by Peter Schlechtriem2
- I. Preliminary Remarks1
- II. Basic Features
- III. Organization of Basic Structures and Concepts of the New Law of Obligations.
- IV. Breach of Specific Contracts, in Particular Sales Contracts
- V. Final Remarks
I. Preliminary Remarks1
On January 1st, 2002, the Act to Modernize the Law of Obligations of November 26, 20013 came into force, causing a general revision of the German Civil Code (Bürgerliches Gesetzbuch, BGB), which in consequence was announced in its new version in the Official Law Gazette of the Federal Republic of Germany on January 2nd, 2002.4 Most notable are the changes to the second book of the Civil Code (Law of Obligations), which reached the foundations of this venerable codex and altered its basic structures.
The revision of January 1st, 2002, generally referred to as a reform, brought to an end endeavours which had begun as far back as the late 1970ies, when the then Minister of Justice of the Federal Republic, Dr. H. J. Vogel, in the wake of several reforms – in particular in the field of family law – and new Acts – relating e.g. to the control of standard form contracts – asked a number of obligations law scholars to submit opinions on several topics ranging from the law of limitation periods to the general rules on breach of contracts and extra-contractual obligations, to specific types of contracts and the need to (re)codify them, as well as to tort law, and in particular the question whether the large number of specific Acts which had overgrown the Civil Code in these areas could and should be consolidated. These experts submitted their opinions in the early 1980ies.5 In 1984, the Minister of Justice established a Law Reform Commission consisting of 16 experts – judges, civil servants representing the ministries of justice of the Federal Republic and the German States, scholars, one attorney and one notary – and entrusted it with the task of elaborating draft provisions for the Civil Code which would revise the law of limitation periods, of the general rules on breach of obligations, and also of the specific contracts of sale and construction and how these linked to the more abstract general rules. Indeed, the incongruencies between general rules on the one hand and the rules on specific contracts on the other were regarded as one of the congenital defects of the old Code. The scope of the reform project was – in comparison to the range of the above-mentioned expert opinions – scaled down considerably, leaving aside, e.g., all matters of tort law and the law of restitution except in regard to the respective rules on limitation.
The Law Reform Commission6 published its proposals – a draft of new code provisions and comments hereto – in 1992.7 The report found a mixed reception. The Deutsche Juristentag, a traditional bi-annual meeting of all interested jurists, voted in 1994 with great majorities in favour of most proposals, while scholarly articles criticized various details. Overall, the reform project was met by rather reluctant interest in reform, and politicians and the political parties in particular, ignored it, as they could not imagine winning votes by backing such a project far from the mind of the general public.
The project of a reform seemed destined to pass away quietly, and its only merit to have served as a quarry for doctoral theses, when, in 1999, the EC enacted several directives, among them the most important directive 1999/44/EC on consumer sales,8 which had to be implemented by Dec. 31, 2001. This posed a dilemma for the German legislator and the Ministry of Justice as the organ to prepare legislation on the implementation. Should the Directive be implemented just as an additional body of sales law, thereby increasing the number of different sales law regulations to five? The law of sales in the BGB, the law of commercial sales in the Commercial Code, the UN-Convention on the International Sale of Goods, the special law for the sale of animals and lastly the new consumer sales law would differing not only in details, but also in basic structures. Or should the need to implement the Directive be taken as a chance to overhaul the sales law and the general rules on breach of contract altogether? And since the Sales Directive required the introduction of a new period of limitation for claims and rights arising from breach of warranties, should this be implemented only in regard to consumer sales, or rather be used as the final impetus to reform as a whole the law of periods of limitation, which had for long been regarded and criticised as fragmented, complicated and an inducement to bend the substantive prerequisites of claims and rights? The Justice Ministry opted for the second solution, took the reform proposal of 1992, elaborated under its tutelage, as a model, supplemented and modified it slightly with the rules of the Directives to be implemented, and published a “Discussion Draft of a Law of Obligation Modernization Act” on August 4, 2000.9 This caused a veritable storm of criticism,10 because by now every jurist in Germany, academics and practitioners alike, realized that this was no longer a theoretical playground for a handful of experts, but that a fundamental change of the law was indeed imminent. The motives of those groups which objected to the draft, however, were quite different. Some critics, composed mostly of advisors to commercial and industrial associations, protested against the additional costs caused by certain rules, in particular the lengthening of some periods of limitation, and what was perceived as a trend towards stricter liability of sellers and contractors for the conformity of their performance to the contract, but also by the need to revise standard form contracts.11 Practicing lawyers complained that they had to devote too much of their valuable time to study and digest the new provisions.12 Academics pointed to this or that flaw in the draft, often characterizing every deviation from the norms, concepts and structures of the old BGB as being a fallacy in itself.13 What caused particularly vociferous protest was the suspected tendency to forego parts of the Roman law heritage as interpreted by great scholars of the 19th century such as Friedrich Carl von Savigny, who had strongly influenced some of the foundations of the German Civil Code in general and the sales law especially, and instead to follow solutions of the UN-Convention on International Sales, which was regarded as being a Trojan horse of common law thinking. Occasionally, this protest would culminate in the assertion that the German Civil Code was so perfect in itself that every change could only impair and never improve it.14
The Ministry of Justice was quite open to critical proposals, partly because of their merits, partly for tactical reasons, i.e. in order to steer the project safely through the swirling waters of the legislative process. Not only did the Ministry consider carefully the many proposals submitted by individuals, groups, conferences etc, but it also revived the old Law Reform Commission, which was split into several working teams and enlarged by an Advisory Board, including scholars who had been particularly critical of the reform project. The result was the Official Draft (“Regierungsentwurf”) of an Act to Modernize the Law of Obligations of May 9, 2001,15 which was approved by the German Parliament in July in its first reading. However, the Bundesrat, the second legislative chamber which represents the German States, submitted 150 proposals for alterations and amendments, although showing a general willingness to let the project pass (and not to make it a point of partisan conflict of the political parties, which could easily have happened, as a left-wing coalition had the majority in Parliament, whereas the conservative opposition dominated the Bundesrat). Likewise, the Judicial Committee of the Parliament suggested a number of amendments. Therefore, the Ministry revised the Draft of May 9, 2001, advised and assisted by a joint commission of the Federation and the States. The second and third readings of the result, i.e. the final draft, by Parliament took place on November 11, 2001, so that the new draft could become law in time, i.e. to meet the deadline set in the consumer sales directive.
