Stability and Transition in the
Civil Code of the Russian Federation
Rolf Knieper’
This article describes the new Civil Code of the
Russian Federation (“C.C.R.F.”) as being one of the
major pillars of stability in a country which is plagued
by the many complex problems of transition, as well as
by a tradition of legal nihilism. It places the C.C.R.F
into the broader context of the history of European
codification where the core has remained clear but cer-
tain areas were continually contested. Examples are the
methodological question of finding a convenient level
of abstraction, the division between a civil and a com-
mercial code, and the place of family law and con-
sumer protection. These important areas are exempli-
fied by a number of salient topics that the legislator
could have improved by eliminating remnants of cen-
tral planning and Soviet practice. Two examples are
singled out: first, the unitary and fiscal state enterprises,
and the forms of property and management which cor-
respond to them are inconsistent with the running of a
market economy. Second, certain aspects of contract
law and certain types of contracts which foresee a dis-
tribution of risk do not seem to adequately reflect le-
gitimate interests of market participants, be they indi-
viduals, enterprises, or the State.
Cet article dcrit le nouveau Code civil de Ia Fd-
diration russe comme 6tant un des piliers principaux
de stabilit6 dans un pays tourment6 par de nombreux
probl~mes complexes reli6s 4 la transition et par une
tradition de nihilisme judiciaire. L’auteur place le Code
dans le contexte plus large de l’histoire de la codifica-
tion europ~enne, ob, bien que l’esprit ait toujours did
clair, certains domaines furent continuellement contes-
ts, comme, par exemple, ]a question m6thodologique
cherchant a trouver un niveau commode d’abstraction,
l’6tablissement d’une division entre un code civil et un
code commercial, ainsi que la place du droit de la fa-
mille et de ]a protection des consommateurs. Ces do-
maines importants sont exemplifies par plusieurs do-
maines saillants que, d’apr~s l’auteur, le l6gislateur au-
rait pu am6liorer en dliminant les vestiges de la planifi-
cation centralis6e et de la coutume sovidtique. Deux
exemples sont soulign6s: premi~rement, les entreprises
unitaires et d’6tat fiscal, ainsi que les types de proprit6
et de gestion qui y correspondent, sont incompatibles
avec l’6conomie de march6; deuxi~mement, certains
aspects du droit des contrats, ainsi que certains types de
contrats pr6voyant une distribution du risque, ne sem-
blent pas toujours refl6ter de fagon ad.quate les intdr&ts
16gitimes des personnes qui participent au march6,
qu’ils soient des individus, des entreprises ou l’.tat.
. Professor of Civil and Economic law, University of Bremen. Doctor iuris (University of Frankfurt
am Main), Doctor honoris causa (University of Thilissi). Head of the Deutsche Gesellschaft ftir Tech-
nische Zusammenarbeit (German Technical Cooperation) project: Reform of Private Law in C.I.S.
Countries.
McGill Law Journal 1999
Revue de droit de McGill 1999
To be cited as: (1999) 44 McGill L.J. 259
Mode de r6f6rence: (1999) 44 R.D. McGill 259
260
MCGILL LAW JOURNAL / REVUE DE DROIT DE MCGILL
[Vol. 44
Introduction
I. A Critical Summary of Structure and Content
A. Structure
B. Content
1. General Provisions
2. Commercial Law
3. Consumer Protection
4. Family Law
II. A Critical Analysis of Salient Features
A. Unitary Enterprises
B. Special Types of Contracts
1. The Contracts of Purchase and Sale
2. The Contract of Work
Conclusion
References
1999]
R. KNIEPER – STABILITY AND TRANSITION IN THE C.C.R.F
Introduction
Professor Makovsky is undoubtedly right when he characterizes the new Civil
Code of the Russian Federation’ as a “truly important statute'” and its adoption in
1995 an “extraordinary event in modem history!’2 Among many other things, it has
brought some continuity and stability into the Russian legislative process by creating
a real framework for personal, economic, and property relations of natural and legal
persons, both nationally and internationally.
By its comprehensive nature, the C.C.R.F has channeled the turbulent and chaotic
first years of Russian law-making not only by disciplining the panoply of Russian
legislators, but also by instilling consistency and maintaining long-term perspectives
which many of the self-proclaimed international experts in legal development could
not achieve.’ The supply of specialists who are driven by a mixture of crusading spirit
and greed has certainly not dried up, but their numbers have been reduced. The
C.C.R.F. is a real milestone, and arguments alleging “Soviet legal nihilism” on all
kinds of topics, from trusts to travel contracts, will be more difficult to sustain.
In addition-and less obvious to western appreciation-the C.C.R.F. marks a fi-
nal point and substantive decision in a long debate of Soviet scholars. It draws a clear
line between private and public law, and refuses to pursue complex legislation which
had as its focus the integration of public and private, administrative and civil, and sub-
stantive and procedural regulations into one comprehensive piece of “economic law”.
Complex legislation is far from dead. In the Ukraine, for example, the supporters of
“complex legislation” are politically stronger than in Russia, and the Verkhovna Rada
stages bitter parliamentary fights over an “Economic Code” and a “Civil Code”–
which are totally contradictory in approach and partly contradictory in content, yet
both were presented simultaneously for adoption. Russia has resisted the adoption of
a legislative practice which is guided by the methodological error that law “mirrors”
the economic structure and, accordingly, that a mixed economy must be mirrored by
mixed law.
Having paved the way through all these intellectual, political, social, and eco-
nomic contradictions and discussions, the legislator has created a civil code which
forms part of the tradition of continental-European codification without renouncing its
own “personality”.! In recent decades, this tradition of comprehensive codification has
‘ Part 1 was enacted in 1994: Sobranie zakonodatelstva R.E (1994) No. 32, item 3301; and Part 2
was enacted in 1995: Sobranie zakonodatelstva R.E (1996) No. 5, item 410 [hereinafter C.C.R.F.].
For the English-language translation, see RB. Maggs & A.N. Zhiltsov, eds., The Civil Code of the
Russian Federation, trans. RB. Maggs & A.N. Zhiltsov (Armonk, N.Y.: M.E. Sharpe, 1997).
2 A.L. Makovsky, “Preface to the English Translation of the Civil Code” in Maggs & Zhiltsov, ibid.,
xlix at ii.
