Freedom of contract as a fundamental principle of Ukrainian and EU contract law

VOLODYMYR NAHNYBIDA*, ZHANNA CHORNA**, SVITLANA LOZINSKA**, ROKSOLANA IVANOVA**, MARYNA BORYSLAVSKA**

Freedom of contract as a fundamental principle of Ukrainian and EU contract law***

Summary: 1. Introduction. 2. Materials and Methods. 3. Results and discussion. 4. Conclusions

DOI: 10.26350/18277942_000120

1. Introduction

Freedom of contract arose at the same time as the contract itself. After all, the basic element of a contract is the agreement of the free expression of will of the parties. Without freedom, the parties cannot express their will. The freedom of the actors in contractual relations has varied at different stages of society's development. It was defined in different ways and depended on the degree of social freedom to which the subjects of civil legal relations were entitled[1]. The principle of freedom is the most important principle of law[2]. It is fundamental to defining the scope of human rights and freedoms and determines the nature of an individual's behaviour in legal relations[3]^,[4]. This principle is included in the list of general principles of civil law[5]. The foundation of contract law in any country is formed by its principles, tested by practice ideas according to which contractual relations are regulated. One of the fundamental principles of contract law is the principle of freedom of contract, which is enshrined in the Civil Code of Ukraine (CC of Ukraine) (Article 627).

Most scholars tend to believe that it can certainly be recognised as a principle of contract law[6]. This principle, moreover, makes it possible to distinguish between a contract and an administrative act as the basis for civil rights and obligations, as only a contract is characterised by the principle of freedom. A contract is not a disparate expression of will and action by two or more persons, but a common (unified, negotiated) expression of will. For this to be formulated and enshrined in a contract, the expression of will has to be free from external influences. Freedom of contract is a universally recognised means of achieving this objective. To a certain extent it can be stated that the legal content of the principle of freedom of contract, enshrined in the CC, duplicates the constitutional principle of basing the legal order in Ukraine on the rule establishing that no one can be forced to do what is not provided by law[7].

Historically, freedom of contract as a particular expression of the autonomy of the individual is linked to the so-called “theory of autonomy of the will”. According to this theory, the recognition and fulfilment of contractual obligations is based on the idea that the parties to a contract “’voluntarily wished’ to bind themselves”[8]. This principle is characteristic not only of the countries with a civil law system, but also of the common law system. The principle of freedom of contract was already widely applied in the common law system in the 19th century[9]. The principle of freedom of contract is the basic and prevailing principle of European contract law[10].

According to the opinion of professor U. Schroeter[11], the principle of freedom of contract is also basic to international contract law in general. The essence of freedom of contract is the ability of law subjects to decide on the conclusion of a contract and its content. And this freedom is not absolute, but limited by the provisions of laws, customs, decisions of relevant authorities, etc. These aspects predetermine the purpose of this study – to determine the legal essence of freedom of contract as a principle of contract law in civil law of Ukraine and the European Union (EU). Considerable attention to the study of the principle of freedom of contract in their works was paid by such Ukrainian scientists as V. Gorev[12], Yu. Popov[13], А. Luts[14] and others. This issue was addressed in their research by renowned civil lawyers – O. Dzeria et al.[15] The issues of EU contract law, including its principles, were studied by Ukrainian and international authors such as Yu. Popov[16], A. Dovgert[17], Z. Romovska[18], V. Shevchenko[19], О. Lando and H. Beale[20], M. Brown[21], and others. The researchers focus mainly on analysing the concept, content and essence of freedom of contract, leaving the practical aspect of this civilising principle without proper study. As a result, the practical implementation of the principle of freedom of contract in transactions remains understudied.

2. Materials and Methods

The methodological basis of the study was based on analytical and legal methods of analysis. General scientific and special methods were used. The main provisions of the legal framework at Ukrainian and foreign level, in particular in the EU countries, were studied. The methodology used has enabled the development of the main directions for reforming the legislative regulation of the principle of freedom of contract in the Ukrainian legal framework. The methods used allowed for reliable and valid conclusions and results. The methodological basis of the study was the fundamental provisions of legal science, the dialectical cognition method, the evolutionary-systemic approach to the development of civil law theory, the theory of knowledge and the systemic approach to the analysis of processes in their interconnection and development.

