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4. SPECIFIC TYPES OF CONTRACT

Selected reading (with rich references to specialised monographs): Oechsler,

Schuldrecht Besonderer Teil– Vertragsrecht (2003); Oetker and Maultzsch,

Vertragliche Schuldverhältnisse (2nd edn, 2004); for a compact exposition: Brox and Walker, Besonderes Schuldrecht (29th edn, 2004), §§ 1–31.

(a) Preliminary Observations

The ‘special part’ of the Code’s Book on the law of obligations includes provisions that regulate particular types of contract. The contract of sale is the paradigm among them. However, it should be recalled from our discussion in the first chapter that the Code also contains many rules relating to contract in different sections or parts of the Code. If one considers how much of German contract law is, in fact, common to all types of contract, it makes sense to speak of a German law of ‘contract’ rather than of a German law of ‘contracts’. Thus, in German law, most major issues are subject to general rules. So, the formation of a contract is dealt with, as has been explained in chapter 2, in the general part of the BGB, which also contains the general rules on mistake and those relating to standard terms, but also rules as to the performance and discharge of an obligation. To give a final example, the general rules relating to irregularities of performance are contained in the ‘general part’ of the law of obligations (§§ 280 et seq and 320 et seq). It is against this background that the rules contained in the ‘special part’ of Book Two of the BGB must be understood. Seen in this way, the often-claimed difference in approach between German and English law turns out to be less significant. For English law, too, consists of a body of shared general rules and special regimes of rules differentiated along the lines of particular kinds of contracts. Indeed, readers of Chitty on Contracts will notice a division between a general and a special part and this illustrates our point very well.

The rules of contract law regulating specific types of contract fulfil two main purposes. The first is to set out the requirements as to the performance of the parties which are to be met in the absence of express stipulations. Some of them have already been discussed in the section on the completeness of the offer in chapter 2. These provisions describe what is expected from a promisor in relation to certain kinds of promises. They define the presumed intention of the parties in relation to particular and rather typical transactions of everyday life. In English law, we would speak of terms implied in law and sections 13–15 of the Sale of Goods Act 1979 are an example in point (compare the German law equivalent, § 434 BGB).

The second main purpose of this special part of the law of obligations is to introduce variations to the general rules contained in the other parts of the BGB. Thus, to give another example from the sale of goods, § 437 BGB refers to the general rules as to irregularities of performance but subjects them to certain modifications. (Compare sections 51 and 53 of the Sale of Goods Act 1979.) Sometimes, these special rules provide an idiosyncratic system of remedies, as is the case in relation to the law of leases (eg, § 536a BGB). This interplay between rules of general and special nature can give rise to (technical) difficulties and constitutes one of the challenges of establishing a

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complex system of rules such as that of the BGB. Generally speaking, these special rules are not strict (in the sense of obligatory law) for in their turn they can be varied by agreement between the parties. Note, however, that the rules concerning standard terms (discussed in the next section) have made it more difficult to deviate from default rules in ‘pre-formulated’ contracts (§ 307 II Nr. 1 BGB, discussed below). Consumer protection lies behind introducing strict rules; and it has sanctioned significant intrusions into the notion of freedom of contract. (For example, § 475 BGB: consumer sales.) While some of the special incidents of particular types of contract are discussed in those parts of this book dealing with irregularities of performance, it may be useful to give at this stage a brief overview of the different types of contract which have received special attention by the BGB. They are, as explained, an important source of the terms of such contracts. (Note that certain types of contract are regulated outside the BGB, for instance the contract of insurance. See Gesetz über den Versicherungsvertrag of 30 May 1908 as amended.)

Several ways of dividing these different types of contract could be devised. One can thus conveniently distinguish (cf Brox and Walker, Besonderes Schuldrecht) between contracts involving the permanent ‘transfer’ of a right or corporeal thing (eg, sale, barter, donation), contracts enabling the other party to make a particular ‘use’ of a right or thing for a limited or unspecified period of time (eg, lease, rent, loan, lending, leasing) and contracts for the provision of ‘services’ (eg, contracts for work, services, labour contract, mandate, surety). Another way of distinguishing these transactions would be to differentiate them on the basis whether one party promised a counterperformance in return of performance (eg, price of a corporeal thing, rent) or not (eg, ‘lending’, mandate), which does not necessarily mean that the contract is ‘gratuitous’ (eg, surety). Roman law, while moulding many features of contemporary German law, put the different types of contracts in yet another different order. For instance, Roman lawyers classified the letting and hiring of things, services and work under one single contract (namely locatio conductio. See, Zimmermann, The Law of Obligations (1990), p 338). Yet again, Kant’s table of contracts (in his Metaphysik der Sitten (1797) § 31) claimed to be comprehensive, including all conceivable contracts. It rationalises all contracts as contracts of ‘acquisition’ (gratuitous, onerous and contracts for security)—the provision of services, for instance, is said to involve the transfer of the right to use one’s talents (see Byrd, ‘Kant’s Theory of Contract’ in Timmons (ed), Kant’s Metaphysics of Morals (2002), p 121 et seq). These distinctions are of theoretical importance, but to some extent also pragmatic, depending on which particular element is stressed, and we need not pause too long in discussing them here. (In US law, for example, the principal distinction is usually drawn between sales law (which is codified) and the rest of contract law (which is not), although certain other more specialised bodies of law seem to have ‘outgrown’ any place in the simple ‘contract’ canon (eg, oil, gas and mineral leases).)

Though these divisions take up large amounts of space in student text books, they are not of the same system-building ‘quality’ or importance as the divisions discussed in chapter 1, p 27 ff, between the ‘contract of obligation’ and the ‘contract of transfer’ (principles of separation and abstraction) and between ‘causal’ and ‘abstract’ legal transactions. The significance of these cornerstones of German private law must be recalled, however, before the individual types of contract are approached in what follows.

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The principle of separation has important consequences for the regime of duties incumbent on the parties. Thus, contracts which involve the permanent transfer of an object (right or corporeal thing) from one party to the other will not, according to the principle of separation, automatically transfer the object itself. A separate, so-called ‘abstract’ legal transaction is necessary in order to achieve that transfer (eg, assignment, § 398, or contract of transfer of property in chattels plus traditio, § 929). Consequently, such contracts ‘of acquisition’ (Veräußerung)—sale (§ 433, Kaufvertrag), barter (§ 480, Tausch) and donation (§ 516, Schenkung)—necessarily contain (as one of the main obligations of the promisor) the duty of the promisor to transfer the object of the contract to the promisee. Systems of private law (such as the French), to which the principle of separation is not known and where consequently the transfer occurs pursuant to the contract of sale, do not need to stipulate for such an obligation on the part of the promisor.

