What is a contract: basics, contents and legal aspects

1. fundamentals of contracts

Contract definition

Contracts are the foundation on which businesses and agreements are built. In its most basic form, a contract is an agreement between two or more parties that is legally binding. This legal binding means that the parties must fulfill their agreed obligations, otherwise legal consequences may follow.

Contract types

There are a variety of contract types, each suitable for different situations and needs. Some of the most common types are

  • Disposal agreements

These include transactions in which ownership or rights are transferred from one party to another, such as purchase agreements.

  • Credit agreements

They regulate the conditions for the granting and repayment of loans between lenders and borrowers.

  • Transfer agreements

This involves the temporary transfer of objects or rights, such as rental or leasing agreements.

  • Contracts with activity focus

These include agreements on services or employment relationships, such as employment and work contracts. They also include software contracts, which often regulate the use, development, licensing or maintenance of software.

Establishment and form

A contract is concluded when the parties involved make concurring declarations of intent. This means that each party understands and accepts their part of the agreement. In some cases, special formal requirements may apply, such as the written form for rental agreements for residential property.


Several conditions must be met for a contract to be valid. The parties must agree on the essential points of the contract. These essential points vary depending on the type of contract, but often include price, quantity and the specific services to be provided. Additionally, all parties must be contractually capable, meaning they must be legally able to enter into contracts. This usually excludes minors and persons who are considered legally incompetent.

2. content and freedom of contract

Flexibility in contract design

The content of a contract is fundamentally free and flexible. This freedom allows the parties to make customized agreements that meet their specific needs and circumstances. Whether it is an employment contract, a purchase contract or a service contract, the parties have extensive freedom to determine the terms of their agreement.

Important elements of the contract content

Although the parties are free to draft their contract as they wish, there are typical elements that are present in most contracts. These include:

  • Subject of the contract

This is the heart of the contract and describes what exactly is agreed, e.g. the delivery of goods, the provision of services or the transfer of rights of use.

  • Services and consideration

This sets out the obligations of the parties, such as the work to be performed and the payment to be made for it.

  • Term and termination conditions

These provisions regulate how long the contract is valid and under what conditions it can be terminated.

  • Liability and warranty clauses

These clauses regulate what happens if something goes wrong or the services are not provided as agreed.

Significance of the signature

The signature under a contract has an important legal significance. It serves as proof that the parties know, understand and agree to the content of the contract. In the case of written contracts, the signature is often a decisive element for legal validity. It symbolizes the formal agreement to the terms of the contract and is therefore an essential part of the conclusion of the contract.

Limits of contractual freedom

Although freedom of contract is a fundamental principle, there are limits. These limits are set by statutory regulations and general legal principles. For example, a contract may not violate legal prohibitions or morality. In addition, the contracting parties must have the capacity to enter into legally binding contracts. These aspects are particularly important to ensure the validity of a contract and avoid legal problems.

3. legal aspects

Obligations arising from contracts

Contracts establish contractual obligations that define the rights and obligations of the parties involved. An obligation arises as soon as a contract is concluded and defines the mutual claims of the contracting parties. This can be, for example, the obligation to pay a purchase price or to provide a service. The contractual obligation also defines the rights of the parties, such as the right to receive the agreed service.

Difference between contractual and statutory obligations

It is important to understand the difference between contractual and statutory obligations.

  • Contractual obligations

These arise from the conclusion of a contract and are based on the agreements made by the parties. The terms of the obligation are defined by the contract.

  • Legal obligations

In contrast, statutory obligations arise independently of a contract, for example through tortious acts or unjust enrichment. They are determined by the law and not by the parties' agreement.

Influence of legal prohibitions and regulations

Legal prohibitions and regulations can have a significant impact on the content and validity of a contract. Contracts that violate statutory provisions may be null and void. This means that the contract has no legal effect from the outset. An example of this would be a contract that aims to carry out an illegal activity.

Grounds for invalidity and nullity of contracts

There are various reasons why a contract may be invalid or void:

  • Limited legal capacity

Persons who do not have full legal capacity (such as minors or persons with limited mental capacity) cannot enter into legally binding contracts.

  • Breaches of form

Certain contracts require a specific form, such as the written form. If this form is not observed, the contract may be invalid.

  • Immorality

Contracts that offend common decency are invalid. This refers to contracts whose content is considered morally or ethically unacceptable.

4. contract termination and obligations

Termination of contracts

A contract can be terminated in various ways. On the one hand, it can take place by mutual consent of the contracting parties if both parties agree to terminate the contract. This is often the case if circumstances change or the original objectives of the contract have been fulfilled.

On the other hand, the termination of a contract can also be determined by statutory conditions. Statutory grounds for termination may include fraud, deception, impossibility of performance or significant changes in circumstances. In such cases, the contract can also be terminated against the will of one of the parties.

Beware of contract traps

It is important to be aware of the risk of contractual traps or contracts that are concluded unknowingly. Such situations often arise due to unclear or misleading contract terms, as can sometimes occur with online contracts or subscription services. These can lead to unwanted obligations and difficulties in terminating the contract, as those affected may not have been aware of the contractual commitment. It is therefore crucial to carefully review and understand all contract terms before entering into an agreement to avoid such undesirable scenarios.

Performance-related and non-performance-related contractual obligations

A contractual obligation is an obligation that one or both parties to a contract enter into in order to fulfill the terms of the agreement. It can be divided into two main categories:

  • Performance-related obligations

These relate directly to the main performance of the contract. For example, in a sales contract, the seller must deliver the goods and the buyer must pay the purchase price.

  • Non-performance-related obligations

These include obligations that are not directly related to the main service but are relevant to the contractual relationship. These include, for example, information obligations, confidentiality obligations or the obligation to respect the rights and interests of the other contracting party.

Compliance with these obligations is crucial for the validity and effectiveness of the contract and forms the basis for a smooth and conflict-free contractual relationship.

Automatic contract renewal

A common problem in business is the automatic renewal of contracts, which often occurs with subscriptions. Here, the contract is automatically extended for a certain period of time if it is not terminated on time. Many people are unaware that they are locked into such a contract until they receive notification of renewal. This can lead to unexpected obligations and costs.

Importance of contract monitoring

To avoid such situations, it is important to understand the terms of the contract in detail and to keep an eye on the deadlines for termination. A precise understanding of contract termination and obligations helps to protect the company from unwanted extensions and the associated costs.

5. contract management with ContractHero

When the question "How can I terminate this contract?" arises, it is often already too late to get out of existing obligations without further ado. This makes it clear how essential it is to manage contracts efficiently. ContractHero's contract management software offers a solution to precisely this challenge.

ContractHero provides a complete overview of all contracts, their terms, conditions and relevant deadlines, and facilitates the management of debt relationships. The tool allows users to effectively manage the rights and obligations arising from contracts, minimizing misunderstandings and promoting smooth business relationships. Another advantage of the software is the automated deadline management, which protects against costs caused by unintentional contract extensions and enables proactive contract maintenance.

To optimize the management of your contracts and ensure legal security, book a free demo with one of our experts and see for yourself how ContractHero can improve your business processes!

Sebastian Wengryn

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