Signing a Contract with a German Company

In 2002 Germany enabled a new law of obligations, mainly known as the contract law. The German Contract Law was incorporated in the new Civil Code (Bürgerliches Gesetzbuch, BGB) and it is made up of books 1 and 2. Books 1 and 2 in the German Civil Law contain provisions about the conclusion, the form and content of a contract and also define the types of contracts.

The conclusion of a contract in Germany

According to the contract law, a German contract is concluded when intent declarations are made. The first intention is to offer and the second one is to accept. Through the offer and acceptance intents, parties agree that the conclusion of the contract will give rise to legal obligations and consequences, which is why according to the German law the conclusion of a contract must be made upon two or more declarations of intent with the same result. In order for the contract to be valid, the German Civil Law requires that both parties have legal capacity to conclude a contract.

Our German law firm can provide legal assistance in litigation cases derived from commercial contracts.

The principle of freedom of contract in Germany

According to the basic law the principle of freedom applies whenever concluding a contract. This principle refers to the fact that each party can decide who to sign a contract with, as long as it does not affect third parties.  Freedom of contract first appeared in the German Constitution that guarantees freedom of action (Allgemeine Handlungsfreiheit). According to the Civil Code, a contract is valid even without specific rules. However, a contract must contain relevant details in order to be signed. The German Contract Law is based on two principles when concluding a contract:

• -        the “Trennungsprinzip“ principle states that a sales contract (Verpflichtungsgeschäft) must be distinguished from act that grants property according to the law which the equivalent of the transfer of ownership in the German Civil Code (Verfügungsgeschäft). The sale must contain three parts: the sales contract, the transfer of property and the transfer of money;
• -        the “Abstraktionsprinzip” principle is based on the “Trennungsprinzip” principle and states that the validity of an obligation and the accomplishment of said obligation do not depend on each other.

The contract law defines three types of German contracts:

• -        reciprocal contracts (gegenseitige vertraege),
• -        third party contracts,
• -        special types of contracts that can be lease or gift contracts,
• -        sales contracts (kaufvertrag).

Breach of German contracts

The German contract law does not have exhaustive provisions about the breach of contracts, but a contract is considered to be breached under these circumstances:

• -     delayed performance (Verzug) if the debtor does not perform his or her duties in the required timespan;
• -    impossibility of performance (Unmoeglichkeit) that appears after the conclusion of the contract;
• -    positive violations of the contract (positive Vertragsverletzungen) that cover other situations than delayed  or impossibility of performance.

If you want to set up a company and need details about the contract law you can contact our lawyers in Germany.