Unlike these contracts of acquisition, leases, loans and similar contracts do not involve the permanent transfer of an object but merely the granting of a right to make a particular use of an object for a definite or indefinite period of time (Gebrauchsüberlassung). Normally, this entails that the promisor is not required to transfer any proprietary rights as to the subject matter of the contract: transfer of possession suffices. To this category belong the contract of rent of movables and immovables (§ 535, Mietvertrag, note the extended form in § 581, Pachtvertrag) and the ‘lending’ contract (§ 598, Leihe). There are however special forms of such ‘transfer of use’ contracts, which do involve the transfer of property in the object of the contract. These are the loan of money (§ 488, Gelddarlehen) and the loan of movables (§ 607, Sachdarlehen). Here, the property in the subject matter is transferred. At the end of the loan period, the promisee is under an obligation merely to return the same sum of money or, in the case of chattels, objects of the same kind, quantity, and quality.

Another group of contracts which share important features are contracts of employment (§ 611, Dienstvertrag), contracts for work (§ 631, Werkvertrag) and travel contracts (§ 651a, Reisevertrag). They all involve the ‘use’ of the promisor’s skills and labour. The difference lies in whether, in addition to the performance of the particular act, the achievement of a specific result is also promised.

From a wider perspective, if one regards the performance of a service in its widest meaning as the guiding principle, the following contracts can also be included here, though no doubt due to their different categorisation in Roman law they are usually treated separately.

Services, in a wide sense, also encompass mandate (§ 662, Auftrag, which as explained in chapter 2 must be strictly distinguished from agency, § 164), the management of affairs for remuneration (§ 675, Geschäftsbesorgung), brokerage contracts (§ 652, Maklervertrag), contracts for the keeping of chattels (§ 688, Verwahrung (which basically equates to the common law concept of bailment)), and surety (§ 765, Bürgschaft). Surety, unlike the other contracts in this list, must be singled out as a transaction of personal security (as opposed to a security in rem, such as retention of title: § 499, Eigentumsvorbehalt).

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(b) Contract of Sale

The contract of sale (Kaufvertrag) is regulated in the BGB in §§ 433–73 which have been considerably modified by the recent reform of the law of obligations (BGBl 2001 I, 3183). These general rules apply irrespective of the person entering into the contract and represent therefore the core of German sales law. However, special rules were recently introduced for consumer sales in §§ 474–9 as a result of EC legislation (see Directive 99/44/EC). (For the UK implementation, see the Sale and Supply of Goods to Consumers Regulations 2002, SI 2002 No 3045, which made various amendments and additions to existing legislation, in particular the Sale of Goods Act 1979, eg, the new Part 5A on ‘Additional Rights of buyer in Consumer Cases’. The impact of the 2002 Regulations is discussed by Willet, Morgan-Taylor and Naidoo in [2004] JBL 94 (and the references cited therein).) Paragraphs 358–9 contain special rules concerning sale contracts financed by consumer credit. § 449 II regulates hire-purchase agreements. And §§ 481 et seq implement the time-share Directive 94/47/EC (in the UK, see the Timeshare Regulations 1997 (SI 1997 No 1081), which make various amendments to the Timeshare Act 1992.) The Commercial Code (HGB) also contains a number of deviations as to the remedial regime in contracts of sale concluded between merchants (§§ 373–82 HGB). This includes, for instance, the buyer’s duties of inspection. Finally, Germany is a party to the 1980 United Nations Vienna Convention on the International Sale of Goods (CISG). This Convention may apply (as provided in its Articles 1–6) to international contracts of sale (see Schlechtriem and Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (2nd edn, 2005)). Note that barter (Tausch) is governed by one provision only, § 480, which declares sale of goods law applicable to such contracts. The above clearly display the growing importance of the international background on national law, alluded to at the beginning of the first chapter of this book. (English law has not escaped from these influences yet they are less clearly reflected in English textbooks, which still tend to downplay the growing internationalisation of modern contract law.)

The main duties of the seller are to hand the thing over to the purchaser, to provide the property in the thing and to provide the thing to the purchaser free from physical and legal defects (§ 433 I). As explained above (and in chapter 1) the contract of sale does not transfer ownership; hence it stipulates for an obligation to transfer title. Whether or not property passes is thus subject to the rules of property law (§§ 929 et seq concerning movables and §§ 873 and 925 concerning immovables). § 449 does in one respect bridge this gap between the ‘contract of obligation’ and the ‘contract of transfer’ for it contains the default rules as to retention of title as security for the payment of the price. The seller may be under a number of collateral obligations regarding the protection of the integrity of the buyer (§ 241 II, see the section on good faith for details; one purpose of implying such duties is to circumvent certain ‘weaknesses’ of German tort law). The main duty of the buyer is to pay the price, § 433 II. The BGB contains a number of further collateral duties of the buyer. Thus, he is obliged to take over the thing sold (also § 433 II), bear the cost of shipping the goods to another place than the place of performance (§ 448 I) or, if land was sold, the cost of notarial authentication and land registration (§ 448 II). A special regime of limitation periods for claims arising out of a defect of the thing sold is set up by § 438. (Note that the special

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regime of liability of the seller is discussed in chapter 10, p 494, and irregularities of performance more generally in chapter 9.)

The rules on sale of goods apply in principle also to the sale of a right (§ 453 I). This means that the seller has the duty to transfer the right, which normally occurs through assignment (§ 398; land law contains special provisions for mortgages and the like, eg, §§ 873, 1154). Note, that factoring in German law may involve the sale of a right (socalled echtes Factoring, where the assignee bears the risk of insolvency of the debtor; BGHZ 69, 257; contrast: BGHZ 58, 367). § 453 I stipulates further that the law of sale of goods also applies to objects ‘akin to rights.’ An important example is the sale of a company, which is thus, presupposing that the company as a whole was the object of the transaction, subjected to the rules on sale of goods (eg, BGH NJW 2002, 1042). Finally, certain specific sale contracts are dealt with in § 454 (sale by sample), § 456 (option of buying back the thing sold) and § 463 (option to interpose into a contract of sale). Note that irregularities of performance and the remedies available to seller and buyer (including the issue of passing of risk) are discussed in chapter 9, below.

(c) Donation

The rules on the making of gifts—donation (Schenkung = §§ 516–24)—have been touched on in chapter 2 in the context of formal requirements and signs of seriousness. From a comparative perspective this also constitutes the most intriguing aspect. Consideration is not required for the valid agreement by which one person from his assets enriches another person and both agree that the transaction is gratuitous (§ 516 I). The ‘causa’ for the donation is the agreement between the parties that one party enriches the other. However, such one-sided obligations are regarded as potentially dangerous by German law. To protect and warn the donor, his promise to make the donation is subjected to strict formal requirements in § 518 I (notarial authentication). No such form is necessary, however, for an instantaneous donation carried out on the spot (ie, which is not preceded by a contract of donation). This so-called Handschenkung, § 516, is informally valid. Also, where a prior promise of donation is effected, which means that the donated object is transferred according to the rules of property law, the defect in form is cured, § 518 II. This is an example where the contract of transfer serves as an indication of the seriousness and is therefore taken to ‘validate’ the contract of obligation (see on this, chapter 1, principle of separation and abstract legal transactions).

