Contract Law

Contract Law

Contract law is a central concept in German as well as international law. It serves to regulate and codify general or specific norms regarding contracts. In different legal systems, contract law holds an independent or supplementary significance within the framework of private law. This article provides a detailed, legal-lexical description of the term ‘contract law,’ analyzes the statutory foundations, and highlights the practical aspects and implications.

Definition and Legal Classification

Contract law refers to statutory provisions that regulate the requirements, conclusion, legal consequences, as well as the validity and invalidity of contracts. In German law, there is no standalone ‘contract law’; rather, the provisions regarding contracts are primarily found in the German Civil Code (BGB) as well as in various special laws (e.g., the Commercial Code or the Act on the Modernization of the Law of Obligations).

Significance in German Law

In German law, the term ‘contract law’ is often used in a broader sense. It refers to laws that establish basic rules for the formation, validity, content, and termination of contracts. The key statutory regulations are:

• German Civil Code (BGB), in particular §§ 104-185 (legal transaction), §§ 311 et seq. (obligations arising from contracts), and § 305 et seq. (General Terms and Conditions)
• German Commercial Code (HGB) for special contractual relationships in commercial dealings
• Act on the Revocation of Doorstep Transactions and Similar Transactions as well as other consumer protection laws

Historical Development of Contract Law

The development of contract law is closely linked with the evolution of civil and commercial law. As early as Roman law, contract law formed a fundamental element of private law order. In the 19th and 20th centuries, contract rules were codified by comprehensive statutes, such as in the BGB (1896/1900) or internationally in the UNIDROIT Principles and the CISG (UN Sales Law).

Scope of Application and Applicability

National Contract Law

In Germany, there is no isolated ‘contract law,’ yet numerous legal codes fulfill the function of contract law. These regulate typical types of contracts such as purchase, lease, service, contract for work, or loan contracts. In addition, special laws apply when specific contract relations are affected (e.g., Insurance Contract Act, Employment Contract Law).

International Contract Law

At the international level, contract laws such as the Vienna Convention on Contracts for the International Sale of Goods (CISG) are of primary importance. They regulate cross-border contractual relationships and harmonize the respective national contract laws.

Content and Legal Effects of Contract Law

Contract Formation

A fundamental element of contract law is the regulation of contract formation through offer and acceptance. These principles form the basis of almost all national and international provisions.

Formal Requirements and Requirement of Written Form

Contract law regulates in which cases contracts require a specific form (e.g., written form, notarization). This is relevant, among other things, for real estate purchase agreements, marriage contracts, or promises of gifts.

General Terms and Conditions (GTC)

A key chapter of contract law concerns the inclusion, interpretation, and validity of General Terms and Conditions. In German law, these issues are regulated in §§ 305 et seq. BGB.

Immorality and Statutory Prohibitions

Contracts that violate good morals or statutory prohibitions are void according to the relevant legal provisions. This serves to protect private autonomy and public order.

Content Control and Consumer Protection

Specific contract laws often include protection mechanisms in favor of weaker contracting parties, especially consumers. A typical example is the right of revocation in doorstep or distance selling contracts.

Termination and Reversal of Contracts

Contract law also regulates the requirements and legal consequences for terminating contracts, including termination, withdrawal, revocation, and rescission. Reversal mechanisms ensure the return of received performances and regulate liabilities for damages.

Special Forms of Contract Law

Public Law Contract Laws

Contract laws also exist in public law, for example in procurement law or for public law contracts according to § 54 VwVfG. These must be distinguished from civil law regulations in principle, but are often subject to comparable principles.

Collective Contract Laws

In labor and social law, special collective contract laws are enacted through collective agreements and labor contracts which apply to larger groups of employees.

Relevance and Practical Significance

Contract laws provide the central legal framework for business and everyday life. Knowledge and application of these laws are essential for entrepreneurs, consumers, and institutions to establish binding legal relationships and to reliably determine rights and obligations.

Summary

Contract law is a generic term for all statutory regulations that determine the conclusion, interpretation, execution, termination, and reversal of contracts. There is no single, independent provision called ‘contract law’ in German law; instead, the relevant provisions are found in the German Civil Code as well as in supplementary special laws and at the international level. The most important contents are form, content, protection of weaker contracting parties, regulation of General Terms and Conditions, and provisions regarding the termination and invalidity of contracts. Contract laws significantly shape the entire legal and economic life.

See also:

• Contract
• Law of Obligations
• German Civil Code (BGB)
• General Terms and Conditions
• Private International Law
• UN Sales Law (CISG)
• Freedom of Contract
• Consumer Protection

References:

• Palandt, Civil Code. Commentary.
• Medicus/Petersen, Civil Law.
• Löwisch, Law of Obligations – General Part.
• Staudinger, Commentary on the German Civil Code.

Frequently Asked Questions

What requirements must be met for the conclusion of a valid contract under German contract law?