R. Knieper & M.M. Boguslavusky, Concept for Legal Counselling in Transfonnation States
(Eschbom: Deutsche Gesellschaft fir Technische Zusammenarbeit, 1995) at 6.
4 See Makovsky, supra note 2.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
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been looked upon with growing skepticism. The new Nederlands Burgerlijk Wetboek
and the broad consensus and move in all Commonwealth of Independent States
(“C.I.S.”) countries toward systematic codification-of which the C.C.R.F
is but one
example-belie such criticism and demonstrate a vigor of comprehensive codification
which might well ease the way to a uniform European Civil Code.
I. A Critical Summary of Structure and Content
A. Structure
Seen from traditional civil codification practice, the C.C.R.F. is comprehensive in
its structure: Division 1 (articles 1 to 208 C.C.R.F) contains “general provisions” en-
compassing-besides methodological, philosophical, and pedagogical basics-the
law of persons, objects, transactions, representation, and time periods and limitations.
Division 2 (articles 209 to 306 C.C.R.R) systematizes the right of ownership in the
Latin concept of ius in rem, curiously including some contractual encumbrances-
such as servitutes-while excluding others-such as pledges and mortgages-which
have found some consideration in the law of obligations. Division 3 (articles 307 to
453 C.C.R.F) follows the classical codification technique of abstraction by stating
general principles, valid for all types of obligations, and from which contractual obli-
gations are singled out (articles 420 to 453 C.C.R.F). Division 4 (articles 454 to 1109
C.C.R.F) coincides with Part 2 and regulates-somewhat surprisingly-all “individ-
ual types of obligations”–i.e., several types of contracts as well as non-contractual
obligations such as tort and unjust enrichment.
At the time of writing this article, Part 3 of the C.C.R.F was still a draft. If the
drafters have their way, it will lump together diverse subjects such as intellectual
property, the law of inheritance, and private international law. In intellectual property
law, there is an obvious disequilibrium between authors’ rights and other intangible
rights. Authors’ rights have been regulated in detail, based on the World Intellectual
Property Organization Model Law-thus moving toward international harmonization.
Other intangible goods are only regulated by general principles and require further
special legislation. This approach is an unfortunate example for the continuation of
the Soviet codification technique. Division 7 of Part 3 is devoted to private interna-
tional law which, unlike the Ukrainian draft, excludes procedural provisions but in-
cludes rudimentary provisions of the law of foreigners which is not part of the conflict
of laws provisions.
B. Content
The C.C.R.F. has a relaxed approach to some methodological issues, which have
at certain times caused passionate debates with ideological overtones.
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R. KNIEPER – STABILITYAND TRANSITION IN THE C.C.R.F
1. General Provisions
“Germanic” authors around the turn of the century had criticized the German
legislators for drafting a “General Part” to the Biirgerliche Gesetzbuch because it was
found to promote Roman abstractism as opposed to ethnic and popular concreteness!
The Swiss Zivilgesetzbuch of 1907, to the satisfaction of both observers and drafting
participants, did not include a “General Part”.’ Modem drafters have realized that the
decision for or against including such general parts is one of convenience and techni-
cality, and not one of ideology and cultural characteristics. When opting for general
provisions, Russia was not engaging in a commentary on fundamental legal bases, but
rather it sought to exploit the advantages of a highly abstract formula as a way to con-
siderably abbreviate the text.
2. Commercial Law
Similar considerations are at play with regard to commercial law. It is subject to
special legislation in countries such as France, Germany, and Austria, and there were
times when this very fact was taken as evidence for a special, class-related law.” Over
the decades, practical necessity and experience have demonstrated that commercial
relations do not substantially differ from any other non-hierarchical contractual rela-
tions. It might be appropriate to accentuate certain rights and obligations of business
entities as opposed to non-professionals, but these particulars can easily be integrated
into a general civil code. The 1942 Civil Code of Italy was the first to successfully
adopt such an approach. The C.C.R.F. has done the same, as has the Dutch Neder-
lands Burgerlijk Wetboek and the 1997 Civil Code of Georgia. It is one of the para-
doxes of legal drafting in countries in transition that theory triumphs over experience.
In Russia, for example, some admirers of the French and German system keep re-
questing a special commercial code such as in France or in Germany, against French
and German expert advice and despite the fact that the topic is well taken care of in
the civil codes of these two countries.
3. Consumer Protection
Consumer protection, which over the past decades has stirred some methodologi-
cal controversy in traditionally capitalist economies, has unfortunately not been
treated with the same unequivocal thoroughness by the Russian legislator. Consumer
protection has been highly visible as a serious and salient debate, considered by some
as a new field of law. In continental Europe, it has led to a series of special statutes
which change civil legislation primarily in the spheres of contract and tort law. These
O.V. Gierke, Der Entwurf eines biirgerlichen Gesetzbuches und das deutsche Recht (Leipzig:
6 F Wieacker, Privatrechtsgeschichte der Neuzeit, 2nd ed. (Gtittingen: Vandenhoek & Ruprecht,
Duncker & Humblot, 1889) at 582.
1967) at 486-91.
7 M. Weber, Wirtschaft und Gesellschaft, vol. 2 (Tilbingen: Teil, 1922) at c. 7, 8.
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statutes are intended to re-equilibrate the interests of consumers and suppliers by way
of insisting more on ius cogens than classic liberal codification doctrine would dictate.
This is certainly a shift in attitude, but is by no means a structural revision of civil
legislation. The multitude of new acts is a result of the fact that most civil codes are of
an older date than comprehensive consumer protection, and that it seems technically
easier to leave the main code intact and attach small pieces of law to it than to attempt
a systematic revision.
A new civil code, which has to be elaborated in any case, could and should make
an effort to consolidate consumer protection laws with other civil legislation. In recent
years, the Dutch and Georgian legislators have aptly demonstrated the viability of
such an approach, while the new Russian law gives the impression that the State
Duma could not make up its mind. On the one hand, the C.C.R.E follows modem
trends by integrating a full range of the typical consumer protection issues-such as
the public contract-by which enterprises are obliged to conclude agreements on eq-
uitable terms,” the protection of parties to contracts of adhesion against unfair clauses9
strict product liability,'” and strict liability for legal but dangerous enterprises.” These
points not only demonstrate the potential for integration of consumer protection into
the C.C.R.F, but cover much of it-although more could have been added without
systemic problems. On the other hand, the Duma has not resisted the temptation to
imitate trendy European Union concepts when in 1996 it adopted a “Consumer Pro-
tection Law”. This is an act of pure symbolism, and is superfluous to the extent that it
creates special legislation at a moment when it would have been easy, elegant, and
much clearer to anchor consumer protection within the C.C.R.F-thereby giving it
generality, visibility, and dignity.
