Flo's Notes

Business Law Algorithms

16 min read

References without law book default to BGB.

Contract Law

The Contract Checklist

Is there a valid claim for general contract law?

IRAC Example:

  • Issue (I): Does B have a claim against A for payment under § 433 (2) BGB?
  • Rule (R): A claim under § 433 (2) BGB requires a valid contract (offer and acceptance), and the claim must not be void, extinguished, or subject to a defense.
  1. Contract Formation:
    • §§ 145-147 BGB: Is there a valid offer and acceptance? A contract requires an offer and acceptance.
    • Is it void due to: Minority (§ 105), Breach of statutory form (§ 125), Violation of public policy (§ 138), or Avoidance (§ 142 I)?
  2. Enforceability:
  3. Actionability:
    • § 320 (1) BGB: Is there a right to withhold performance (e.g., due to non-performance by the other party)?
    • § 273 (1) BGB: Is there a right to withhold performance due to a claim for damages?
    • § 214 (1) BGB in conjunction with § 195: Has the statutory limitation period expired?

The Avoidance Algorithm

If a party wants to back out of a contract entirely because they clicked the wrong button, were lied to, or were forced into it. The legal consequence is § 142 I BGB: The contract is void ex-tunc.

IRAC Example:

  1. Ground for Avoidance:
  2. Declaration of Avoidance:
  3. Avoidance Deadline:

The General Damages Deduction

IRAC Example:

  1. Obligation:
  2. Breach of Duty:
  3. Fault:
  4. Damage:

The Buyer’s Warranty Workflow

IRAC Example:

  • Issue (I): Can A demand delivery of a defect-free replacement car from B under §§ 437 No. 1, 439 (1) Alt. 2 BGB?
  • Rule (R): Cure under § 437 No. 1 and § 439 (1) BGB requires a sales contract (§ 433 BGB), a material defect (§ 434 BGB) at the passing of risk, no exclusion of warranty, and no statute of limitations bar (§ 438 BGB).
  1. Valid Sales of Goods Contract:
    • § 433 BGB: Is there a purchase agreement created by offer and acceptance?
  2. Material Defect (going through § 434 BGB):
    • § 434 (1) : The defect must have existed before the passing of risk.
    • § 434 (2): Subjective; does the thing delivered deviate from what was explicitly agreed upon in the contract – nature, suitability, accessibilities?
    • § 434 (3): Objective; Unless otherwise agreed, does the thing fail to meet ordinary expectations for the type of item?
    • § 434 (4): Assembly: Was the good assembled by the seller, or is it possible to assemble using the instructions provided?
    • § 434 (5): Delivery: Delivering the wrong item is treated like a material defect.
  3. No Statutory or Contractual Exclusion:
  • § 442 (1) 1: The buyer cannot claim warranty if they knew about the defect at the time of purchase, unless the seller intentionally concealed it.
  • § 309 (8): Merchants cannot completely exclude liability in standard terms for b2c. However, they can limit liability in specific cases.
  1. Buyer’s Right Chosen (following § 437 BGB):
    • Cure: § 437 (1) in conjunction with § 439 (1) BGB: Initial right to repair or replace; the seller bears all necessary expenses (§ 439 (2)).
    • Revocation: § 437 (2) in conjunction with § 323 (1): Possibility to revoke if the buyer has set a reasonable deadline and the seller has failed to perform. Alternatively, if a buyer-relevant date had been set or the seller refuses to perform (§ 323 (2)).
    • Price Reduction: § 437 No. 2 with § 441 (1): Same prerequisites as revocation, but the buyer can reduce the price instead of revoking.
    • Damages: § 437 (3): The buyer can claim remedies:
  2. Limitations:
    • § 438 (1) 3 BGB: For regular movable goods, the statute of limitations expires 2 years after the date of delivery.

The Work Warranty Workflow

Use this when a contract is for work (Werkvertrag) rather than sales. The crucial aspect is that a successful outcome is guaranteed. The legal consequence is defect remedies.

