Do you design logos, create websites, or write computer programs? Do you spend at least a dozen hours on a project, send the finished design along with an invoice, and not get paid? What legal mechanisms included in the contract can increase your chances of getting paid for your work? And do all the ways of securing payment actually stem directly from the regulations?
Freedom of contract – in principle, what is not prohibited is permitted
The key starting point when analyzing what legal tools you have at your disposal as a project contractor/supplier of goods is the principle of freedom of contract. In practice, this principle means that as long as the contract does not violate the so-called principles of social coexistence (in other words: a sense of fairness, justice, honesty, balance between the parties), or applicable regulations, the parties have considerable freedom in determining what they agree on, how it is to be performed, when, on what terms, and how the remuneration for this is to be paid.
Therefore, even if a given legal mechanism (which, for example, would secure payment for the contractor) is not explicitly described in the regulations, the parties to the agreement may use it based on the principle of freedom of contract.
What tools are used in practice to motivate customers to pay?
Option 1 – release of the final project/goods only after payment of the full price
One way to encourage the customer to pay for our project/goods is to withhold delivery of the entire result of our work until the full amount of the agreed remuneration has been paid.
There are no legal obstacles to agreeing a specific lump sum remuneration with the customer in the contract, collecting an advance payment from the customer for the work performed, and at the same time stipulating that the entire remuneration must be paid before we deliver the final result of the work to the customer.
If we use this option, after completing the work, we must notify the customer that the goods/project are ready and therefore attach the final invoice (the customer may come in person to view the goods/project or may ask us to send photos/videos/request access to the test environment to verify the quality of our work). Finally, only after the full amount of the invoice has been paid, the completed project/goods are delivered to the customer (or issued for personal collection).
This mechanism is therefore very simple – without full payment, the customer will not receive the goods or project from us.
Option 2 – retention of ownership until full payment/price has been made
This method of encouraging the customer to pay differs from “Option 1” described above in that, in Option 2, the goods/project are released to the customer before final payment, so the customer physically receives them but does not have full rights to them.
In the case of contracts that provide for the sale, manufacture, or delivery of goods (e.g., furniture, food products), the mechanism is quite simple. It is sufficient to clearly stipulate in the contract that ownership of the goods will pass to the recipient (buyer) only upon payment of the full price/remuneration. The customer therefore receives the goods from us before full payment, but does not become the owner until they have paid the full remuneration. Why is it important to clearly stipulate in the contract that ownership is transferred to the customer only upon payment of the full remuneration? Because the rule is that when goods are sold or work is performed, ownership of the goods is transferred upon delivery (regardless of payment). Therefore, in order to change this rule, it must be clearly articulated.
What does a retention of ownership until the full price is paid clause mean? Simply put, if the price is not paid by the agreed date, we will be able to simply take the goods back from the recipient (buyer) – because we will still be the owners. Such a clause will therefore make sense especially in the case of goods that are valuable, do not spoil quickly, and can also be sold to another customer.
When it comes to contracts with a creative element (e.g., contracts for website development, application writing, or company logo creation), a similar role will be fulfilled by a reservation of copyright (or granting of a license) only upon payment by the customer of the full remuneration for the project.
What does this give us? If our client starts using the results of our work (e.g., publishing the logo we designed on the client’s website or starting to “sell” the application we wrote for the client to end users) before paying the full remuneration, we will have a number of rights resulting from the client’s infringement of our copyright. We will therefore be able to demand that the client publishes, for example, an apology, a statement confirming that they have infringed our rights, or demand payment of damages from the client.
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Option 3 – suspension of project implementation/deliveries until payment of remuneration/price
This method works very well for long-term or cyclical projects/deliveries (e.g., when creating a mobile application – released for use with individual functionalities, or when delivering fruit to retail chains throughout the season).
In the case of such agreements, it is worth ensuring that the contract stipulates that if the customer is in arrears with payment for deliveries/projects/parts of projects that have already been completed, we will be entitled to suspend further deliveries or further implementation of the project.
This option is also worth combining with the option described below (withdrawal from the contract).
Option 4 – contractual withdrawal from the agreement in the event of non-payment of remuneration
Withdrawal from the agreement is one of the more radical methods of terminating an agreement. In its classic form, it “cancels” the contract from the very beginning, which means that both parties should return everything they have received in performance of the contract (i.e., if we withdraw from a fruit delivery contract, the customer should return all the fruit we have delivered, and we should return all payments received from the customer in this respect).
It is worth remembering that withdrawal from a contract is a tool guaranteed by the Civil Code itself. Therefore, it can be used even if we do not include this option in the contract. However, effective use of the statutory right of withdrawal requires compliance with the relevant formalities (including a request to perform the contract and setting an additional deadline – only after its expiry can the contract be withdrawn from).
Especially in the case of recurring or long-term contracts, it is worth introducing the possibility of withdrawing from the contract, but with effect for the future and without the need for an additional request (i.e., slightly modifying the Code version of this right). It will then take the form of terminating the contract with immediate effect rather than classic withdrawal.
By introducing such a tool into the contract, in the event of non-payment by the customer, we will not be forced to remain in such an uncomfortable contractual relationship – we will be able to terminate it quickly.
If it is important to us, for example, the deadline for performance of the contract, or the other party’s actual compliance with the order of confidentiality of information – consider including a contractual penalty in the designed contract. This is because it is one of the more “malleable” creations of civil law, which can be easily adapted to almost any type of contract.
Dissolvence, termination and withdrawal are very often used interchangeably to describe the manner in which a contract is terminated. Such a simplification can bring unfavorable consequences, since these three institutions are characterized by completely different nature and effect.
We are probably unaware that each of us enters into dozens of contracts every day (when shopping, traveling by public transport, or taking a jacket to the dry cleaner’s). The vast majority of these are verbal agreements. Are such agreements legally binding? When is it necessary to conclude a written agreement? And when should we resort to an even “higher” form of agreement, such as a notarial deed?
