Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

Yes. Good faith is regulated in section 242 of the German Civil Code (BGB). It is a fundamental principle under German law. It establishes the obligation on both parties in a contract to reliably and sincerely perform their obligations, taking customary practice into consideration. However, unless there is a violation of specific rules of law of the BGB or the German Commercial Code (HGB), it is rather hard to enforce a party’s right that is established only on the general rule of section 242 of the BGB.

The principle of good faith is specified, for example, in section 138 of the BGB (no legal transaction contrary to public policy; no usury) and in section 307 et seq of the BGB (no unreasonable disadvantage to the other party in general terms and conditions).

The principle of good faith also establishes pre-contractual rights and obligations on the parties (sections 311(2) and 241(2), BGB). A party in negotiations may demand compensation for the culpable estoppel (abandonment) of contractual negotiations by the other party if:

  • the other party has caused it to have particular confidence that the future contract will be concluded;
  • the party claiming compensation has incurred expenses in expectation of the contract; and
  • the other party has stopped the negotiations very unexpectedly and without a material reason for doing so.

Moreover, the principle of good faith requires, for example, that the parties in contract negotiations clarify circumstances to the other party that are of great importance with respect to conclusion of the contract.

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

In principle, a valid contract under German law requires two corresponding declarations of intent. Offer and acceptance do not need to be declared expressly. A contract can also be concluded by implied behaviour (eg, supply of the ordered products).

If more than two parties are involved - which may for example be the case when corporate groups enter into contracts with suppliers - each party that wishes to become party to the contract has to issue a corresponding declaration of intent.

Pursuant to section 150(2) of the BGB, an acceptance containing expansions, restrictions or other alterations is considered to be a new offer and therefore does not result in a contract unless it is - without limitation - accepted by the addressee in turn. The addressee may, however, accept such modification tacitly or impliedly; for instance when accepting the supplied goods.

In commerce, silence may, in very exceptional circumstances, also result in the conclusion of a contract. Where an offer is made to a merchant whose business includes solicitation or conclusion of business transactions for others, and such offer is from someone with whom the merchant has a business relationship and concerns solicitation or conclusion of such transactions on behalf of the offeror, the merchant is obliged to reply immediately. Otherwise silence will be deemed to be acceptance of the offer pursuant to section 362(1), sentence 1 of the HGB. Pursuant to section 346 of the HGB, the German courts have developed the principle of the commercial letter of confirmation. It only applies in commercial interactions and is aimed at accelerating the commercial intercourse. In cases where the addressee of the commercial letter of confirmation remains silent, it results in a legal presumption that a contract with the content of the confirmation letter has been concluded between the sender and addressee, irrespective of whether or not the parties have finally concluded the contract before.

A question of high practical importance with regard to the ‘battle of the forms’ is which standard terms apply where both parties in a contract claim that their standard terms and conditions are part of the contract. The party making the offer generally attaches its standard terms and conditions when making the offer. The party accepting the offer often also attaches - or at least makes reference to - its standard terms and conditions when either declaring acceptance or delivering the purchased goods or services. In cases where the parties start to perform their contractual obligations despite the conflicting terms, the standard terms and conditions of the parties are valid only to the extent that they do not conflict but correspond with each other. With regard to the rest, there is a lack of agreement. Pursuant to section 306 of the BGB, the conflicting clauses are replaced by the statutory provisions of the BGB or the HGB.

It is important to know that lack of agreement is not necessarily an obstacle to the creation of the contract if the parties start implementing it by mutual consent and, by doing so, show that they do not regard the lack of conformity to be material.

Language requirements

Is there a legal requirement to draft the contract in the local language?

No, the parties are free to choose the law governing their contract as well as the language.

The language in German courts, however, is German. Where the contract documents or correspondence is introduced in the court proceedings by one of the parties, the documents need to be translated. This is different in arbitral proceedings under German law, which may be held in English or any other language agreed by the parties.

Online contracts

Is it possible to agree a B2B contract online?

Yes, the principle of freedom of contract that dominates German law provides that contracts may in principle be concluded without observing any form requirement. Therefore, in general, business-to-business (B2B) contracts can, for example, be concluded orally, via email or fax, online or in written form.

Only in limited specified cases, the law requires that the parties use a specific form. This applies, in particular, where real estate is sold (contracts on plots of land, section 311b(1), sentence 1, BGB), company shares are transferred (section 15(3), Limited Liability Companies Act (GmbH)) or a donation is promised (section 518(1), BGB).