An account, however brief, of the German law of donation would not be complete without a reference in passing to the following three rules. First, there is § 530, which entitles the donor to revoke the contract on the ground that the donee has been ungrateful. Secondly, there is § 528, which allows the donor to re-claim the donation according to the rules on unjustified enrichment (§§ 818 et seq) if he becomes poverty stricken. (See, on this and other points of comparative interest in this area, Dawson,

Gifts and Promises: Continental and American Law Compared (1980).) Modern practice has it that this right will often be exercised by the State via subrogation, where it seeks to recoup social welfare payments (eg, BGH NJW 2004, 1341). Thirdly, § 521 contains a rule typical for gratuitous transactions, namely the standard of liability of the promisor is restricted to intent and gross negligence.

It should be noted that donation does not cover all gratuitous transactions. The rules as to lending (§ 598) and mandate (§ 662) regulate important special cases which

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follow distinct rules. Finally, a line of cases has emerged in German law in which, although no ‘counter-performance’ in the strict sense was agreed, the transaction was nevertheless not treated as gratuitous in the sense of § 516 (or for this purpose, § 662). The problem arises mostly in relation to ‘gifts’ between spouses which are claimed back after divorce. The BGH explains these transaction as being founded on the marital community and not a ‘gratuitous’ transaction in the technical sense. Instead, the court developed a relationship of obligation sui generis, the basis of which may collapse with an ensuing divorce and thus may give rise to claims according to the rules on a change in the foundation/basis of the transaction (§ 313, discussed in chapter 7, below. See eg, BGHZ 84, 361; 129, 259.)

(d) Contract of Rent

The contract of rent or tenancy, Mietvertrag (§ 535) covers the use of corporeal things, both movables (eg, renting a car) and immovables (eg, ‘leases’), for remuneration. If the right to use the object includes the right to the product or fruits of this object (defined in § 99; quite literally, eg, the fruits of an orchard; or in the case of a right, the dividends of shares for instance), then §§ 581 et seq contain special rules for these contracts (so called Pachtverträge). As a general rule the regime of rules of the contract of rent applies by analogy (§ 581 II; unless the subject matter is land).

The main obligation of the promisor of the promise to rent (Vermieter, the landlord in the case of immovables) is to enable the promisee to use the corporeal thing which is the object of the contract for a certain amount of time (§ 535 I), while the tenant owes as his principal obligation the payment of the agreed rent (§ 535 II). The tenant must further return the object at the end of the contract (§ 546 I), though this obligation is not part of the Synallagma (ie, not a counter-performance). The promisee must keep the object in good repair (§ 535 I 2); but it is possible (and common) to impose on the tenant of premises an obligation to carry out the repairs which have become necessary as a result of normal wear and tear (Schönheitsreparaturen, eg, BGHZ 92, 363). Again, the parties owe each other the collateral obligations not to cause physical damage to the other party (§ 241 II).

With regard to this type of contract the BGB contains fairly detailed rules, especially since a major reform of this part of the law in the year 2001 (BGBl. I, 1149), which has included in the Code matters that were previously dealt with by special statutes. It suffices to here to mention two of their features. (Irregularities of performance are, as with the other contracts, discussed in the respective chapter.)

First, special attention is paid to the termination of the contract (Kündigung, see, §§ 541–5, 568–74c, 575a, 576a, 577a, 580 and 580a). Generally speaking, if the contract was entered into for a specified period of time, then the contract comes to an end at the stipulated end of that period (§ 542 II). The parties have ‘exceptionally’ (außerordentliche Kündigung) a right to terminate the contract for an important reason (wichtiger Grund): § 543. The main example of a sufficient reason is where one of the parties has committed a clear breach of the contract, eg, the tenant fails to pay rent. (Normally, two months’ missed rent is sufficient to justify termination, cf § 543 II Nr. 3; note however § 569 III as to the residential leases). If the contract was entered into for an indeterminate period of time (unbestimmte Zeit), then the parties have, in addition to the ‘exceptional’ right of termination, the ‘ordinary’ right of termination

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which requires notice to be given in advance (§ 542 I). But this does not call for special justification (see, however, § 573, referred to below). The notice of termination must be communicated by the tenant in the case of private accommodation roughly three months in advance of the envisaged end of the lease (§ 573c I 1).

The second characteristic is that, unlike the original position of the BGB, the present regime of rules distinguishes quite strictly between the rent of movables and the rent of premises (especially residential leases, Wohnraummiete). Accordingly, §§ 535 et seq consist of a general part applicable to all contracts of rent (§§ 535–48), a special part containing rules directed at leases of premises used for private accommodation (§§ 549–77a), and rules governing the rent of other premises, land, and ships (§§ 578–80a).

The main impetus for setting up a special regime for private accommodation has been to protect the tenant who is deemed to be the weaker party. Indeed, if the lease could be terminated by the landlord without prior notice and for whatever reason, this could cause hardship to the tenant and to his family. After all, the residential space forms the centre of his private life. To this consideration, we must add the phenomenon of a fragile market. After the Second World War, for instance, there was in a Germany a severe shortage of accommodation. Accordingly, freedom of contract was much restricted in the interest of coping with this problem. A similar phenomenon of statutory protection for tenants (including businesses and agricultural holdings, as well as dwellings) can be observed in the UK (and, indeed, in the US) throughout the twentieth century, although more recent developments have moved back towards allowing greater freedom of contract and less statutory regulation of landlords. (For further details see Harpum, Megarry and Wade—The Law of Real Property, chapter 22, especially 1383 ff.) Nowadays, the market in Germany can be regarded as relatively stable so the regime of legal rules has become less strict, although important restrictions remain in place and new ones have been added. For instance, the reasons given for the termination of a contract by the landlord (§ 573, reasonable motive required) are still subject to close judicial control, as is the level of rent itself (§§ 556 et seq). Likewise, a sale of the premises does not terminate the lease: the purchaser is deemed to enter into the contract with the tenant (§ 566). (English law achieves this result by treating the lease (in appropriate circumstances) as an estate in land, and hence a proprietary interest that endures as against subsequent purchaser of the freehold. Nevertheless, it should more generally be noted that the ‘contractual’ (rather than proprietary) view of leases has gained strength in English law in recent years (by applying contractual reasoning such as the doctrine of frustration, seeing the rent as a contractually agreed sum rather than flowing from the land, etc.), although it is clear that a lease is still a legal estate in land. On this see Bright, ‘Repudiating a Lease— Contract Rules’ [1993] Conv 71 (discussing the case of Hussein v Mehlman [1992] 32 EG 59) and, for a useful summary, Harpum, Megarry and Wade—The Law of Real Property, pp 753–4 and the references therein). If the tenant dies, his family has the right to enter into the contract and continue it (§ 563). Other illustrations of norms belonging to what has been coined ‘social tenancy law’ (soziales Mietrecht) could be given. The reader is referred to the discussion of these issues in chapter 1, p 43, on freedom of contract and in chapter 10, p 533, on the contract of rent (see also, Cohen, Manual of German Law, vol 1 (2nd edn, 1968), pp 139–41 for a brief historical outline).