4. Family Law
Family law is a different matter. According to early revolutionary conviction, the
family under capitalism was an institution of property, exploitation, and dominance.
This view was also demonstrated by the fact that family law was part of civil law (i.e.,
the law of commodity exchange). It was only a small step from there to the proposal
that family relations be taken away from socialist civil law. In effect, this is what hap-
pened.
Revisiting the views both on the family and on civil law, it seems fair to reassess
the decision and reopen the C.C.R.F to family relations-thus ascertaining their con-
tractual, non-hierarchical character. Other texts, such as the Civil Code of Georgia and
the draft Ukrainian Civil Code, have embarked on this road without encountering
problems. The C.C.R.F., however, has resisted for no apparent structural reason.
‘Arts. 421,426 C.C.R.F
9 Art. 428 C.C.R.E
‘0 Arts. 1095-98 C.C.R.F.
“Art. 1079 C.C.R.F
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R. KNIEPER – STABILITY AND TRANSITION IN THE C.C.R.F6
265
II. A Critical Analysis of Salient Features
The first two parts of the C.C.R.F. have been enacted under the difficult and tense
social and economic circumstances of the new Russian Federation. All in all, the re-
sult is remarkable and there is no doubt that it is a welcome addition to the family of
continental European codes. There is equally no doubt that the achievement was eased
by that fact that Russia has always been part of this family despite its communist rule
and ideological deviations.
A civil code is not a document of transition. Its very purpose is to provide a stable
framework for market transactions and personal relations in responding to and shap-
ing long term structures of civil, capitalist societies which do not vary in a business-
cycle manner. It reflects this basic continuity, leaving fine-tuning and dynamics to in-
dividual contracts, which in turn are bound by legally-expressed fundamental policy
considerations of appropriateness, efficiency, and fairness. This intricate interrelation
between stability and flexibility, between ius cogens and ius dispositivum, has assured
the long-lasting longevity of continental civil codes. These codes express this interre-
lation by defining and rigorously enforcing legal norms, rights, and obligations while
at the same time allowing for autonomy of actions, contracts, and statutes.
The C.C.R.E does not deviate from these notions of codification, thus paving the
way for its own longevity. It accepts and reasserts the nature of physical and legal per-
sons, property rights, torts, and contractual obligations as universal principles of
economies based on monetary exchange that were established in the course of a long,
non-national history of law. Within this setting, it allows for the freedom of contract,”
for the freedom to fill the forms of legal persons by statutes,’3 and for the freedom to
undertake risky ventures.”
With all these carefully drafted principles acknowledged and in place, it would
have been reasonable and convenient to avoid incorporating and maintain legal con-
cepts which have been developed in response to the necessities of a centrally planned
economy. This is, however, not always the case. The consequence, at best, will be that
such norms and forms will not be used and applied in the long run and simply fall into
factual desuetudo. At worst, they will create confusion and will be exploited skillfully
in order to unduly shift risks between private persons and/or between the public good
and private vices, as has been and is amply demonstrated by the virtually uncontrolled
economic management of unitary enterprises’ 5– clearly a strange beast in the family
of legal persons.”
12ArL 421 C.C.R.F.
‘3 Arts. 48ff. C.C.R.F.
‘1 Art 1079 C.C.R.F.
‘” Art 114 C.C.R.F.
16 Art. 48 C.C.R.F.
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The following analysis by no means attempts to undo or replace conscientious
decisions of social and legal policy. It focuses instead on technical and systematic is-
sues which have important practical implications.
A. Unitary Enterprises
In considering unitary and treasury enterprises,’7 it is obvious that their structure
and operation differ from classical concepts of the legal person, although they are ex-
plicitly defined as such.” Such a statement does not seem to shock many modem legal
theorists who have long ago given up the search for an intrinsic substance to the legal
person-the personne morale. The nineteenth century philosophical debate regarding
assimilation of the legal person to the physical person, leading to theories of legal fic-
tion and substantial personality, are no longer significant.” The legal person is a crea-
ture of positive law. It is therefore up to the legislator to define its existence, charac-
teristics, and organization. There are, however, limits to this freedom. One is of a hard
and legal character, and the other is of a soft and factual character. The legal one is
constitutionality, the factual one is the overall consistency of the legal system.
The Russian unitary and treasury enterprises are legal persons without property.”0
They have the right of economic management’ or operative administration.” The right
of management implies the right to possess, use, and dispose of goods-which corre-
sponds to classical and constitutional” definitions-with the exception of immov-
ables,’ and within the limits provided by law insofar as they are intra vires.’ Liability
provisions are scattered and far from being comprehensive. Their general thrust is to
separate the funds of the unitary enterprise from the other property of the State, which
is the only organization in civil law to have access to such type of limited liability.
Article 126 C.C.R.E exempts the State unequivocally from liabilities of unitary enter-
prises. Articles 61(4), 63(6) and 115 C.C.R.E partly contradict article 126 by intro-
ducing subsidiary liability for treasury enterprises with operative administration and
excluding them from general liquidation proceedings, while articles 56 and 114
C.C.R.F. repeat the principle of article 126, but at the same time introduce an impor-
tant exception. If bankruptcy (i.e., the definite situation in which liability materializes)
is caused by the owner of the unitary enterprise (i.e., the State or municipalities), the
owner bears subsidiary liability as well. Given the broad decision-making and super-
visory powers which article 295 C.C.R.E extends to the owner, it is not difficult to
‘7Arts. 113-15 C.C.R.F.
Art. 48 C.C.R.F.
‘9 See generally R. Knieper, Gesetz und Geschichte (Baden-Baden: Nomos Verlag, 1996) at 61ff.
‘0Arts. 113,115 C.C.R.F.
2l Art. 114 C.C.R.F.
Art. 115 C.C.R.F.
” Constitution of the Russian Federation, art. 35.
