Framework Agreements and the New Civil Code

|Attorney|Czech Bar Association Reg. No. 14551

Published:1/1/2023

A framework agreement sets rules for future individual transactions but generally does not itself create specific claims and obligations between the parties. Its terms are incorporated into later implementation contracts unless the parties agree otherwise, and it can have important evidentiary value. The article explains its relationship to standard terms, relevant case law and its role in disputes over contractual content.

Key takeaways

A framework agreement does not in itself establish obligations. The Supreme Court has repeatedly confirmed that a framework agreement does not give rise to receivables or liabilities; it serves only to set the rules for future specific contracts.

The rules from the framework agreement are automatically incorporated into the implementing contracts. Unless the parties agree otherwise in a specific contract, the arrangements from the framework agreement become part of it.

A framework agreement functions as terms and conditions pursuant to Section 1751 of the Civil Code. The Supreme Court considers it a type of general terms and conditions, which predetermines the content of subsequently concluded specific contracts.

The new Civil Code strengthens the role of the framework agreement as a means of evidence. Pursuant to Section 1726 of the Civil Code, a framework agreement may serve as evidence of the parties' intent, even if an essential element, such as the purchase price, is missing from the implementing contract.

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A framework agreement is not really a contract

When an implementing agreement (e.g., a purchase agreement) is concluded based on a framework agreement, the rules agreed upon in the framework agreement become part of the content of the implementing agreement. This applies unless the parties agree otherwise in the implementing agreement. This means that the framework agreement functions as a kind of "master agreement" on how individual deliveries or orders will be handled.

The Position of the Supreme Court

The Supreme Court of the Czech Republic has repeatedly stated that a framework agreement does not establish mutual rights and obligations. According to the Supreme Court, a framework agreement does not create a contractual relationship, and therefore, no claims or obligations of the contracting parties arise from it. The significance of a framework agreement lies in setting the basic rules for all specific (so-called implementing) agreements that will be concluded based on it in the future, unless otherwise agreed in the implementing agreement.

What is the function of a framework agreement?

A framework agreement, therefore, has no other significance than to set the contractual terms for subsequently concluded specific implementing agreements, thereby predetermining their content.

Frequently asked questions about the legal nature of framework agreements and the content of performance

1. According to the Supreme Court of the Czech Republic, what is the main legal characteristic of a framework agreement?

The Supreme Court views a framework agreement primarily as a master agreement or a specific type of general terms and conditions (Section 1751 of the Civil Code). It does not in itself create direct obligations or claims – these only arise upon the conclusion of individual specific (implementing) agreements.

2. How do the rules agreed in a framework agreement become binding for individual orders?

The rules from the framework agreement automatically become part of the content of each subsequently concluded implementing agreement (e.g., by accepting a partial order). This applies to all provisions unless the parties explicitly agree on a different arrangement in the specific implementing agreement.

3. Can a supplier enforce the offtake of goods or payment of the price based on the framework agreement alone?

Generally, no. Since the framework agreement itself does not create a direct contractual relationship for performance, it cannot be used to enforce the delivery of goods or payment without a specific implementing agreement (an accepted order). The obligation to purchase must be explicitly addressed in the framework agreement (e.g., through minimum purchase quotas or penalties for non-offtake).

ARROWS law firm

consultation@arws.cz +420 245 007 740

Framework agreement as terms and conditions

According to the Supreme Court, a framework agreement is essentially a type of general terms and conditions within the meaning of Section 1751 of the Czech Civil Code. This interpretation is not optimal, as the intention of both parties is to be bound by the agreement due to the planned causality of their mutual relationship.

Risks and penalties	How ARROWS can help (consultation@arws.cz)
Misconception about the enforceability of performance	We will establish a clear mechanism for binding ordering and order confirmation that guarantees the legal enforceability of individual purchases.
Invalidity of the implementing agreement due to a missing price	We will prepare bulletproof price clauses and model implementing agreements that will prevent disputes and ensure the burden of proof can be met.
Unintended conflict between the framework and implementing agreement	We will formulate precise rules on the precedence of contractual documents to protect agreed warranties, payment terms, and contractual penalties.
Application of strict rules for terms and conditions	We will draft the framework agreement in such a way that it will fully withstand strict judicial review and securely protect your business interests.