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Modern forms of leases of chattels have emerged, which cannot be exclusively accommodated within the framework of the contract of rent as defined in § 535 (confusingly, the term, ‘leasing’, is used in German law). The so-called ‘Operating Leasing’, however, where the object is simply rented to the tenant, causes no difficulties and constitutes mostly a straightforward contract in the sense of § 535. Other forms of leasing have been more difficult to categorise. This problem concerns the socalled Finanzierungsleasing in particular, see also below, § 500, where the promisee in effect assumes the role of financing the ‘purchase’ price, here the ‘lease’ can be likened to a hire purchase agreement. These cases usually involve a triangular relationship between the seller, the lessor (Leasinggeber), and the lessee (Leasingnehmer). The interplay between the contract of sale between the seller and the lessor and the ‘Leasing’ contract between the lessor and the lessee is complex. The rights of the lessor against the seller are assigned to the lessee in return for a total exclusion of the liability of the lessor vis-à-vis the lessee; however, on termination of the contract of sale the foundation of the ‘Leasing’ contract is said to collapse (§ 313); see eg, BGH NJW 1985, 796, enabling the lessee to terminate the contract also with the lessor. (For a very helpful discussion of the finance lease in English law, see Goode, Commercial Law, chapter 28.)

(e) Lending

Lending, Leihe (§ 598) is the agreement to allow the use of a chattel or an immovable for a certain period of time gratuitously (thus distinguishing itself from ‘rent’, above; in the common law, this situation would usually be covered by a form of gratuitous bailment). The obligation of the lender is to grant the use of the object, while the borrower is obliged to return possession at the end of the lending period (§ 604). As is typical in gratuitous contracts, the standard of care of the lender is reduced to intent and gross negligence (§ 599). The contract can be immediately terminated as soon as the lender requires the object himself: § 605 Nr. 1. The contract does not play a crucial rule in practice though, and at first blush this might seem to be another situation where in German law a promise not supported by consideration is fully effective even in the absence of ‘consideration’ in the common law sense. However, it can be argued that a common law court would indeed find consideration under this fact scenario, on the basis that the bailee gets the use of the property in return for whatever promise he makes (while the bailor has effectively made a conditional gift). Sometimes, the distinction between such gratuitous contracts (where for instance § 599 would be available as a defence) and purely amicable acts (Gefälligkeiten) not governed by the rules of contract law, has caused difficulties. (See the discussion above in chapter 2, p 86 ff, on indications of seriousness.) In practical terms, this is not an important transaction.

(f) Loan and Other Forms of Credit

Since the reform of 2001 (BGBl. I, 3183) the loan of money is regulated by §§ 488–90 and the loan of chattels by § 607–9. In this contract, the creditor transfers full property in the subject matter and the debtor is under an obligation to return at the end of the loan objects of similar kind and quantity. The loan of money is important in practice and thus an outline is called for.

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Paragraph 488 I BGB now clarifies that the contract of loan, like other contracts, requires two corresponding declarations of intention (Konsensualvertrag). The main obligation of the creditor is to provide the loan (§ 488 I 1). The counter-obligation of the debtor usually is to pay the agreed amount of interest (§ 488 I 2). Other bargains are possible, for instance a deduction from the loan (Disagio). It should be noted that the loan can also take the form of a gratuitous contract, where no interest or other counter-performance is agreed (§ 488 III 3). Another duty of the debtor is to pay back the loan (§ 488 I 2) which is however not part of the Synallagma, ie it is not the reason (causa) for the performance (the loan) but merely a necessary incident of every loan.

The termination of the contract follows the principles applicable to contracts running over a certain period of time and is accordingly referred to as Kündigung. Where no time for the repayment has been fixed, the parties are ‘ordinarily’ entitled to terminate the contract within three months. (§ 488 III 1, 2.) In practice however such a time is stipulated by the parties. In such cases only the debtor is entitled to terminate ‘ordinarily’ under certain conditions which depend on the nature of the loan and the nature of the interest agreed. (The details are stated in § 489.) § 490 provides an ‘extra-ordinary’ right of termination available to both parties. Thus, the creditor may terminate the contract where the financial position of the debtor deteriorates (§ 490 I).

Paragraphs 491–8 contain special rules for consumer credit transactions, implementing EC Directives 87/102/EEC and 98/7/EC. (For the English law on consumer credit and hire see the Consumer Credit Act 1974 (‘CCA 1974’), as amended to implement the above-mentioned Directives. For details see Brown, Commercial Law (2001) Part III (chapters 30–8). Interestingly for comparative purposes, the UK legislation requires careful classification of the nature of such agreements (‘regulated agreements’, as defined by section 189(1) CCA 1974) and of the types of credit that are available to would-be debtors. The notion of a ‘regulated agreement’ is ‘the key to an understanding of the scope of the Act’ (Goode, Consumer Credit Law and Practice (looseleaf) vol 1, para [23.3]), since the agreement, itself, is regulated by the Act, as are many ancillary activities connected to the agreement. The question of licensing by the Office of Fair Trading is closely linked to the scope of such agreements.)

The means of consumer protection include special requirements as to form. (For example, § 492 I 1, 494; cf sections 55, 60 and 61 CCA 1974 and the Consumer Credit (Agreements) Regulations 1983 (SI 1983, No 1553), as amended. The Regulations are extremely detailed in their provisions of requirements of form, content, etc of regulated agreements.) There is a right to avoid the contract ab initio during the first two weeks after its conclusion (Widerruf, revocation) § 495; cf sections 57 (withdrawal); 67 and 68 (cancellation) CCA 1974, although these rights are subject to conditions: see Brown, Commercial Law, chapter 33.) One also finds a special protection of the debtor in the case of assignment (§ 496); special rules as to interest for late payment (§ 497) and so forth.

Paragraphs 499–504 regulate consumer contracts which do not involve a loan of money but which nevertheless serve the purpose of financing a transaction (Finanzierungshilfen). In part, these provisions refer back to the rules on consumer credit (§ 499 I) and in addition contain special provisions. The most important examples are the Finanzierungsleasing (§ 500, referred to above) and the payment of the contract price in instalments: Teilzahlungsgeschäft (§ 501).

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Finally, § 505 (Ratenlieferungsverträge) deals with special consumer transactions which do not involve the financing of a transaction but which create similar dangers as they establish regularly recurring obligations to pay for the delivery of corporeal things (such as newspaper subscriptions). Again, the consumer is afforded special protection by inserting formal requirements, a qualified right of revocation, etc.

A common denominator of these special regimes of rules for credit contracts and similar contracts is that they impose as a general rule a minimum protection of the consumer, which means that they cannot be departed from to the detriment of the consumer (§ 506). To the extent that they give rights to one party to the contract, and indeed favour, the one considered to be weaker, they represent examples of the modern tendency to question if not overturn some traditional principles of contract law. On the whole, these are also provisions found in most so-called Western legal systems (America providing the most frequent exception) and can thus also be seen as providing evidence of the internationalisation of modern contract law.