As one of the main methods of analysis, a comparative analysis was used to compare the reflection of the principle of “freedom of contract” in the acts of Ukraine and EU law, the Ukrainian practice of protecting this principle with the legal framework of regulation and protection of the research object in other countries, in particular in EU countries. The comparative method of analysis enabled a comparison of the Ukrainian definition of the content of the freedom of contract principle with its legal interpretation in other countries. The comparative method has also been used to compare Ukrainian practices in applying the protection system with its regulation in other countries, in particular in the EU countries, and at the international level. The systematic method was used to summarise the legal content and normative regulation of the principle of freedom of contract in the rule-making, doctrinal and judicial spheres. The analytical method has also been used extensively, making it possible to assess the extent to which the principle of freedom of contract is used and the extent to which it is restricted in civil law relations.

The study also uses the classification method, in particular when analysing the manifestation forms of freedom of contract. The descriptive method made it possible to present the results of the study in a logical sequence. The application of the evaluation method enabled conclusions to be drawn about the efficiency of the legislative regulation of the freedom of contract principle and to identify the gaps in the legal regulation, on the basis of which new formulations of the relevant provisions of the CC could be developed. The empirical methods were to examine the practice of the judicial authority in applying remedies to protect the freedom of contract principle. In the course of the study, methods of analysis, synthesis, analogy, systematic and classification were also used. The method of synthesis enabled the research objectives to be achieved when applied to primary sources on this issue. Induction and deduction methods were used to analyse the content and structure of legislative texts and to characterise legal provisions in the context of the research topic.

During the analysis, the historical method was used to examine the process of formation of the legal framework. The methodology of the study covered four areas. The first area focused on the consideration of the legal nature of the “freedom of contract” principle in Ukrainian and EU private law. The second one deals with the correlation between the principle of “freedom of contract” and the related concepts of “autonomy of the parties”, “dispositiveness of the parties”, etc. The third area analyses the practice of interpretation and application of the freedom of contract principle in the regulation of private legal relations in the practice of Ukrainian courts and courts of EU countries and the EU Court of Justice. The fourth one examined the grounds and consequences of the restriction of the freedom of contract principle in the practice of Ukraine and the courts of EU countries, the EU Court of Justice and the European Court of Human Rights.

3. Results and Discussion

The principle of freedom of contract in civil law, which is enshrined in Articles 3, 6, 627 of the Civil Code of Ukraine, closely corresponds to the category of essential conditions of any contract, as well as to Part 3 of Article 180 of the CC of Ukraine. This is manifested, in particular, in the recognition of the parties' right to set out other provisions in the contract (Article 6 of the CC) if at least one of the parties considers it necessary for them to be included in the contract. The provisions of Article 6 of the CC were later enshrined in Article 628 of the CC of Ukraine, which provides for the possibility to enter into mixed contracts consisting of elements of different contracts. Attention should be drawn to the opposing provisions contained in this study, which lead to a debate about setting the limits of freedom of contract[22][23].

The point at issue are Paragraphs 1 and 2 of Part 3 of Article 6 in the CC of Ukraine, when the parties are given the right to derogate in the contract from the provisions of civil law acts and then this right is limited by the condition that the acts expressly prohibit derogation or make these provisions binding on the parties. On this point, the authors fully agree with the position of A. Luts[24], who does not include these provisions in the scope of the study of the freedom of contract principle, A. Dovgert[25], who attributes them to the criteria for determining the dispositiveness of parties and the imperative nature of civil norms. Z. Romovska[26] includes them in the scope of the study of party dispositiveness rather than freedom of contract. The provisions of Part 3 of Article 6 of the Civil Code do not apply to the regulation of the freedom of contract in civil-law relations. The same view is held by V. Shevchenko[27].