IRAC Example:

  • Issue (I): Can customer A demand reimbursement of repair expenses from B under §§ 634 No. 2, 637 (1) BGB?
  • Rule (R): Under §§ 634 No. 2, 637 (1) BGB, a customer can repair a defect themselves and demand reimbursement if there is a contract for work (§ 631 BGB), a defect (§ 633 BGB), a reasonable deadline for cure has expired, and warranty is not excluded.
  1. Valid Contract for Work:
    • § 631 BGB: Is there a contract where one party owes a specific result/work, and the other owes payment?
  2. Defect in the Work:
    • § 633 BGB: Does the finished work deviate from the subjective or objective requirements?
  3. No Exclusion of Warranty:
    • § 640 (3) BGB or § 639 BGB: Did the customer know of the defect upon acceptance without reservation, or was warranty contractually excluded?
  4. Remedy Selected (following § 634 BGB):

The Law of Agency Algorithm

IRAC Example:

  • Issue (I): Did the contract take effect directly for B under § 164 (1) 1 BGB through A’s actions?
  • Rule (R): Direct representation under § 164 (1) BGB requires the representative to submit their own declaration of intent, act in the name of the principal, and act within the scope of representative authority.
  1. Submission of an Own Declaration of Intent:
    • § 164 (1) 1: Did the agent submit an own DoI? If they do not have negotional power, they are only a messenger, not an agent.
  2. In the Name of the Principal:
    • § 164 (1) 2: Did the agent make clear that they are acting for a principal? This can be explicit or implicit (e.g. a store employee).
  3. Scope of Representation Power:
    • Contractual: § 167 (1): Was authority granted by the principal via a declaration? Either directly (alternative 1) or via statement to the business partner (alternative 2).
    • Statutory: Due to law: § 1629 BGB parents for minors; § 35 (1) GmbHG managing directory for GmbH, § 78 (1) AktG management board for AG
    • Apparent: If the principal knew or should have known about a person acting as an agent and tolerated it, the person can be treated as an agent in line with § 242 BGB good faith principle.
  4. Missing Authority:
    • If an agent acted without authority, the contract is provisionally invalid until the principal ratifies, according to § 177 (1). If ratification is refused, the unauthorized agent is liable to the other party for damages under § 179 (1) BGB.

The Unauthorized Agent Audit

Use this to determine the fate of a contract and the personal liability of the agent when representation power is lacking.

IRAC Example:

  • Issue (I): Is the representative A personally liable to C under § 179 (1) BGB?
  • Rule (R): Liability under § 179 (1) BGB arises if a representative concludes a contract in another’s name without authority, the principal refuses ratification (§ 177 (1) BGB), and the third party did not know of the lack of authority.
  1. Lack of Representation Power:
    • § 164 (1) BGB: Did the representative conclude a contract on behalf of a principal without actual, statutory, or apparent authority?
  2. Provisional Invalidity:
    • § 177 (1) BGB: The contract is provisionally invalid pending ratification by the principal.
  3. Principal’s Response:
    • § 177 (1) BGB in conjunction with § 184 (1) BGB: Did the principal ratify (making the contract valid retroactively) or refuse ratification (making it permanently void)?
  4. Representative’s Personal Liability (following § 179 BGB):
    • § 179 (1) BGB: If the representative knew of the lack of power, they are personally liable to either perform the contract or pay damages in lieu of performance.
    • § 179 (2) BGB: If the representative was unaware of the lack of power, they only owe reliance damages (negative interest).
    • § 179 (3) BGB: Liability is excluded if the third party knew or should have known of the lack of power, or if the representative was a minor (with limited capacity).

The Standard Terms Control Check

Use this whenever a contract contains pre-formulated “fine print” or standard terms (Allgemeine Geschäftsbedingungen), and one party claims a specific clause is unfair or invalid. The legal consequence is § 306 BGB: Only the unfair clause becomes invalid; the rest of the contract remains completely valid.

