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option contractual arrangements-the option contract and the option to conclude the contract.
In accordance with Art. 432 of the Civil Code of the Russian Federation the contract is recognized as concluded if an agreement has been reached between all the parties in the form required in the cases to be executed on all of its essential conditions.
The inconsistency of the essential conditions of the option contractual structure leads to the recognition of its non-concluded. The non-exclusion of the option contractual structure means the absence of any relationship between counterparties, including the lack of both the right to demand execution and the obligation to perform certain option contractual structure actions and receive an option remuneration.
The conditions of option contractual arrangements, although objectively necessary for the implementation of the will of the parties when entering into contractual legal relations, but not provided for by the rule of law, will not be regarded as significant if the dispute arises. The exception will be cases where the interested party proves that it has claimed that such conditions are agreed upon as essential.
The described risk group includes, for example, the terms of the deadline for performing actions specified by the option contractual arrangement, the conditions for the amount and type of option compensation.
Due to the dispositive nature of the norms establishing legal definitions of option contractual structures, the list of essential conditions established in the law for this type of contractual structure is minimal. In the formation of conditions for option contractual structures, the initiative of the parties, manifested for the purpose of determining the individual essential conditions of each contracted option contract, is of significant importance.
The legislator tried to keep the maximally broad operation of the principle of freedom of contract when using option contractual structures in business. The
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incompleteness of the contracts themselves containing the option element, which are prerequisites for the conclusion of the main contract or the appearance of an obligation, in turn makes it impossible to conclude and previously agreed between the parties the main contracts.
While retaining economic interest in concluding the main contract specified in the option agreement or in fulfilling the obligation stipulated by the option agreement, the parties can still make such a performance. However, in this case, the conclusion of the main contract is conditioned not by the performance of the contractual obligation but will constitute an independent deal requiring additional coordinated will of the parties. A similar situation develops in relation to the main obligation provided for by the option agreement, which was subsequently recognized as not concluded. The fulfilment of the basic obligation will be for the parties the result of the performance of an independent contract, but not in any way the implementation of the principle of the actual performance of the option contract that is invalid due to its non-conclusion.
The issue of non-conclusion of contracts with option elements is considered in relation to the situation when such a contract is itself invalidated, but execution on it has not occurred. In the event that an option agreement or an option agreement is executed, it cannot be recognized as not concluded due to the lack of coherence of all its essential terms.
The mere fact of actual execution and acceptance of performance within the framework of an option agreement or an option agreement shows that the parties have a single expression of will in relation to all, without exception, contractual terms, otherwise performance would become impossible.
The above approach of the legislator allows the most flexible use of option contractual structures in business activities, individualizing the own economic goals of business entities and based on the actual needs of commercial organizations. Such disposability of option contractual structures allows using them through
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inclusion in other entrepreneurial agreements, without creating difficulties in
establishing the actual intention of the parties and their mutual economic goal.
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CHAPTER 4. Execution of obligations arising from an option to conclude a contract and an option agreement.
4.1. Execution of a contractual obligation as a way of implementing option contractual structures
Any contractual structure used in entrepreneurial activity has individual features inherent only to it, arising during its execution. It is these peculiarities that make it possible for business entities to choose one or another contract, among the contractual structures having similar goals for creating such an individual legal relationship, in practical business activity, interest is not due to the mechanism of creating a contractual legal relationship, namely the way it is realized and the achievement of a final mutually agreed goal, which the parties pursue by entering into a certain contractual relationship129.
Considering the legal relationship of O.S. Ioffe distinguishes two of its types
– 1) legal relationship, transforming from a public attitude and 2) a newly emerging independent legal relationship. Assuming the possibility of transforming public relations into legal relations, O.S. Ioffe points to the primacy of social relations, the possibility of transforming it into a legal relationship, and in the event of the loss of its legal nature, it again becomes a social relation130.
One of the ways of legal regulation of emerging public relations is the contract131. Given that the civil law contract is not only the basis for the emergence of legal relations between its parties, but also the source of the emergence of
129In his work, E.P. Gubin notes that the specificity of business law, the legal regulation of business activities, as well as business law, as well as business law, including in the private sector. This concludes the peculiarities of business law, legal regulation of entrepreneurial activity from the point of view of division into private and public (Gubin E.P. Government regulation of the market economy and entrepreneurship: legal problems: monograph / repr. edition – Moscow: Norma: INFRA-M, 2017. P. 168).
130Ioffe O.S. Legal relationship on Soviet civil law. – Leningrad: Publishing House of Leningrad University, 1949. P. 16–17.
131Considering the role of the contract in the system of the legal regulation mechanism, A.D. Koretsky concludes that the contract is not only a form of law, a means of legal regulation, but in its legal hypostasis, it is also a means of state regulation of public relations, and therefore is not only part of the legal regulation mechanism as a whole (as a form of law ), but also in its subsystem, as a mechanism of legal management.