Based on this inference, there is reason to believe that there is a logical fallacy in Article 627 of the CC of Ukraine when it begins with a reference to Article 6 of the CC. In other words, the disposition of Article 627 is linked to the disposition of Article 6 of the CC. In the legal sense, such a reference is not legitimate, since the dispositions of the articles also regulate different legal categories: Article 6 refers to the freedom to choose a contract and the freedom to determine its conditions, while Article 627 refers to the freedom to conclude a contract and determine its conditions as well as the freedom to choose a counterparty. As these lists show, only the positioning under Article 6 of the freedom to determine the terms of the contract is justified. It is therefore legally incorrect to base the disposition of Article 627 on the provisions of Article 6. As another legal loophole, one should note the reference in both articles to acts of civil law only. This textual position does not take into account the fact that some contractual relationships are regulated not only by civil law, but also by family law, land law, economic law and others[28]^,[29].

In order to close the two legal loopholes identified, the text of the CC should be amended, in particular by deleting the beginning of Article 627 “in accordance with Article 6 of this Code”. In the text of the article there is already a message “taking into account the requirements of this Code”. And in Article 6 of the CC, it is the reference to acts of civil legislation that should be deleted, leaving the wording “provisions of acts of legislation” in the text. Furthermore, these amendments will significantly extend the scope of the freedom of contract principle by extending it to those legal relationships governed by the rules of other branches of law. As another shortcoming of the legislative regulation of freedom of contract, the legislator's incomplete reflection of the forms of manifestation of this principle should be noted. The article of the CC analysed thus contains only three forms of its manifestation: freedom to conclude a contract and determine its terms and freedom to choose the counterparty. However, all possible manifestations of this principle are not enshrined at the regulatory level and are more extensively represented in the doctrinal environment. According to the authors, the manifestation forms of freedom of contract are most fully reflected in the thesis research by A. Luts[30]:

• the freedom of expression of a person's will when entering into a contractual relationship;
• the freedom to choose the contractual counterparty;
• the freedom of the parties to choose the form of the contract;
• the right of the parties to conclude both contracts provided for by law as well as contracts not provided for by law but not contrary to it;
• the freedom to determine the terms of the contract;
• the right of the parties to amend, terminate or extend a contract concluded between them by agreement;
• the right to determine the means of securing contractual obligations;
• the right to establish forms (measures) of liability for breach of contractual obligations.

However, there is also the position that the freedom of contract principle is indivisible[31]. It is also considered from the perspective of classification by stage: conclusion or execution[32]. In the parties' choice of the contract type that will regulate their mutual relations, the dispositive principles of civil law manifest themselves. As previously noted, it is possible to conclude a contract not expressly provided for in legislation, which is a manifestation of Article 11 of the CC of Ukraine that civil rights and obligations arise from the actions of persons that are not provided for by civil law but by analogy give rise to civil rights and obligations. The conclusion of such contracts is the result of autonomous law-making by the parties, carried out on the basis of the analogy of law and analogy of right. In this case, it is imperative that the general conditions for entering into a contract are met and that it does not conflict with the moral principles of society[33].

Moreover, the manifestation of the freedom of contract principle in the independent determination of contract terms under Article 628 of the CC of Ukraine means that the parties to the contract have the right to express their will. The principle of freedom of contract also means that it is up to the parties to determine the terms (content) of the contract. According to Article 628 of the CC of Ukraine, this means that the parties to the contract have the right of will. According to this article, contractual terms and conditions are divided into those that are at the discretion of the parties and are agreed upon by them, and those that are binding under civil law. The terms that the parties may determine at their discretion consist of those concerning the relations not regulated in the law and those defined in the law, but from which the parties are entitled to derogate and regulate those relations at their discretion[34].

Imperative rules may contain a prohibition on the inclusion of certain conditions in a contract, or they may indicate the obligation to include the relevant conditions in the contract. By enshrining imperative rules in legal acts, the legislator does not restrict freedom of contract, but rather establishes it, thereby defining a certain framework and regulating contractual relations. The establishment of imperative rules is intended to protect the weaker party[35]. With regard to restrictions on freedom of contract, it should be noted that in cases where an act of civil law provides that the provisions of that act are binding on the parties to the contract, the parties have no right to derogate from its provisions (Part 3 of Article 6 of the CC).