24Art. 295 C.C.R.F
” Arts. 113ff., 294 C.C.R.F.
1999]
R. KNIEPER – STABILITYAND TRANSITION IN THE C.C.R.F
267
imagine that creditors will always try to link business failures to one of the debtor’s
decisions. This is sufficient to establish at least one contributing factor (i.e., a cause)
to the bankruptcy.
Practical implementation will show how the vague formulation of article 56
C.C.R.F will be interpreted. However, the two possible results are far from satisfac-
tory. If a narrow interpretation prevails and state liability is restricted, Russian law will
be confronted with the awkward situation of having created a totally exceptional lim-
ited liability of an owner, available exclusively to the State. If the interpretation moves
more toward the direction of a generalized subsidiary liability of the State in case of
bankruptcy, this will certainly protect creditors but financially burden the State (i.e.,
the public good), increasing the possibility of collusion and other forms of unprofes-
sional and reckless management of state enterprises facilitated by the sketchy provi-
sions of the C.C.R.F.
Legal persons have been created in order to render the separation of property
from physical persons possible. It is the only viable construction to limit liability
which normally covers all personal property. The principle is universally accepted.
The totality of assets of any person secures the satisfaction of any creditor’s claim.
There are some extremely rare and tightly circumscribed exceptions-inheritance law
is one, and highly personal objects in forced execution is another-but the principle is
clear. Each person’s liability is unlimited, which implies the corresponding principle
that the legal capacity of a person is defined by the potential of holding property
rights. The C.C.R.R follows this rule.” The right to hold property is a fundamental,
inalienable right of physical persons-this is the raison d’gtre for the establishment of
a legal person. Its legal construction has been described as the “greatest single discov-
ery of modem times. Even steam and electricity are far less important than the limited
liability corporation, and they would be reduced to comparative impotence without
it”‘”” This strong conviction is based on the fact that the “discovery” leaves the princi-
ple of unlimited liability of persons untouched, and yet limits the liability of physical
persons. It construes a person which bears liability with all its property and assets.
Property, legal capacity, and liability thus remain unseparate; the fundamentals of
market economies remain respected. It is common knowledge that the term “limited
liability company” has always been a misnomer-we are accustomed to it and can
live with it. It is equally accepted that a legal person cannot exist without property. If
physical persons do not respect this principle and misuse the form, they risk having
the corporate veil pierced and being held individually liable. The effective transfer of
capital (i.e., property) is essential for the establishment of legal persons, and is care-
fully scrutinized by law.
Corporate management serves the purpose of professional administration and
protection of creditors and shareholders alike. Cogent law gives corporate manage-
6 Arts. 17, 18 C.C.R.F.
2’W. Kolvenbach, Bhopal-Storm over the Multinationals? Zeitschriftftir Unternehmens-und Ge-
sellschaftsrecht (Berlin: de Gruyter Verlag, 1986) at 61, citing N.M. Butler (1911).
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ment structure and orientation, and formulates liability for sub-standard performance.
The roles, rights, and obligations of owners/shareholders, managers, supervisory
bodies, and independent accountants are well elaborated and standardized in concert
with the potential for liability and the risks inherent in the business administration of
collective and detached property.
The precision with which responsibilities and liabilities of different actors are es-
tablished has allowed the legislator to overcome the early standard of the ultra vires
doctrine and to introduce unlimited legal capacity of legal persons in business. This
evolution has rightly shifted risks away from business partners and creditors to the
company, whose business behavior can be controlled by owners and by elaborate
checks and balances. In continental Europe, this has been achieved by modernizing
company laws. The common law has–despite doctrinal continuity-practically
solved the problem by statutory practice. Russia has not yet followed the general
trend.”
The C.C.R.F,
to a large extent, builds on these principles. Universally accepted
forms of incorporation such as partnerships,” limited liability companies,” and joint
stock companies” are recognized. Business and market rationality are recognized, al-
though it is highly questionable whether it was good codification practice to elaborate
these general norms, which are insufficient to be operational anyway and necessarily
refer to special legislation for further detail, thus not paving the way to swift reforms.
Yet there is more in the new C.C.R.F. It also perpetuates some of the legal forms
which the Civil Code of the Russian Soviet Federated Socialist Republic2 had elabo-
rated in 1964. These forms made sense in a system where all property was in the
hands of the State, where the question of individual liability was marginal at best, and
where some autonomy had to be given to management of decentralized entities with-
out property in order to make the system work. The unitary enterprise and operative
management were practical ways out of the immobility of a centrally planned econ-
omy. The legal structure centers around management, not around liability nor around
decentralized property, of which management is but a function. In open contradiction
to the concept of the private legal person, the unitary enterprise is not an institution of
private law. It has not been created to reconcile the principle of unlimited liability in a
social system based on decentralized property. Instead, its focus is the interrelation of
state powers and management. In this regard, the C.C.R.F. fixes the autonomy of
management but also insists on state supervision. This is not the only ambiguity. The
text neither details substantive powers of one or the other party involved, nor estab-
lishes clear and operational procedures by which sound management could function
21 Art. 49 C.C.R.F
Arts. 66-86 C.C.R.F.
Arts. 87-95 C.C.R.F.
Arts. 95-104 C.C.R.P.
[hereinafter 1964 Civil Code].
n Vedomosti S”ezda Narodnykh Deputatov R.E i Verkhovnogo Soveta R.E (1964) No. 24, item 406
1999]
R. KNIEPER – STABILITYAND TRANSITION IN THE C.C.R.F6
269
with regard to owners, employees, supervisory bodies, etc. During the period of cen-
tral planning this might not have been seen as a gap, since vagueness was normally
filled by state and party decisions. With their disappearance, the normative framework
needs to be much more elaborate and explicit. The sketchy character of norms invites
collusion and irresponsible business behaviour. The fate of Russia’s state enterprises
can be taken as empirical evidence of such legal shortcomings.
