• I HOW TO ASSEMBLE A CONTRACT (article available in five EU languages on our web ...


I HOW TO ASSEMBLE A CONTRACT (article available in five EU languages on our web site)

(News & Articles)

Preliminary contract activities

Beginning of every business, investment or legal relation assumes declaration of at least two parties intention, or it, simply said, assumes entering into agreement. Entering into agreement is anticipated with an offer and is usually accomplished through declaration of one’s intention.
Offer, as a proposal for entering into agreement, includes all essentials of contract, but it must also include clearly stated intention of entering into agreement. That is the main element which differentiates offer from an advertisement or a notice that are actually only invitations for making an offer. On the other hand, displaying goods makes an offer, if the prices are displayed as well. Offeror is bound by his offer unless he has ruled out in advance this commitment or unless recipient receives cancellation of offer before or, at least, in time when he receives the offer.
It is important to state out that offeror is bound by written offer, even though it hasn’t been signed by the authorized person, if it is written on a business paper or it is signed in the usual way and, of course, if recipient wasn’t aware that the offer
came from unauthorized person.
Acceptance of offer is, as well, declaration of one’s intention, taken that silence is usually not to be considered as an acceptance unless recipient is in constant business relation with the offeror or unless recipient is a person whose business activity includes following orders.
Before entering into business relation with a Croatian partner it is advisable to check his financial indicators in the data base of financial agency (FINA) or data
bases of other legal persons in Croatia. Usually lawyers have access to such data
base on ground which they are able to objectively estimate a potential business

Preliminary contract

Preliminary contract is often entered into in legal transactions. In that way, one is obligated for entering into certain main agreement later. If one party doesn’t fulfill its commitment, contract fees are arranged in order to motivate or pressurize that party.
It is necessary that preliminary contract includes all essentials of the main contract, so that subject of the contract, like for example, real estate is clearly determined with cadaster number and area and as well with the purchase price.
Deadline by which main contract needs to be concluded must also be etermined,
taken that one party preserves the right to seek entering into main agreement within 6 months after that deadline.

Perfection of the contract

Before contract is concluded with a Croatian partner, foreigner as a contract party must choose competent law for the contract, courts jurisdiction (or arbitrage) as well as the language in which contract will be concluded. According to the international private law regulations competent law for the contract is the one parties have chosen unless otherwise is set by law. For example, for real property law on a real estate competent law is always law where the property is situated. When there is no choice of law between the parties, competent law is law where
residence/headquarters of seller, lender, arbiter, transporter, lessor or storekeeper is in time of acceptance of the offer for contracts of sale, loan contracts, of commercial brokerage, of hire, warehouse contracts etc. It should be stated out that it is sometimes recommendable to choose competent law and territorial jurisdiction of the court, depending on the contracting parties’ position. One should also bare in mind the costs of the potential process which are in Croatia accounted per actions taken in the process, and for example in Germany the costs are fixed per process.
The contract is considered to be entered into when the contracting parties have reached the agreement on the essentials of contract. That part is no different in other legal systems. Therefore, the contract is considered to be entered into also when the parties have exchanged faxes or notices. This regulation applies on contracts of sale of goods, movable property and as well of real-estates, loan contracts etc.
One should bear in mind that the essential of contract could only be an object in merchandise. That should be especially taken into account when concluding a contract of sale of real estates. Here, it is important to state out that foreign natural persons cannot own agricultural and forest land or protected natural area. Those contracts are considered void. So before entering into agreement, potential foreign buyer must check if a real estate is on agricultural or forest land. Therefore, it is necessary, before entering into agreement, to obtain certificate of land use. However, if a foreign person, despite this, buys an agricultural land, he/she will not be able to register in land register. Possible solution would be, on grounds of the concluded contract to register lifelong usufruct of the real estate in question or eventually a mortgage.
Contract of sale of real estates must be in writing, and the salesman signature must be verified by a public notary. Since only salesman’s signature must be verified, the buyer can sign the contract at home and send it per mail to the salesman i.e. to the public notary. Buyer becomes the owner only when he has been registered in land register on grounds of the contract of sale.
It is always advisable to have a contract in writing although it is not obligatory for all contracts. On the other hand, certain contracts must be in form of notary public's certificate, for example contract of lifelong usufruct or agreement on insurance of claims by establishing the law of lien.

Means of insurance

It is about certain instruments which are defined by the contract in order to increase the contractual obligation and to ensure the creditor. Most usual means of insurance are bonds, mortgages and enforcement clauses. For example; when concluding a loan contract, it is advisable to enter into agreement on insurance of claims in form of notary public's certificate with an enforcement clause. This clause contains approval of the debtor to found the law of lien or to conduct direct enforcement on his real estate or other property in order to insure creditors claim.
When the contract is concluded in form of notary public's certificate, it is valid as an enforcement certiicate and is the most efficient way of insurance of the contractual claim.
Lease contracts and loan contracts may also be concluded in form of notary public's certificate. In that case, enforcement clause i.e. contract enables administration of forced enforcement in order to achieve forced payment or eviction if lessee doesn’t fulfill his obligation. In this way, litigation is avoided and that is the main advantage of this sort of insurance.
Bond is also one of the means of insurance. It enables the creditor high degree of insurance for his claim. The difference between a bond and a bill of exchange is that the first one has the power of a validly decision of enforcement, which means that it cannot be voided. With a bond the creditor i.e. enforcement creditor is able to forcibly charge his claim. After the claim is due, the creditor presents that bond to the Financial Agency- FINA. Afterwards all the debtors’ accounts in all the banks are seized and forced enforcement is conducted.
If there is no success with charging the claim of the debtors accounts, bond is then a ground for an enforcement proceeding on other means i.e. objects of enforcement, like real estates, movable property or claims. Besides, the same procedure will be conducted against guarantor payer named in the bond. Bonds must be solemnized with notary public, and it is no longer possible just to verify the debtor’s signature.
Natural and legal persons can also issue blank bonds, on which the name of the creditor and the amount of claim is written later. Amount allowed on the bond is up to 1.000.000, 00 Kuna.

Thu Sep 25 07:57:23 CEST 2014

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