The articles 19, 20 of Ukrainian Law No. 2189 provide for the obligation of the consumer of housing and communal services to conclude a written contract with the provider of the services based on the model contract [19]. Based on the analysis of Part 3 of Article 6, Part 1 of Article 630 of the CC, Articles 6-8 of the Law of Ukraine “On housing and communal services”, Resolution of the Cabinet of Ministers No. 712 it follows that the terms of the model contract, which on the basis of legal acts became legally binding, are binding on the contracting parties, who have no right to depart from their provisions and regulate their relations at their own discretion. It is the responsibility of the consumer to enter into a contract for the provision of housing and communal services, provided that the contract proposed by the service provider is in accordance with the model contract. The refusal of the service consumer to sign the contract in such a case contradicts the requirements of Part 3 of Article 6, Articles 627, 630 of the CC and Articles 6, 7 of the Law of Ukraine “On Housing and Communal Services”. In the event of such refusal, based on Articles 3, 6, 12-15, 20, 630, 640, 642, 643 of the CC, the service provider is entitled to apply to court for protection of his right, enforceable by the court under Article 16, Part 2, Paragraph 1 of the CC by declaring the contract to have been concluded under the conditions set forth in the binding regulation, rather than the obligation to enter into a contract.

The model contracts are aimed at regulating the contractual relations of persons in a uniform and effective manner. However, they all have certain negative features. In practice, it is not uncommon for the terms of such contracts to put one party at a serious disadvantage compared to the other. To address this problem in international law, in particular the law of the European Union and EU member states, the concept of “unfair terms in contracts” (unfairtermin contracts) has been developed.

According to Article 3, Part 1 of EU Council Directive No. 93/13 “On unfair terms in contracts with consumers”[36], contract terms that have not been negotiated individually are considered unfair if, contrary to the requirements of good faith, they result in a significant imbalance of the rights and obligations of the parties arising from the contract, to the detriment of the consumer. Furthermore, the concept of “unfair contract terms” is enshrined in Article 4.110 of the Principles of European Contract Law: “A party may challenge the term which has not been individually negotiated if, contrary to the requirements of good faith and fair business practice, it results in a substantial imbalance in the rights and obligations of the parties arising under the contract, prejudicing the party, taking into account the nature of future performance of the contract as well as all other terms and circumstances at the time of contract conclusion”. The development of unified provisions of contract law began in the 1980s, in particular the International Institute for the Unification of Private Law (UNIDROIT), the body of principles, rules and standards of lex mercatoria CENTRAL, the Principles of European Contract Law (PECL) and the Draft Common Frame of Reference for Principles (DCFR) were developed by non-governmental organisations.

The nature of the development of principles in the second half of the 20th century was significantly affected by the affirmation of the concept of the welfare state in Western Europe. There has been a tendency to limit the scope of the freedom of contract principle and, consequently, to increase the role of the principle of good faith. The authors of the new legislation acts and the courts started to base their decisions not on the principle of autonomy of private will based on the equality of contractual parties, but on the fair contract theory, which provides increased protection for the weaker party – the citizen, the consumer – who does not have the necessary knowledge and experience. The desire to strengthen the foundations of the welfare state and a just social order was expressed in this. The processes mentioned have influenced the law, doctrine and litigation practice not only in the states of continental Europe and England, where a compromise between the ideas of freedom of contract, autonomy of the will and the principle of good faith has been sought to limit these maxims[37],[38].