The norms regarding the regulation of property and liability are as sketchy and
contradictory as those regarding management. While article 113 C.C.R.F. denies
property to unitary enterprises, it attributes special funds and assets to them, which
“belong” to them and over which they have the kind of power that is normally re-
served for an owner. The “real” owner, in turn, can take a non-defined “part” of the
profits.” The owner should equally be allowed to take property back, since there is no
norm to prevent it. Article 114 C.C.R.F. tries to attenuate the consequences, but does
not go far enough. Therefore, the property relations between the owner and the enter-
prise are far from clear, but there seems to be a parallel. In pre-capitalist European
law, a notion of “split property” existed; the lord held dominium plenum-which con-
ferred the final right of disposal-while the vassal held dominium utile-which con-
ferred the right of use and possession. Traces of the concept can still be found in arti-
cle 357 of the Austrian Biirgerliche Gesetzbuch of 1811 as well as in English common
law. It was, however, successfully contested by Kant, Hegel, and nineteenth century
European legislators, ‘ and disappeared from codification practice. It seems that it has
made a strange reappearance under the very different ideological assumptions of cen-
tral planning, but definitely has no place in market economies.
The lack of consistency with respect to liability has already been addressed. The
apparent clarity of separate liabilities of the unitary enterprise on the one hand and the
State on the other-expressed in article 126 C.C.R.F.-is partly revoked by other
norms. Both sets of provisions deviate from the intrinsic connection of property and
unlimited liability.
A critical appraisal of the foregoing sort may be accepted (or rejected) as a judg-
ment over the quality of the legal text. It may be taken as an occasion to reconsider
and eventually amend the C.C.R.F in order to bring it in line with more traditional
and generally accepted principles of legal persons, property, liability, and manage-
ment which are by no means alien to Russian law. In fact, internal and external con-
sistency and coherence of laws are important values, but they seem to be neglected by
lumping classic capitalist and communist forms of corporations together as legal per-
sons.
33Art. 295 C.C.R.F.
I. Kant, Die Metaphysik der Sitten, 2nd ed. (Wiesbaden: Insel Verlag, 1789) at 382; G.W. Hegel,
Grundlinien der Philosophie des Rechts (Frankfurt am Main: Suhrkamp Verlag, 1821) at 62-63. For
a detailed discussion, see Knieper, supra note 19 at 202ff.
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Can one go further and not only complain about the professional quality of the
text but also attack its legal validity? Can one say that a legal text is not only bad but
also without binding force? A law can be invalid if it contradicts more important
norms. This is explicitly recognized by article 125 of the Constitution of the Russian
Federation. The problem is to define the higher-ranking norm properly. Even if refer-
ence to Kelsen is rare these days, codified legal systems are based on positivism and
do not–or only under extreme circumstances-accept natural law argumentation.
The fact that there is a generally accepted core standard to determine the nature of a
legal person, or that there is a traditional natural link between property and liability, is
not a sufficient reason for rendering invalid a positive law which deviates from such
concepts. The legal person is a creature of law and the legislator is free to decide what
a legal person is.
There are, however, guidelines for and limits to the legislator’s freedom. The leg-
islator cannot act against fundamental social and economic national objectives to the
extent that they are embedded in the Constitution. The Constitution of the Russian
Federation accords “legal force and direct effect 3 to the rule of law and democratic
order, to rights and liberties of all persons, ‘ to the equality of all,37 to free entrepreneu-
rial and other economic activity,” and to private property. 9 It perpetuates the Soviet
notion of different forms of property but neutralizes its effect by insisting on their
equality,’ and it forbids laws which belittle human and civil rights and dignity.”
According to well-established constitutional doctrine, laws violate the rule of law
and civil liberties if they are so ambiguous, so void of coherence, and so contradictory
that their content, scope, and meaning do not disclose themselves. The C.C.R.F. at-
tributes civil rights-the most important of which is property-to legal persons’2 and
then creates unitary enterprises as legal persons who cannot own property. It also ac-
cepts the general principle that all persons bear liability for debts with all of their
property” and then makes exceptions for those legal persons whose funds are in the
immediate ownership of the State. These are certainly inconsistencies and contradic-
tions, but they do not transcend the framework of comprehension. They represent a
type of unfortunate political compromise which often leads to a lack of legal coher-
ence, but whose basic idea is still recognizable. Therefore, they cannot be character-
ized as violations of fundamental constitutional provisions.
‘, Constitution of the Russian Federation, art. 15.
‘6 Ibid., arts. 1, 18.
“7Ibid., arts. 5, 6, 8, 13, 19.
‘Ibid., art. 34.
” Ibid., arts. 8, 35.
‘ Ibid., art. 8.
41 Ibid., art. 55.
‘2 Art. 49 C.C.R.F.
4 Arts. 56,307ff. C.C.R.F.
1999]
R. KNIEPER – STABILITYAND TRANSITION INTHE C.C.R.F
On the other hand, the Constitution assures free economic activity and it forbids
any privilege and discrimination of the different forms of property. The C.C.R.F. lim-
its the liability of the State in the context of unitary enterprises. No other person has
access to such type of limited liability, and no reason is given except that the State is
the owner of the goods. Nobody else could create a legal person and still reserve its
property while at the same time limiting liability. The valid argument that public funds
need protection could be pursued with more success if the State’s property were trans-
ferred and if comprehensive management duties were introduced. The fact that the
State acts through an intermediary that disposes guaranteed funds and bears unlimited
liability would help if property were transferred to it. This is not the case. This is why,
in my view, the liability provisions of the unitary enterprise do not stand the test of
constitutionality. These provisions grant privileges to the State (i.e., to one form of
property) which reflect the old system of state monopolies and are no longer justified
by substantive arguments. In addition, they infringe upon economic freedom because
the State may participate in the market by using a legal device which prevents “nor-
mar’ creditors from acceding to all property to satisfy their claims.
These are all important shortcomings. Serious thought should be given as to
whether the structure of unitary enterprises should be abandoned and simply let
desuetudo reduce the practicality of the relevant legal provisions-even if powerful
interests are dissatisfied. One might also amend the C.C.R.F. and delete the respective
norms and institutions which made sense as a corrective of state monopoly property,
but which have become dysfunctional in a market system.
B. Special Types of Contracts
Not surprisingly the most voluminous part of the C.C.R.F. is devoted to “Individ-
ual Types of Obligations.'” What is surprising is that this section has not been divided
further, by grouping contractual ‘ and non-contractual’ obligations into two separate
divisions. This is, however, only of subordinate importance.
