Plenum of the RF SC revealed nuances of the main forms of termination of obligations set in the Civil Code RF

On June 11, 2020, the Plenum of the Supreme Court of the Russian Federation (hereinafter referred to as the “RF SC”) adopted the Decree “On certain issues of application of the provisions of the Civil Code of the Russian Federation on the termination of obligations” (hereinafter – the “Decree”). 

In the Decree, the RF SC indicated that the list of grounds for the termination of obligations is not exhaustive. Therefore, the parties may stipulate in their agreement the grounds for the termination of the obligation not mentioned in the law or any other legal act.

At the same time, in order to ensure the unity of law enforcement practice, the RF SC clarified the most common ways of terminating obligations.

Compensation

The RF SC emphasizes that the parties have the right to agree on the provision of compensation at any stage of the existence of an obligation, including before the delay in its fulfillment occurs. Moreover, the provision of compensation may terminate not only contractual obligations, but also, for example, obligations from unjust enrichment.

Also, the RF SC clarifies that if different requirements for the form are established with respect to the initial contract and the compensation agreement, then the most stringent of these rules on the form of the transaction are applied to the agreement on compensation.

It should be noted that if real estate is transferred as compensation, but the debtor evades the registration of transfer of this ownership, the creditor has the right to demand such registration.

The expiration of the limitation period for the initial obligation does not preclude the conclusion of a compensation agreement. Such an agreement, depending on its content, may be qualified as debt recognition.

Offset

The RF SC establishes the concept of the active claim, i.e. the claim of the offset applicant, and the passive claim, i.e. the claim against which the active claim is offset.

After the offset, the parties should be in the same position as if both obligations were terminated by fulfillment. However, for the offset on the active claim, the deadline for fulfillment must pass, which is not a prerequisite for the passive claim and can be fulfilled ahead of schedule.

In addition, the RF SC clarified that in cases provided for by law or by agreement, offset is possible regarding claims that are not counterclaims.

The requirement of uniformity must be followed at the time of the offset, but it is not mandatory at the time when the offset obligations arise.

Obligations are considered terminated by the offset in the amount of the smallest of them, not from the moment of receipt of the application for the offset by the respective party, but from the moment when the obligations became capable of being offset. For example, if the deadline for fulfilling active and passive claims has come before the application for the offset, then the obligations are considered terminated by the offset from the moment of the deadline for fulfilling the obligation (or the possibility of early fulfillment of the passive obligation) passes, whichever comes later, regardless of the day of receipt of the offset application.

If a person was in arrears in fulfilling an offset obligation, the fulfillment date for which had come earlier, then the interest for using money and (or) a penalty is charged until the obligation is terminated by the offset. If interest for the use of money and (or) a penalty was paid for the period from the moment when the offset is deemed to have taken place,  until the declaration of will of the statement for the offset, it shall be returned.

Novation

If it is unclear whether the parties agreed on compensation or on novation, compensation is presumed.

The RF SC clarifies that the initial obligation is terminated upon conclusion of an agreement on novation, and not upon the actual fulfillment of a new obligation, as happens with compensation.

If a guarantee was issued or a pledge was provided by a person who is not a debtor of this obligation to guarantee the initial obligation, then as a result of novation, these guarantees are terminated, except for the cases when the surety or the pledger directly agreed to keep them, including in advance, before concluding the agreement on novation.

The expiration of the limitation period for the initial obligation does not preclude the conclusion of an agreement on novation. The limitation period for an obligation arising as a result of novation begins to run anew from the moment determined on the basis of the rules on limitation.

Debt forgiveness

Debt forgiveness is a two-way deal, i.e., for its completion, the consent of the debtor is necessary. If the debtor objects, then the forgiveness may be declared not held.

For debt forgiveness, the maturity or conditions for obligation fulfillment do not matter.

If it is not possible to establish the will of the parties regarding the partial termination of the obligation, it is considered that the obligation is terminated completely, and additional requirements, including the requirement to pay a penalty, are also terminated.

Force Majeure

The occurrence of force majeure circumstances does not in itself terminate the obligation of the debtor, but the party is exempt from the recovery of losses or penalty payment to the other party as well as other sanctions caused by the delay in performance of the obligation due to force majeure.

However, the parties have a right to set up special rules on the termination of obligations in case of force majeure circumstances, for example, on the automatic termination of contractual relations in case of such circumstances.

Inability to fulfill obligations

As a general rule, if the obligation of one party has ceased due to impossibility of fulfillment, then the counter obligation of the other party will also end, excluding the cases when the party bears the risk of impossibility to perform its obligation in the form of its maintaining despite the fact that the counter obligation has ceased (risk of not receiving the counter provision), and (or) in the form of the occurrence of the obligation to compensate losses (risk of losses).

The RF SC noted that the risk of the impossibility of fulfillment is borne by the party in arrears, and in the event of the impossibility of fulfilling the obligation in kind, does not exclude the obligation of the party in arrears to compensate the losses (risk of losses).

Provisions on certain types of agreements may provide for special rules on the consequences of the impossibility of fulfilling an obligation and on the moment of transfer of risks on its occurrence.

Liquidation of a legal entity

The participants of the liquidated legal entity, as well as its creditors, are not entitled to independently address the obligatory requirements of the legal entity to its debtors, in particular with the requirement to return the property transferred for rent, to pay the cost of the transferred goods, etc. In this case, one should be guided by the provisions of the RF CC on the distribution of the discovered obligatory claim.