(g) Contracts for Services

The contract for services or contract of employment (Dienstvertrag) is regulated in §§ 611–30. The main obligation of the employee is to provide the service as laid down in the contract. The counter-obligation of the employer is to pay the remuneration (§ 611 I). As § 611 II clarifies, the nature of the service can be of any nature whatsoever, although one should note that some specific types of service have been subjected to special rules (eg, Makler, § 652; Geschäftsbesorgung, § 675). (See on irregularities of performance chapter 9 and chapter 10, p 528.)

The main difference between the contract for services and the contract for work (Werkvertrag, § 632) which must be explained at the very outset, is that a contract for services does not stipulate an obligation to achieve a specific result. The employee merely promises to perform the act required of him in the contract. This becomes obvious if typical examples of contracts for services are analysed. § 611 covers what has been called the ‘free’ contract for services (in the sense of being less closely regulated) and also ‘labour contracts’ (Arbeitsverträge). The first category includes, for instance, a contract with a solicitor or a contract for treatment concluded with a medical doctor (Arztvertrag). In both these cases, the person ‘hired’ to provide the services is, generally speaking, only required to perform the service lege artis but does not (and usually cannot) promise a particular outcome (eg, that the disputed litigation is won or that the patient regains his health). This does not mean that contracts with such professionals may never come under § 632. Occasionally, they do involve the promise of a result (what French lawyers refer to as an obligation de resultat): for instance, the promise of a solicitor to draft contract terms.

Turning to the second main class of contracts of employment—labour contracts—it is equally clear that, for instance, a worker in a factory is required to show up at the factory gates at a certain hour and follow the instructions of his foreman but does not promise anything more, for instance a ‘successful’ end-result in the production process.

In the earlier discussion concerning the completeness of the offer (above, chapter 2, p 59 ff) we noted § 612. This stipulates that where a service is usually provided only for remuneration the law will presume that, in the absence of express stipulation, the remuneration will be fixed by reference to the ‘usual’ rates.

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Like all contracts involving the use of a particular thing or service over a period of time, the right to termination of the contract (Kündigung, notice) acquires special importance. § 620 follows the already familiar pattern of distinguishing between contracts entered into for a specified period of time and those entered into for an indefinite period of time. In the latter case, the parties may terminate the contract by ‘ordinary’ notice (ordentliche Kündigung), which must be given a specified period in advance (see § 621 for ‘free’ contracts, and § 622 for labour contracts. On these matters, US law operates in a very different manner due to the presumption of employment at-will). All contracts of employment may be terminated ‘extra-ordinarily’ and without notice in advance for an ‘important reason’ (§ 626, außerordentliche Kündigung). This usually refers to when a gross violation of the duties of the other party is required. (For irregularities of performance, see chapter 9, below.)

The liability of the medical and legal professions plays an immense role in practice. They are obliged to take out liability insurance and are subjected to strict confidentiality requirements (sanctioned by criminal law, § 203 of the Strafgesetzbuch). The remuneration of lawyers is highly regulated so far as the cost of litigation is concerned (Rechtsanwaltsvergütungsgesetz); and a number of professional duties are set out by statute. More particularly, the contractual relationship between medical practitioner and patient is governed by the complex system of the statutory health insurance (Gesetzliche Krankenversicherung, regulated in: Sozialgesetzbuch V). This means, for instance, that the claim for remuneration arises not against the patient, but against a professional association of medical practitioners in charge of administering the health insurance scheme. This in turn is funded by particular public bodies that ultimately charge the patient, not on the basis of insurance premiums but on the basis of social criteria (ie, a fixed percentage of a patient’s income). A less regulated contractual relationship arises with the smaller group of privately insured patients. Contracts involving treatment in hospital also comprise elements of other contracts (rent of the bed; contracts for work in respect of the meals, etc). (See, from the extensive literature: Katzenmeier, Arzthaftungsrecht (2002); Deutsch and Spickhoff, Medizinrecht (5th edn, 2003); Vollkommer and Heinemann, Anwalthaftungsrecht (2nd edn, 2003).)

It would be misleading to suggest that ‘free’ contracts of employment and ‘labour contracts’ share more than a number of abstract, formal characteristics, some of which have been discussed here. ‘Labour contracts’ are part of a special branch of law, the distinctiveness of which can hardly be gleaned from the few provisions in the BGB, although they too have started to distinguish as to the nature of the contract. Most of the regulations are contained in special statutes which do govern not only the content of the contract (eg, the extent of holiday, Urlaubsgesetz), but also a range of other important matters. These include the internal organisation of a company and the participation of employees in the internal affairs of the company (eg, Betriebsverfassungsgesetz), the status of trade unions and their power to determine working conditions, salary levels etc, by negotiations with representatives of the employers (‘collective labour law’ eg, Tarifvertragsgesetz), regulation of the ‘end’ of the contract—ie, restricting the reasons for dismissals (eg, Kündigungsschutzgesetz) and so forth. The power of the courts to control the terms of the contract and to evaluate the circumstances of the termination of the contract is also extensive. It cannot come as a surprise, therefore, to note that a special branch of the judiciary had to be set up to deal with labour law matters (now regulated in Arbeitsgerichtsgesetz).

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Naturally, if the labour contract is heavily regulated it is of great importance to establish a clear demarcation line between free and regulated contracts. The courts have over the years developed a whole range of criteria for identifying true ‘labour contracts.’ The issue is complex, for not only is the concept differently defined in the various pieces of specific legislation, but the concept also does not have definite limits: all of the criteria involve questions of degree. The ‘typical’ contract of labour usually exhibits the following features: the employee is subject to the directions of the employer in all material respects; he receives a ‘salary’ (Arbeitslohn) on a regular basis; his working place, time and conditions are determined by the employer. A detailed treatment must be reserved to specialised work. (See, for an introduction, Junker, Grundkurs Arbeitsrecht (3rd edn, 2004) and in English, chapter 11 in Ebke and Finkin (eds), Introduction to German Law (1996), p 305.) It should also be noted that, for the purposes of EC law, there is a Community law definition of a ‘worker’ which must be respected by national courts where claims to exercise EC law rights (such as to nondiscrimination on grounds of nationality and to ancillary rights such as those laid down in reg 1612/68/EEC) are in issue (see eg, Case 66/85 Lawrie-Blum v Land BadenWürttemberg [1986] ECR 2121, para 17: ‘the essential feature of an employment relationship . . . is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration.’ This definition bears a striking resemblance to the German criteria discussed above, which is perhaps unsurprising, given that the reference that gave rise to the ECJ’s ruling in Lawrie-Blum was sent from the Bundesverwaltungsgericht). The reader is also referred to chapter 1 (the section on freedom of contract), where some of the protective measures are discussed. Finally, see also The German Law of Torts, pp 705 et seq (liability regimes in labour law), and pp 910 et seq (insurance for accidents at work). European law also has an influence in this protective field: Directive 76/207/EEC has been implemented in §§ 611a, 611b, 612 III which all seek to prevent discrimination based on gender (see, in the UK, the Sex Discrimination Act 1975 and the Equal Pay Act 1976, discussed in McColgan, Discrimination Law: Text, Cases and Materials

(2000)); Directive 77/187/EEC concerning the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses was implemented in § 613a (for the UK position, see SI 2003 No 131 and the discussion in Deakin and Morris, Labour Law (4th edn, 2005)). Both Directives have given rise to prolonged and intense disputes between the national legislator, the national courts and the ECJ, though the position of the law now seems (more) settled. (See generally, Sciarra (ed),

Labour Law and the National Courts (2001) and Barnard, EC Employment Law (2nd edn, 2000) for discussion of these dynamics, covering both EC and national law perspectives.)

