As we have written before, so called pre-contractual liability is one of new institutes of the contract law and execution of contracts under the new Czech civil law as introduced by the New Civil Code (Act No. 89/2012 Coll., the “NCC”), effective as of 1st January 2014.

This article follows up to our previous article devoted to the first merit of pre-contractual liability and pays attention to the second one.

Second merit of pre-contractual liability – Breach of information duty – is defined in Section 1728 (2) of the NCC and it is represented by breach of a statutory information duty. According to this rule, potential contracting parties have an obligation to inform each other about any and all actual and legal facts, which they know or should have known, so the party may assure its ability to conclude a valid and binding contract and demonstrate its will to finalize the deal.

Information duty applies to all possible types of contracts and all kinds of contracting parties. Certain relation, such as consumer vs. entrepreneurs, may even have stricter information duty.

Regarding the actual extent of information, which needs to be disclosed during contractual negotiations, the law is silent in providing extensive list. First area of information includes information concerning actual and legal facts on the basis of which the other party will be able to confirm the party´s ability to conclude a valid and binding contract. This will surely include obligation to immediately inform the other party about any facts, which may give rise to any doubts about the ability to conclude a valid and binding contract (for example facts concerning the ownership title to the assets which are the subject matter of the contract). The parties should also inform each other about facts, which may contribute to the conclusion of the contract (for example obtaining of necessary permits and certifications, disclosing copies of original title deeds to assets which are the subject matter of the contract). Second area of information comprises of information, which allow the contracting party to verify its will to finalize the deal. It follows from the above that each party must above all know its own will whether its intention is to finalize the contract or not. The intention of the other party does not necessary needs to be known to the party.

The extent of information which the parties will be obliged to disclose during contract negotiations will always depend on the individual contract and circumstances. For examples contracts between entrepreneurs will have to also take into consideration common practice in the relevant business area.

Regarding actual validity of contract, which will be concluded despite breach of information duty – such contract will always be considered valid. Breach of information duty does not by itself cause invalidity (it is not considered a fraud pursuant to Section 583 et seq of the NCC). It establishes the right of the damaged party to claim compensation of damages sustained due to a breach of the information duty on the side of the other party.

Breach of information duty may therefore lead to legal liability despite the fact that Section 1728 (2) does not contain any special regulation for liability for damages. In such case the parties will have to follow general statutory liability provisions.

By Jiří Spousta & Magda Stárková