Yu. Gavrilov[39] noted that by limiting the principle of freedom of contract, good faith enables the negative aspects of this freedom to be overcome, for example through the recognition of a transaction as invalid or through the denial of the right to protection when the right to protection is abused. He also indicates that the principle of freedom of contract cannot be invoked by a party in bad faith. This principle is characteristic of countries with market economies, in particular the Member States of the European Union, and is enshrined in the legislation of those countries. The freedom to choose the counterparty and determine the terms of the contract is contained in such regulatory legal acts of EU countries: the German Constitution (Article 2 (1)), the Napoleonic Code and CCs of Belgium and Luxembourg (Article 1134 (1)), the Greek Constitution (Article 5 (1)) and the Greek CC, the Italian CC (Article 1322), the CC of the Netherlands (Article 6. 248), Austrian CC, Portuguese CC (Article 405), Spanish CC (Articles 6 and 1255)[40].

It should be noted that the German CC does not contain a separate article on freedom of contract, despite the fact that various documents already at the time of its drafting repeatedly note the priority of this principle in the general system, as: “The basic principle that is predominant in the law of obligation is freedom of contract ...” or “by virtue of the principle of freedom of contract, which dominates the law of obligation relations, the parties may determine by mutual voluntary consent their mutual legal and commercial relations”[41]. In Germany, freedom of contract is subject to restrictions to protect “higher interests”, including those deriving from the foundations of the welfare state, which under the Constitution is the Federal Republic of Germany. Among the EU member states under study, the most prominent influence of “social value theory” is found in Germany and France, where the rights of individual actors are always compared with the rights of the entire “community”.

During the development of English law, good faith was considered to be contrary to freedom of contract for “interfering” in an agreement the parties to which had freely agreed its terms. Rather than introducing broad general principles of good faith, English law has evolved by developing specific solutions to various problems, in particular the occurrence of situations that may be unfair[42]. Under the United Kingdom (UK) law and litigation practice, the contracts that are lawfully entered into by the parties have the force of law. Freedom of contract is subject to restrictions to protect the public interests, respect for public order and the requirements of “good morals”. A contract is understood as a promise or guarantee that is accepted by one party in relation to the other. The other party must accept the promise in order for the legal consequences to arise, which requires the mutual consent of the parties.

The Principles of International Commercial Contracts (UNIDROIT Principles) also bring this principle to the fore, reflecting it in & 1.1. & 1.2 enshrines the principle of freedom of form, stipulating that there is no requirement that a contract be concluded in written form, noting as evidence of its conclusion any method, including the testimony of witnesses[43]. The principle of freedom of contract is fundamental to private law relations and is included in all legal systems that are part of EU law. On these grounds it is included in the European Principles of Contract Law (Article 1:102 “Freedom of Contract”)[44]: “(1) The parties are free to conclude a contract and determine its contents, as long as the requirement of good faith and fairness, and the imperative rules established by these Principles, are met. The parties may exclude from the scope of application any of the Principles as well as derogate from or modify their effects, unless otherwise provided for in these Principles”.

The analysis of the European regulatory acts on the subject of the study gives grounds to state that a unified system of contract law principles has not been formed, with different acts giving a different characterisation of the principle of freedom of contract. Meanwhile, the principle of freedom of contract is the most common, along with the principles of contractual fairness and certainty[45]; it is also common to highlight security, fairness and efficiency as basic principles[46]. These principles are present in virtually all EU member state laws and in the acts of harmonisation of EU contract law. The freedom of contract therein generally includes the freedom to choose the counterparty, the content and the form of the contract (in particular in UNIDROIT, CENTRAL, DCFR, PECL).

The European principles of contract law, unlike the Ukrainian rules, do not explicitly refer to a third form of manifestation – the freedom to choose the counterparty. As noted in the interpretations of this act and in doctrinal circles, the authors of this act in Article 1:102, Part 1, under the phrase “the parties are free to conclude a contract” also meant the freedom to choose a counterparty[47]. Regarding the limitations of the principle of freedom of contract, the European principles of contract law are derived from practice, customs and traditions, based on the needs of business, and therefore the requirement of respect for the principles of good faith and fairness comes first, followed by the imperative of the rules of the European principles.