(h) Contract for Work

Like the contract of sale, the contract for work (Werkvertrag, § 631) has been affected by the recent reforms of the law of obligations (BGBl 2001 I, 3183). The central element of the contract for work has already been mentioned above: it is the obligation of the contractor (Unternehmer) owed to the employer (Besteller) to achieve a certain result (§ 631 II). (See on the consequences of a failure of performance, chapter 9 and chapter 10, p 520.) A corollary of this is that until completion of the work the

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contractor bears the risk of destruction of the asset, materials etc which are to be worked on or used (§ 644 I 1).

Distinguishing this type of contract from the contract of sale (§ 433) has become less difficult after the reform of § 651 (concerning the so-called Werklieferungsvertrag). The law of the sale of goods applies to a contract which has as its subject matter the delivery of movable things to be manufactured or to be produced. In the case of nonfungible things, certain provisions of the contract for work apply in addition to the provisions of sales law (§§ 642, 643, 645, 649, 650). In short, in respect of the production of movable things § 651 declares the law of the contract of sale to be applicable. This includes the available remedies but also, for example, imposes on the contractor the obligation to transfer property in the produced thing under § 433 I 1.

As a consequence, the main fields of application of the contract for work are works on land such as the construction of buildings, the repair of movable things (as opposed to their production) and the production of non-corporeal works (for instance the drafting of an expert opinion, the services of an architect). The law of construction contracts is of great practical importance and forms another special branch of private law dealt with in specialised monographs (eg, Pause, Bauträgerkauf und Baumodelle (4th edn, 2004); Uff, Construction Law (8th edn, 2002)). It is interwoven with the law of the contract of sale and raises a number of issues relating to the position of intermediaries (trustees, agents etc), which cannot be examined here. It should be observed, however, that in this area of construction law standard terms of business have to a considerable extent modified or replaced the rules of the Code. The

Verdingungsordnung für Bauleistungen (VOB) Teil B (introduced 1926 by the Ministry of Finance but nowadays evaluated and adapted by a private body consisting of representatives of both employers and contractors) contains an optional body of contract clauses which adapts the rules in §§ 631 et seq BGB, to the needs of the construction industry. Furthermore, particular contracts for work have been subjected to special regimes of rules. This concerns, for instance, certain contracts for the transport of goods dealt with in the Commercial Code (forwarding agents, § 453 HGB, Spedition; contract of transport of goods, § 497 HGB, Frachtvertrag) and or publishing contracts (regulated in the Verlagsgesetz of 19 June 1901).

The system of remedies available for irregularities of performance is discussed in detail in chapter 9. Here, suffice it to name a few further characteristics of the contract for work. As explained, the main obligation of the contractor is to produce the work (§ 631 I). The main obligation of the employer is to pay the remuneration (Werklohn) of the contractor (§ 631 I). As with the contract of employment, it is presumed that (in the absence of express provision) the remuneration is to be fixed at the usual rate where the work is usually performed in return for remuneration, § 632. A deviation from a cost estimate (Kostenvoranschlag, §§ 632 III, 650) may entitle the employer to terminate the contract. As a general rule, payment is due after the acceptance of the work as complying in all material respects with the requirements of the contract, (§ 640). Acceptance (Abnahme), which is the second main obligation of the employer, can be replaced by supplying an expert opinion that the work is in conformity with the contract (§ 641a). § 632a clarifies that the parties may agree to part payments as soon as certain parts of the work have been completed. As far as the completion of a work requires the co-operation of the employer, the latter cannot compel the employer to do so, but if the employer fails to co-operate then the contractor is entitled to

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adequate compensation (§ 642) and may terminate the contract (§ 643). § 647 creates by law on behalf of the contractor a ‘lien’ (over chattels belonging to the employer which have passed into his possession) to secure his (future) claim of remuneration (in English law, this result is achieved via the possessory lien, the classic example being the garage that fixes a car having a lien over the car until the bill is settled. As in German law, such a right is not consensual, but is created by law and seems to be confined to cases where past practice has established such a right (Bridge, Personal Property Law (3rd edn, 2002), p 170 and, generally 170–5), although statutes can also create a similar relationship (see the case of Bristol Airport Plc v Powdrill [1990] Ch 744, construing section 88 of the Civil Aviation Act 1982 (which allows an airport to detain an aircraft until airport charges, etc have been paid) as a lien (in the insolvency context). It should be noted that, in the absence of a statutory or contractual provision to the contrary, a lien confers no power of sale at common law: it operates as a possessory security only and is in this respect different from a pledge); § 648 entitles the contractor to demand the grant of a mortgage for the purposes of securing the remuneration for the construction of a building. Finally, § 634a provides for special limitation periods for claims in respect of defects of the work. (Note here that the common law may provide protection for the contractor in such situations of default after partially performing the contract by means of the law of restitution: these matters are discussed further in chapter 9, below.)

(i) Travel Contract

The BGB did not initially contain special provisions for the contract of travel (Reisevertrag). §§ 651a–651m are the result of the wish of the legislator to increase consumer protection in this very common type of contract. We are consequently dealing with (on the whole) obligatory and not dispositive law (§ 651m). These paragraphs also serve to implement Directive 90/314/EEC but are in fact of older origin (BGBl. 1979 I, 509). (For the UK implementation, see the Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992, No 3288) and the discussion in Grant and Urbanowicz, ‘Tour operators, package holiday contracts and strict liability’ [2001] JBL 253 and Mason, ‘Package holiday claims—“the short but tortured history of tour operator liability” ’ (2001) 4 JPIL 296. More generally, see the Commission’s Report on the Implementation of the Directive: SEC (1999) 1800.)