The long-winded development from the first proposals to the final version of the Modernization Act, sketched out in the preceding section, and the many, often divergent, influences that shaped its structure and details, must be kept in mind when trying to understand and to evaluate the result, i.e. the new law of obligations and limitation periods. Four main areas can be distinguished as follows.
From the very beginning, an overhaul of limitation periods was at the heart of the reform project. As mentioned above the respective provisions contained a great variety of limitation periods ranging from 6 weeks (for warranty claims of the buyer of a “defective” animal in § 490 (1) BGB), 6 months (e.g. for warranty claims of the buyer of movables, § 477(1)) up to 30 years as the general (fall back) provision on limitation of actions (§ 195 BGB). The norms on periods of limitation were referring to specific actions and their prerequisites, thereby not only presenting a great variety of limitation provisions and long catalogues of respective claims, often regulated outside the BGB in obscure by-laws, but also inducing lawyers and courts, who found a particular short period of limitation, e.g. in case of a buyer’s warranty claims, untenable, to escape its application by characterizing the plaintiffs claim differently, e.g. as a tort claim, falling under a regime of three or, depending on the victim’s knowledge of the existence of its claim and the defendant/tortfeasor, up to 30 years. Thus, an action based on the defect of a tyre of a purchased car, which would be barred after 6 months if presented as a contractual claim, could be framed as a tort claim if the defective tyre had caused an accident which had destroyed the whole car.16
Although almost everyone agreed on the need to revise this part of the law, as the EC Consumer Sales Directive required at any rate at least a partial revision, the best solution for a law of limitation was nevertheless highly contested. Up to the “Discussion Draft” of 2000, the opinion prevailed that in order to overcome the variety of limitation periods, its inconsistencies and the inherent temptation to escape the consequences of certain norms by way of changing the characterization of actions, i.e. twisting the substantive law, a largely uniform period of limitation (of 3 years, in exceptional cases 5 or 10 years) should govern all claims based on contract. This solution, however, could not be maintained. Critics were successful in pointing out that this would not only leave the old escape route into tort law open, but that in many situations it would cause hardship on the obligee if its claims were barred after 3 years before the claim and/or the obligor had become known to the claimant to a degree which enabled the claimant to pursue his or her claim.17 Therefore, the period of limitation regime was completely changed at the last minute by opting for the so-called two-tier (or better: three-tier) system. This is based on a rather short general period of limitation of 3 years for all claims (now § 195 BGB), which, however, commences only at the end of the year in which the obligee had or could have had knowledge of the existence of the claim and the respective obligor (now § 199 (1)). This is combined with long-stop periods of 10 years (§ 199 (2)) and – in case of claims for certain damages, including those arising from death or injury, of 30 years (§ 199 (3)). These long-stop periods commence on accrual of the claim or (in case of the 30 year period for damages claims) the occurrence of the event that caused the claim to accrue.18 In addition, however, special periods of limitation were regarded as necessary, in particular for warranty claims,19 or kept to be merged into the general system later, notably the special provisions for certain professionals such as attorneys, auditors and tax consultants, who still enjoy the benefit of rather short periods of limitation.20
One of the initial motives for reforming the BGB was the desire to (re-)integrate into the BGB regulations enacted as separate statutes or by-laws, thus not only facilitating their application, but also harmonizing their basic structures and concepts with those of the main codification. The Law Reform Commission had no longer pursued this goal, for at that time – i.e. in the 1980ies – this seemed impossible to achieve because of the sheer abundance of the exploding mass of such regulations. The Modernization Act partly reversed this resigned restraint and merged a number of special regulations into the new law of obligations, in particular consumer protection laws, but also laws reaching beyond consumer transactions such as the Act on (the Control of) Standard Form Contracts, enacted in 1976 and now to be found – with certain changes – in §§ 305-310 BGB
A Code is bound to be partially outdated and to be supplemented and amended by judge made rules of law almost as soon as it is enacted. Gaps and inconsistencies might be discovered, but more often alterations in the legal environment – economic and technical developments as well as gradually changing policies and common convictions – necessitate adjustments of the rules laid down by the historical legislator. The older a Code becomes, the more it is overgrown by case law, the rules of which are very often the result of a constant discussion between courts and academic scholars and pundits of the Code. This was also the inevitable fate of the BGB, and it was therefore one of the most important tasks for the experts and commissions entrusted by the Ministry of Justice with the preparation of proposals for a reform to provide an analysis of whether and which rules of case law could be codified in the context of a new Law of Obligations. Letting aside those rulings which merely clarified the meaning of certain concepts in the provisions of the Code, many judge made rules had indeed probed the foundations of the BGB’s Law of Obligations and had deviated from solutions which the authors of the BGB had intended. For this reason, the relevant parts of the Modernization Act will be dealt with below (sub III) in the context of reporting the changes in basic structures and concepts and comparing them with European and international developments.
The colloquial term “overhaul” masks three different aspects of the revision of provisions regulating these contracts.
- First and foremost, the Consumer Sales Directive had to be implemented. A basic decision which was taken in this regard was to adjust the entire sales law to reflect the approach taken by the Directive, rather than limiting these changes to special provisions for consumer sales. (There are nevertheless some new provisions which apply only in case of a consumer sale at the end of a distribution chain, §§ 475-479). This decision, however, was facilitated by the fact that the various reform proposals, in particular the draft prepared by the Law Reform Commission (above I.), were already heavily influenced by the UN-Convention on the International Sale of Goods, and in particular by the provisions which define nonconformity of goods as a prerequisite of warranty claims. In turn, the same Convention was also used as a model by those who drafted the EC Consumer Sales Directive. Thus, the ground was already prepared by the draft proposals, and the adoption of the key concepts of the Directive was relatively easy. Of course, there remained genuine consumer protection issues which had to be implemented, and it is in this context that one might miss consistency and elegance in the new provisions (see below IV.2.d).
