Not Everything Written on Paper Counts as a Contract

"Vorrede macht keine Nachrede –

A preliminary understanding

spares you reproaches later."

German proverbs and sayings

People are different, and that truth is as old as the world itself. Misunderstandings between people can arise not only because one side has no wish to understand and accept the other's point of view, but also because people have different values, cultures and ways of perceiving the world. It is well known that people with very different frames of reference find it hard to understand one another. Such misunderstandings occur not only in personal relationships but in business ones as well. It is not uncommon for people to enter into contractual relations — or to believe that they have — without fully grasping the legal substance of what exactly they are signing. In civil-law doctrine, a contract (Vertrag) is an agreement between two or more persons that gives rise to specific rights and obligations between them. There can be no doubt that it is important to agree the terms of a contract in advance in such a way that every participating party understands them, is aware of them, and is prepared to perform them. Otherwise, there is a very high likelihood that disagreements and conflicts will arise, and resolving them will later require a great deal of effort and time.

As a general rule, a contract is considered concluded from the moment the parties reach agreement on all essential terms of the contract, in the proper form. For this, one party must make a proposal and the other party must accept it, giving its consent. In the language of the legislator, then, concluding a contract requires certain specific acts: sending an offer (Angebot) and receiving an acceptance (Annahme). The person making the proposal is called the offeror, and the person giving consent is the acceptor. It should be borne in mind here that advertising and other proposals addressed to an indefinite circle of persons do not constitute an offer, and should instead be regarded as an invitation to customers to make offers themselves, unless the advertisement expressly states otherwise. It is not widely known that a contract in written form can be concluded not only by drawing up a single document signed by the parties, but also by an exchange of documents by post, telegraph, teletype, telephone, electronic or other means of communication that reliably establishes that the document originates from a party to the contract.

Both private individuals and company representatives come to our law firm seeking legal assistance — whether in drafting and concluding contracts, especially international commercial ones, in performing them, or, in a number of cases, in protecting rights and interests that have been infringed under them. We would like to describe one notable case from our extensive legal practice in this article.

The director of a small holding company specialising in the sale of new and used cars and car parts came to our firm for detailed advice and legal support. The business was relatively new, not yet fully established, and did not yet generate large profits at this early stage, though it was developing rapidly. So, the head of the company — let us call him Yuri — faced the following problem with one of his customers. A prospective buyer — let us call him Dmitri — visited a showroom belonging to Yuri's dealership network. Dmitri held a mid-level manager position at a large financial company; he had not yet started a family, so he was not short of money and was not used to denying himself anything. At a car dealership belonging to the sales network Yuri ran, Dmitri wanted to buy a new Audi A4 Allroad Quattro. The car was intended for the new girlfriend of a successful man accustomed to living and acting on the principle "I came, I saw, I conquered." Dmitri therefore intended to choose and buy a car for his girlfriend on his very first visit to the showroom. It turned out, however, that at the time the only vehicle of that model in stock was dark blue, while the buyer wanted a bright red one for his girlfriend, and nothing else. The sales manager serving the customer could only spread his hands and tell Dmitri that, unfortunately, the desired car could not be obtained in less than three months. In addition, following the standard procedure for such cases, the manager gave the customer an order form for the car and attached to it the general terms and conditions of business (Allgemeine Geschäftsbedingungen, AGB). It should be explained here that AGB are terms formulated for use in numerous contracts, which one contracting party (the initiator of the contract — for example the seller, the party performing the order, or the landlord) sets out for the other party (the counterparty, usually the buyer, customer, client or tenant) when concluding a contract (§ 305(1) of the German Civil Code, Bürgerliches Gesetzbuch, BGB). The purpose of AGB is not only to standardise the content of the most common types of contracts (purchase agreements, work-and-services agreements, tenancy agreements and others), or to fix the terms of contracts not otherwise regulated by statute, such as finance-lease and factoring agreements. The main advantage of General Terms and Conditions for the party that uses them (the initiator of the contract) is that they make that party's legal position more favourable than it would be under the applicable statutory default rules.

Perhaps because the sales manager on duty that unfortunate day failed to explain things clearly, or because the customer badly wanted to see his wishes as already fulfilled, Dmitri misunderstood what was actually happening. He regarded the completed order form for the future delivery of the much-wanted car, together with the general terms and conditions of business handed to him by the manager, as an accomplished fact — namely, as a contract mutually agreed by both sides. The buyer failed to take into account, however, that the order form he had filled in contained no confirmation whatsoever that the counterparty had accepted the corresponding obligations on its own part, nor did it contain the essential terms whose absence causes a contract to be classified as "not concluded." Moreover, when accepting the customer's order, the sales manager made no oral statement that the company was assuming an obligation to fulfil Dmitri's order by the stated deadline. As a result of the misunderstanding that arose between them, the two men parted with different ideas about what had actually been agreed. The customer, for his part, expected that a car of the specified model would be delivered within three months. The manager, as required of him, duly forwarded the order he had received for processing to the German manufacturer, Audi. In fact, however, the finished car could only actually be obtained roughly four to five months after the order was accepted for processing. As might be expected, the negative consequences of this misunderstanding were not long in coming. When Dmitri had not received the car within three months as he had expected, he first staged a verbal "reckoning" at the dealership, and then personally drafted a letter of complaint addressed to our future client, the director of the company. As soon as Yuri learned of the conflict, with the customer's threatening letter in hand, he turned to our law firm to get to the bottom of the problem and put "everything in its proper place" from a legal point of view. The attorney at our firm who took on Yuri's case listened carefully to the client and reviewed the documents presented to him.

After analysing the information presented in the case, the attorney reached the well-founded conclusion that, in this instance, a contract of sale could not be regarded as having been concluded on the basis of the order form completed by the client. In fact, by filling in the order form, the customer had proposed to the car dealership that it conclude a contract of sale with him for an Audi A4 Allroad Quattro. The company could have accepted this proposal from the customer and concluded the contract either by having an authorised person draw up and sign a contract of sale, or by drawing up a separate document setting out the terms for fulfilling the order placed by the customer, or by actually delivering the requested goods within the stated period. In this case, none of these acts was carried out, and it was therefore not possible to regard the essential terms of the contract of sale as having been agreed, nor the contract as concluded. Consequently, after the customer filled in the order form for the purchase of the car, no rights or obligations of performance arose for either party. Although the dealership's manager had informed the customer that the minimum time for manufacturing and delivering a finished car to the showroom was at least three months, those words did not amount to the company undertaking an obligation to fulfil the order within a three-month period.

With the client's agreement, the attorney handling Yuri's case prepared and sent the opposing party a corresponding written clarification of the matter. Drawing on our extensive experience in handling such cases, we can reasonably expect that this clarification, prepared by the attorney, will be sufficient to settle the dispute that has arisen. Dmitri will, of course, get his dream car — just somewhat later than he had originally expected. Naturally, should it become necessary, we will also professionally represent our client's interests should the dispute come before a court. We welcome readers who need legal help drafting standard or one-off contracts, or advice and support in performing agreements already concluded, to our law firm. Our many years of experience and our responsible approach to our work and to the details of carrying it out give us good reason to believe that we can help find a way out even in the most complicated and confusing situation — whether at the stage of concluding and performing various types of contracts, or when a dispute is being heard in court.

Civil Law

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