The Principles of European Contract Law in Article 1:102 enshrine a rule similar to the UNIDROIT Principles on freedom of contract – the freedom of the parties to enter into a contract and to determine its content. But they also contain additions that define the limits of such freedom: 1) respect for good faith and fair business practices; 2) compliance with the imperative rules set out in the Principles. The first limitation is also present in the UNIDROIT Principles, but in separate articles (1.7; 1.8), the second one is not enshrined in them.

The wording of the freedom of contract principle in both documents provides quite ample opportunity for the parties to act at their own discretion, both in entering into the contractual relationship and in determining its content. They can choose the type of contract, mix the terms of different types of contracts and choose the law to be applied to the contract. This demonstrates the differences in the nature, legal force and scope of EU contract law. However, the basic principles of contract law enshrined in international acts have considerable similarities, which demonstrates their universality[48].

The model rules of European private law consider freedom of contract as an element of the parties' autonomy of will. It follows from Article II.-1:102 DCFR that, as a general rule, the parties are free to conclude a contract or perform another legal act and determine its content, have the right to exclude all or part of the application of any rule relating to contracts or the rights and obligations arising from them, and to exclude or amend its effect, and if it is not possible to exclude the application of rules, the parties may waive the right already created. The model rules of European private law do not confine themselves to a formal declaration of the principle, but also enshrine a number of provisions aimed at its practical realisation. In particular, the rules on freedom of contract (Article II.-1:106 DCFR) and on mixed contracts (Article II.-1:107 DCFR) may be referred to them.

Consequently, the possibility of free expression of the will to conclude a contract, the choice of its form and content, the choice of the counterparty and the absence of monopolistic influence of the state on such expression of the will constitute the content of the freedom of contract principle. However, freedom of contract cannot be absolute; state intervention in the contract-making process is an unavoidable factor to establish equality of the parties and to eliminate discrimination in the market[49]. The state, through the relevant state authorities, establishes the rules for concluding contracts and decides on the possibility of concluding a contract as a whole or a particular provision. In the struggle for the end consumer, contractual actors often violate basic principles of contract law and the rights of the other party to the transaction in search of new sales channels. The free choice by the parties of the type and content of the transaction, which sometimes implies a voluntary choice to limit their rights or subsequent actions, and raises the reasonable question of establishing by such a contract a limitation of a party's legal capacity and legal competence, and a violation of the freedom of contract principle.

There are a significant number of restrictions when entering into a contractual relationship. Ye. Michurin[50], when studying the restrictions on the property rights of commercial parties in contractual relations, rightly points out restrictions on the expression of the will of the parties to the contract, restrictions on the content of the contract, restrictions on the subject matter and price of the contract, restrictions related to the term of the contract. It is worth noting that, on the one hand, the cases cited by the author demonstrate a restriction of contractual freedom and, on the other hand, a combination of different types of implementations of a person's civil legal personality: law and contract, administrative act and contract, court decision and contract. In this combination, however, the contract is always the form through which a person acquires specific rights and obligations.

In other words, the law or a court ruling may contain instructions regarding the obligation to enter into a particular contract, the conditions under which it is to be concluded, but it is only by virtue of the contract that the rights and obligations of the parties arise. An example of this combination is mandatory conclusion of a contract on the basis of an administrative act. Article 648 of the CC of Ukraine stipulates that the content of a contract concluded on the basis of a legal act of a public authority or local government body, which is binding on the parties (a party) to the contract, must be consistent with that act. Ultimately, however, specific civil rights and obligations do arise on the basis of the contract, once again convincing of its universality as a legal form of realising the civil legal personality of legal persons.

Even though the parties will, for example, express their will to have vertical restrictions in their contracts, the Anti-monopoly Committee of Ukraine has the right to affect the decision of the parties by prohibiting the contract in question or by restricting certain provisions of the contract. However, such a restriction is logical and fair as it is designed in order to protect economic competition, prevent anti-competitive concerted actions and ensure the balance of interests of all participants in market relations. A very significant limitation is the wide practical application of model contract terms, which is also reflected in the DCFR provisions[51]. Article II.-1:109 of the DCFR establishes that exemplary terms and conditions “which have been developed in advance for transactions carried out by different parties and which have not been specifically agreed by the parties”. In this case, the conditions will be considered non-agreed specifically if “the other party could not influence their content” (& 1 of Article II.-1:110 DCFR).