- Second, the system of remedies of the buyer in case of defective goods under the Civil Code of 1900 had centred around the old Roman remedies of actio negotioria, i.e. termination of the contract, and actio quanti minoris, i.e. price reduction, and allowed for damages only in case of fraud or breach of dicta et promissa, i.e. some kind of express warranties. This was commonly judged to be outdated and in need of legislative reform. The courts had, by inventing a general claim for damages in case of breach of contract (the so-called positive Vertragsverletzung), partially remedied these deficiencies, but at the price of creating new problems of concurring actions and delineating the respective areas of codified remedies and judge-made claims,21 the practical issue very often being one of extremely diverging periods of limitation. For example, in the field of construction contracts, a damage claim under the special provision of the Code would be barred in six months, one year or five years depending on the kind of object to be produced by the contractor (see § 638 of the old Code), while the general claim for breach of contract could be pursued for 30 years! The courts attempted to distinguish between consequential and not quite as consequential damages (Mangelschaden and Mangelfolgeschaden), the first one falling under the special statutory provisions, the latter under the rules of general breach of contract, but never succeeded in creating a clear and unambiguous formula for drawing the borderline.22
- Third, as mentioned above (at I), the provisions on remedies in the general part of the law of obligations and those in the context of the regulation of special types of contracts were not fully consistent, if not contradictory in some respects, reflecting the historical fact that different drafting commissions had been in charge for these areas. Moreover, the general provisions were limited to two specific types of contract breach, namely impossibility causing non-performance, thereby distinguishing between initial and subsequent, imputable and excusable impossibility, and imputable delay.23 On the other hand, the sales law – and, to a lesser extent, the construction law remedies – centred around cases of malperformance, i.e. non-conforming goods or works, regardless of whether conformity was possible or not, imputable or not. In addition, while in general a claim for specific performance was regarded as the “backbone” of every obligation, a purchaser had no action for the cure of defects of specific goods (unless granted under the terms of the contract), while the client in a construction contract could claim repair (§ 634). The relationship between the general and the special provisions presented many dogmatic riddles, made even more fascinating by the courts’ invention of the concept of a general breach of contract (above II.2.). Attempts to solve these riddles, being regarded as an intellectual challenge worthy of the time and efforts of the best, filled many a library shelf. For practitioners and students, though, this was a maze. Therefore, one prime goal of the reform and reformers was to streamline the system of remedies, harmonize the respective provisions of the general and the special part of the law of obligations, and to bring it in line with modern, i.e. international and European developments. The question whether they succeeded in this will be dealt with below (at IV).
As mentioned above (at II. 4. c), the system of remedies available to an obligee, who was aggrieved by the obligor’s failure to conform with his or her obligations, whether they were created by a contract or arose by virtue of the law, was based not so much on the deviation from this obligation but on the causes and phenotypes of certain breaches. These included impossibility as an initial or a subsequent, (i.e. arising after creation of the obligation) impediment, and the distinction between imputable (zu vertretende) and non-imputable (nicht zu vertretende) impossibility, imputability in most cases being understood as fault, i.e. wilful or negligent action or omission causing impossibility. A further distinction was made between subjective impossibility, affecting only the respective obligor, and objective impossibility, which affected everyone. As a second type of breach, i.e. imputable delay, was regulated as to both prerequisites and consequences. These most general rules – §§ 275 et seq. – were supplemented by norms for non-performance, impossibility or delay in synallagmatic contracts, §§ 320 et seq.24 Although impossibility and delay were meant to play the central roles in this system, even within this limited field – which had proved not to be relevant in practice very often – untilled parts could be detected. Three questions which never received a final answer were: (1) whether impossibility could include “economic impossibility”, i.e. cases of extreme economic hardship;25; 2) what should be the consequences of initial subjective impossibility (which was not expressly regulated in the Code) and 3) whether initial objective impossibility always vitiated a contract (as § 306 stated).26Also, as has been mentioned above (at II.4.b), there was no general provision for malperformance, which could neither be subsumed under the provisions of impossibility, nor be regarded as a delay. A famous scholarly contribution had pointed out this gap as early as in 1902,27 which necessitated the invention of the concept of claims for “positive” breach of an obligation, functioning mainly as an equivalent to the common law notion of breach of contract. However, within the existing system, this created new problems, as those claims collided with special rules on non-conformity of goods and works.
All this has meanwhile been abolished – or almost all of it. During the last phase of redrafting the Discussion Draft to become the Official Government Draft of May 9, 2002 (above I. 2.), scholars who had been invited to join the revived Law Reform Commission made successful attempts to reintroduce some of the keynotes of the old system.28 The Ministry of Justice complied in order to counter the growing resistance amongst the conservative community of lawyers. But the core of new structures and concepts were saved.
The new system is based on a general concept of breach of (an)obligation, regardless of whether this obligation is created by contract or arises by virtue of the law (such as in the case of negotiorum gestio) or under the newly introduced pre-contractual duties of care to protect the prospective partner’s real and personal rights and interests under §§ 311 (2), 241 (2).29
The content of the obligation is determined by law and – in the case of contractual obligations – by the agreement between the parties, unless party autonomy is restricted by legal norms which prohibit certain terms – in particular standard terms – or which exceptionally impose certain terms on the contracting parties. In regard to features of goods sold or works to be constructed, rules stating “implied” terms of qualities supplement the parties’ agreement as if it were “accurately drawn out”.30
If a party deviates from the content of an obligation, this constitutes a breach, or, in the terminology of the new law, a Pflichtverletzung. This is equivalent to the general concept of non-performance which can be found in the Principles of International Contract Law as promulgated by UNIDROIT,31 in the European Principles of Contract Law (hereinafter: PECL)32 and the breach of contract concept in the UN-Convention on the International Sale of Goods (CISG). At this stage of legal analysis it does not matter what caused the deviation, or what form it took. Whether the deviation was caused by an impediment or a change of the obligor’s mind, or whether it caused complete non-performance, malperformance, or delay, will become relevant only in regard to specific remedies. In particular – and deviating from the old Code and the Roman maxim impossibilium nulla est obligatio – neither a contract as such nor a single obligation is void because of impossibility. The new § 311a (1) states this deviation from the old law expressly, although the new § 275 (1) can give rise to misunderstandings (see below at 2. a). And it equally does not matter at this stage whether the obligor was at fault or otherwise responsible for not overcoming the respective impediment – again, this is relevant only in the context of certain remedies.
If there is a breach, the obligee has an arsenal of several general remedies, which may depend on additional prerequisites, and, if the obligee is also under an obligation towards the obligor, he or she may have the right to retain or withhold his or her own performance.33 The main remedies are:
- a claim for specific performance (§ 241), which in case of non-conformity is aimed at curing the non-performance, (e.g. §§ 437, 439 for sales and §§ 634, 635 for construction contracts);
- termination of contract which is effective ab initio, i.e. retroactively (Rücktritt, notably under § 323 for synallagmatic contracts); in case of recurring obligations, this is replaced by a termination which is effective only for the future (Kündigung,in particular under § 314);
- a claim for damages (§ 280);
- in case of hardship created by circumstances which have either changed, or which had been erroneously assumed at the time of contracting, a claim for adjustment of the contract may lie under § 313 for the aggrieved party. If this is not feasible, termination may be granted in this situation as a remedy of last resort;
- in certain types of contracts, the aggrieved obligee may also exercise a right of price reduction or of self-help, the latter with the consequence that the necessary cost can be charged to the party in breach and a corresponding advance be claimed (see § 637 for construction contracts).