For a contract to be validly concluded in the legal sense under German contract law, especially pursuant to the German Civil Code (BGB), several requirements must be met. First, there must be a mutual declaration of intent consisting of an offer and an acceptance in accordance with §§ 145 et seq. BGB. The offer must be specific, that is, contain all the essential elements of the contract (essentialia negotii) such as parties, performance, and counter-performance. The acceptance must be given within the legally stipulated period and must correspond to the offer without additions or restrictions; otherwise, it merely constitutes a new offer. Both parties must have legal capacity in accordance with §§ 104 et seq. BGB. A contract is not concluded if there are statutory prohibitions or immorality (§§ 134, 138 BGB). Any applicable form requirements – for example, notarization in the case of real estate purchases pursuant to § 311b BGB – must also be met; if the form is not complied with, the contract is regularly void. In business transactions, specific provisions such as the Commercial Code (HGB) and any special laws must also be observed. Finally, for certain types of contracts, for example in distance sales or consumer contracts, the right of withdrawal and information obligations must be taken into account.

Under what circumstances can a contract be rescinded after conclusion, and what are the legal consequences?

A contract can be rescinded after conclusion under certain conditions, according to §§ 119 et seq. BGB. Grounds for rescission include material mistakes, threat, or intentional deception. An irrelevant motive error is not sufficient; rather, there must be a mistake regarding the content (§ 119 para. 1 BGB), declaration (§ 119 para. 1 BGB), or the qualities of a contracting party/object (§ 119 para. 2 BGB). The rescission must be declared without undue delay after becoming aware according to § 121 BGB. In cases of fraudulent misrepresentation or unlawful duress, a period of one year applies (§ 124 BGB). Rescission renders the contract void from the beginning (ex tunc) pursuant to § 142 para. 1 BGB, so performances must be reversed (obligation to return under §§ 812 et seq. BGB). The party rescinding may have to pay damages for reliance in accordance with § 122 BGB (particularly in cases of mistake) if the counterparty relied on the validity of the contract.

When is a contract void due to immorality or violation of law?

A contract is void if it violates a statutory prohibition (§ 134 BGB) or good morals (§ 138 BGB). In case of violation of law, it depends on whether the law expressly provides for nullity as a consequence. Examples include the prohibition of illegal employment or certain export restrictions. A contract is considered immoral if, based on its content, motivation, or purpose, it is incompatible with the moral sense of all fair and just people; this is the case, for example, with oppressive contracts, usury, or blatant exploitation. The violation must exist at the time the contract is concluded. In both cases, the contract is void from the outset; rights such as return or damages only exist in narrowly defined exceptional cases, e.g., when the law aims to protect one party.

What role do General Terms and Conditions (GTC) play in contract law, and when are they effectively incorporated?

General Terms and Conditions (GTC) are pre-formulated contract terms intended for use in multiple contracts, § 305 para. 1 BGB. For their effective incorporation, the user must expressly refer the contracting party to the GTC at the time of contract conclusion, provide an opportunity to take note of them, and obtain the contracting party’s agreement to their inclusion (§ 305 para. 2 BGB). Unexpected and ambiguous clauses are invalid (§ 305c BGB). GTC are subject to content control pursuant to § 307 et seq. BGB, according to which unreasonable disadvantages, unclear regulations, or deviations from essential statutory principles are ineffective. Particularly in consumer contracts, this control is strict; in commercial transactions, industry practices and the experience of the contracting party are decisive.

What is the significance of the written form requirement for contracts and when does a lack of form invalidate a contract?

The written form requirement is one of several legal forms to be observed for certain contract types under the law, see §§ 126 et seq. BGB. The written form demands that the contract terms be personally signed by both parties. Such requirements exist, for example, for suretyships (§ 766 BGB), real estate transactions (§ 311b BGB – notarial form), or for certain rental and gift agreements. Failure to observe the legally mandated form generally renders the contract void (§ 125 BGB), unless the law provides for a remedy (e.g., completion of the transaction in case of real estate purchase). Contractually agreed form requirements usually serve as a protection for the parties, however, a form breach may also result in invalidity if expressly agreed.

When does a contract expire, and what are the legal consequences of its termination?

A contract may expire in various ways: through performance, mutual cancellation (cancellation agreement), termination, rescission, withdrawal, or a resolutive condition. Performance means that the obligations have been fully performed (§ 362 BGB). Cancellation occurs through mutual declaration of intent. Termination is possible with continuing obligations (e.g., lease or employment contracts), subject to notice periods and formal requirements. Withdrawal can be exercised under statutory requirements (e.g., breach of duty under §§ 323 et seq. BGB) or if contractually agreed. The right of withdrawal is often governed by consumer protection law (§§ 355 et seq. BGB). The legal effects of termination include any claim for return pursuant to §§ 346 et seq. BGB (especially in the case of rescission or withdrawal) as well as the release from further obligations.

What duties and rights arise for the parties to a contract under the law?

With the valid conclusion of a contract, parties acquire primary obligations (e.g., in a sales contract: payment and delivery) and ancillary obligations. The primary obligations arise from the respective type of contract (e.g., contract for services, lease, contract for work) and are regulated in the relevant statutes (e.g., §§ 433, 535, 611 BGB). Ancillary obligations (duties of protection, consideration, information) serve to protect pre-contractual and contractual trust and to ensure smooth performance (§ 241 para. 2 BGB). If a party breaches a duty, there may be claims for fulfillment, damages, or withdrawal. The legal bases, requirements, and scope vary depending on the contract type and type of breach. In a business context, special duties may also arise from commercial or company law.