- Supreme Court of Lithuania
- AB „Specializuota komplektavimo valdyba“ v. Vilniaus „?žuolyno“ gimnazija
CONSTRUCTION CONTRACT - BETWEEN TWO LITHUANIAN PARTIES - REFERENCE TO THE UNIDROIT PRINCIPLES TO CONFIRM THE SOLUTION ADOPTED UNDER APPLICABLE DOMESTIC LAW (LITHUANIAN LAW)
EXERCISE BY A PARTY OF A REMEDY PROVIDED IN THE CONTRACT WITHOUT BEING ENTITLED TO DO SO - CONTRARY TO GOOD FAITH AND FAIR DEALING - REFERENCE TO ARTICLE 6.158 OF THE LITHUANIAN CIVIL CODE AND TO ARTICLE 1.7 OF UNIDROIT PRINCIPLES
Two Lithuanian parties entered into an agreement for the construction of a building. According to the contract, the contractor had to make a money deposit with the owner as a guarantee for its proper performance of the contract, which the owner would be entitled to keep in case of non-performance of the contract by the contractor. In addition the contract provided for a penalty to be paid by each of the parties for any delay in performing their contractual obligations. When the contractor was delayed in finishing the construction, the customer nevertheless accepted the work and paid the full price without deducting the penalty for the delay by the contractor, but refused to return the money deposit, prompting the contractor to bring an action for the recovery of the money deposit.
The Court decided in favour of the contractor. The Court held that, since according to the contract the money deposit should have served as a guarantee for the proper final performance of the contact while the penalty was intended to compensate the losses deriving from the delay of performance, the owner was only entitled to deduct from the price the amount of the penalty in proportion to the contractor’s delay in finishing the construction of the building, while to keep instead the entire monetary deposit was against the principle of good faith and fair dealing as stated in Article 6.158 of the Lithuanian Civil Code as well as in Article 1.7 of the UNIDROIT Principles, all the more so as the owner has not proved to have suffered any loss as a result of the delay by the contractor.