Under German law, an obligee can generally always claim – and sue for – specific performance. This seemingly fundamental difference to common law systems is, however, narrowed down considerably if the procedural rules on enforcement of claims are taken into account.34 Aside from variations and additional requirements regulated in the context of particular contracts and the claim for cure of non-conformities, an obligor can now always raise the defence that insurmountable impediments hinder specific performance, § 275. It is here, however, that the old concepts, thought to be buried by the initial Law Reform Commission, ruled from their graves the imagination and deliberations of the second Law Reform Commission and influenced the resulting details of § 275. In particular, they caused the old notion of a liberating impossibility to creep back into the regulation of this defence. The first Law Reform Commission had characterized insurmountable impediments generally as a defence, which did not affect the obligor’s obligation and which had to be raised in court in order to be effective. In the end, i.e. on account of the proposals of some members of the second Commission, § 275 (1) “excludes” the obligor’s obligation to perform in case of objective or subjective impossibility, thereby suggesting the obligation to be void in case of impossibility. Subsections (2) and (3) of § 275, on the other hand, state defences (only) against the claim for performance, which become effective when raised in court and which leave the underlying obligation intact. The last minute solution adopted in § 275 (1) is a step back, which had obviously been influenced by traditional conceptions of “no obligation in case of impossibility”, which, however, have been given up expressly in § 311a (1). First of all, the borderline between subsections (1) and (2) might be difficult to draw. Subsection (2) gives the obligor a defence in cases where performance would require unreasonable efforts, the term” unreasonable efforts” used here as shorthand for the necessary balancing in a given case of the expenditures required of the obligor and his or her responsibility for the impediment on the one hand, against the obligee’s special interest in specific performance on the other. It may prove to be difficult to distinguish this from subjective impossibility under subsection (1). Take the frequent case of a luxury car which is stolen after the conclusion of the sales contract and shipped to Russia. Experience shows that these cars can be retrieved through special agencies, but at a very high price. Is this subjective impossibility under subsection (1) or “merely” unreasonable expenditure under subsection (2)? Probably – and hopefully – these are theoretical concerns, because the seller, once sued for delivery, will defend himself by reporting the unhappy course of events as such, thus leaving it to the courts and academic commentators to qualify whether this defence should be subsumed under subsections (1) or (2). More troubling are the dogmatic warps caused by the idea that impossibility, as under the old Code, may render an obligation void.35 Since the obligor remains obliged to surrender any surrogate under § 285, one has to revert to the old notion of a secondary obligation behind the primary obligation to perform, whereby the secondary obligation is directed towards the surrogate. Even less reconcilable with the notion of an obligation vitiated by impossibility is the rule in § 275 (4), namely that the obligee may claim damages or terminate the contract for breach of this very obligation, which is regarded as vitiated by impossibility by those authors who understand the new rule in the light of old concepts. Finally, in cases where the impediment amounting to impossibility later lapses (e.g., an export ban is lifted unexpectedly), the retrospective notion of an obligation which initially was void must be corrected by some form of resurrection of the obligation.36 The interpretation favoured by the present author is that the defence of impossibility simply ends with the cessation of any impediment. This is not the place to fight a battle over the correct interpretation and dogmatic characterization of § 275 (1). It is to be hoped that this will be no more than the proverbial tempest in a teapot, and the qualification of the obligor’s defences a façon de parler. What matters is the rule in subsection (4) mentioned above, which states that, regardless of the obligor’s defence(s) against the obligee’s claim for specific performance, and also regardless of the qualification of the defence, the other remedies of the obligee are not affected, and also the rule in § 311a (1), which clearly states, that even in case of initial objective impossibility, a contract is valid.
In most legal systems, termination of a contract is generally allowed only if the breach is serious.37 The problem is to determine and define the threshold of seriousness which allows to abandon the contractual bond of pacta sunt servanda and to terminate the contract. Aside from legal systems which essentially allow termination only by judgement of a court and which leave it to the court to determine the prerequisites of termination, two models can be found. The first model states the basic rule that termination (or avoidance) of a contract is allowed only in case of a fundamental breach as a general principle, thus leaving it to courts and commentators, or to additional provisions, to elaborate on cases of fundamental breach. This first model also provides a fallback line for cases where the seriousness of breach might be uncertain, by the instrument of a request which makes time of the essence by setting a period of grace (Nachfrist). If this lapses without the obligor having provided performance, this constitutes a fundamental breach. The second model is based on a general requirement that the obligee first has to set an additional period of time to allow the obligor a second chance, but that such an additional period of time is considered unnecessary in cases of an obviously fundamental or incurable breach. The first model is followed by CISG, the UNIDROIT Principles and the European Principles,38 while the latter is to be found, e.g., in the Swiss Code of Obligations, and also in the new German law in § 323.39 This provision requires in general an additional period of time to be set by the obligee before the contract can be terminated. However, subsection (2) dispenses from this requirement if the obligor refuses to perform, if time was of the essence or in other “special circumstances”, which, having due regard to the parties’ interests, justify immediate termination. § 326 (5) also dispenses from the same requirements in cases were the obligor could invoke the defence of insurmountable impediments against the obligee’s claim for specific performance.40 The reform proposal of the first Law Reform Commission (above I.1) had favoured the first model, i.e. that a fundamental breach of a contractual obligation should always grant the right to terminate the contract. A residue of this approach can be found in § 324 BGB, although this has been somewhat amputated by the restriction of this provision to the violation of protective duties of care41 and the replacement of the term “fundamental breach” by the requirement that the obligor “can no longer reasonably be expected to abide by the contract”.42
As mentioned above, in case of recurring obligations, termination has generally no retroactive effect because of the difficulties of unwinding recurrent performances such as the use of a thing or services, and instead dissolves the contractual bond only – but immediately – from the time the notice of termination is received by the party in breach, § 314. Here, too, the aggrieved obligor in general must first set an additional period of time for performance, or reprimand the obligor, but might be dispensed of these requirements in situations analogous to those in § 323 (2).
If a contract is terminated, special rules govern the restitution in kind of performances made and, where this is not possible, the monetary allowance which replaces restitution in kind, §§ 346-348 BGB. These rules are seen as some kind of reversed contractual obligations and not as an instance of unjust enrichment.