In general, the structure and content of Part 2 corresponds to well-established
codification practice. It assembles the traditional and predominant types of contracts
as they have been elaborated in other civil and commercial codes, and includes tort
and unjust enrichment. Modem developments generally have been integrated.
As in the case of legal persons, the legislator has maintained some of the previous
law of economic contracts. This law evolved in the Soviet era in response to the needs
and structure of a centrally planned economy and was codified mostly in the 1964
Civil Code. It is linked to an economic system and not to a culture of national legal
history. Thus, it would be erroneous to appraise these laws as specifically “Russian”
“Part 2 (also Division 4), C.C.R.E
41 Arts. 454-1063 C.C.R.F.
46Arts. 1064-1109 C.C.R.E
272
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unless one would want to equate Russia with the Soviet Union and a centrally planned
communist economy.
All legislators of special contract law face the methodological difficulty of fixing
an appropriate level of abstraction. On the one hand, legal and social history has im-
posed a certain differentiation; the distribution of risks and interests between parties of
contracts of sale, rent, services, credit, suretyship, etc., is too diverse to be lumped to-
gether into one. On the other hand, it would be a vain and superfluous exercise to dif-
ferentiate according to special services and goods which are to be exchanged. There
are as many acts of sale as there are objects and potential sellers and buyers on the
market, and there are as many contracts of work as there are services being rendered.
Cars and energy, pencils and enterprises, agricultural products and goods with or
without packaging can be sold; dentists, garagists, contractors, scientists, designers,
and hair-dressers offer services. All these goods and services are specific, yet are
made identical and comparable by the fact that on the market they are expressed in
terms of monetary (i.e., abstract) value.
Generally applicable laws have to address the identity and abstraction of goods
and services whereas the multitude of individual contracts address the multitude of
nuances. Laws and contracts have different functions but they complement each other,
and aim on different levels for the solution of the same problems: the equilibrium of
interests and the distribution of risks of the contracting parties. Laws cannot but stan-
dardize rights and obligations of parties, the quantity, quality and the forms of goods,
possible places and times of performance, and the consequences of sub-standard
products or non-performance of services, etc. Contracts have to define the specific
commodities to be delivered, the specific place and time or period of delivery, etc.
This is why civil codes present more or less obligatory models of contracts and still
grant autonomy to parties to negotiate and conclude contracts freely.
It is certainly part of legal policy and the art of legal drafting to find appropriate
and fair methods and standards of differentiation for different types of commodities-
as well as for different types of parties-especially when commercial contracts are
integrated into the C.C.R.F From this perspective, professionals are normally under
more stringent rules and obligations than non-professionals, consumers are increas-
ingly protected by cogent law, and minors may be excluded from certain businesses.
However, special treatment and protection of women-which existed at times in most
European codes-today would be rightly considered anti-constitutional and beyond
acceptable policy choices. Similarly, and by tradition, European civil codes do not re-
serve special treatment for the State or other public bodies. These actors are not hin-
dered from being partners in contractual relations; they are submitted to the same
rules of civil law as any other party. Special provisions for public procurement do not
contradict this statement, since they are administrative procedures established to pro-
tect competitors and precede the contract.
1999]
R. KNIEPER – STABILITYAND TRANSITION IN THE C.C.R.F
As to contracting parties, the C.C.R.F. differentiates partly on these lines, albeit
with the notable exception of certain contracts to which the State is a party. The State
contracts in writing for the supply of goods 7 and for the performance of work,” limits
the freedom to negotiate terms and conditions in contracts for the supplier and the
performer,”9 and confers a role to courts which seems inspired by the old state arbitra-
tion system. No substantial reason is given or is imaginable to legitimize the privilege.
The sheer fact that the State is the State no longer seems sufficient and is now open to
constitutional examination. It is also highly questionable whether the State’s contracts
stand the tests of equality and the unhindered entrepreneurial activity of suppliers.
These are highly esteemed constitutional principles. Laws contradicting them will
probably be invalidated.
The second sphere of legal differentiation concerns types of goods or services to
be exchanged against money. Most of the law in this area has developed in long-term
economic practice and has eventually been codified. Apparently, the strongest need
has been felt in the vast field of contracts for work and services where diverse activi-
ties such as transport, storage, insurance, banking, commission, agency, etc., have
been singled out in civil and commercial codes for special regulation. The European
codification of the travel agency contract is one of the latest examples.
Although the diversity of services seems to make the need for differentiation evi-
dent, a note of caution is appropriate. A law is not a textbook. Differentiations which
content themselves to define objects, goods, and services make no sense and violate
the indispensable principle of abstraction without which codes and statutes would be-
come endless, unpenetrable, and unoperational texts. Each new legal differentiation
should be subject to a cost-benefit analysis. Only if rights and obligations, perform-
ance criteria, and liabilities are so specific that they cannot find a proper place under a
more abstract type of contract should the legislator act. Today, it seems that the legis-
lator often acts to please the general public with symbolic gestures in the wake of a
specific problem. The law on travel agency contracts is a case in point. It responds to
the phenomenon of mass tourism and conveys a message of legislative activism and
reassurance to travelers, but does not add much substance to the general contract of
services. The principles which it does add are of a general character and are not re-
stricted to the particularities of the travel contract. It would have been more in line
with modernizing relatively old codes to have them introduced without the restriction
to a highly specific service. It seems that the European legislator has not fully re-
spected the necessity to formulate general and abstract laws.
The C.C.R.F struggles with identical problems of finding the appropriate level of
abstraction. The difficulties are accentuated by the tradition of the centrally planned
economy and its legislation, which insisted much more than Anglo-Saxon law-and
41 Arts. 525-34 C.C.R.F.
SArts. 763-68 C.C.R.F
49Art 426 C.C.R.F.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
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still more than continental law-on specific performance.’ Economic contracts were,
to a large extent, instruments for the execution of plans, functioning much more
through explicit directives of what had to be done and through moral persuasion than
through monetary incentives and entrepreneurial or individual liability. Goods and
services had to be rendered in kind. Monetary compensation would not have helped
much since there was no market for alternative supply. Economic interrelations and
rationality were more based on concrete duties than on abstract monetary value. De-
tailed descriptions and definitions of goods to be delivered and services to be rendered
were appropriate means to define performance.
