Myths Associated With Contracts Dispelled

urteil gesetz

A word or a handshake is enough to seal a deal from buying a car, a lease or employment. These agreements don’t have to be in writing and they can be legally binding. Thus the belief that since one hasn’t yet put their signature on a paper is false and in the worst case a person is liable to pay up in case of an oral agreement contract e.g. buying a car. The following myths relating to different contracts are dispelled here. 

Myth1: A contract must always be written. False.

People must always be aware that they can also verbally seal a contract with a few exceptions in the law. And legally these oral agreements make no difference whether you are buying a loaf of bread or a car.

If a buyer makes a verbal acceptance that he has agreed to purchase a car and then later withdraws his consent, he may still be liable in a court of law to buy the car. This purchase agreement is valid even in the absence of a signed contract. However, the car dealer is liable to produce evidence of this verbal agreement in case of a dispute in a court of law. The situation is different for real estate and purchase of property where contracts must be in writing and sealed by a notary.

Myth 2: I can return goods that I have purchased from a store and get a refund. False.

This common belief is not true. This is because shopkeepers usually take back faulty goods as a sign of goodwill. It is not mandatory for them to take back the goods after a sale transaction has been concluded. Also the law does not provide any statutory exchange privilege for buyers.

Case: A customer purchased a carpet for his home at 4000€. However when he laid it down in his home it did not fit and he decided to take it back to the furniture shop where he had bought it. The store refused to take it back. It was ruled that the store was right. It was not obliged to take back goods once sold. It was the customer’s duty to have clarified before the purchase if he could return the carpet in case it didn’t fit his home.

However, when stores has it printed on its receipts that it takes back goods after purchase has been completed, then they are obliged to take them back. Unlike other businesses, online purchases made usually have a 14 -day return policy. Customers of online retail store can return the goods without stating any specific reason.

In both cases customers who buy goods online or offline should clarify with the stores when shopping for textiles or electrical appliances if the can return these goods and on what terms the goods will be accepted. Also one must clarify whether they will get a cash refund or a voucher. 

Myth 3: Children can’t be bound by any contracts they make. False. 

Legally a person is considered a child until the age of 18. Criminal law however says that a child is responsible for their wrongdoing from age 14 and they can therefore be prosecuted. The law also says that a child’s legal capacity begins at age 7, where they have limited legal capacity and can therefore be bound by sale contracts they enter. 

A child’s parents are its “legal representatives” and if they send a child to a bakery to buy bread for example and this child bought other things like cakes and biscuits parents cannot return those products to the bakery. This contract of sale is legally binding. In addition “pocket money clause “, which can be found in Section 110 in the Civil Code (BGB) states that: “If a minor enters into a contract of sale and the goods are paid for with a sum of his money provided by his parents for hisleisure then the contract is effective and legally binding from the very beginning. And the parent’s consent is no longer necessary. It is important that the sale contract should be payable at once in a lumpsum because a minor cannot enter a contract for instalment payments with their pocket money.

Myth 4: If an employment contract is not in writing it does not exist. False.

A handshake and the words “You’re hired” makes this contract legally binding. It means someone can be employed without having a written contract. This is not rare as it happens in the Cottage industry, where employees have already been working for years or even decades without a written contract. This can be problematic when you are suddenly sacked and there is a dispute over contractual terms. The German Trade Union (DGB) recommends workers who don’t have a written contract to ask their employers to give them a written one since employees have a right to know terms of their employment contract.

Myth 5: My employer cannot sack me when I am ill or on vacation. False.

This is a common myth, which is not true. An employment contract can be terminated even if the employee is sick. An exception to a termination would be for example if an employee is in a coma then their employment contract cannot be terminated.

Even during a prolonged vacation employees are not safe from dismissal. Employees should therefore ensure that in their absence someone always checks their mailbox at home. This is because a dismissal letter sent by post renders the termination to be legally binding, which is not the case with termination via email.

If one does not contest this dismissal letter before a labour court within three weeks after receiving it, this dismissal becomes final and is legally binding. If someone gets to know about being dismissed when they are on a trip which is far away from home, they can contest this letter in a labour court via fax or can issue a written power of attorney to a person whom they trust to file this suit on their behalf.

Myth 6: A verbal notice of termination is valid. False. 

A termination notice must be in writing as stated in Section 623 of the Civil Code (BGB). Employees should however respond quickly in the event of a verbal notice.  They should bring complaint before the Labour Court, seeking a declaratory judgment action with an aim of getting a ruling that the employment contract still exists. However if a written termination follows the employee can make an unfair dismissal claim because generally if an employee doesn’t contest dismissal, it is deemed to be final even though it cannot be substantially justified.

Myth 7: In case of termination, workers are entitled to compensation. False.

We usually hear in the news of top managers and executives, who upon being dismissed are paid benefits/compensation. What about normal workers? Are they entitled to get benefits/ compensation upon being sacked? No, Unfortunately German law does not have provisions for compensating workers who have been dismissed.

Exceptions are found in the Works Constitution Act (Betriebsverfassungsgesetz). If a company is in distress and a larger number of staff is faced with termination, there is a Works Council (Betriebsrat), which negotiates a social plan. Employers can also offer to compensate their employees out of their free will.

The Employment Protection Act says in Chapter 1a, that the employee will be entitled to compensation/ benefits if the employer has already stated this in the letter of termination. The means that an employee will therefore not contest an unfair dismissal claim in a court of law. This is why companies opt to pay off executives and top mangers to avoid court cases.

Myth 8: What is stated in a rent lease applies. False. 

Apart from the specifics that have been personally negotiated between the parties in lease arrangements, clauses in the so-called “general business regulations” are legally binding. According to the law (BGB § 305ff) they become invalid insofar as they are ambiguous or pose an unreasonable disadvantage to the tenant.

Example 1: The owner limits his duty to provide warmth in the building (Heizpflicht) only to “areas mainly used by the tenant.”

Example 2: The landlord tries to restrict rent reduction rights for the tenant on the defects found at the property.

These are invalid clauses in a contract and make a whole contract ineffective. In place of these ineffective clauses, the statutory clauses regulations will be in place. These statutory regulations that will be adapted will not be the ones that will favour the landlord.

Myth 9: A tenant will be released from their current lease if he identifies three prospective tenants, who may replace him. False.

A tenant with a normal, open- ended lease may at any time without notice for any reason with a three -month notice terminated his lease. Unless the tenant wants to be realised from his lease sooner the he and the landlord can come to an agreement with a lease release (Mietaufhebungsvertrag).

This release makes it clear that the parties are in agreement to end a contract without regarding forms and deadlines. The landlord can participate decide to go along with it but he is not obliged to accept this arrangement. The landlord may make his consent subject to conditions for instance the tenant should look for a prospective tenant.

Only if both have come to an agreement is the case (Mietaufhebungsvertrag) which also includes the prospective tenant clause; then a landlord must accept a prospective tenant and release the current tenant from this lease.

Myth 10: If rental property is being sold current tenants always have a right of first being asked whether they are interested in buying. False. 

The property owner is not obliged to first make an offer to his current tenants before he can look for other buyers. Nevertheless out of goodwill many landlords who want to sell their property first offer their current tenants a chance to buy this property.

If the current landlord sells and signs a purchase agreement with a third party the current tenant has the right for two months to continue their lease with the same conditions (i.e. same price) for 2 months before the new owner takes over the property.

If the tenant decides to stay, he cannot renegotiate price and conditions of his lease with his new landlord. He is bound to accept the new terms that are set by his new landlord.

Share with friends: