October 15, 2020
It seems every entrepreneur has a story of the one time they went without a contract and got burned. They can be an easy step to skip – especially if you have a spoken agreement or are working with someone you know. But when things go wrong in a business deal? A contract can be an important part of making things right and reaching an agreement.
Jan Kuhlen & Susanna Stursberg of KUHLEN Partnerschaft von Rechtsanwälten mbB have been part of our community for years, offering Law Office Hours and leading workshops designed to help members answer their toughest legal questions. Of course, unique legal situations require custom advice, but when it comes to what constitutes a legally-binding contract, Susanna says there are a few things you can know for sure.
We sat down with her for a deep dive into contracts. What makes them enforceable, what to do if you don't have one, and what you can do if you want out. Here's what she had to say.
KUHLEN is a team of Berlin-based lawyers who specialize in commercial law, copyright law and labor law. They support their clients who are looking to do business in Berlin with complex registration, real estate law, banking & capital marketing law, and conducting cases. Put simply, the topics that cause the rest of us to lose sleep are just another day in the KUHLEN office.
A contract can also be concluded orally. Only in certain cases does the law require the written form, e.g. when founding a limited liability company (GmbH), when purchasing real estate, etc. Often there is no explicit mention of the word “contract” or “agreement” at all, but it results from the circumstances, e.g. from mutual emails.
For a contract you only need two corresponding declarations of intent, e.g. one email saying "we will deliver service x by next Monday" and the other saying "great, we will pay x EUR for this". Like this, a contract has already been concluded, which brings with it rights and obligations.
If there is no contract between the parties, this does not mean that there is no legal relationship. It simply means that the legal regulations of the codes are applicable. Here you will find, among other things, warranty and liability regulations, reasons for appeal, and termination options.
However, these regulations often do not take into account the individual situation of the parties and do not cover the need for regulation.
Just because a clause is written down in a contract, it does not necessarily mean that it is effective. Although in many cases it can be freely determined what is regulated between the parties, the law also sets clear limits to this. Ineffective are, among other things, clauses that unreasonably disadvantage the contractual partner. For example, a rental agreement may not prohibit the installation of a refrigerator.
An important difference is whether a consumer is involved on one side of the parties (B2C) or whether it is only between companies (B2B). For the protection of the consumer from a company, special provisions apply which the company must observe when concluding a contract, these are e.g. information about the essential properties of the respective product, information about warranty rights or extra payments.The legal regulations require the greatest possible transparency for the benefit of consumers.
However, with B2B transactions, such comprehensive information is usually not necessary. In this respect, a knowledge and experience advantage of the entrepreneurial buyer is assumed here, which makes the information obligations obsolete.
If the consumer is provided with general terms and conditions, even stricter provisions apply in favor of the consumer. T & C are subject to a special content control. Any ambiguities or cases of linguistic doubt are the responsibility of the person using the T & C. Furthermore, there is the transparency principle, which means that a clause in T & C is inappropriate and unfair if it is not clear and understandable.
In addition to the prohibition of unreasonable disadvantage, clauses must not be unexpected and take the consumer by surprise. If a clause is ineffective, it is regarded as non-existent in the legal sense. The gap created by the invalid clause will be filled by the statutory provisions.
Of course, this must be checked in each individual case.
A contract is usually effective without a signature unless the written form is required for this legal business. First and foremost it depends on the agreement of both parties. Whether an additional signature is required depends on whether the law stipulates a written form requirement. In this context, the distinction between written form and text form becomes important.
If written form is required, the legal transaction must be signed by hand or by means of a notarially certified hand mark. The text form only demands a legible declaration, which does not require a signature.
If the written form is required by law, its requirements must be met, otherwise the respective declaration is generally not effective, e.g. in the case of a fixed-term employment contract or the purchase of real estate.
However, there is also the option of signing digital documents electronically with tools such as docusign. If electronic signatures meet the requirements of the "Regulation on electronic identification and trust services for electronic transactions in the internal market" (eIDAS Regulation), they are considered legally valid.
In principle, closed contracts must be adhered to, i.e. they cannot be terminated at will. However, there are exceptions to this rule. If it is no longer acceptable for one of the parties to continue to adhere to the contract, the contract can be terminated for good cause. Also the rather rare case of the loss of the business basis can occur.
Furthermore, the contract often provides for termination options, e.g. in the case of an employment contract or service contract. In this way, the contract can be terminated for the future.
In addition, the contract can be revoked in some cases, e.g. in the case of contracts concluded by consumers via the internet (distance contracts). A right of withdrawal of 14 days is provided by law, and often stores offer even a longer period.
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