You may have heard of the Latin phrase pacta sunt servanda – agreements must be kept. The reason behind this is that contracts determine the rules of the game. They grant leeway and establish obligations. And they set boundaries. In short: contracts organise our lives and how we interact with one another – not only but especially between companies. This means that they are also key to a company’s success.
The English word “contract” comes from the Latin contractus, meaning drawn together or tightened. People enter into contracts because they are drawn together in agreement. But they might not stay that way.
Companies need to have confidence that contracts will not only be adhered to, but are also worded in such a way as to cover all conceivable situations. Contract law is of central importance here, and there are many questions that parties to a contract must consider: What I am allowed to regulate in a contract, and what do I have to regulate? What types of contract are there, and what type of contract do I need for my particular transaction? How can I enforce my contractual claims if it comes to that? And how can I release myself from a contract? What happens after the contract has expired?
Contracts are – in general terms – legal transactions between two or more parties. They can concern the supply of goods or services or provision of digital content or licence rights, and also aggregates of things, such as in the sale of a company. Cooperation and framework agreements can be complex, long-term contracts involving performance of various obligations. To formalise a particular legal transaction, the parties give concurrent declarations of intent. Contracts do not normally need to be in written form; verbal agreements, including over the telephone, can also have legal effect.
Matters which are not explicitly dealt with in the text of the contract are determined by the statutory provisions, for example the Civil Code (Bürgerliches Gesetzbuch, BGB), the Commercial Code (Handelsgesetzbuch, HGB) and other legislation.
In an international context, i.e. in contracts with parties located elsewhere in or outside Europe, the law of the country concerned must also be taken into account. International treaties govern the application of national law to cross-border contracts. There is no uniform international or European law of contracts. Other countries also have different rules relating to agreement of security interests, such as retention of title and assignment of receivables.
Once a contract has been signed, the parties must adhere to it. It is often at this stage that the real work on the contract begins. What is each party permitted and required to do, what do I do in case of shortcomings, what happens when force majeure prevents performance of the contract? What is needed here is a professional contract management system – this ensures that your rights are safeguarded and it supports efficient contract performance. Often parties underestimate the importance of monitoring contract performance.
Considering all these factors, companies are well advised to seek out experts who can help with drafting, implementation, enforcement and termination of contracts and help put in place an efficient contract management system.