German contract law is based on the principle that parties are bound by a contract (pacta sunt servanda), i.e. the obligation to fulfill agreements. Upon the opening of insolvency proceedings over the assets of one contract party, however, such principle of being bound by a contract is modified. The insolvency provisions regarding the fulfillment of mutual legal transactions grant to the insolvency administrator the right to choose or reject performance of certain types of agreements or modifies their content. For the other contract party, this can result in unpleasant consequences. The most important stipulations are explained below.
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