The lack of a general claim for damages in cases of breach of an obligation under the old Code, which courts and scholars had addressed by creating the concept of a positive violation of a contractual duty (positive Vertragsverletzung) 43, has now been remedied in §§ 280 et seq. It should be noted, though, that these provisions are not merely a codification of the positive Vertragsverletzung, but comprise all instances of deviation from an obligation, regardless of whether these should be qualified as non-performance, late performance or malperformance, and also regardless of their causes such as impossibility or unwillingness of the obligor to perform. The phenomenological form of the breach and its causes are relevant, however, in regard to the kind and extent of damages which the obligee can claim (below (aa)), for the obligor’s responsibility (the Vertretenmüssen) , and the obligor’s possible defences (below (bb)).
Under CISG Art. 79 I, II, PECL Art. 8:108, 9:501 (1), and UNIDROIT Principles Art. 7.1.7, 7.4.1, the obligor is excused if – in brief – the deviation from the obligation was caused by impediments beyond the obligor’s control which could not reasonably be expected to be taken into account at the time of contracting, and which could not have been avoided or overcome by the obligor. This “imputability” of events, in German law language encoded in the term Vertretenmüssen, is an additional prerequisite for a claim for damages, § 280 (1) sent. 2 BGB. However, imputability is presumed, so that the burden of proof falls on the obligor. Imputability is defined in §§ 276 and 311a (2) BGB, and it is here that the concepts of initial or subsequent impossibility remain important because of the different focus of the obligor’s liability.
§ 276 BGB, often regarded as the shrine of the fault principle,44 regulates responsibility for negligent or wilful breach as a fallback line, but allows for strict liability in cases of, e.g., a guarantee or an assumption of risk by the obligor, which can be derived from the content of the contract. An assumption of risk is always supposed for the financial capacity of the obligor and his or her ability (thereby) to procure goods, which are to be delivered as part of his or her obligation.45 The present author is convinced that, despite different starting points, liability under the cited uniform rules and Vertretenmüssen under § 276 BGB will be based on similar standards and criteria.
§ 311a (2) , however, reflecting a last minute amendment, is entirely new. It provides that in case of an “initial impediment”, in particular in case of initial impossibility, the obligor is responsible to pay (full) damages, unless he or she was not aware of the impediment and this ignorance cannot be “imputed”, § 311a (2) sent. 2. In deciding whether the obligor is liable, the focus of the analysis is therefore not on the obligor’s behaviour after the creation of the obligation, such as an imputable lack of control, of money (to procure) or foresight (of an impending impediment), but rather on the obligor’s imputable lack of making sure before incurring an obligation, notably before contracting, that he or she is capable of performing it. If, as in McRae v The Commonwealth Disposals Commission,46 a non-existing wreck is sold to a salvage company, the purchaser can claim damages including lost profits (and not only reliance interest) if the seller had knowledge of the non-existence of the wreck or his or her ignorance was “imputable”, i.e., that the seller could have made sure whether the wreck existed.
§ 280 (1) BGB is the basis for damage claims based on breach of obligation. It applies without further prerequisites if the obligee claims damages in addition to performance for, e.g., consequential loss caused by defects of goods delivered. If the obligor claims for damages caused by delay, however, the additional requirements of Verzug, i.e. imputable delay, under § 286 BGB must be met, as required by § 280 (2) BGB.
If the obligor asks for the full performance interest including lost profits as damages, i.e. damages in lieu of performance, he or she can proceed by terminating the contract under § 323 BGB; termination and damages can be combined (as in the uniform law projects) under § 325 BGB. To do so, the obligor must, however, generally set an additional period of time, § 323 (1) BGB, unless this is dispensable under §§ 323 (2), 326 (5) BGB.47 As mentioned before, termination, amounting to a liquidation of the contract, should not take place without a second chance for the obligor to perform and thereby avoid this liquidation, unless a second chance is superfluous in the situations falling under § 323 (2), 326 (5). Since a claim for damages in lieu of performance amounts to a liquidation of the contract even without termination, the same prerequisites as for a termination must be met. This notion is at the core of the seemingly complicated regulation in §§ 281, 283. This establishes requirements for a claim for damages in lieu of performance, i.e. instead of proceeding with the contract, without actually resorting to termination.48
§ 284 BGB allows the obligee to claim for useless expenditures instead of damages, e.g., where an obligee in expecting delivery of goods has rented storage space, or where the buyer of animals has bought food, etc. Since these expenditures are not exactly caused by the following breach, but were incurred in mere reliance on the contract, and since respective damages might sometimes be hard to prove, the legislator sought it necessary to deal with this special situation (which prior to the reform was coped with by judge-made rules on presumption of damages). A claim for expenditures must meet the same prerequisites as a claim for damages in lieu of performance (above III.3.).
PECL and the UNIDROIT Principles have both introduced the concept of adjustment of contracts in case of a fundamental alteration of their equilibrium by events which occur (or become known) after conclusion of the contract, which could have been neither foreseen nor controlled by the disadvantaged party, and which were not part of the risk assumed by this party.49 On the other hand, CISG does not address this problem, because at the time when its basic features were drafted, the aversion by representatives of those legal systems, which then still rejected the idea of any tampering with contracts because of unforeseen developments, was too strong to be overcome. In order to cope with hardship situations under CISG, one has to revert to Art. 79 (1) CISG50 (reminiscent of early attempts in Germany to cope with these situations as “economic impossibility”).51 In German law, the concept of what might in shorthand be called a clausula rebus sic stantibus, which the legislators of the 19th century had expressly rejected, became an established legal institution after the First World War in order to cope with its consequences, notably the devastating effects of hyperinflation.52 A rule to this effect has now been codified in § 313 BGB, which, however, shows some interesting differences to the uniform law projects. While PECL requires a change of circumstances after conclusion of the contract, § 313 (2) BGB allows adjustment also in case of a mutual error of the parties as to the factual foundations of the contract. While the uniform law projects see as an initial step a request by the disadvantaged party for renegotiations, § 313 BGB has no such requirement but allows an aggrieved party to claim adjustment of the contract without preliminary negotiations.53 Most important, while the uniform law projects allows the courts to adjust the contract affected by changed circumstances at their discretion, § 313 BGB (1) requires that the party asking for adjustment must claim for a specific alteration of the contract, which the court can either grant or deny. And while § 313 (3) BGB envisages termination of the contract in these cases only as a remedy of last resort, the uniform law projects leave it to the discretion of the courts whether they terminate the contract or alter its terms.
As mentioned above (I and II.4.c), one of the main motives for the reform was from the very beginning the integration and harmonization of the systems of remedies in the general part of the Law of Obligations on the one hand with the remedies for breach of specific contracts, in particular sales, on the other. This was achieved on two levels.
