withdraw from the contract. On the other hand, the law also prescribes a general term for submitting claims (limitation period), which as a rule allows claims to be submitted within three years from the claim arising. In its ruling, the Supreme Court pointed out that the period for withdrawing from a contract and the term for submitting a claim are two different concepts. A reasonable period may be different in various types of contract. Moreover, the Supreme Court pointed out that since by law the term for submitting claims is rather long, a reasonable period should usually be shorter than the term for submitting claims. Thus, in case of a material breach, it is advisable to submit the application of withdrawal to the other party as quickly as possible.
Indicating contract terms on an invoice
Following a breach of contract, it is common to amend the contract terms. Sometimes, the amended terms are indicated on invoices or other unilateral documents. The Supreme Court stated that accepting or signing an invoice does not generally convey the approval of any new terms described therein which have not been previously agreed. It is worth to note that if the recipient of the invoice is obliged to accept or sign it, then accepting the invoice by signing or not signing does not signify acceptance of the new terms – even if the invoice expresses a clear wish to reach an agreement concerning the new terms. For instance, this is true in case of the so-called invoice/delivery forms (arve-saateleht), the signing of which by the recipient is a precondition to handing over the delivery. Therefore, any amendments to a contract should be expressly set forth in a document signed by both parties.
Thus it is useful to note that even if a contract provides otherwise, the behaviour of a party engaged in business activities may give sufficient grounds for not applying contract terms because of the principle of good faith. It is also worth to keep in mind that rights should be exercised without delay, and agreements documented with minimal chance for disputes.
Senior associate Kristel Raidla has advised on a wide range of significant acquisition and disposal transactions. She also advises on daily corporate governance issues and represents clients in merger control and market analysis proceedings in Competition Board.