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obligations, it can be concluded that the contractual obligation is one of the types of civil legal relationship. V.S. Tolstoy considering the legal relationship, notes that its content "includes a set of rights and obligations of its participants, in accordance with which certain actions are committed. Since the powers and responsibilities are opportunities, sooner or later (if the legal relations develop and terminate in a normal way), there comes such a moment when they turn into reality, i.e. incarnate in the behaviour of subjects of this relationship. The implementation of their rights by the parties and the fulfilment of their actions in fulfilment of their duties is the process of realizing the entire legal relationship. Thus, it is of a bilateral nature – it involves the creditor (making demands, specifying the rights and obligations of the other party, etc.) and the debtor (from which proceed actions aimed at the repayment of duties)”132.
The main peculiarity of the legal relations between the parties within the framework of option contractual arrangements is that one of the parties must agree to assume the duties (conclude a basic contract, deliver goods, provide services, perform work) on terms agreed with the other party earlier than between the parties an option agreement or an option agreement will be concluded. The subject of any option deal is the transfer of the right to demand performance of duties from one side to another. However, the transfer of such a right is impossible without the existence of existing duties. Therefore, before entering into a contract with the elements of the option, one of the parties, as a result of its unilateral will, must assume certain responsibilities for the other party. Such duties before the conclusion of the contract objectively exist in one of the parties, but do not receive legal regulation. They are transformed into a liability only as a result of the conclusion of the contract, that is, from the moment the consent of the party is expressed, to assume the right to demand the performance of duties voluntarily assumed by the other party.
132 Tolstoy V.S. Execution of obligations. – Moscow: Yurid. lit., 1973. P. 178–179.
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The difference between the legal relationships of the parties, within the framework of the emerging contractual structure also lies in the fact that the right to demand performance can be acquired by the obliging party only as a result of the deal. The granting of one of the parties the right to claim under certain conditions can be carried out only as a result of a mutually agreed expression of the will of the parties that would reflect the agreement of one party to authorize the other party to demand and accordingly accept the performance and the mutual consent of the other party to assume such a right.
It is impossible to create an option obligation by force of law or by virtue of unilateral action. An option obligation created by virtue of the law in its legal nature is transformed into a public contract, which in its turn has no time limit for its conclusion. According to Part 1 of Art. 426 of the Civil Code of the Russian Federation, the publicity of the contract is that it is mandatory for its person to enter into an entrepreneurial activity with any other person who has applied for the conclusion of such an agreement for the entire period of the entrepreneurial activity. That is, the obligation to conclude a contract is unlimited, this is the difference between a public contract and option contractual arrangements.
It is also impossible to authorize an indefinite or defined circle of persons to demand from the obliging party to perform pre-determined duties within a certain period of time. Such unilateral authorization is an irrevocable offer, stipulated by the validity period, and does not entail remuneration of the authorization.
A non-contractual obligation that contains an execution element on demand cannot be qualified as an option obligation133.
133 For instance, paragraph 1 of Art. 1064 of the Civil Code of the Russian Federation provides for an obligation as a result of causing harm, which also contains a condition on the obligation of the damage causer to compensate for harm caused as a result of his acts or omissions. Compensation for the harm caused is also carried out at the request of the victim, otherwise it is impossible to establish either the amount of compensation or the way of such compensation. However, in this commitment there is no validity period (it is limited only by the limitation period), pre-determined actions that the harm-doer must perform. Also, the right to receive compensation as a result of causing harm cannot be transferred to another person under the deal. It is the personal right of the injured person. Moreover, the harm-doer has the right to independently calculate the amount of his compensation and make unilateral execution. The law does not prohibit it. Undoubtedly, an element similar to an option (the right to claim a claim for compensation) is present in such an obligation. However, in its legal nature, the option and the obligation arising as a result of the harm are different.
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O.S. Ioffe examining the mechanism for fulfilling obligations singles out three basic principles for its implementation: 1) the principle of real execution, 2) the principle of mutual assistance, and 3) the principle of profitability134.
Another scientist, S.V. Sarbash, expanded the list of principles for the fulfilment of the obligation. They note that the performance of both the contractual obligation and the obligation based on other legal facts is subject to the following principles: 1) the principle of proper performance, 2) the principle of inadmissibility of unilateral refusal to fulfil the obligation, 3) the principle of real performance, 4) the principle of economic performance, 5) the principle of assisting the parties in performance, 6) the principle of reasonableness and due diligence135. Proposed by S.V. Sarbash, the system of principles for the implementation of obligations, on the one hand, is unnecessarily detailed, but, on the other hand, it allows us to fully disclose the mechanism for implementing the legal relationship of the parties, which is a contractual obligation.
The implementation by the parties of a contract mediated by an option contractual arrangement is also subject to the general principles of fulfilling the obligation – to the principles, proper and real execution, inadmissibility of unilateral refusal to fulfil the obligation, economy of performance, facilitation of the parties, rationality and integrity.
The implementation of the principles of due execution, the inadmissibility of unilateral refusal to fulfil the obligation, the cost-effectiveness of performance, the assistance of the parties in performance, reasonableness and integrity in the performance of a contractual obligation within the framework of the option contractual structure does not contain any specific features specific to contractual obligations arising from contracts mediated by option contracts contractual structures.
