Fundamentals: The Role of Contracts within the Legal System
Every country’s legal system consists of three key pillars: the constitution, public law, and private law.
At the top sists the constitution, which forms the foundation of a country's legal framework. All other laws must derive from and comply with it. These laws, in turn, regulate two types of legal relationships:
Public law: Governs the rights and obligations between private individuals and the state.
Private law: Governs the rights and obligations between private individuals and entities (including corporations, or "legal persons").
Within private law, contract law plays a vital role.
When business partners enter into a written contract, they define individual rights and obligations specific to their agreement. If the contract is ambiguous, incomplete, or partially invalid, the applicable private law steps in to fill the gaps. In simple terms, contract law exists to answer legal questions the parties didn’t (adequately) address in their contract.
The relationship between a contract and private law works like this: The contract defines the rights and obligations between the parties, modifying and supplementing the general provisions of private law. Thanks to the principle of freedom of contract, the parties have broad flexibility to structure their contract according to their needs.
However, public law lies beyond the reach of contractual arrangements. Any any contract that violates or conflicts with public law is unenforceable or void. Public law provisions are mandatory and cannot be overridden or excluded by contract.
To visualize how contracts fit into the legal system, think of an aquarium:
The foundation represents the constitution — it supports the entire legal structure.
The glass walls represent public law — they defining the boundaries within which private law exists.
The water inside the aquarium is private law — the space in which contracts operate.
A contract is like a fish swimming in the water — it is part of the system and displaces some of the private law around it (depending on its size), but it cannot affect the glass walls (public law) or the foundation (constitution).
Other elements, like stones on the aquarium floor, represent specific private law provisions that are beyond the discretion of the contracting parties — such as mandatory formal requirements.
Sources:
James Pinnells, Arndt Eversberg: Internationale Kaufverträge optimal gestalten, Leitfaden mit zahlreichen Musterklauseln, 3rd Edition (2021)
Eckart J. Brödermann: UNIDROIT Principles of International Commercial Contracts (PICC), 2nd Edition (2023)