IRAC Example:

  • Issue (I): Is the warranty exclusion clause in B’s standard terms invalid?
  • Rule (R): A clause in standard business terms (AGB) is invalid if the terms qualify as AGB (§ 305 (1) BGB), were incorporated (§ 305 (2) BGB), are not surprising (§ 305c BGB), and fail substantive content control under §§ 307–309 BGB.
  1. Presence of AGB:
    • § 305 (1) BGB: Are these pre-formulated terms intended for multiple uses? Did one party impose them on the other?
  2. Incorporation into Contract:
    • § 305 (2) BGB: Did the user explicitly draw attention to them? Did the other party have a reasonable opportunity to read them? Did the other party agree?
    • B2B Exception: Under § 310 (1) BGB, this strict incorporation step is completely bypassed in B2B transactions—the AGB become part of the contract via standard commercial practice.
  3. No Surprising Clauses:
    • § 305c (1) BGB: Is the clause so unusual or unexpected that the other party could not have anticipated it? If yes, it is automatically knocked out.
  4. Substantive Content Review:
    • Rule: You must check these in a strict, backwards order—from the most specific prohibitions to the most general.
    • § 309 BGB: Specific prohibitions without room for evaluation (e.g., § 309 Nr. 8b: complete exclusion of new goods warranty). Note: § 309 does not directly apply to B2B (§ 310 (1) BGB), but serves as an indicator.
    • § 308 BGB: Specific prohibitions with room for evaluation (e.g., unreasonably long deadlines for acceptance).
    • § 307 (1), (2) BGB: General Clause. Does the clause unreasonably disadvantage the contractual partner contrary to the requirements of good faith (e.g., it violates the core nature of the contract)?

The Consumer Revocation Routine

Use this if a private individual wants to cancel a contract simply because they bought it online, via phone (Distance Contract), or on the doorstep. The legal consequence is § 355 (1) 1 BGB: The parties are no longer bound by their declarations; goods and money must be returned.

IRAC Example:

  1. Consumer & Trader Status:
  2. Existence of a Consumer Contract Right:
  3. Declaration of Revocation:
    • § 355 (1) BGB: Did the consumer explicitly inform the trader they are revoking? (No justification needed).
  4. Within the Deadline:
    • § 355 (2) BGB: Was it done within the 14-day limit?
    • Crucial Trap: The 14-day clock only starts if the trader provided proper statutory instruction on revocation rights (§ 356 (3) BGB). If they forgot, the right extends for a maximum of 1 year and 14 days.

The Unjust Enrichment Unwinding

Use this to reclaim assets or money transferred under a contract that is void or has been avoided (due to Separation and Abstraction principles). The legal consequence is returning the asset or compensating value.

IRAC Example:

  • Issue (I): Can A demand the return of a delivered bicycle from B under § 812 (1) 1 Alt. 1 BGB?
  • Rule (R): A claim under § 812 (1) 1 Alt. 1 BGB requires the respondent to have obtained something, by performance of the claimant, without legal ground, and no loss of enrichment defense (§ 818 (3) BGB).
  1. Something Obtained (Etwas erlangt):
    • § 812 (1) BGB: Did the respondent acquire ownership, possession, or a financial advantage?
  2. By Performance (Durch Leistung):
    • § 812 (1) 1 Alt. 1 BGB: Was this advantage consciously and purposefully transferred by the claimant to enrich the respondent?
  3. Without Legal Ground (Ohne rechtlichen Grund):
  4. Defense of Loss of Enrichment:
    • § 818 (3) BGB: Has the respondent spent or lost the obtained asset in good faith without saving expenses elsewhere? (If yes, they are released from liability).

Trade Law

The Commercial Merchant Methodology

Before you can apply any special rule from the Commercial Code (HGB)—such as the commercial duty to inspect and object—you must run this algorithm to prove the parties are actual merchants.