Whether a breach has been committed depends on the obligations of the parties, and whether there was any deviation from these obligations. As mentioned before, contractual obligations and their contents are created and determined by the parties, unless party autonomy is restricted by the law. Where express and clear contents are lacking, the law fills this gap in a contract by providing subsidiary rules for the contents. Thus, in case of sales contracts, § 433 (1) sent. 1 BGB obliges the seller to transfer title and possession, and § 433 (1) sent. 2 obliges the seller to deliver goods free from defects and third party rights. § 433 (1) sent. 2 is then fleshed out in §§ 434 and 435, which define what is meant by “free from defects and third party rights”. Likewise, for construction contracts, § 633 (1) obliges the contractor to achieve a result as agreed upon by the parties and free from defects or third party rights, and defines this in § 633 (2) BGB mostly in parallel to the sales provisions.
“Defect” is just a shorthand for any deviation from the obligation in regard to the features and qualities of the goods, or, in the terms of CISG, “non-conformity”. In order to establish conformity, consequently, one needs to know which features and qualities the goods should have under the contract. There is no abstract notion of non-conformity.
§ 434 (1) sent. 1 BGB, therefore, states – as does Art. 35 CISG – that the agreement between the parties is decisive, and that thus the parties determine what features and qualities the object of the sales contract should have. The fact that Art. 35 CISG corresponds to § 434 (1) sent. 1 BGB is not accidental. Not only was Art. 35 CISG influential for the draft proposal of the first Law Reform Commission (above I.1.), but it also served as a model for Art. 2 of the Consumer Sales Directive and thereby became the blueprint for § 434 BGB.
If and insofar as the parties have not clearly determined the features and qualities, the law provides fallback lines by “implying” respective agreements. A first fallback line is based on the particular intended use presumed under the contract, § 434 (1) sent. 2 No. 1 and Art. 35 (2) lit.b CISG.54 A second fallback line is the “fit for normal use” provision in § 434 (1) sent. 2 No. 2, which compares to Art. 35 (2) lit a) CISG. In addition, however, § 434 (1) sent. 3 implements a requirement established by the Consumer Sales Directive (Art. 2 (2) (d)), i.e. that “public announcements” about the goods, in particular in advertising, by the manufacturer, wholesale dealers and their helpers such as advertising agencies, should be regarded as basis for implied promises of the seller.55
In addition – and in conformity with Art. 35 (1) CISG – a so-called aliud, i.e. goods of another kind, and also a lack in quantity, are treated as non-conformity, § 434 (3) BGB, thereby abolishing with the legislator’s proverbial stroke of the pen the old problem of drawing the line between malperformance through delivery of defective goods and non-performance through delivery of goods of another kind.56 The same grid of fallback provisions and clarifications can be found in § 633 (2) BGB for construction contracts.
The Consumer Sales Directive also regulates that “non-conformity” extends to defects caused in the process of assembling the object sold, which covers both the seller assembling the object incorrectly, and the buyer’s failure to assemble correctly on account of an insufficient instruction sheet (so-called “IKEA clause”). § 434 (3) BGB implements this regulation.
The linchpin that attaches the buyer’s remedies in case of non-conformity to the general system of remedies is § 437 BGB. Likewise, § 634 is based on a reference to the general remedies in case of breach of a contractor’s obligation to achieve a result conforming to the standards set in the contract. § 437 BGB – and likewise § 634 BGB – expressly refer to the remedies of:
(a) specific performance – in case of defects, this takes the form of Nacherfüllung, i.e. supplementary performance. That is to be achieved either by cure or replacement (§§ 437 No. 1, 439 – §§ 634 No.1, 635 BGB);
(b) termination and/or damages (§§ 437 No 2. and 3, 440 – §§ 634 No. 3, 4, 636 BGB)
and also add (c) price reduction as a special remedy,57 §§ 441, 638 BGB.
In regard to the general remedies of (supplementary) performance, termination and damages, some additional prerequisites were introduced, partially – such as the right of the buyer to choose between cure and replacement and its restrictions, § 439 (3) – on account of the Consumer Sales Directive, partially in order to facilitate the obligor’s right of termination or claim for damages in regard to the additional period of time required under general principles. It must be noted, however, that an additional period for cure or replacement is generally necessary unless this is useless according to §§ 323 (2), 281 (2) , or because the seller relies on the defences in § 275 BGB.
(d) In addition to these claims and rights of a general character, two remedies specific to sales or construction contracts only have to be mentioned.
In case of non-conforming constructions, the obligor has – after having set an additional period of time in vain – a right of self-help, a claim for the expenditures necessitated thereby, and a claim for corresponding advances, §§ 634 No. 2, 637 BGB.
An interesting addition is to be found in § 478 (2) BGB. Art. 4 Consumer Sales Directive requires that a seller who has contracted with a consumer and who has become liable because of the non-conformity of the goods sold, must have an effective recourse against his or her supplier, who in turn must have recourse against his or her own supplier, so that in the end the recourse can be traced back to the manufacturer as the source of the trouble.58 This possibility to ultimately hold the manufacturer liable by way of recourse was the price which had to be paid for the rejection of early proposals to impose legal warranties on manufacturers for the benefit of consumer buyers. The exact meaning of Art. 4, however, is controversial, since it leaves it to the domestic legislator and domestic legal systems what shape the recourse should take. The main concern in regard to the effectiveness of recourse are periods of limitation, for the last seller might sell – and become liable towards its customer – only after his or her own claims against his or her supplier have already become barred by a short limitation period. Some national laws (including those of Austria and Germany) therefore provide for a suspension of the running of the limitation period of the respective seller’s claims against his or her supplier; for German law, this is codified in § 479 (2) BGB. But the German legislator went a step further. Not only can the seller in the role of a buyer employ all the normal remedies of a buyer, § 478 (1), § 437, but, in case the seller has performed his or her obligations towards the buyer by curing the non-conformity of goods bought by a consumer or by replacing them, the seller also has a special claim for recovery of all his or her expenditures, § 478 (2).59
These special remedies and claims do not really endanger the concept of a system of remedies, in which non-conformity is just one instance of breach among others, and where the remedies for non-conformity, therefore, are basically the same as in cases of non-performance or delay and are fully integrated into the general provisions.
The last phase of the reform was characterized by the need to implement the Consumer Sales Directive, by time pressure, political considerations, and the influence of new members amongst the group of consultants and advisory boards. Small wonder it is that this lead to a number of late changes which caused many a critical comment and annotation. Here is not the place to deal with these problems, or to spread out all the new provisions, which are now interpreted and analysed by the academic community, and which will soon have to stand the test of application by the courts.
