The provisions of the OZ relating to contracts apply to all types of contracts unless expressly stated otherwise for commercial contracts. Commercial contracts are agreements concluded between business entities. Business entities include commercial companies and other legal persons engaged in profit-making activities, as well as sole proprietors. Other legal persons are also considered business entities when, in accordance with regulations, they occasionally or predominantly engage in profit-making activities, provided that the contracts are related to such profit-making activities.⁶⁷

Example: The company AB, which provides tax services, concludes a contract for the purchase of paper towels. – This is not a commercial contract, as it is not related to the company’s business activity. It is an ordinary civil contract.

The distinction between civil and commercial contracts is important because the OZ prescribes special rules for commercial contracts, such as the application of business customs, practices, and usages (Article 12 OZ), deposit in a public warehouse (Article 304 OZ), limitation of claims (Article 349 OZ), usurious interest (Article 377 OZ), determination of the purchase price (Article 442 OZ), presumption of joint and several liability (Article 394 OZ), and the time limit for reporting material defects (Articles 461 and 462 OZ).

Exercise:

1. Which contracts are commercial?

• Mojca buys bread and milk at a store.

• Mojca buys a computer, which she uses for work purposes.
• The University of Nova Gorica buys a computer for Mojca.
• 20-year-old Miha orders a fixed orthodontic appliance from an orthodontist.
• Company X, PLC, organises and orders so-called executive health check-ups for its board members from a private doctor.
• UNG organises a seminar with a registration fee for participants from the business sector.

2. Companies A, Ltd., and B, Ltd., concluded a gift contract under which the former donated a used computer with a printer to the latter.

Is it possible to classify the specific contract as a commercial contract? Justify your answer!

How would you define the concept of profit-making activity as stated in Article 13(4) of the OZ?

3. Carefully read the ruling of VSL I Cp 2651/2008, which follows. Considering the legal criteria and the reasoning of the judgment, answer the following questions:

• What is the essence of the court’s decision in this case?
• Is the Association of Families with Children with Special Needs, which operates in the public interest and also receives funds from the municipal budget for its activities, considered a business entity under the OZ or not? What does this depend on?
• The Association of Families with Children with Special Needs organises a social event, an auction of paintings by local artists, with the proceeds intended for its activities. The auction will take place in the premises of the city museum, which, through a lease agreement, grants the Association free use of the space. For the sale of beverages at the event, the president of the Association concludes a catering services agreement with A, Ltd. (beverages will be sold, not provided for free). – Is the contract between the Association and the museum a commercial contract under the OZ, and why? Is the contract between the Association and A, Ltd. a commercial contract under the OZ, and why? What is the limitation period for claims arising from the contract with the museum and for claims arising from the contract with A, Ltd.?

 

VSL Ruling I Cp 2651/2008
Court: Higher Court of Ljubljana
Department: Civil Department
ECLI: ECLI:SI:VSLJ:2008:I.CP.2651.2008
Reference Number: VSL0052165
Date of Decision: 10 December 2008

Field: Law of Obligations

Legal Institute: Limitation – Limitation period – Commercial contract – Claim from a commercial contract – Business entity – Association – Activities of the Association – Conducting profit-making activities – Purpose of profit generation – Profit-making activities of the Association

Core of the Decision

An association can also engage in profit-making activities, so in determining whether the claimant is asserting a claim from a commercial contract, which is subject to a three-year limitation period, it is essential to assess whether the organisation of speedway races constitutes a profit-making activity of the defendant (the Association) and whether the invoice on which the claimant bases its claim originates from this activity. The appellant is incorrect in arguing that organising races is not a profit-making activity because the Association does not operate for profit, as the mere intent to generate profit is sufficient.

Ruling

The appeal is dismissed, and the judgment of the court of first instance is upheld.

Reasoning

The court of first instance, with the contested judgment, annulled the enforcement order of the Krško Local Court under case no. I … dated … and dismissed the plaintiff’s claim. The plaintiff was ordered to pay the defendant’s legal and enforcement procedure costs in the amount of EUR 259.76.

The plaintiff filed a timely appeal against the judgment, citing a fundamental violation of the provisions of civil procedure and an erroneous application of substantive law. The plaintiff requested that the appellate court amend the contested judgment to uphold the annulled enforcement order or, alternatively, set aside the judgment and return the case to the court of first instance for reconsideration. In the appeal, the plaintiff argued that a violation of Article 339(2)(14) of the Civil Procedure Act (ZPP) occurred, as contradictions exist between the reasoning in the judgment regarding the content of documents and the actual documents in the case file. The plaintiff pointed out that the court of first instance referred to a decision of the Krško District Court, case no. Pg 167/2006, which stated that, due to the low value of the dispute, the court lacked subject matter jurisdiction and that the case did not constitute a commercial dispute, as the Association is a private legal entity. The plaintiff further argued that the court of first instance misapplied substantive law, specifically Articles 346 and 349 of the OZ. The plaintiff contended that the court incorrectly concluded that the parties entered into a commercial contract and wrongly based its decision on Article 349 of the OZ, which states that claims arising from commercial contracts are subject to a three-year limitation period. The plaintiff emphasised that determining whether the contract was a commercial contract does not depend on whether the plaintiff provided a service for which it is registered in the court register. According to the plaintiff, the general five-year limitation period should apply, as commercial contracts are those concluded between business entities, which the defendant is not, since it is registered as an association under the Associations Act rather than as a company under the Companies Act. The plaintiff maintained that an association is a non-profit entity established to serve the interests of its members, which does not include profit-making activities. The plaintiff argued that organising races does not constitute a profit-making activity because the defendant claims to cover event costs without any realistic possibility of generating profit. Additionally, even if organising races were considered a profit-making activity, the commissioned task—embroidering logos on t-shirts—was unrelated to this activity.

