Definition of Contract for the Management of Affairs
A contract for the management of affairs is a legally regulated type of contract under German civil law, codified in sections 675 et seq. of the German Civil Code (BGB). It describes an obligation-based contractual relationship in which one party (the manager) undertakes to handle a matter for the other party (the principal) either for remuneration or free of charge. Management of affairs includes all activities of an economic, legal, or factual nature that cannot be expressly assigned to another type of contract.
Legal Classification and Systematics
Contracts for the management of affairs belong to the broader category of service contracts. They are legally distinguished from mandates as well as from contracts for services and works contracts. A key feature is that the activity is carried out in the interest and for the account of the principal. The management of affairs may include both legal and factual actions.
Important subtypes of the contract for the management of affairs include, for example, brokerage contracts, tax advisory contracts, contracts for management with banks (e.g., account management), and contracts for legal services.
Legal Basis
The central provision for the contract for the management of affairs is section 675 BGB, supplemented by specific regulations, for example, on payment services, brokers, or custodians. As a rule, the regulations for mandates (sections 662 et seq. BGB) apply insofar as the contract is performed free of charge, as well as the law governing service contracts (sections 611 et seq. BGB) or works contracts (sections 631 et seq. BGB) for the structuring of contractual obligations.
Distinction from Other Types of Contracts
The distinction is made to:
- Service contract: Focuses on the activity, not the result.
- Works contract: An outcome is owed (production of a specific result).
- Mandate (§ 662 BGB): Unpaid management of affairs.
- Brokerage contract (§§ 652 et seq. BGB): Success-based intermediary activity.
A management of affairs is always present where the activity of the manager aims at the protection of another’s interests and goes beyond the mere performance of actual acts.
Subject Matter and Typical Areas of Application
The contract for the management of affairs may comprise both factual and legal actions. Typical examples include:
- Account management by credit institutions
- Asset management
- Insurance administration
- Business consulting
- Tax consulting
- Asset Management
- Debt collection services
Contracts with auditors, property managers, or estate administrators are also regularly qualified as contracts for the management of affairs.
Duties and Rights of the Contracting Parties
Duties of the Manager
The manager is obliged to carry out the tasks assumed with the necessary diligence and to respect the interests of the principal. The specific duty of care depends on the type of business managed. Gross negligence or intentional misconduct leads to liability for damages (sections 280 et seq. BGB). In many cases, the law or the contract requires the manager to possess particular expertise.
Duties of the Principal
The principal is generally obliged to pay remuneration, unless gratuitousness is expressly provided for. Reimbursement of expenses, as well as duties of notification and cooperation, often arise in the course of cooperation.
Liability in the Contract for the Management of Affairs
The liability of the manager covers both contractual claims (e.g., for damages in the event of breach of duty) and tort claims. A limitation of liability is generally possible but is subject to statutory restrictions, especially in cases of gross negligence or breach of cardinal duties.
Termination of the Contract for the Management of Affairs
The contract for the management of affairs may be terminated by fulfillment, expiry of time limit, termination, or in statutory exceptional cases (e.g., death of a party).
- Ordinary termination: Generally possible at any time, unless otherwise stipulated in the contract.
- Extraordinary termination: Immediately possible for good cause (§ 626 BGB applied analogously).
After termination, there is generally an obligation to return documents or items provided and, if applicable, a duty to account and provide information.
Special Features of Particular Contracts for the Management of Affairs
Contract for the Management of Affairs with Banks
A classic example is the business relationship between a customer and a bank, for instance in account management, custody management, or execution of payment orders. Numerous special statutory provisions also apply here, for example from the Payment Services Supervision Act (ZAG) and the German Civil Code (§§ 675c et seq. BGB).
Contract for the Management of Affairs in Asset Management
In asset management, a contract for the management of affairs exists, which is typically characterized by far-reaching freedom to issue instructions by the manager and a special degree of trust. The duties of information, clarification, and accounting are especially pronounced.
Distinction from Agency without Specific Mandate
The contract for the management of affairs must be distinguished from agency without specific mandate (§§ 677 et seq. BGB), where a party acts in the interest of another without a contractual agreement.
Contractual Structure and Formal Requirements
As a rule, no special form is required for a contract for the management of affairs, unless the law prescribes a written form or another form for certain contracts (e.g., for certain securities-related transactions). The structure may be tailored individually, whereby remuneration, description of tasks, liability, and termination clauses, in particular, should be clearly regulated.
Tax Aspects
Tax-specific provisions (e.g., VAT liability, income taxation from self-employed or commercial activities) may become relevant for commercially rendered management of affairs. Tax treatment depends on the structure of the contract and the type of businesses managed.
