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Forever is a Long Time : The Validity and Enforceability of Perpetual Agreements

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Title: Forever is a Long Time : The Validity and Enforceability of Perpetual Agreements
Author(s): Riivari, Maria
Contributor: University of Helsinki, Faculty of Law
Degree program: Master's Programme in International Business Law
Specialisation: Private International Law
Language: English
Acceptance year: 2020
Tiivistelmä – Referat – Abstract The main research question addressed in this thesis, namely “are perpetual agreements valid and enforceable?”, is enticing from a general contract law perspective, as well as in the comparative law setting. The chapters of this thesis are built in a way such that Chapter 1 serves as an introduction to the research question, legal sources and methodology. Chapter 2 aims to clarify the main confusions around discussions of perpetual agreements. Chapter 3 is dedicated to the binding force of a perpetual agreement, which has not been given enough attention in the research literature as a separate question. Chapter 4 and 5 address the two main categories of perpetual agreements: everlasting contracts and contracts with undefined duration. These chapters include topics which can be addressed to either category, therefore the division of the topics does not provide too strict a systematic distinction. Chapter 6 is dedicated to comparative research from Finnish and Russian contract law perspectives by observing the systems independently in order to bring out the perspectives in which these jurisdictions address the questions of perpetual agreements in the light of their positive contract norms. Chapter 7 presents the research findings in the form of general conclusions about the validity of such contracts as well as systematization in the form of a roadmap to evaluate perpetual agreements. The roadmap then serves the purpose to present the research findings related to Finnish and Russian perspectives on perpetual agreements. The possibility existence of perpetual agreements from the perspective of limiting the freedom contract by mandatory rules of contract law. In conclusion, the research failed to identify a fundamental principle by which the general ban of everlasting contractual obligations could be explained. The research opposes the notion, that perpetual agreements may not exist as an “everlasting” nature of any legal contractual bind would be inherently unjust as such. This is mainly due to the fact, that the legal systems struggle to even comprehend, what eternity means in legal sense. In short, legally speaking, there is nothing inherently unreasonable in eternity. However, undoubtedly, each everlasting agreement should be evaluated based on the nature and purpose of the contract in the light of the intention of the parties, the specific contract type and the relevant mandatory rules in place in connection with type, the circumstances in which the contract was concluded and the requirements of good faith and fair dealing. The roadmap aims to differentiate questions of the validity of the contract (as such, as a legal fact), validity of the perpetual term (everlasting contract), and possibility of termination from each other. The roadmap illustrates the holistic view of the bundle of considerations related to perpetual agreements, without getting stuck in one particular outcome. For example, even if there is no consensus among scholars, whether an everlasting term is valid or not (in a specific case or as a whole) the roadmap allows to elaborate the outcomes by systematizing various scenarios. This provides and essential framework for evaluation of the research questions in various legal systems. The roadmap differentiates questions of the validity of the contract (as such, as a legal fact), validity of the perpetual term (everlasting contract), and possibility of termination from each other. The short answer to the question whether a perpetual contract may be terminated, is yes. But as in all contracts, the pacta sunt servanda provides that contracts should be honoured, and therefore the there is nothing inherently unreasonable in not being able “get out” of a contractual relationship. The ultimate limit to this are the rules of hardship, which the parties may not as such exclude, however they may arrange their risk allocation in the contract so, that some circumstances, which in some contracts could allow the party to terminate the contract, would not be applicable in their situation. Thus, even an everlasting contract may be enforceable until the point of hardship. While this may be true, albeit not inherently unreasonable, there is no doubt, that an everlasting contract may not be unreasonable ever. Therefore, the roadmap explicitly shows, that this is the ultimate question, which requires balancing between the pacta sunt servanda and reasonableness from the perspective of the will of the parties fair dealing, etc. The roadmap shows that in cases in which the everlasting contract term is found invalid, the reasoning is does not follow directly to the default rule of indefinite contracts being terminable, but instead points to the “incomplete contracts”. In practice this means that a consideration should be make in accordance with the rules of supplementation of contracts and omitting a missing term, taking in account the intentions of the parties. In case it would follow directly to the default rule, the default rule might fail to take these into account and reach an unreasonable outcome as well. In a sense, this is also, why in balancing the pacta sunt servanda and reasonableness the outcome leads to similar conclusion as dictated by the default rule. Based on the case law of Finnish Supreme Court it may be argued that the Finnish contract law sems to consider that perpetual agreements are at least somewhat possible, but as an exception may be terminated. The exceptional termination is not as exceptional as it would be in a classical hardship case, but instead reflect the Nordic perspective of reasonableness. There is no legislative rule in the Russian Civil Code prohibiting eternal contractual obligations, however limitations towards terms may be imposed by the Civil Code relevant to specific contract types. Thus, the qualification of a contract to a type, although not obligatory, is of high importance. The default rule for indefinite contracts is not universally valid in accordance with Russian law.
Keyword(s): Contract law

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