These provisions demonstrate similarities with German legislation and law enforcement practice[52], which indicates their influence in the formation of the DCFR provisions. The need to protect the economically weaker party means that the law increasingly allows for the possibility of unilateral repudiation from a previously concluded agreement. The DCFR uses a similar approach to ensure the protection of consumer interests. For instance, there is provision for unilateral repudiation of the timeshare contract (Article II.-5:202 DCFR). According to the authors, an even more vivid manifestation of protecting the interests of the economically weaker party is the possibility for a consumer to repudiate a contract concluded at his or her “doorstep”. Pursuant to Article II.-5:201 DCFR, the consumer has the right to refuse the contract if the offer or acceptance was made outside the entrepreneur's place of business.

A manifestation of the restriction of the contract freedom principle in the DCFR is also the obligation of the parties to the contract. Meanwhile, the effect of the parties' autonomy of will is as follows: “Those who have entered into the contract are bound by its terms as a law. The debtor cannot derogate from their obligations. A contract can only be cancelled with the consent of all parties to it”[53]. It can be stated that the DCFR continues developing the trend of restricting freedom of contract. The CENTRAL act contains a restriction on freedom of contract that is not reflected in other regulatory acts, stipulating that a contract cannot be concluded to the detriment of a third party. A similar restriction was contained in the previous version of UNIDROIT. That is, a contract can only regulate the relations of its parties, unless it provides otherwise. This kind of provision can be deduced from the DCFR text in the sense that the parties may only enter into a contract for their own benefit, unless otherwise provided by law or the contract, and the contract governs essentially only the rights and obligations of the parties.

Article 1:103PECL contains a limitation on freedom of contract as regards binding rules. That is, the parties may, when determining the legal systems in the event of a dispute between them, choose to regulate the contractual relationship by means of PECL with the exclusion of national rules. The exceptions are the rules that operate independently of the law. In this situation, freedom of contract does not allow a contract to be based on PECL, to evade the national and international rules that are always applied to the regulation of contracts, regardless of the chosen law applicable to them. All legal systems within the EU recognise the limitation of freedom of contract to binding rules. To a certain extent, the freedom of contract principle can be considered to be limited in the field of property law, in the aspect of the above, that the transfer of property rights has an impact on the rights of third parties. Due to this, the parties to the contract cannot implement their own rules regarding property on an unrestricted basis. For example, the DCFR contains a restriction on the parties to establish a prohibition of alienation of property in the contract (Article VIII-5:101 (1)).

In the context of the contract law of Ukraine and the European Union, it is also necessary to analyze the potential impact of the harmonization of Ukrainian contract law with the principles of EU contract law. It's important to note that ongoing efforts are being made to harmonize and align Ukrainian contract law with EU contract law. Ukraine is actively working towards closer convergence with EU legal principles through legislative reforms and the adoption of EU norms, with the aim of enhancing compatibility and facilitating trade and cooperation with the EU. Harmonizing Ukrainian contract law with European legal standards would offer several potential benefits. It would enhance the legal framework, improving the clarity, consistency, and effectiveness of Ukrainian laws. This alignment would attract increased foreign investment as investors would have confidence in the legal system and its protection of contractual rights. It would also facilitate trade with the EU, reducing barriers and promoting smoother trade relations. Ukrainian businesses would have easier access to EU markets, enabling them to meet EU legal requirements and compete effectively.

However, there are several challenges associated with the harmonization process. Implementing the changes would require significant effort and resources, including amending legislation, training legal professionals, and ensuring effective enforcement mechanisms. Resistance to adopting EU legal standards might arise from stakeholders within Ukraine, potentially creating challenges due to traditional legal practices and cultural differences. In doing so, the implications for the Ukrainian legal system will include modernizing and improving efficiency, encouraging streamlined procedures and the use of modern technology. Professional development programs will be needed to equip legal practitioners with the knowledge and skills to apply the new legal principles.