ARROWS law firm

consultation@arws.cz +420 245 007 740

The importance of framework agreements in the Civil Code

With the advent of the new Czech Civil Code, the importance of framework agreements has grown. If a framework agreement is not a contract stricto sensu, it must be viewed at least from the perspective of Section 1726 of the Civil Code as a means of evidence.

Means of evidence and expression of will

If the parties consider a contract to be concluded, even though they have not actually agreed on an element that they should have agreed upon in the contract (e.g., the purchase price), their expression of will is regarded as a concluded contract if it can be assumed that they would have concluded the contract even without this element.

Burden of proof and purchase agreements

The biggest problem with this provision is the issue of the burden of proof. If the parties conclude a framework agreement for the supply of moulding forms without specifying a purchase price, the price will be determined later according to the market situation. The party claiming that the contract was concluded even without a specified price must bear the burden of proof. The law primarily considers the subsequent conduct of the parties, but it may also take into account prior conduct, which can include the framework agreement as a means of evidence.

Validity of a purchase agreement according to case law

According to previous case law, a case like this would not constitute a valid purchase agreement (23 Cdo 298/2009). The Supreme Court argues that the parties did not agree to conclude a purchase agreement without determining the price, which is a flawed approach. The contractual arrangement implies that the parties want to conclude a purchase agreement with a specified price, but only after they agree on the amount. If they do not agree, the contract will not be concluded. In my opinion, this approach is incorrect.

Conclusion

Although a framework agreement does not in itself create direct rights and obligations, it plays a key role in business relationships. It sets the basic rules for future implementing agreements, thereby facilitating and speeding up their conclusion. Thanks to the new Czech Civil Code, it also gains importance as a means of evidence, which increases its relevance. Understanding the function and legal consequences of a framework agreement is therefore essential for the effective management of long-term business relationships.

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Frequently asked questions on the application of the Civil Code, burden of proof, and risks

1. What role does a framework agreement play in a dispute under Section 1726 of the Czech Civil Code?

If the parties forget to explicitly agree on an essential element in an implementing agreement (e.g., the purchase price) but consider the agreement concluded, the framework agreement serves as a key piece of evidence proving the parties' actual intention to conclude the agreement even without this element.

2. Who bears the burden of proof if a dispute arises as to whether the purchase price was agreed in the implementing agreement?

The burden of proof lies with the party claiming that the agreement was validly concluded even without a fixed purchase price. This party must prove in court (e.g., using the framework agreement or the subsequent conduct of the parties) that there was an intention to conclude the agreement with the price to be determined later or according to the market.

3. What takes precedence if a conflict arises between the framework agreement and a specific implementing agreement?

As a rule, the specific provision in the implementing agreement takes precedence because it represents a later and more specific expression of the parties' will (lex specialis). However, to avoid doubt, an explicit clause governing the precedence of contractual documents is included in framework agreements.

4. What are the main risks of using an unsuitable framework agreement template?

An unprofessionally drafted framework agreement often lacks a precise mechanism for accepting orders, rules for determining prices, or clauses on the precedence of documents. In practice, this leads to the invalidity of implementing agreements, the inability to enforce contractual penalties, or the application of stricter legal rules for unilateral terms and conditions.

5. How should pricing for long-term supplies be properly set in a framework agreement?

In a framework agreement, it is advisable to agree on either a valid price list as an appendix, a precise formula for calculating the price based on market indices, or a binding procedure for how the price will be confirmed in each individual order.

6. Why is it important to include provisions on contractual penalties and warranty conditions in a framework agreement?

By agreeing on warranties, claims, liability for defects, and contractual penalties directly in the framework agreement, these rules automatically apply to all future transactions. This eliminates the need to negotiate and draft these complex clauses for each individual order.

ARROWS law firm

consultation@arws.cz +420 245 007 740

About the author

JUDr. Jakub Dohnal, Ph.D., LL.M.

Associate, managing partner

LinkedIn|Czech Bar Association Reg. No. 14551

Jakub Dohnal is an attorney-at-law and managing partner of ARROWS. He focuses on company sales, investor entries into private companies and real estate transactions — most often acting for the owner who is selling a business built over many years and needs the deal to close on the agreed terms.

dohnal@arws.cz +420 245 007 742

Disclaimer:

The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2023. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 350,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.