Summary
In German civil law, the contract for the management of affairs is a fundamental type of contract for the assumption of economic, legal, or factual matters in the interest of a third party. Statutory provisions and extensive case law provide a clear framework for contractual design and execution. Distinction from similar contract types, correct legal classification, and proper contractual drafting are essential for the legally secure application of the contract for the management of affairs in business.
This encyclopedia article provides a comprehensive overview of the contract for the management of affairs under German civil law and serves to give an in-depth legal classification and information.
Frequently Asked Questions
What duties does the agent undertake in a contract for the management of affairs?
According to section 675 BGB, the agent is obliged to execute the assigned business with the diligence required for a contract for the management of affairs. This includes, in particular, safeguarding the principal’s interests, adhering to given instructions, and the duty to promptly inform about significant developments or difficulties. The tasks can be varied, e.g., management of another’s assets, banking transactions, insurance services, or other economic services. Moreover, there are comprehensive duties of information and accounting, so that the agent must provide information on the current status of management upon request at any time and submit a complete statement of account upon completion. In the event of breaches of duty, the agent may be liable for damages under sections 280 et seq., 675 BGB, provided that there is fault.
How does the contract for the management of affairs differ from other contract types, such as service or works contract?
The contract for the management of affairs under section 675 BGB is a special form of service contract (section 611 BGB), whereby the agent undertakes an independent activity in the economic interest of the principal. The main difference to the works contract (section 631 BGB) is that in the management of affairs, no specific result is owed, but merely the performance of the agreed activity; whereas, in a works contract, a defined outcome must be achieved. In comparison to a ‘pure’ service contract, the contract for the management of affairs is particularly characterized in that it either expressly provides for a remunerated management or is connected to a management in the economic field, such as banking, insurance, or investment transactions. Another special feature may be regulation by special laws (e.g., HGB, WpHG, KWG), which must be considered in the field of management of affairs.
What formal requirements apply to a contract for the management of affairs?
There are generally no special formal requirements for concluding a contract for the management of affairs; it may be concluded informally, orally, or by conclusive conduct. However, for certain types of management of affairs, specific statutory requirements may arise (e.g., notarization for real estate sales, written form for loan agreements under sections 492 et seq. BGB). In addition, each agreement must be reviewed on a case-by-case basis to determine if and to what extent legal formal requirements apply. If such formal requirements are not met, the contract is usually void (section 125 BGB).
How does the liability of the agent operate in the event of breaches of duty?
The liability of the agent is governed by the general rules of the German Civil Code. According to section 280 BGB, the agent is liable for compensation for the resulting damage if he breaches his duties and is at fault, i.e., in cases of intent or negligence. In particular, liability may arise from faulty performance of the assigned business, failure to fulfill information obligations, or disregard of instructions from the principal. However, individual contractual limitations of liability may be agreed as long as mandatory statutory provisions do not prevent this (e.g., section 309 No. 7 BGB regarding general terms and conditions). There are also special rules on liability for bank and financial service contracts, where sometimes stricter standards apply or a presumption of fault (reversal of the burden of proof) exists.
What claims for remuneration can the agent assert?
As a rule, section 675(1) BGB stipulates that management of affairs is to be remunerated, unless other arrangements are agreed or gratuitousness follows from the circumstances. The remuneration can be freely agreed upon; in the absence of an explicit arrangement, the usual remuneration (section 632(2) BGB applied analogously) is owed. In the field of special management of affairs, especially in banking, remuneration often arises from price lists or general terms and conditions. In addition, the agent is entitled to reimbursement of expenses (section 670 BGB) incurred in the principal’s interest and necessary for the performance of the business.
When and how can a contract for the management of affairs be terminated or revoked?
A contract for the management of affairs can generally be terminated by either party at any time (section 671 BGB applied analogously), unless otherwise agreed. Termination can occur without notice; in the event of good cause, the contract may also be terminated without notice. If the principal terminates the contract at an inopportune time, i.e., at a time particularly disadvantageous to the agent, he is obliged to compensate for the resulting damages (section 672 sentence 2 BGB applied analogously). Where consumers are concerned, statutory rights of revocation under section 355 BGB may also exist, in particular for distance contracts.
What role do special regulations under commercial law play for the contract for the management of affairs?
Numerous special regulations exist in commercial law that apply to certain types of contracts for the management of affairs. For example, commission contracts (sections 383 et seq. HGB), brokerage contracts (sections 93 et seq. HGB), forwarding and freight contracts (sections 453 et seq., 407 et seq. HGB) are subject to their own statutory frameworks, which often entail stricter duties, special liability exemptions, or specific termination provisions. In banking contract law (sections 675c et seq. BGB), additional provisions for payment services and account management can be found, including detailed consumer protection requirements. Each management of affairs must therefore be examined for possible special rules that may take precedence over the general provisions of the BGB.