In the “General Part of the Law of Obligations” 5′ the C.C.R.E reflects the funda-
mentally changed economic circumstances and pushes the absolute priority of specific
performance back in favor of monetary compensation. Article 393 C.C.R.E estab-
lishes the principle and article 396(2) C.C.R.E stipulates explicitly that monetary
compensation frees the debtor from performance of the obligation in kind-a tremen-
dous evolution from Soviet law. The section on “Individual Types of Obligations”52 is
not always as coherently modem. The C.C.R.F. refers to the traditional and well-
probed set of contract types, but in addition describes in epic detail and repetition who
has to do what, where, when, and why.
1. The Contracts of Purchase and Sale
The C.C.R.F. does not content itself to transform reciprocal obligations and the
rights of buyers and sellers into the generally accepted formulation by which the seller
is obligated to transfer the ownership of goods to the buyer3 and the buyer is obligated
to accept the goods and pay for them?’ It devotes at least one article each to specify
certain characteristics of the goods, such as quantity,” quality, and conformity with
assortment criteria-i.e., models and colors,” completeness,” and packaging. 9 The
C.C.R.E then describes, in each case, the consequences for the failure of perform-
ance, which have for the most part already been dealt with in the “General Part of the
Law of Obligations,” and which renders the repetition superfluous. The repetition is,
however, not identically formulated and it is not difficult to imagine how well-trained
lawyers-who make a living out of obstructing the swift settlement of disputes-will
enter into endless disputes over the applicability of certain norms for certain goods,
even if in the end the decision of a case will not depend on it. It will not always be
50H. Kroll, “Breach of Contract in the Soviet Economy” (1982) 16 J. Leg. Stud. 119 at 140.
‘ Division 3, C.C.R.F.
Division 4, C.C.R.R
‘ Arts. 454,456 C.C.R.F.
‘4 Arts. 454,484ff. C.C.R.F.
” Art. 465 C.C.R.F.
Art. 469 C.C.R.F.
Art. 467 C.C.R.F.
58 Art. 478 C.C.R.E
Art. 481 C.C.R.F.
1999]
R. KNIEPER – STABILITY AND TRANSITION IN THE C. C.R.F
easy to draw clear lines between quality and conformity with assortment, or between
quantity and completeness. They are, in fact, of only minor importance (and will be
settled by relying on the interpretation of concrete contracts) in a system which is not
completely dominated by specific performance-but where unspecific breaches of
performance lead to monetary compensation.
After these specifications in the general provisions on purchase and sale, the
chapter is further subdivided. Seven paragraphs and more than seventy articles state
repeatedly that a contract of sale between an enterprise and a consumer,’ or between
two enterprises,6′ the State and an enterprise,” or with respect to agricultural prod-
ucts,’ energy,’ immovables,” or enterprises, ‘ obligates the seller to transfer the goods
to the buyer and for the buyer to accept and pay for the goods received. They also re-
peat provisions on the time, place, and period of delivery and the consequences of
sub-standard or non-performance, which vary slightly between replacement, repair,
return of goods, reduction of the purchase price, rescission, and compensation for
damages. 7 The motive behind the slight variations from one contractual situation to
another is far from obvious.
In addition, the set of norms is highly complex and difficult to apply. The amount
of theoretical doctoral dissertations, lengthy battles in court, and efforts to reduce the
complexities in (model) contracts are easily foreseeable. The norms are highly repeti-
tive and rarely innovative; sometimes the legislators even seem to be lost in their own
complexities. The following are some examples:
In addition to the repetitions on transfer, acceptance, and payment, it seems
unnecessary to repeat that a contract between an enterprise and a consumer is
a public contract,” to stress conditionality,’ pre-contractual problems,” stor-
age,” packaging,72 calculation of damages,” etc., since these problems have
generally been taken care of, in more abstract provisions, in the overarching
“General Part of the Law of Obligations”
60 Arts. 492-505 C.C.RF.
61 Arts. 506-24 C.C.R.F.
6 Arts. 525-34 C.C.R.F.
Arts. 535-38 C.C.R.F.
“Arts. 539-48 C.C.R.F.
“Arts. 549-58 C.C.R.F.
6″Arts. 559-66 C.C.R.F.
67 Arts. 503ff., 511,518ff., 538, 542, 547, 557, 565 C.C.R.F.
” Art 494 C.C.R.F.
69 Art 499 C.C.R.F.
7 Ar 507 C.C.R.F
71 Art 514 C.C.R.F.
72 Art. 517 C.C.R.F.
7 Art 524 C.C.R.F.
276
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By integrating norms into one or the other paragraph, they are not applica-
ble to other specific contracts. Yet it is difficult to understand why a duty of
information or the right to inspection or the contract of hire-purchase
should be restricted to retail sales, while the calculation of damages on re-
scission-as proposed in article 524 C.C.R.R, which perfectly restates
general principles-should be restricted to inter-enterprise sales.
It will remain the secret of the drafters why they have formulated general
consequences for the transfer of goods of improper quality in article 475
C.C.R.F, which is repeated for the enterprise-consumer contract, albeit
with little differences in wording whose rationality does not disclose itself.
Conversely, they choose in the context of inter-enterprise contracts 4 the
technique of reference. Article 475 C.C.R.F. leads to essentially identical
results for both types of contracts. The impression, however, is that there is
a fundamental difference between the two, where in reality there is none or
at least none of importance.
Contracts of supply, of procurement of agricultural products, and of energy
supply have been developed in the course of central planning to ensure the
performance of state enterprises. These all boil down to contracts of pur-
chase and sale and the decision to maintain these distinctions leads to
much repetition and confusion. Most of the justified special norms-which
deal with professionals, consumer protection or long-term business-
relations-are not restricted to the sphere of purchase and sale, but to on-
erous contracts in general. They could be, should be, and partly are inte-
grated into the general provisions of contracting.
It is possible that many of the repetitions and inconsistencies will be sorted out by
practical application, interpretation, and, again, desuetudo. As to some key provisions
of state contracts in writing, they might eventually be challenged in the Constitutional
Court. Amendments to the text are improbable. Care should be taken, however, to
avoid using this as a model for other civil codes which are still in preparation. It might
even be useful to rethink the norms in application to the amendment of the Model
Civil Code for C.I.S. countries which may more easily be used as a playground for re-
forms.
