Contract law in the corona crisis
The Corona crisis disrupts contractual relations
Your company maintains numerous business relationships with customers, suppliers, banks, sales partners and other stakeholders.
These relationships are embedded in contracts under German or foreign law. Normally, these contracts guarantee the smooth running of business. However, the Corona crisis has significantly affected these processes and has had a profound impact on business relations, including frequent breaches of contractual obligations:
- Failure to deliver
- Interruption of services of all kinds
- Late payments
- Production stoppages with their consequences
- Non-compliance with contractual objectives
What contractual arrangements apply now?
Pacta sunt servanda – Contracts must be respected. In principle, the Corona pandemic does not change this either.
Often the general terms and conditions underlying the respective contract contain binding provisions for exceptional circumstances. In addition, the BGB also contains specific provisions governing the reciprocal obligations between creditor and debtor in the event of disruption of performance.
However, the Corona crisis has prompted the legislator to develop special regulations to mitigate the effects of the pandemic, particularly on the economy. The current COVID-19 special legislation, in Germany as well as in other European countries, creates numerous exceptions that create a new and complex legal situation. Corona’s resale law thus raises legal questions in many contractual relationships.
Each case has to be considered individually, but here we want to address questions that arise for every company.
Cancel contract? Adjust the contract? How can and how should your company react?
If the fulfillment of a contract is at risk, an agreement should first be sought with the company’s often long-standing partners.
This may be even easier to achieve domestically than abroad, where, in the wake of the Corona crisis, regulations may be in force that deviate from the German special legislation and present unexpected obstacles. Already in this situation, legal advice from both parties is advisable.
What happens if you cannot reach an agreement with your contractor?
In this case, the first step is to determine which legal system is the basis of the contract. A distinction must be made here between contracts governed by domestic law and contracts in which foreign law is also or exclusively applicable.
Contractual relationship in Germany
The following applies: The contractual obligations are to be respected in principle.
- If the contractual service can no longer be provided due to the Corona crisis. Then the debtor is released from the obligation to perform due to impossibility (§ 275 BGB), but also the obligation to perform in return is waive (§ 326 BGB).
- In the case of a so-called relative fixed transaction, in which compliance with the performance period is so essential that the transaction is to stand or fall with the performance on time, the creditor may withdraw without setting a time limit (§ 323 (2) no. BGB) .
- It is possible to adjust the contract according to § 313 of the German Civil Code (Disturbation of the Business Basis).
In cases where both parties are concerned with the design of long-term business relations, the possible adaptation of contracts according to § 313 BGB should take precedence.
International contractual relations
Your customer, supplier or partner is located abroad or an important part of the contractual services is not provided in Germany. In such cases, it is necessary to check:
- Does German law apply? If so, the above-mentioned regulations of the BGB apply.
- Does foreign law apply? If so, it is necessary to examine what regulations were adopted in the respective foreign legal system in the wake of the Corona crisis.
Attention: Almost every European country adopted special regulations in the wake of the Corona crisis. These rules are often similar (e.g. suspension of limitation periods and other periods), but the rules are country-specific and can vary significantly in detail.
This assessment must therefore be carried out on a country-by-country basis and under no circumstances should one be subject to the presumptive that the situation is “probably similar” to that in Germany.
Even if German law applies to the contractual relationship, it may be that mandatory provisions have been enacted in foreign legal systems that contradict German law.
In this case, it may happen that your company’s legal claim exists, but its enforcement before the foreign court becomes problematic or even disappears.
Numerous special situations must be considered, which can only be assessed in a single examination.
We give you security of action
As part of the leading German-speaking law firm network in Europe, DIRO BUSINESS is a competent partner for medium-sized companies, but also for many small businesses in the current cross-border crisis situation.
The focus of our legal advice is on finding and communicating creative solutions. We will check for you whether the disturbed contractual relationship is subject to German or foreign law, examine your legal situation with regard to funding opportunities and give you specific recommendations for action.
In the respective legal systems (Germany or abroad), we check for you:
- Termination and Adjustment Rules in Contracts and Laws
- Avoidance of interest obligations
- Negotiation and design of moratorium agreements for creditors and debtors
- Adaptation of funding agreements
- Developing solutions for your business in business with consumers
- Formulation of general conditions for several similar transactions
- Support of negotiations with contractors and authorities in the B2B sector
- If necessary, litigation to enforce your legitimate claims, Europe-wide,
- with German, English or national language communication
Your lawyers in the Corona crisis
DIRO is one of the largest, independent law firm alliances in Europe and has offered its consultancy services in the field of commercial law with regard to internationally active medium-sized companies under DIRO BUSINESS for entrepreneurs.
DIRO BUSINESS thus offers owners of medium-sized companies access to a Europe-wide portfolio of established law firms.
DIRO BUSINESS is an umbrella brand for independent and economically independent law firms of the DIRO network.