134 Ioffe O.S. Selecta in 4 volumes. Volume 3. Law of obligation. General theory on obligation. – Saint Petersburg: Legal Centre Press, 2004. P. 106–116.
135 Sarbash S.V. Execution of a contract obligation. – Moscow: Statut, 2005. P. 99–117.
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The implementation of the above-mentioned principles provides for the bilateral fulfilment of their duties by the parties to the option contractual arrangement in the volume and in the manner envisaged in the terms of the contract mediated by the option contractual arrangement, as well as the parties' conscientious attitude to fulfil their own duties, and to accept performance from another party and the provision of counter performance. In the event that the way of performance of obligations between the parties of the option contractual structure is not determined, neither party has the right to influence the election by the other party of the execution method, except when such a method of performance substantially violates the interests of the other party.
The principle of real performance of a contract mediated by an option contractual structure is expressed in the performance of an obligation in kind, namely, the obliged party must perform exactly those actions that are expressly stipulated by the terms of the option contractual structure. In the case of option contractual structures, the principle of real execution has a characteristic feature.
The actual performance of the obligation as a way of protecting the rights of the injured party in the option contractual structures referred to in the Civil Code of the Russian Federation is of a different nature.
So, for example, compulsion to real fulfilment of the obligation to conclude a basic contract under the option agreement is reduced formally to forcing the guilty party (obliged or obliging) to conclude a basic contract on terms previously stipulated in the option agreement.
The principle of real execution of the option contract, in contrast to the agreement on granting the option to conclude the main contract, consists in compelling the obligated party to perform the actual actions that are the subject of such a contract – deliver goods, perform work, provide services, etc.
The binding party cannot incur losses from the change in the value of the supplied goods (works, services), since the option element in the contract grants it the right either to demand performance or, by its default, express refusal to accept
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performance and accordingly from payment of increased, in comparison with other suppliers, value of the goods being the subject of execution.
The obligated party is in a more vulnerable position with an increase in the market value of the goods during the period of the option deferral of the obligation to supply the goods or the conclusion of the main contract. In the event that the change in the value of the goods is significant, the obligated party may evade fulfilment of its obligation to conclude the main contract within the framework of the agreement on granting the option to conclude a contract or to try to avoid the delivery of the goods under the option contract.
At present, the principle of real execution can be replaced by monetary compensation. Clause 2 of Art. 396 of the Civil Code provides that the debtor may be released from the performance of the obligation in kind in the event of payment to the creditor of the penalty specified in the law or the contract, as well as compensation for all losses caused to the creditor as a result of the default. Exemption of the debtor from the obligation to perform the execution can only take place if the debtor has not started execution. Such an exception does not undermine the principle of real fulfilment of the obligation but changes the nature of its regulation. Instead of the administrative and imperious compulsion of the debtor to fulfil the obligation, an economic sanction is applied in kind, which is so obviously unprofitable to the debtor, which encourages him to fulfil his obligation in kind. Art. 396 of the Civil Code of the Russian Federation may have a sanctioning character in any and all binding legal relationships only if the parties establish a penalty for failure to fulfil this or that obligation.
From the economic point of view, the obligated party may not be interested in the performance of the main obligation under the contract, mediated by the option contractual structure. It may be more advantageous to compensate the other party for losses than to fulfil the basic obligation under the prices that have changed in the relevant commodity market. Alternatively, the obligated party has a more profitable commercial offer regarding the subject of the main obligation, the
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realization of which will also allow not only to obtain economic profit, but also to compensate the obliging party for the losses incurred.
The mechanism of item 2 of Art. 396 of the Civil Code of the Russian Federation allows an obligated party that has not begun to fulfil an option obligation to actually transform the option obligation into an alternative one at its own discretion and to replace at its discretion the actual performance of the option obligation by an alternative – payment of cash as compensation for losses.
At the conclusion of the usual supply contract, the supplier is protected from a significant change in the price of the delivered goods. In the event of a significant change in the price of the delivered goods, he has the right to demand changes in the terms of the contract or its termination. Part 1 of Art. 451 of the Civil Code of the Russian Federation directly indicates that a significant change in the circumstances from which the parties proceeded when concluding the contract is the basis for its amendment or termination, unless otherwise provided by the contract or follows from its substance. The essence of option contractual structures does not allow to apply to the obliged party the mechanism for termination of the contract provided for in Cl. 451 of the Civil Code of the Russian Federation. The obligated party cannot but foresee the possibility of price changes. Option compensation is calculated and accepted by the obligated party, including, and taking into account such entrepreneurial risk.
However paradoxical it might sound, the weakest side in option contractual structures at the stage of their execution is the obliging party. Having stated the requirement for execution of actions stipulated by the option contractual structure, the obliging party is waiting for execution and loses the opportunity to influence the further fate of contractual relations.
Evasion from performance by the obliged party of its obligations is, of course, an unfair behaviour of a participant in civil turnover, but from an entrepreneurial point of view, such behaviour can be explained by the preservation of the economic interest of the obligated party and be allowed, since such conduct