The harmonization of contract law can indeed lead to further convergence of legal norms, stimulating the harmonization of other legal areas and promoting comprehensive legal reforms. This process would contribute significantly to Ukraine's European integration, as it demonstrates a commitment to adopting European legal principles and aligning with EU legal frameworks across various domains. Moreover, harmonization fosters closer international cooperation between Ukrainian legal institutions and their European counterparts. This collaboration enables the exchange of best practices, legal expertise, and joint initiatives aimed at enhancing legal harmonization and fostering mutual understanding. Through this cooperation, Ukraine can benefit from the knowledge and experience of EU member states, facilitating the alignment of its legal system with EU standards.

The freedom of contract is restricted to protect the interests of the state and society, to balance the interests of individuals and society as a whole, and so that the free expression of the will of economic subjects does not violate the interests of society, with the ultimate result of such restriction being the normal functioning of the economy and bona fide economic competition. The principle of freedom of contract is fundamental in the relations of business entities. However, freedom of contract cannot be unlimited. Its boundaries lie, on the one hand, within the applicable regulatory acts, business customs and, on the other hand, within the moral principles of society based on the principles of reasonableness, good faith and fairness. The freedom of contract is also not absolute in cases where the parties voluntarily limit their rights, as the latter set a certain framework of possible further action for a party.

4. Conclusions

The analysis concludes that Article 627 of the Civil Code of Ukraine provides a general definition of the principle of freedom of contract, while its elemental composition is also present in other legal provisions. The principle of freedom of contract holds a central position within the system of contract law principles and is universally recognized, including within the European Union, where it is enshrined in the Principles of European Contract Law. The freedom of contract principle primarily operates within the private law sphere, and limitations on this principle can only be established in the private domain. In contrast, the public sphere follows the principle of “only that which is permitted,” specifically regarding the regulation of contractual relations.

Several reasons have been identified for setting limits on the principle of freedom of contract. These limits aim to maintain a balance between the interests of individuals and society as a whole. The ultimate purpose of these limits is to ensure the proper functioning of the economy, the continuous circulation of goods, works, and services among parties in civil law relations, and the adherence to general private law principles of reasonableness, good faith, and fairness.

Future research on this topic could be devoted to the topic of the principles of freedoms and limitations of the contract, which strike a balance between the protection of party autonomy and the protection of the interests of vulnerable parties such as consumers and employees. Also, the issue of implementation and enforcement of provisions related to standardization and unfair contract terms in the contract law of Ukraine and the EU may arise. On the basis of this study, in the future, after the acceptance of Ukraine into the EU, or at least the bringing of Ukrainian legislation to EU standards, it is necessary to comprehensively investigate the consequences of the harmonization of Ukrainian contract law with EU principles.

Abstract. The purpose of the study is to define the legal essence of freedom of contract as a principle of contract law in Ukrainian and European Union civil law. Among the main methods of analysis a comparative method was used, which enabled to conduct a comparison of the reflection of principle “freedom of contract” in the acts of Ukraine and EU law, the Ukrainian practice of protecting this principle with the legal framework of regulation and protection of the research object in other countries, in particular in EU countries; analytical method, which enabled to assess the extent of using the principle of freedom of contract and establishing limitations of its action in civil-law relations. The legal essence of the principle "freedom of contract" in the private law of Ukraine and EU countries, its reflection in the acts of Ukraine and EU law, as well as the ratio of the principle with the related concepts was determined; the practice of interpretation and application of the principle of freedom of contract in the regulation of private legal relations in Ukraine and EU countries, as well as regulation of its limitations and their consequences were analysed.

Keywords: civil law, private law relations, jurisprudence, legal framework, protecting.

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* Academician F.H. Burchak Scientific-Research Institute of Private Law and Entrepreneurship of the National Academy of Law Sciences of Ukraine (nahnybida.volod@ukr.net)

** Leonid Yuzkov Khmelnytskyi University of Management and Law.

*** Il contributo è stato sottoposto a double blind peer review.

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