NEWS
2018-03-27

Contractual rights in Germany

The effect of contracts in Germany
Some of the more important points may be noted:
i The passing of property
The cardinal rule is that property passes when it is intended to pass. This section lays down rules for ascertaining the intention of the parties where it is not made clear. These rules should be consulted in detail. The most important of them (Rule 1) is that, 'Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed'. It is important to note that the goods may become the buyer's before delivery.
No property can pass to the buyer where the goods are still 'unascertained'. Goods are 'unascertained' until they are appropriated to the contract. Thus, if I agree to sell 1,000 reels of cotton out of my stock of 50,000, no property can pass to the buyer until a particular 1,000 is singled out and appropriated to the contract.
ii Conditions and warranties
Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of it as a breach of warranty. Whether a stipulation is a condition or a warranty depends upon the construction of the contract. Where the buyer has accepted the goods the breach of a condition can only be treated as a breach of warranty.
iii Effect of the destruction of the goods
Unless it is agreed otherwise the 'risk' of accidental destruction passes to the buyer when the property passes. Hence, before delivery, the buyer may often both own the goods and be forced to take the risk of accidental destruction. If the goods perish or are damaged, as a result of the seller's negligence, it is another matter.
Where, through no fault of the buyer's or of the seller's the goods perish before sale, but after the agreement to sell (ie before the property has passed to the buyer), the agreement is avoided (see this link).
iv Protection of third parties
It has been explained that under an agreement to sell, the goods may sometimes be the buyer's, even though they have not been delivered; that is to say, while the seller retains possession of them. Similarly, the seller may sometimes permit the buyer to take delivery before the property has passed to him. Wherever either of these two things happen, the person in possession becomes a source of potential danger to third parties; he appears to be the owner of something that is not really his and he cannot give a title to them to anyone.
In order to avoid the consequences to which this situation might lead, on the one hand, where a seller is thus in possession he can give a good title to an innocent third party to whom he sells the goods and that, on the other hand, a German buyer thus in possession may similarly confer a good title. 'Transfer' includes a 'sale, pledge, or other disposition'. This important rule may appear to operate harshly upon the owner, but he has after all, by his conduct, in entrusting the possession of the goods to the other party, permitted him to hold himself out to strangers as the owner. If it were not for this rule, innocent third parties might buy goods, only to find themselves subjected to an action for conversion by an owner of whose very existence they had no reason to suspect.
v Unpaid seller's rights
An unpaid foreign seller has a right to retain possession of the goods in Germany against payment. This right subsists where: (a) the goods have been sold without any stipulation as to credit; (b) the goods have been sold on credit, but the term of credit has expired; (c) the buyer becomes insolvent.
Further, an unpaid seller may stop the goods 'in transit' and resume possession of them, after he has parted with them, if the buyer becomes insolvent. For this purpose 'transit' lasts until the goods are delivered to the buyer or his agent. The expression 'agent' here signifies 'representative', not an agent in the technical sense.
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