References without law book default to BGB.
Mistakes and Fraud
Resources
Relevant Sections
Contracts are binding, and changing opinions or a party’s requirements are irrelevant. However, there are some conditions under which a contract may be invalid or unenforceable.
When revoking a contract due to mistake or fraud, § 142 BGB applies and the contract becomes void ex-tunc – as if it never happened.
Errors: § 119 BGB
Under § 119 BGB, if a person makes a mistake where their subjective intention does not match the objective content of their declaration (e.g., misspeaking or mistyping), the DOI can be avoided. If the contract is avoided, the person who made the mistake must declare it without undue delay (§ 121) and must pay compensation for any damages the other party incurred by trusting the contract (§ 122). In effect, the DOI is treated as if it never existed (ex-tunc; § 142).
However, proving an honest mistake (a different intention) in practice is very difficult, so its real-world relevance is limited. Courts will also dismiss these claims if the mistake was due to negligence.
The definition of without undue delay given in this context (§ 121 BGB) is relevant for other cases as well: as a rule of thumb, 14 days for regular and 30 days for complex cases, however it’s up to courts to specify what as soon as possible means in a given case.
Note that restrictions for this apply for certain types of contracts, like Sale of Goods.
Types of Errors
- § 119 I BGB: The objective content of the declaration does not match the subjective intention of the person making the declaration (e.g., misspeaking or mistyping).
- § 119 II BGB: A mistake about the essential characteristics of a person of thing relevant for deciding on price/value (not the price itself). This does not apply to Sale of Goods.
- § 120 BGB: A mistake in the transmission of the declaration.
Deceit and Duress: § 123 BGB
A person who has been deceived or unlawful duress can avoid the contract (§123 I BGB) within a reasonable time after discovering the deceit or duress, within 1 year of discovery or 10 years after the declaration (§ 124). This is a choice however, and no compensation is owed if the contract is avoided (popular exam question).
Deceit
Deceit is making statements that are objectively not true (e.g. the power of a car), while knowing that this is not the truth or having the intention to deceive (§ 263 StGB). A case that is fraud under criminal law is often also deceit under civil law. Additionally, the incorrect statement has to be relevant for the contract decision.
However, there is no general disclosure obligation and the seller does not have to correct the buyer’s wrong assumptions (take care of your own business) – an exception being crashes of used cars. Lying in response to an unlawful question (e.g. job interview) is not deceit.
Duress
Duress occurs when a person is forced to enter a contract against their will, for example by being threatened with physical harm or economic harm (§ 240 StGB). Threatening consequences that are not illegal (e.g. firing someone) does not constitute duress, the combination of means and aim has to be illegal.
Protection of Minors and Disabled
Resources
Relevant Sections
In contract law, the protection of minors is a core principle.
Incapability
Defined in § 104 BGB:
- Children under the age of 7 cannot declare their intent, and therefore cannot enter a contract. Instead, parents can act for their child.
- Similarly, persons in a permanent state of mental incapacity cannot enter into contracts, and their legal representatives can act for them. § 105a however allows low-value every-day transactions (e.g. buying a coffee, though very loosely described) to be valid, even if the person is mentally incapacitated.
- Declarations made in a temporary state of mental disturbance (e.g. due to intoxication) are voidable (§ 105 II).
As a consequence, DOIs expressed by these persons are void (§ 105 I).
Limited Capacity
Continuing the protection of minors, persons between the ages of 7 and 18 have limited capacity to contract (§ 106 BGB). They require the consent of a legal representative (e.g. parent) for any DOI that does not bring only a legal benefit (§ 107), i.e. if the contract results in new obligations or loss of rights (negative consequences). Thus, consent is required for almost all contracts, as even a financially great deal is not a pure benefit if the minor has to pay.
Pocket money that is given to them by their legal representatives (parents) is considered pre-consented and can be spent as they wish, for the intended purpose (pocket money paragraph § 110). If a minor wants to operate their own business, approval of the family court is required in additional to parental consent (§ 112 BGB).
Limits to Contractual Freedom
Resources
- Statutory Prohibition: Statutory Prohibition (Slides)
- Public Policy: Breach of Public Policy (Slides)
- Non-Discrimination: Non-Discrimination in General, 5 Contractual Freedom Limits 4 Non-Discrimination Statute.mp4 (Slides)
Relevant Sections
Statutory Prohibition, Public Policy, Extortion
A legal transaction that violates a statutory prohibition is void (§ 134 BGB). For example, a contract for the sale of illegal drugs is void because it violates the statutory prohibition on drug trafficking. This does not apply to the way a contract is executed, only its content.
Similarly, a legal transaction that violates public policy – common decency – is also void (§ 138). These are contracts that are against the sense of just and fair people, or immoral (e.g. surrogate motherhood as a business model). However, basing this on the subjective feelings of the parties is not sufficient, and judges rely on established case groups to determine a case.
Extortion (Wucher, § 138 II) applies if there is a gross disparity between performance and consideration, as well as exploitation of a disadvantaged position (weakness, desperation, inferior position). A 2:1 disparity of performance and consideration alone does not void the contract, but does provide a rebuttable assumption of extortion that might require the offeree to prove that there was no exploitation of a disadvantaged position.
Discrimination
Discrimination requires two elements:
- Unequal treatment of people in comparable situations or equal treatment of people in different situations
- No justification for the unequal treatment
This is strongly based on § 1 GG, which prohibits discrimination on the basis of sex, parentage, race, language, homeland and origin, faith, or religious or political opinions. This sometimes contrasts with § 2 GG, which implies freedom of contract. § 3 GG regulates equality before the state.
Balancing of Interests
While freedom of contract is generally given, it has to be restricted in some ways to balance the interests of the parties and society. For example, § 626 BGB allows for termination of an employment contract without notice for a valid reason, which is a restriction on freedom of contract but serves to protect employees from unfair treatment. Similarly, anti-discrimination laws restrict freedom of contract to prevent discrimination and promote equality in the workplace and society, or to prevent the abuse of monopoly power (dominant undertaking).
Anti-Discrimination Law for Businesses
The AGG (Allgemeines Gleichbehandlungsgesetz) prohibits discrimination in employment and other areas of life on the basis of race, ethnicity, gender, religion, disability, age, or sexual identify. It applies to employers with more than 5 employees and covers all aspects of employment, including hiring, promotion, and termination. The AGG also provides for compensation for victims of discrimination and requires employers to take measures to prevent discrimination in the workplace.
In effect, in AGG cases, affected applicants/employees usually get a compensation.
The anti-discrimination law only applies, however, to contracts typically concluded without regard of person (§ 19 Abs. 1 AGG) – and therefore not those that require personal trust, such as the selection of doctors or lawyers. It also does not apply to selecting tenants when a landlord lets less than 50 apartments (§ 19 Abs. 5 AGG), or when reasons of safety or, in some cases, religion are justifiable.