informality and freedom of contract

informality and freedom of contract

There is no statutory formal requirement for drafting an agreement. The legislator has established that the parties themselves may determine how to structure the agreement. It has also been established that the parties themselves may determine what they stipulate in the agreement and with whom they enter into an agreement; this is also known as freedom of contract.

We assist a wide range of clients in drafting, reviewing, and interpreting contracts. In practice, conflicts arising from contractual relationships occur regularly. These conflicts concern, for example, the interpretation of contract provisions, breach of contract (non-performance), and claims for damages. We have extensive experience in contractual dispute resolution, whether through negotiations or judicial proceedings. We have an experienced team of lawyers and legal experts in the field of contract law. Please contact us to discuss the possibilities.

What does freedom of form mean in contract law?

Freedom of form is one of the pillars of Dutch Contract Law. The basic principle is that an agreement is formed through offer and acceptance (Article 6:217 of the Dutch Civil Code) and that, in principle, no specific form is prescribed for this. An agreement by email, a verbal promise at a meeting, or a handshake can therefore be just as binding as a contract signed by both parties. Whether you are an international corporation or the baker on the corner: as soon as the parties agree on the essential points, an agreement exists.

This low threshold is practical, but it has a downside. With an oral or carelessly recorded agreement, disputes quickly arise regarding exactly what was agreed upon. The burden of proof then rests on the party relying on the agreement (Article 150 of the Code of Civil Procedure). Our lawyers and in-house counsel therefore advise always recording important agreements in writing, even where the law does not require it. Good documentation prevents a favorable agreement from evaporating in a dispute.

Exceptions to freedom of form: when is a form mandatory?

There are important exceptions to the general rule of freedom of form. In those cases, the law prescribes a specific form, and an agreement without that form is void or voidable. The most common examples are:

• The purchase of a home by a consumer must be entered into in writing (Article 7:2 of the Dutch Civil Code), with a statutory cooling-off period.
• A suretyship by a private individual acting outside of a profession or business requires written recording of the maximum amount (Article 7:859 of the Civil Code).
• A non-competition clause in an employment contract is only valid if it has been agreed in writing with an adult employee (Article 7:653 of the Dutch Civil Code).
• The transfer of registered property, such as real estate, and the incorporation of a private limited company take place via a notarial deed.

Anyone who overlooks such a formal requirement runs the risk that the agreement will not hold up legally. Our legal experts review contracts and transactions for these formal requirements, so that you are not faced with an invalid agreement afterwards.

The limits of contractual freedom

Freedom of contract means that, in principle, parties determine for themselves with whom, about what, and under what conditions they contract. However, this freedom is not unlimited. An agreement that is contrary to the law, public order, or good morals is void (Article 3:40 of the Dutch Civil Code). In addition, much consumer, tenancy, and employment law applies as mandatory law: it cannot be deviated from to the detriment of the protected party.

Reasonableness and fairness also limit contractual freedom. Pursuant to Article 6:248 of the Dutch Civil Code, a contractual clause may be set aside if its application is unacceptable according to standards of reasonableness and fairness. Furthermore, unreasonably burdensome clauses in general terms and conditions may be annulled (Articles 6:233 and 6:236 of the Dutch Civil Code). For our clients, ranging from listed companies to self-employed professionals, this means that a contract only has value if it remains within these limits. We safeguard this balance when drafting and reviewing your agreements.

The pre-contractual phase and interpretation of contracts

Freedom of contract begins even before a signature is affixed. In principle, a party may withdraw during the negotiation phase, but breaking off negotiations can be unlawful if the other party had a justified expectation that an agreement would be reached. Proper documentation of intentions, reservations, and (pre-)contractual agreements prevents surprises.

If a dispute regarding the content arises later, a contract is not interpreted solely according to the literal text. The judge considers what the parties could reasonably expect from each other: the so-called Haviltex standard. The clearer a contract is drafted, the less room there is for disputes regarding interpretation. Our lawyers and legal experts draft contracts in such a way that they hold up in a dispute, and they assist you should litigation regarding interpretation or performance become necessary.