IRAC Example:

  • Issue (I): Does the transaction between B and C constitute a commercial transaction for B under § 343 (1) HGB?
  • Rule (R): A commercial transaction requires the party to be a merchant (§§ 1, 2, or 6 HGB) and the transaction to belong to the operation of their commercial business (§ 343 (1) HGB).
  1. Merchant Status (Kaufmannseigenschaft):
    • § 1 (1), (2) HGB: Check Type 1 (Actual Merchant) — Does the business require a commercially organized business operation?
    • § 2 HGB: Check Type 2 (Merchant by Registration) — Is the business entered into the commercial register?
    • § 6 (1) HGB in conjunction with § 13 (3) GmbHG or § 3 (1) AktG: Check Type 3 (Fictional Corporate Merchant) — Is the entity a corporation like a GmbH or AG? If yes, it is automatically a merchant by virtue of its legal form.
  2. Commercial Transaction (Handelsgeschäft):
    • § 343 (1) HGB: Does the specific transaction belong to the operation of the commercial business?
    • Presumption: Under § 344 (1) HGB, any legal act performed by a merchant is statutorily presumed to be a commercial transaction.

The Merchant’s Meticulous Inspection

Use this to check B2B sales warranty validity. Both parties must be merchants. The legal consequence of failure to notify is that the goods are deemed approved and warranty rights are forfeited.

IRAC Example:

  • Issue (I): Are the buyer’s warranty claims excluded under § 377 (2) HGB?
  • Rule (R): Forfeiture under § 377 (2) HGB occurs if the sale of goods is a commercial transaction for both merchants, and the buyer fails to inspect and notify the seller of the defect immediately (unverzüglich) after delivery.
  1. Double Merchant Status (Kaufmann):
  2. Sale of Goods Contract:
    • § 433 BGB in conjunction with § 381 (2) HGB: Is there a valid sales contract for goods or the manufacture and delivery of movable goods?
  3. Delivery of Defective Goods:
    • § 434 BGB: Were the goods delivered, and did they have a material defect at the passing of risk?
  4. Immediate Inspection and Notification:
    • § 377 (1) HGB: Did the buyer examine the goods immediately after delivery (where feasible) and notify the seller of the defect immediately (unverzüglich)?
    • § 377 (3) HGB: If the defect was hidden/undiscoverable, did the buyer notify the seller immediately upon discovering it later?
  5. Forfeiture:
    • § 377 (2), (3) HGB: If the buyer failed to inspect or notify in time, the goods are deemed approved and warranty claims are forfeited.

Tort Law

The Tort Technique

Use this when there is no contract, but Person A negligently or intentionally breaks Person B’s property or causes physical injury. The legal consequence is liability to make compensation.

IRAC Example:

  • Issue (I): Is A liable to B under § 823 (1) BGB for medical expenses?
  • Rule (R): A claim under § 823 (1) BGB requires an infringement of a protected right (body, health, property), a causal act or omission, unlawfulness, fault (intent or negligence under § 276 (2) BGB), and resulting damage.
  1. Infringement of a Protected Right:
    • § 823 (1) BGB: Was there an injury to life, body, health, freedom, ownership/property, or an “other right” (like a patent)? Note: Pure financial loss is not covered here.
  2. Act of the Tortfeasor & Causality:
    • Haftungsbegründende Kausalität: Did the defendant commit an action (or omit a duty to act)? Did that action directly cause the right infringement?
  3. Unlawfulness:
    • Rechtswidrigkeit: The infringement indicates unlawfulness automatically, unless a justification applies (such as self-defense under § 227 BGB).
  4. Fault:
    • § 276 (2) BGB: Did the defendant act intentionally or negligently? (Apply the exact same definition of negligence).
  5. Resulting Damage & Payout:
    • §§ 249 ff. BGB: Calculate the monetary value of the physical damage using the rules of general damages (including pain and suffering under § 253 (2) BGB if bodily injury occurred).

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