Rather, what was to be shown here were the changes in basic structures and principal concepts, which, to my mind, brought the German Law of Obligation more in line with developments of the law in other countries and on the international level. And the reform certainly achieved the goal of integrating the consequences of breach of specific contracts and different types of breaches with the general system of remedies, thereby not only facilitating the understanding of the system by German students, but by foreign lawyers and German practitioners as well.
1 This article is based on a lecture as a Heather Grierson Visiting Professor in European and Comparative Law at the University of Oxford, Institute of European and Comparative Law, in February 2001, on “The Development of the Law of Obligations in Europe”. The article was substantially revised due to the numerous changes from what was then the most recent draft (September 2000), to the enactment of the new law as of January 1, 2002.
2 Prof. em. Albert-Ludwigs-University of Freiburg, Dr. jur (U. of Freiburg) 1965, Dr. jur. h.c. (U. of Basel) 1992, M.C.L 1964 (U. of Chicago).
3 Bundesgesetzblatt 2001 I 3138. A bilingual (German and English) edition of those provisions of the BGB which were affected by this Act has been prepared by Thomas and Dannemann, and is published in the German Law Archive at http://www.iuscomp.org/gla/statutes/BGB.htm.
4 Bundesgesetzblatt 2002 I 42.
5 Published as Gutachten und Vorschläge zur Überarbeitung des Schuldrechts, ed. by the Bundesminister der Justiz in 3 vols. 1981-1983.
6 The present author was a member of this Commission.
7 Abschlußbericht der Kommission zur Überarbeitung des Schuldrechts, ed. by the Bundesjustizministerium, Köln 1992.
8 O.J. EC No. L 171 p. 12.
9 Diskussionsentwurf eines Schuldrechtsmodernisierungsgesetzes, ed.by the Bundesminister der Justiz, Berlin 2000; this draft was the basis for the Oxford lecture on which the present article is based, see above note 1.
10 See, e.g., Ernst/Zimmermann, Zivilrechtswissenschaft und Schuldrechtsreform, Mohr (Siebeck) Tübingen 2001 (publication of papers given at a symposium at Regensburg, November 17/18, 2000, presenting an analysis of the reform draft).
11 See Groß/Zwerenz, Die Schuldrechtsreform. Die wichtigsten Änderungen für die Wirtschaft, Deutscher Industrie- und Handelstag, 2001; furthermore Groß/Zwerenz, Die Schuldrechtsreform aus der Sicht des Handels, Deutscher Industrie und Handelstag 2001.
12 The present author has frequently encountered this complaint when lecturing on the new law to legal practitioners.
13 See Altmeppen, Schadensersatz wegen Pflichtverletzung – Ein Besipiel für die Überhastung der Schuldrechtsreform, Der Betrieb 2001, 1131; Wilhelm, Schuldrechtsreform 2001, Juristenzeitung 2001, 861.
14 Flume, Vom Beruf unserer Zeit für Gesetzgebung, Zeitschrift für Wirtschaftsrecht 2000, 1427.
15 BT-Drucksache 14/6040, also reprinted in Canaris, Schuldrechtsmodernisierung, Beck München 2002, p. 429.
16 BGH NJW 1981, 2241; for an exhaustive survey of the case law see Katzenmeier, Vertragliche und deliktische Haftung in ihrem Zusammenspiel, dargestellt am Problem der “weiterfressenden Mängel”, Berlin 1994, p. 25 et passim.
17 See Mansel/Budzikiewicz, Das neue Verjährungsrecht, DeutscherAnwaltVerlag 2002, p. 148.
18 The two-tier system followed a model to be found in the old version of § 852 of the BGB in regard to tort claims, but also in the EC-Directive on Products Liability and in the – not yet published -Part 3 of the Principles of European Contract Law, prepared by the Commission on European Contract Law, Parts I and II ed. by Ole Lando and Hugh Beale, Kluwer Law International 2000.
19 For non-conforming performance of sales contracts, § 438 BGB sets – following the Consumer Sales Directive – a 2 year period for non-conformity of movables, a 5 year-period for buildings, building components and building materials, and a 30 year period for certain third-party rights – mainly ownership -, under which the third party can reclaim the object for 30 years; in case of fraudulently disguised defects, the general provisions on periods of limitation apply. For defects in construction, § 634 a BGB likewise sets a 2 year period for warranty claims for non-conforming movables, and a period of 5 years for buildings and all ancillary performances of planning and supervising the construction, if the performance resulted in defects of the building; in case of fraudulently disguised defects. In all other cases, the general provisions apply.
20 Whether the postponement of the reform in regard to these special regulations had its cause in the time pressure at the end of the legislative process, or in the desire not to swell the ranks of opponents to the reform with especially influential and vociferous interest groups, is a matter of speculation.
21 See e.g. Markesinis, Lorenz and Dannemann, The German Law of Obligations, Vol. I: The Law of Contract and Restitution, OUP Oxford 1997, ch. 6.
22 See Jauernig/Schlechtriem, BGB-Kommentar, 9th ed. Beck München 1999, § 635 no 16, 17.
23 See e.g. Markesinis, Lorenz and Dannemann, ch. 6.
24 For a more detailed report in English language, see Jones and Schlechtriem, Breach of Contract, chapter 15, vol. VII of the International Encyclopedia of Comparative Law, ed. von Mehren, Mohr (Siebeck) Tübingen 1999, sec.157 et seq.
25 The majority view was critical of such an extension, see Münchener Kommentar zum Bürgerlichen Gesetzbuch, 4th ed. 2001, § 275 no. 28 (Emmerich); but some judgments of the Bundesgerichtshof have taken such an approach, e.g. BGH 12.1.1997, VersR 1977, 526.
26 See e.g. OLG Hamburg 31.1.1910, Seuff. Arch. 65, 160; for an English translation see Markesinis/Lorenz/Dannemann, above note 21, case no. 67 (sale of a non-existing consignment of potatoes held not to be void).
27 Staub, Die positiven Forderungsverletzungen und ihre Rechtsfolgen, FS 26. DJT, Berlin 1902, 29 et passim.
28 The author, a member of this second commission, could not attend the crucial sessions because of his obligations in Oxford during the Hilary Term 2001; at one of the later sessions in August 2001, his motions were answered with the argument that one should not, merely in order to close up with international and European developments, stray to far from the foundations of the old BGB.
