Business basis

Definition and legal basis:

The basis of the transaction refers to the ideas shared by both contracting parties at the time the contract is concluded or the ideas of one of the contracting parties regarding the existence or future occurrence of certain circumstances on which the parties’ business intentions are based, which are recognizable to the other party and not objected to by it. The concept of the basis of the transaction is closely linked to the legal institution of frustration of contract, which is codified in Section 313 BGB.

The doctrine of the basis of the transaction was originally developed by Paul Oertmann and was incorporated into the BGB through the modernization of the law of obligations in 2002.

Elements of the business basis:

The business basis typically comprises the following elements:

1. common understanding:
Circumstances that both parties assume when concluding the contract.

2. unilateral, recognizable ideas:
Ideas of one party that are recognizable to the other and not objectionable.

3. materiality:
The circumstances must be of material importance for the conclusion of the contract.

4. future-oriented:
The ideas often refer to future developments.

Differentiation from other legal institutions:

The business basis must be distinguished from related concepts:

1. motive:
Purely subjective motives of a party are not part of the basis of the transaction.

2. content of the contract:
Expressly agreed points are part of the contract, not the basis of the contract.

3. error:
The error concerns the formation of the will, the basis of the transaction concerns the basis of the business intention.

Disruption of the business basis:

The practical significance of the concept of the basis of the transaction is particularly evident when it is disrupted:

1. prerequisites (Section 313 BGB):
– Serious change in circumstances after conclusion of the contract
– The parties would not have concluded the contract or would have concluded it with different content if they had foreseen the change
– Unreasonableness of adherence to the unchanged contract for one party

2. legal consequences:
– Primary: adjustment of the contract
– Subsidiary: withdrawal or termination (in the case of continuing obligations)

Areas of application and examples:

The doctrine of the basis of the transaction is applied in various areas:

1. economic changes:
– currency reforms
– extreme price increases

2. political upheavals:
– wars
– embargoes

3. natural events:
– floods
– earthquakes

4. personal circumstances:
– loss of the basis of the transaction in the case of gifts (e.g. separation of fiancés)

5. interference with purpose:
– discontinuation of the jointly pursued contractual purpose

Jurisdiction and development:

The case law on the basis of the transaction has evolved over time:

1. restrictive application:
Courts apply the concept cautiously so as not to undermine the contractual obligation.

2. individual case justice:
Emphasis on the need for a comprehensive weighing of interests in individual cases.

3. corona pandemic:
New case law on the applicability of pandemic-related contractual disruptions.

4. international aspects:
Consideration in international treaties and in conflict with foreign legal systems.

Practical significance and design options:

The business basis plays an important role in contractual practice:

1. risk distribution:
Explicit agreements on risk distribution can influence the basis of the transaction.

2. adjustment clauses:
Contractually agreed mechanisms for adjusting the contract in the event of changed circumstances.

3. force majeure:
Delimitation and interaction of business basis and force majeure clauses.

4. due diligence:
Careful examination of the business basis for complex transactions.

Criticism and discussion:

The concept of the business basis is not uncontroversial:

1. legal uncertainty:
Critics criticize the vagueness of the term and the associated legal uncertainty.

2. contractual fidelity:
Tension between the principle of pacta sunt servanda and contractual adaptation.

3. economic efficiency:
Discussion of the economic impact of overly generous application.

In summary, the basis of the contract is a central concept of contract law that makes it possible to react flexibly to fundamental changes in circumstances after the contract has been concluded. It serves to strike a balance between contractual fidelity and fairness in individual cases and requires careful consideration of the interests of both parties. In an increasingly complex and volatile business world, the understanding and correct application of the concept of the basis of a contract is becoming increasingly important for lawyers and contracting parties.