The consequences of an indeterminate contract (for work)

The “problem” with contracts for work is that the work itself is yet to come into existence, so that the subject matter of the performance cannot be referred to as simply as it can in, say, a contract of sale. To avoid discrepancies and future disputes, the ideal course is to define the work as precisely as a thing yet to be created allows.

Confining ourselves chiefly to contracts for work where the work is a building (the most typical example of work), the commonest way of defining the work is by project documentation and/or an itemised budget. In the ideal case, by both. Even where the contract contains such a definition, however, it does not follow that the work is automatically determinate and intelligible.

As the case law confirms: “A contractual arrangement defining the subject matter of a contract for work as the reconstruction of a family house according to a budget which was annexed to the contract, formed an integral part of it and contained a detailed specification of the works to be carried out as well as a detailed specification of the materials to be used, does not render the subject matter of the contract for work indeterminate.1) ” Reading that interpretation of Nejvyšší soud (the Supreme Court) a contrario, one might say that where no such budget forms part of the contract or an integral annex to it, the contract for work is indeterminate.
To avoid the a contrario reading, which in certain circumstances is problematic, the later case law has developed along precisely these lines.

In the decision referred to, the parties defined the subject matter of the work by reference to a budget which was annexed to the contract and formed an integral part of it, the itemised budget containing a detailed specification of the works to be carried out and likewise a detailed specification of the materials to be used. In the matter at hand, however, the appellate court was assessing an indeterminate term intended to define the subject matter of the work, namely the disputed item 10 of the claimant's price quotation of 28 May 2010, formulated as “revize komplet strany VN” (complete inspection of the high-voltage side), and concluded that the indeterminacy of the subject matter of the work to be produced could not be removed even by interpretation under Section 266 of the Commercial Code and Section 35 of the Civil Code (…)2)

“Where the appellant objects that the appellate court departed from the judgment of the Supreme Court of 17 April 2013, sp. zn. 23 Cdo 964/2012, under which defining the subject matter of the work by a quotation and the price of the work by a budget does not, without more, render a contract for work invalid, he is attacking a legal conclusion on which the appellate court's decision does not rest. The appellate court did not hold the contract for work invalid because the contract referred to a quotation or a budget, but because not even the quotation to which the contract referred made it possible to establish what specific work the claimant was to carry out.”3)

Where, then, the court seised of such a case concludes that the contract for work is indeterminate and unintelligible (in lay terms, it is not clear what exactly was to be built), it might seem that there is nothing left to resolve.

The opposite is true. The case law outlined above, which has not been departed from and therefore remains applicable, responds to the position preceding the recodification of Czech private law. The cases in question were assessed under the former Civil Code and, as the case may be, under the Commercial Code.
This is where a stumbling block for any decision of the courts concerned may lie.

Under Section 37(1) of Act No. 40/1964 Coll., the Civil Code: “A legal act must be made freely and seriously, determinately and intelligibly; otherwise it is invalid.”
Indeterminacy and unintelligibility thus rendered such an act invalid. Indeed, the cited decisions of the Supreme Court speak of invalidity as the legal consequence of the facts established.
In Act No. 89/2012 Coll., the Civil Code, however, the legislature enacted provisions on putative juridical acts. Specifically: “There is no juridical act where its content cannot be established for indeterminacy or unintelligibility, not even by interpretation.”4) and “A putative juridical act is disregarded.”5)

And as the legal literature states: “It follows first of all from the fact that a null act is disregarded that such an act, like an absolutely invalid one, produces none of the intended legal consequences, that is, the consequences which are, or were to be, the content of the juridical act. Where performance is rendered under a null act, it is performance without legal ground and the recipient obtains unjust enrichment (Section 2991(2)).”6)

Although the Supreme Court has already responded to that change in its case law - “Acts that are indeterminate in content or unintelligible in form (in the means of expression used), and in which the defect in the manifestation of will prevents legal consequences capable of binding the parties from being determined, are designated by the statute as putative (null). A manifestation of will is not determinate where the expressions used are not sufficiently specific and clear, so that it cannot be established what legal consequences the manifested will is to produce. Unintelligibility is bound up with expressions that cannot be understood, so that the content of the manifested will remains shrouded in mystery. Indeterminacy or unintelligibility may concern the whole juridical act or only part of it. Nullity operates ex lege and the court takes account of it of its own motion, even without an application by the parties.
A court will conclude that a juridical act is putative for indeterminacy or unintelligibility only where it fails, by interpreting the whole juridical act or part of it under Section 555 et seq. of the Civil Code, to clarify what legal consequences the parties' manifested will was directed at.”7,8) - the author of this text is bound to note that he repeatedly encounters the view, held by courts of first instance, that indeterminacy and unintelligibility give rise not to putativeness but to invalidity.
And while it follows from the case law that: “Under Act No. 40/1964 Coll., the Civil Code, as in force until 31 December 2013 (the “1964 Civil Code”), which sanctioned indeterminacy and unintelligibility with the absolute invalidity of the legal act, (…)”9), the author of this text repeatedly encounters the view that contracts for work are assessed not merely as invalid but, above all, as relatively invalid.

Although it might therefore have seemed at the outset of this text that it makes no difference to the assessment of the matter whether the act is putative or absolutely invalid, that is not so. Where indeterminate and unintelligible contracts (for work) are treated as relatively invalid, Section 579 of the Civil Code must be borne in mind, under which: “a person who has caused the invalidity of a juridical act has no right to invoke that invalidity. The underlying idea is that where a person has caused the invalidity of a juridical act by his own conduct, there is no need to protect him from the consequences of that conduct; on the contrary, it is right that he should bear the legal consequences it has brought about.”10)

It will thus fall to the Supreme Court to state clearly what consequences the indeterminacy and unintelligibility of contracts carry under the “new” Civil Code and to settle, once and for all, whether such contracts are invalid or putative.

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1) Judgment of the Supreme Court of 17 April 2013, sp. zn. 23 Cdo 964/2012
2) Resolution of the Supreme Court of 5 October 2016, sp. zn. 23 Cdo 2068/2016
3) Resolution of the Supreme Court of 28 February 2017, sp. zn. 29 Cdo 5606/2016
4) Section 553 of the Civil Code
5) Section 554 of the Civil Code
6) HANDLAR, Jiří. § 554 [Následky zdánlivého právního jednání]. In: LAVICKÝ, Petr et al. Občanský zákoník I. Obecná část (§ 1−654). 2nd ed. Prague: C. H. Beck, 2022, p. 1764, marg. no. 2.
7) Judgment of the Supreme Court of 23 June 2020, sp. zn. 33 Cdo 99/2020
8) Author's note - the dispute concerned a contractual penalty under a contract for work
9) Judgment of the Supreme Court of 23 June 2020, sp. zn. 33 Cdo 99/2020
10) HANDLAR, Jiří. § 579 [Následky způsobení neplatnosti právního jednání]. In: LAVICKÝ, Petr et al. Občanský zákoník I. Obecná část (§ 1−654). 2nd ed. Prague: C. H. Beck, 2022, p. 1844, marg. no. 2.