The main duty of the service provider (Reiseveranstalter) is to provide the travel and holiday services as promised (§ 651a I 1) while the traveller’s (Reisende) principal obligation is to pay the price (§ 651a I 2). The obligation is, like the contract for work, directed at achieving a specific result (see eg, BGHZ 130, 128). It suffices here to point out the obligation of the service provider to take out insurance which will secure fulfilment of the contract in the case of insolvency (§ 651 k); and that § 651f II entitles the traveller, in the case of a breach of the main obligation of the provider, to compensation ‘for lost holiday.’ (This head of damage, loss of amenity, was (prior to the reform of the law of damages (BGBl 2002 I, 2674)) the only situation where German law afforded protection to non-pecuniary interests in the law of contract. For English law, see the well-known cases of Jarvis v Swan Tours Ltd [1973] QB 233 and Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 on exactly the same point. More generally, see Treitel, The Law of Contract, pp 987–91). Nowadays, § 253 II

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makes damages for pain and suffering (but not for loss of an amenity) more widely available.

(j) Mandate and the Management of Affairs for Others

Mandate (Auftrag, §§ 662–674) is, following the tradition of Roman law (see, Zimmermann, The Law of Obligations, p 415), a gratuitous contract, by which one party undertakes to do something on behalf of another (which in US law would be a part of the law of agency, covering as it does both paid and unpaid agents). This contract, unlike donation, is not subject to special requirements of form. It can be distinguished from contracts of employment or contracts for work, for only mandate is a contract where the service (in its wider meaning) is not performed in return for remuneration. It is important to note that in German law, unlike in other civil law systems, mandate and the giving of authority (§ 167) are strictly separated from and independent of each other. (The experience in systems such as the American suggest the wisdom of this careful distinction, not least due to the fact that if it is found that authority has been given then this creates a fiduciary obligation, the breach of which can amount to a tort attracting punitive damages.) Agency may be accompanied by a relationship of mandate, but the granting of authority may occur in an entirely different contractual context; indeed, most agents are (as commercial agents) not employed on the basis of a gratuitous contract (see, for instance, §§ 84 et seq of the Commercial Code dealing with self-employed commercial agents, Handelsvertreter, implementing Directive 86/653/EEC. (For the UK implementation of this Directive, see the Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053) (as amended by SI 1993 No 3173).)

The main duty of the mandatary is to carry out the mandate (§ 662). While the contract is not performed for reward, the mandatary ought not be left out of pocket due to the mandate. Accordingly, § 670 gives him the right to recoup expenses which he reasonably incurred in connection with the performance of the mandate. This provision has been interpreted by the courts to include the right to claim damages (irrespective of fault) for losses which are intimately connected with the carrying out of the mandate (eg, BGHZ 38, 270; the legislator had left the question open, Motive, vol II, p 541). The mandatary, on the other hand, is under an obligation to hand over to the employer everything which he acquires in the course of the mandate (§ 667). He is also under a duty to inform the employer about progress and give him an account of his performance of the mandate (§ 666). The standard of liability, unlike other gratuitous contracts, is not lowered in the typical way but is governed by the general rule found in § 276 (fault in the sense of intent and negligence). It is presumed that the promisor is not allowed to instruct a third person to carry out the mandate. However, if this is possible then he is liable only in respect of the selection of that person (§ 664 I).This rule is peculiar to the rules on mandate.

Mandate, as a gratuitous contract, does not play a major role in practice. Indeed, the principal difficulty in its application is to distinguish mandate from simple amicable acts which do not convey an intention of the parties to be bound by their conduct (discussed in chapter 2, p 86 ff). The main reason why a brief account of the principal rules on mandate has nevertheless been included here is that these rules serve as a model for the regulation of other types of contracts supported by consideration which

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are concerned with the management of the affairs of another. (It should also be noted that the law of negotiorum gestio (§§ 677 et seq) also refers to some of the provisions on mandate. But since managing the affairs of another without mandate is an example of a relationship of obligation implied by law—gesetzliches Schuldverhältnis—it will not be discussed here in detail.)

Paragraph 675, which concerns the managing of affairs of others in return for remuneration (entgeltliche Geschäftsbesorgung), stipulates that contracts of employment (§ 611) and contracts for work (§ 631) are subject to some of the rules on mandate (§§ 663, 665–70, 672–4, under certain conditions: 671 II) insofar as the contract involves ‘managing of the affairs of another’ (Geschäftsbesorgung). The meaning of this technical term has not been defined in the BGB and has remained controversial. The Bundesgerichtshof requires that the activity in question be of an ‘economic’ nature (eg, the managing of financial affairs; not for instance giving piano lessons), which is carried out independently (ie, not as part of a labour contract) in the interest of another (see, Palandt-Sprau, § 675 Rn. 1–4, for references). The main field of application is the contractual relationship between banks and their customers. Some of these contracts are now (BGBl 1999 I, 1642, implementing Directive 97/5/EC [1997] OJ L43/25) specially provided for in the Code. Thus, we have contracts of transfer of money between bank accounts (Überweisungsauftrag, §§ 676a–c), concerning the relationship between the customer transferring the money and his bank; the so-called ‘payment’ contract (Zahlungsvertrag, § 676d–676e), governing the relationship between the banks involved in the transfer; and the contract between bank and customer concerning the keeping of a bank account (Girovertrag, § 676f–h). (For the UK implementation of Directive 97/5/EC, see the Cross-Border Credit Transfers Regulations 1999 (SI 1999 No 1876). See generally, Ellinger, Lomnicka & Hooley,

Modern Banking Law (3rd edn, 2002).)

Apart from banking law, the other main fields of operation of § 675 are construction law, where one party (Baubetreuer) undertakes the responsibility for carrying out the construction project. Likewise, the drafting of expert opinions often involves the managing of the affairs of another within the meaning of § 675. Despite the stipulation in § 675 II that the giving of advice does not as a general rule lead to liability, German law has developed quite strict rules of liability for this type of professional negligence (as to which see, chapter 2, p 86 ff); some of this field is covered by the law of trusts and questions of fiduciary duties in the UK and the US—see, eg, McGhee (ed), Snell’s Equity (31st edn, 2005), chapter 7 on fiduciaries and 27 (on the duties and discretion of trustees).

A special form of managing the affairs of another person constitutes the contract of brokerage (Mäklervertrag, § 652–5) which is however subject to a special regime of rules independent of mandate. In German law, this regime denominates a contract whereby one party undertakes to facilitate the conclusion of a contract with a third person (for instance by bringing the two parties of the contract together). One comes across this type of contract mostly in the property market and in the market for leases. The most striking feature of this contract is that it does not entitle the employer to demand the performance of the contract. However, if the broker carries out the service provided for in the contract, then an obligation of remuneration on the part of the employer arises, provided only that the conclusion of the contract was at least to some extent brought about by the interposition of the broker (§ 652 I). Special

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protection is afforded to consumers in relation to the procurement of consumer loans by brokers (§§ 655a—e).

Finally, the keeping of movable corporeal things for another is also a specially regulated contract (Verwahrung, §§ 688–700) which, broadly speaking, involves the managing of affairs of another but follows its own rules. If it is performed gratuitously, the standard of liability of the keeper is reduced to diligentia quam in suis (§§ 690, 277). Note that the liability of an innkeeper, who accommodates guests as part of his trade, for damage to things that a customer brought into the premises (as provided for in

§§701–4) is independent of contract (gesetzliches Schuldverhältnis).