2. The Contract of Work.
In addition to the provisions on purchase and sale, those pertaining to contracts of
different works and services merit critical discussion. Again, the primary type of con-
tract is subdivided in terms of parties-i.e., consumers” and the State—or in terms of
Art. 518 C.C.R.F.
IS Arts. 730-39 C.C.R.F.
76Art. 768 C.C.R.F.
1999]
R. KNIEPER – STABILITYAND TRANSITION IN THE C.C.R.F
277
specific activities-i.e., construction” and design/exploration.” Scientific research and
experimental design are singled out into a chapter of their own,” perhaps guided by
the scientifically unacceptable argument that the discovery of the impossibility of
achieving hypothesised results” be equivalent to non-performance of scientific work.
A separate chapter is devoted to services,” which attempts to enumerate specific ex-
amples such as communication, medical, veterinary, auditing, consulting, information,
instruction and tourist services.’2 Fortunately for dentists and lawyers, the list is not
meant to be exhaustive, which in turn unfortunately renders it legally superfluous ex-
cept for text-book purposes. Article 779 C.C.R.F. goes on to explicitly exclude con-
tracts of work from services, only to state in article 783 C.C.R.F that the provisions
on the contract of work are applicable with the exception of special norms to the con-
tract of services. These do not, however, deviate in substance from those norms appli-
cable to the contract of work-a complicated and confusing technique of legislation
indeed.
When comparing the set of provisions on the different sub-categories and types, it
becomes evident again that–except for descriptive concreteness with regard to per-
formance obligations-the division leads mostly to repetitions and in some cases to a
limitation of scope, which is hardly justifiable. The following are some examples:
” There is simply no reason to restrict the possibility of insurance,” the neces-
sity of technical documentation and its obligatory character,” the right to as-
sociate an expert to inspections,” the obligation to respect environmental
laws, and the obligatory character of state regulated prices” to consumer
work. Whether or not these effects are intentional, they do result automati-
cally from the C.C.R.F.’s organization.
” With respect to the basic obligations of contracting parties, the C.C.R.F. re-
peatedly states that the contractor has to perform a specific task, work, or
service relying on a mixture of technical definitions and non-exhaustive
enumerations.” With the exceptions mentioned above, the general provi-
sions of articles 702 to 729 C.C.R.F. contain a well thought-out catalogue
of rights and duties of parties, striking an appropriate balance between in-
terests and risks.
“Art. 740 C.C.R.F.
7′ Arts. 758-62 C.C.R.F
“C. 38 (arts. 769-78) of the C.C.R.F.
“”Art. 775 C.C.R.F.
C. 39 (arts. 779-83) of the C.C.R.F.
Art. 779 C.C.R.F.
Art. 742 C.C.R.F.
Art. 743 C.C.R.F.
“Art. 749 C.C.R.F.
‘Art. 751 C.C.R.F.
Art. 735 C.C.R.F.
Arts. 702,730-33,740-45,758-60,769-73,779 C.C.R.F.
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[Vol. 44
With respect to the supply of material and equipment by one party-as
well as pricing, inspection, rescission, acceptance, information, and confi-
dentiality-the special provisions of the C.C.R.F. add only very marginal
points. They are sometimes reasonable and could be added to an article of
the general provisions-such as the extension of liability periods for con-
struction work -while on other occasions they are not easily understand-
able. Why, for instance, does the law on consumer work refer to the con-
tract of purchase and sale in case of improper performance and not to the
more appropriate norms of the work contract, even though this is the gen-
eral intention of the chapter?9’ Overall it seems that the special provisions
are sometimes not up to the standard of the general ones, and at times seem
to have been added solely for the sake of describing obligations of specific
performance.
The contract of purchase and sale and the contracts of work and services demon-
strate that the base of contractual rights and obligations-just as for all other special
types of contracts-is firm and stable. It fixes a distribution of risks and an equilib-
rium of interests which reflects the universal experience of centuries of monetary ex-
changes. At the same time, it is still partly inspired by the necessities of a centrally
planned economy and its one-sided quest for the specific performance of concrete
obligations by sub-entities of a monopolized economy. The uniformity and abstrac-
tion of monetary value, for which holders of decentralized property and independent
participants on the market finally strive, are not always thoroughly taken into account.
This leaves important indications of constant transition in a code that is supposed to
be stable. It would have been appropriate-and certainly not disrespectful toward
Russian legal culture-to push abstraction and generality further, or to maintain the
level of abstraction which is already in place on many topics. The search for certainty,
however, may lead to a complex system of interrelation and references rendering un-
derstanding and implementation difficult. The ex-Soviet judge might recognize a fa-
miliar rule, but it has lost its context and now has to be seen as part of the new totality
of law. The quest for transparency and simplicity of laws is as old as efforts of codifi-
cation. Unfortunately, laws cannot be simpler than the social relations they are meant
to regulate-especially if they are based on the rule of law.
Conclusion
The critical analysis of some salient features of the new C.C.R.F. leads to the con-
clusion that quality might be improved by a more thorough systematization and by a
more rigorous liquidation of central planning devices. This is true both for the unitary
enterprise and for special types of contracts which have been discussed here. Never-
theless, there is some hesitency to recommend amendments to the C.C.R.F., although
‘9 ArL 756 C.C.R.F.
Art. 739 C.C.R.F.
9 Art. 702(2) C.C.R.F.
1999]
R. KNIEPER – STABILITY AND TRANSITION IN THE C.C.R.F
279
there is no hesitency to recommend an overhaul of the C.I.S. Model Civil Code which
is more an intellectual exercise than law, and has no immediate practical impact on
social and economic life. This hesitation stems from the conviction that legislation,
especially in periods of transition, needs to be stable and not subjected to constant
change. There is a definite trade-off between stability of law and its quality. Russia-
and for that matter all newly independent states-experiment far too much with new
laws which are unfortunately quite often influenced by international organizations.
The process sometimes looks like an offspring of Soviet “legal nihilism”. For this rea-
son, it might be advisable to keep any acceptable and constructive criticism on record
and let it infiltrate legal practice by drafting statutes and contracts, as well as in pre-
paring and deciding cases in interpretation. The emphasis must shift from legal draft-
ing to implementation. This will help to overcome the inconsistencies and shortcom-
ings of transition in a civil code which, for the most part, is a fine example of crafts-
manship and stability.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 44
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