Virtual signings now allowed in Czech Republic
Virtual signings just got easier in the Czech Republic, with the Czech Supreme Court ruling that parties may agree on a different method of concluding their contract from that prescribed by the Civil Code.
Judgment reference No 31 Cdo 1571/2010, 16 January 2013
The requirements of the Civil Code have hitherto been interpreted conservatively, such that it was thought that a contract in writing could only be concluded after the parties had physically exchanged signatures.
The Civil Code1 states that a contract is concluded by an exchange of an offer and acceptance and that it comes into existence when an offeree’s acceptance is delivered to the offeror. Courts have previously held that this rule is mandatory, meaning that if a contract has to be executed in writing (whether this is required by statute or agreed by the parties), the contract would come into existence only after the parties have physically exchanged copies bearing their respective signatures.
The Supreme Court has ruled that the requirements of the Civil Code on this issue may be modified by an oral or tacit agreement between the parties.
The case concerned a mortgage agreement between a bank as mortgagor and Mr and Mrs G as mortgagees. A mortgage is created under Czech law by registration in the Land Register, which can be validly made only on the basis of an effective mortgage agreement. The bank’s officers signed the mortgage agreement and handed the signed copy over to Mr G, instructing him to ensure that his and Mrs G’s signatures were added and the complete copy then delivered directly to the Land Registry for registration of the mortgage. Mr G did as instructed. When the borrower defaulted and the mortgaged property was included in his bankruptcy estate, Mr and Mrs G argued that the mortgage was null and void, on the grounds that when the Land Registry registered the mortgage, there was no effective mortgage agreement, because a copy of the mortgage agreement signed by them had not been delivered to the bank.
The Supreme Court however held that by following the bank’s instructions, Mr and Mrs G tacitly accepted a different way of concluding the mortgage agreement from that prescribed by the Civil Code and that the mortgage agreement came into effect at the latest when delivered to the Land Registry.
This new decision is welcome as it gives parties some flexibility in planning signings of multiparty contracts such as syndicated loan agreements and related security documents governed by Czech law. Many jurisdictions already allow virtual signings but up until now it was thought this was not possible as a matter of Czech law. It is now possible to, for example, arrange a virtual signing where a law firm distributes an execution version of a contract with signing instructions, and each party then emails a PDF copy of the contract signed by it to that law firm and the contract is concluded when the law firm has received all the PDFs. The parties do not have to wait, as they previously had to, until each of them has received a complete signed hardcopy. By complying with the signing instructions, the parties will have tacitly modified the requirements of the Civil Code.