On May 9, 2023, the Bulgarian Supreme Court issued a new interpretative decision concerning preliminary sale contracts and their conversion into final ones.
Background
Preliminary contracts are contracts on future contracts, i.e., agreements signed at an early stage of a transaction that aim to bind the parties to undertake certain steps and subsequently proceed to the signing of a final contract in a form which goes beyond the simple written form (notary deed or notarization of signatures). Typically, these are used in transactions for the transfer of real estate.
A distinctive feature of the preliminary contract is the opportunity for either party to file a court claim if the counter party does not perform its obligation to conclude the final contract. If the claim is upheld, the final contract becomes valid and binding from the date the decision enters into force.
Diving deeper into th
e topic, Bulgarian law provides for a hypothesis where the claimant itself has not fulfilled a counter obligation that must be performed at the time of conclusion of the final contract, e.g., has not paid the price. This is not a reason for rejecting the claim but instead the court would issue a decision declaring the contract final under the condition that the price is paid. Then, the claimant has a two-week term to pay and if it does so the decision would enter into force and replace the final contract.
The Problem and the New Court Decision
Due to the existing contradictory court practice, the Supreme Court was addressed with the situation where the parties have contracted a condition that the final contract would be concluded only after the buyer has paid the price and the question was whether in such case there is an obstacle for conversion of a preliminary contract into a final one upon a claim by the defaulting buyer who actually has not paid the price.
The Supreme Court ruled that even in this scenario courts may declare a preliminary contract final and apply the procedure described in the section above, i.e., buyers would be obliged to pay the price within two weeks of the entry into force of the court decision.
The outcome practically somewhat favours buyers in the circumstances described as it allows them to achieve the conversion of preliminary contracts into final ones despite their own contractual breach and leads to the conclusion that the only way for sellers to avoid such scenario, despite the express agreement of the parties that no final contract shall be signed until the price is paid in full, would be to terminate the preliminary agreement in an anticipating move.
Such approach raises the question of whether the court does not go too far in this decision by practically intervening in the contractual autonomy. There are also certain technical legal arguments against it which motivated a good number of judges from the Supreme Court to attach to the decision their dissenting opinions.
Yet, the decision of the Supreme Court is a fact and, since it’s an interpretative decision, its value is practically equal to a law. Thus, parties to preliminary contracts and courts should take this into account in the future.
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This article was prepared by Plamen Peev, Partner and Director and Ivana Ilcheva, Associate at PETERKA & PARTNERS Bulgaria. No information contained in this article should be considered or interpreted in any manner as legal advice and/or the provision of legal services. This article has been prepared for the purposes of general information only. PETERKA & PARTNERS does not accept any responsibility for any omission and/or action undertaken by you and/or by any third party on the basis of the information contained herein. only and may not be considered a legal opinion or advice.