The Particularities of the Development and Application of Contractual Limitations as a Tool of Securing the Obligations in the Czech Law

Abstract

"Quasi-securities" by their name are meant to supplement "real" securities, which are regulated in the law, known to the third parties through the mandatory registration, and easily enforced in the event of bankruptcy. The study reveals that the application of these purely contractual legal constructions is often affected by the mandatory law, which regulates such neighboring areas as civil liability, criminal liability for fraud and misrepresentation, and bankruptcy procedure. The deficiencies in regulation of the traditional securities have also affected the use of the covenants, as is the case with the negative pledge. Its substitution by the assignment of rights seems to be problematic because this device is not properly regulated in the Czech law. This lack of regulation combined with the influence of the mandatory legal provisions created a unique legal environment where covenants have evolved and diversified in the form of international standards, which were then adapted to the specifics of the domestic legal environment. Another important element that works as a countervailing force to these developments is the approach of the Czech judiciary. The lack of judicial activism and traditional formalism of the Czech courts makes the enforcement of covenants uncertain. This formalism and lack of legal certainty in the enforcement of the contractual provisions which have no basis in the substantive law might deter their further development. The absence of any guidance from the part of the judiciary leaves businesses and their legal counsel on their own in developing the workable legal constructions that would not contradict to the mandatory legal norms.