The appeal was served to the defendant in accordance with Article 344(1) of the Civil Procedure Act (ZPP), but the defendant did not respond.

The appeal is unfounded.

A fundamental violation of the provisions of civil procedure under Article 339(2)(14) of the ZPP occurs if the judgment contains deficiencies that prevent its review, particularly if the operative part of the judgment is incomprehensible, contradicts itself or its reasoning, lacks reasoning entirely, or does not include reasoning on decisive facts, or if these reasons are unclear or contradictory. A violation is also present if there is a discrepancy between the reasoning in the judgment regarding the content of documents or witness statements and the actual documents or statements in the case file. The appellant’s claim of a violation is unfounded, as the alleged contradiction between the reasoning in the contested judgment and the reasoning in the decision of the District Court, case no. Pg 167/2006, does not constitute a procedural violation. Procedural rulings issued in the same case are not part of the evidentiary material.

According to Article 349(1) of the OZ, the application of the three-year limitation period requires a determination of whether the claim arises from a commercial contract. Under Article 13(2) of the OZ, commercial contracts are those concluded between business entities. The appellant is incorrect in arguing that the defendant cannot be considered a business entity under this provision simply because it is registered as an association (a private legal entity) rather than as a commercial company under the Companies Act. The legal organisational form, as a subjective criterion, is not the only criterion for determining whether an entity qualifies as a business entity, as stated in Article 13(3) of the OZ. According to Article 13(4) of the OZ, an alternative criterion for defining a business entity is the conducting of profit-making activities, which serves as an objective criterion. Thus, under this provision, other legal entities are also considered business entities if, in accordance with regulations, they occasionally or predominantly engage in profit-making activities, provided that the contract in question is related to such a profit-making activity.

The appellant is also incorrect in claiming that the Association cannot engage in profit-making activities because it is fundamentally a non-profit organisation established to serve the interests of its members. According to Article 1 of the Associations Act (ZDru) (Official Gazette of the RS, No. 60/95), an association may not engage in profit-making activities as its exclusive activity. However, Article 22 of the ZDru allows associations to engage in profit-making activities under the conditions prescribed by law.

The Obligations Code (OZ) does not define the concept of profit-making activity, but the definition from the Companies Act (ZGD) (Official Gazette of the RS, No. 30/93 with amendments) can be applied, considering that engaging in profit-making activities serves as a basis for defining the status of a business entity (cf. N. Plavšak, Obligations Code with comment – Vol. 1, p. 142). According to Article 1(2) of the ZGD, a profit-making activity is an activity carried out in the market with the purpose of generating profit. Thus, the appellant is incorrect in arguing that organising races is not a profit-making activity simply because the Association does not operate at a profit—as the mere intent to generate profit is sufficient. Given this substantive legal basis, the legally relevant determination in this case is whether the organisation of races constitutes a profit-making activity of the defendant (the Association) and whether the invoice on which the plaintiff bases its claim originates from this activity.

The defendant, in its preparatory submission dated 15 February 2007, stated that it organises speedway races, which it considers a commercial activity. It acquires financial resources through ticket sales and advertising. According to its statements, the invoice issued by the plaintiff originates from a commercial activity, as the services provided by the plaintiff were intended for the organisation of races, which the defendant carries out as a commercial activity. The Higher Court determined that the plaintiff did not dispute that the services under the claimed invoice were performed in connection with the organisation of races. Thus, the court of first instance correctly applied Article 349(1) of the OZ, which provides for a three-year limitation period, as the claim from the disputed invoice constitutes a claim from a commercial contract. As the three-year limitation period had already expired (invoice due on 2 July 2002, enforcement request filed on 11 September 2006), the plaintiff’s claim was time-barred, and the court of first instance correctly dismissed the claim.

The Higher Court determined that the reasons presented by the plaintiff to challenge the judgment of the court of first instance were unfounded, and that there were no grounds that the court was required to consider ex officio under Article 350(2) of the ZPP. Therefore, based on Article 353 of ZPP, the court dismissed the plaintiff’s appeal as unfounded and upheld the judgment of the court of first instance.

As the appellant was unsuccessful in the appeal, they bear the costs of the appellate proceedings. The decision on costs is based on Article 165(1) of the ZPP and is already included in the ruling rejecting the appeal.

 

4. The plaintiff, a lawyer, filed a lawsuit against ABC, d. o. o., for payment of legal services he provided for the company.

• Can the contract for legal services in this specific case be classified as a commercial contract under Article 13 of the OZ?
• What do you think are the reasons why the OZ prescribes special rules for commercial contracts? Provide some examples using specific articles of the OZ!