29 The concept of pre-contractual protective duties was, in itself, of course not a new invention, but could already be found in the Prussian General Law of the Land (Allgemeines Landrecht) of 1794 (Art. 284); it was then re-invented by Rudolf von Ihring, Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen, JherJb 4 (1861), 1-112; and became, as culpa in contrahendo, a well established concept of law, used mainly to overcome shortcomings of tort law in case of purely economic loss and because of the missing respondeat superior maxime. For details and further references see Schlechtriem, Schuldrecht Allgemeiner Teil, Mohr (Siebeck) Tübingen, 4th ed. 2000, p. 12 et passim.
30 In the words of L.J. Brett in Randall v Newson, 2 Q.B. 102 (C.A. 1878).
31 International Institute for the Unification of Private Law, Principles of International Commercial Contracts, Rome 1994
32 Above note 18.
33 The respective defences were modified only marginally and will not be dealt with here. See in particular § 321 BGB.
34 For an exhaustive analysis, see Neufang, Erfüllungszwang als „remedy” bei Nichterfüllung, Nomos Baden-Baden, 1998.
35 See e.g. Pfeiffer, Systemdenken im neuen Leistungsstörungs- und Gewährleistungsrecht, Zeitschrift für das gesamte Schuldrecht 2002, at p. 28; Canaris (above note 15) at XI (“Befreiung”).
36 Compare this to the strained construction in the old version of § 308 BGB: in case of initial impossibility rendering a contract void under (the old version of) § 306 BGB, the contract may, nevertheless be valid if the parties when concluding the contract envisaged the situation that the impossibility might lapse.
37 As to this basic notion, see the impressive analysis by Treitel in chapter 16, Remedies for Breach of Contract, of vol. VII of the International Encyclopedia of Comparative Law, ed. by von Mehren, Mohr (Siebeck), Tübingen 1976, sec. 161.
38 See supra notes 18 and 31. The main difference between CISG and the European Principles on the one hand and the UNIDROIT- Principles on the other is that the CISG and the European Principles abstain from providing examples of fundamental breach in the legal text, while Art. 7.3.1 (2) of the UNIDROIT-Principles does so.
39 Refusal to perform because of impossibility has always the same consequence as a fundamental breach; § 326 (5); in addition, § 323 (2) nos. 1 and 3 – in my view: superfluously – provide for termination without additional period of time in such a case.
40 See preceding note.
41 Neglecting situations frequent in CISG cases where one party violated an obligation – e.g. – not to re-import certain goods into the EU, or not to use the buyers brand name in the marketing of shoes distributed through the seller’s/manufacturer’s own chain of stores – the courts, in applying the CISG, evaluated whether the respective breach was fundamental. Under the new BGB, these cases cannot be solved under § 324, for the respective obligations were not mere protective duties; the solution has to be found in applying § 323 (5) sent 1 (partial non-performance).
42 The result will be the same, for the test whether a breach is fundamental will very often come down to the question whether in can be reasonably expected of the aggrieved party to be bound by the contract despite its violation by the other party. But the change in terminology is again evidence of a desire to purge the new rules from any terms and concepts reminiscent of uniform law texts and projects.
43 See above at II. 4. b)
44 The fault principle, often emphasized as one of the pillars of the German Law of Obligations, is more an ideological article of faith than a real distinguishing feature of responsibility. Even where negligence is required to “impute” a breach to the obligor, the objective standards of care used as yardstick often amount to strict liability and allow excuse only in case of impediments beyond control.
45 In particular, the obligor cannot be excused for his or her failure to deliver generic goods, as long as they are available. This made it possible to abolish the old version of § 279 BGB, for its content is now covered by the formula “assumption of risk” in § 276.
46 84 C.L.R 377.
47 See above III. 2.
48 A similar parallel is to be found in §§ 282 and 324 BGB.
49 Art. 6.2.2,3 UNIDROIT-Principles, Art. 6:111 PECL.
50 See Schlechtriem/Stoll, CISG-Kommentar, 3rd ed. Beck München 2000, Art. 79 Nos. 39, 40.
51 See above note 25.
52 See, e.g., Markesinis, Lorenz and Dannemann (note 21) pp. 523ss.
53 It is submitted that a demand for negotiations should be a prerequisite based on the good faith requirement in § 242 BGB before a claim for adjustment can be raised in court.
54 Note that there is a slight difference between CISG and BGB: the particular purpose is decisive under BGB even if the buyer did not or could not reasonably rely on the sellers capacity. The deviation from the common law based restriction in Art. 35 (2) b) CISG was necessitated by the Consumer Sales Directive, where this restriction was dropped on account of motions by the consumer protection wing of the European Parliament.
55 The dogmatically correct characterization of the effects of these relevant announcements is controversial. The phrasing of § 434 (1) 3 BGB misleadingly suggests that these announcements create an objective standard of quality to which the seller is held. In my opinion, they are nothing but part of the seller’s offer, imputed to him for policy reasons, i.e. to police exaggerated advertising, even if this is issued by certain third parties. The seller can avoid the consequences of, say, a manufacturer’s advertising campaign about the equipment of its newest products not only by invoking the restrictions contained in the wording of § 434 (1) 3 BGB, but also by an explicit agreement with the buyer under § 434 (1) 1 BGB. If the manufacturer advertises that from now on all his cars shall have 8 airbags, a new car in the dealer/ seller’s showroom with two airbags is not automatically rendered “defective”, but only if sold without mentioning that it does not conform to the manufacturers advertisements.
56 Both cases are not as easy as the new provision promises. If there is a mistake of the seller in sending goods, it can well be doubted whether this was performance, though malperformance, at all. And a lack in quantity can also be part-nonperformance, if, e.g., instead of 10;000 tons wheat only 5,000 tons are delivered. This is, however, not the place to pursue either one of these problems.
57 Motions presented by a minority within the first Law Reform Commission to introduce price reduction as a general remedy in case of malperformance failed, as the majority feared the resistance of unions and associations of professionals. PECL, on the contrary, has established price reduction as a general remedy in case of nonconforming performance, see Art. 9:401.
58 It is uncertain, however, whether recourse may be had beyond the assembling manufacturer and against its suppliers.
59 This was severely criticised – and rightly so – by, among others, Ernst/Gsell, Kritisches zum Stand der Schuldrechtsmodernisierung, Zeitschrift für Wirtschaftsrecht 2001, 1389, 1395, for if the seller takes recourse by terminating the contract with his or her supplier, the seller looses its margin of profit, which, however, can be kept if proceeding under § 478 II BGB. These consequences are not only often unknown to the respective seller, but also depend on the rather accidental reaction of the last buyer, ie. the consumer.
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