In English law, this area shows a considerable overlap with the law on bailment,

which at base is a question of the possessory/proprietary relationship (as laid down by the general law, including the law of tort) between bailor and bailee of a chattel, but can be added to and expanded on by the parties if the bailment is executed pursuant to a contract. Once a fairly coherent, separate body of law, the common law’s treatment of bailment is now scattered over a range of areas (contract, tort, property, restitution, agency, etc). An interesting case to examine for historical and comparative purposes is the well-known decision of Lord Holt CJ in Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107, which summarised bailment law and its consequences using significant insights from the Roman law principles and categories (such as commodatum, depositum and pignus) (see Zimmermann, The Law of Obligations, p 204 and the references cited therein, and generally, Bridge, Personal Property Law (3rd edn, 2002), pp 33–43). Nevertheless, it should be remembered that the current English approach focuses more on the particular circumstances of the bailment, including issues such as the skill which the bailee held himself out as possessing, any consideration which has moved from the bailor, bailee or from both, and the terms of the agreement. These are the relevant questions in any assessment of what amounts to reasonable care on the part of the bailee in performing the obligation in question and illustrate the tendency of English law in the twentieth century to view most tortious duties as ones of reasonable care (see, eg, Bridge, Personal Property Law, p 37). This expansion means that great care needs to be taken in examining the older authorities as accurate statements of the current approach (eg, Coggs (above) comes from a time when such duties of care required a specific undertaking to have been made or a very specific fact scenario to have been in issue).

(k) Surety

The contract of surety is regulated in §§ 765–78. Surety involves a triangular relationship between the creditor (Gläubiger), the principal debtor (Hauptschuldner), and the surety (Bürge). It is important to note from the outset that ‘contract of surety’ (Bürgschaftsvertrag) denominates only the relationship between surety and creditor, namely the undertaking of an obligation towards the creditor to guarantee the performance of the principal debt (Hauptschuld: see § 765 I). Thus, special care must be taken not to identify too hastily the German concepts with those of the contract of guarantee or suretyship in English law. (On the English law on these topics, see Moss and Marks, Rowlatt on Principal and Surety (5th edn, 1998); Phillips & O’Donovan,

The Modern Contract of Guarantee (English edn, 2003) and Beale (ed), Chitty on Contracts (29th edn, 2004), chapter 42.)

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The promise of the surety must be in writing (§ 766), except where given by a merchant when it is part of his trade to do so (§ 350 HGB). (In English law, a binding guarantee must be made by deed or be supported by consideration and be evidenced by a written memorandum signed by the guarantor (section 4 Statute of Frauds 1677; if a regulated agreement under the CCA 1974 (see above, section 4(f)) is to be secured, then the guarantee itself must be in writing: section 105(1) CCA 1974.) This formal requirement is supposed to ‘warn’ the surety. See also, chapter 2 on the purpose of formal requirements). The contract is implicitly regarded as a potentially dangerous transaction, for the surety does not obtain a counter-performance for undertaking the guarantee. Hence, it is not surprising that consideration proved difficult to establish for the English courts, though these problems are nowadays of mostly theoretical nature. (See Goode, Commercial Law, p 813: either guarantees are given by deed or consideration is found in the conclusion of the primary transaction by making the advance of funds to the prospective debtor.) This ‘dangerous’ nature of the transaction also explains the great number of cases in which the courts have been tempted to intervene and declare void any contracts of guarantee which seemed procedurally or substantively ‘unfair’ and which will be discussed in the next chapter.

Surety is accessory in nature, which means that the extent of the principal debt determines the extent of the surety. (For English law see Bechervaise v Lewis (1872) LR 7 CP 372.) This general principle is more specifically spelt out in §§ 767, 768, 770. In particular, the surety is entitled to avail himself of all defences of the principal debtor against the creditor (§ 768 I) even if the principal debtor waived them (§ 768 II). While this accessory nature is well known to English law, the rule that the creditor must sue and attempt to enforce the judgment against the principal debtor first (Einrede der Vorausklage, § 771) is not a part of the English regime. However, in German law it is also possible that the surety may waive this right in the contract with the creditor. (§ 773 I Nr. 1, the so-called selbstschuldnerische Bürgschaft.) Also, where the surety is given by a merchant as part of his trade, the defence of § 771 is not available (§ 349 HGB).

Another special form of surety is the ‘first demand guarantee’ (Bürgschaft auf erstes Anfordern), which was developed by the courts. Its main purpose is to exclude defences of the surety derived from § 768, ie the relationship between creditor and principal debtor. This exclusion enables the creditor to obtain from the surety immediately the sum promised, while the disputes as to defences are postponed to the claim for restitution of the surety against the creditor under § 812 I 1 alt. 1. (See eg, BGH NJW 1992, 1446; NJW 2001, 1857; in pre-formulated contracts, as to which see next section, the courts are very reluctant to recognise this form of surety.)

The relationship between surety and principal debtor can take different forms which are not directly covered by §§ 765 et seq (although see § 775, which refers to mandate and negotiurum gestio). The participation of the principal debtor is not required for the contract of guarantee to come into existence. He need not even know of it, in which case the relationship between him and the creditor is likely to be one of negotiorum gestio (§ 677). There may be a contract in which the surety promises against consideration to the debtor to undertake the guarantee vis-à-vis the creditor; this contract will normally be considered as entgeltliche Geschäftsbesorgung in the sense of § 675. Outside family relationships this will be often the case. (For example, of banks providing guarantees for their customers.)

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The contractual relationship between surety and principal debtor may entitle the former to recoup the payments made to the creditor (for instance § 670, discussed in the section on mandate, would entitle the surety to claim the amount paid to the creditor). The law of suretyship entitles the surety to rights of contribution against the principal debtor irrespective of a contract between those parties. § 774 stipulates for the right of subrogation of the surety (cessio legis). The surety may enforce after fulfilment of the guarantee the rights of the creditor against the principal debtor. In English law, this result is achieved either by the surety suing on his implied contractual right to be indemnified by the principal debtor (Re a Debtor (No 627 of 1936) [1937] 1 All ER 1) or by becoming subrogated to the creditor’s claim(s) against the principal debtor (having discharged the full debt owed to the creditor) (Yonge v Reynell (1852) 9 Hare 809; 68 ER 744 and Forbes v Jackson (1882) 19 Ch D 6 15).

The contract of guarantee (ie, the contract between surety and creditor) is regarded as a ‘causal’ contract (see the explanation of the principle of abstraction in chapter 1, p 27 ff), which means that it contains a reason—causa—in itself and does not require another contract of obligation to found it (examples to the contrary are §§ 780, 781, also discussed in chapter 1). Whether the surety was undertaken as a result of an obligation owed to the main principal is irrelevant; as a general rule, the invalidity of such a contract would not mean that the contract of surety lacks a causa and the surety could be reclaimed under unjustified enrichment principles. (Note that the position of German law is presented in a necessarily simplified manner here; see, for an illustration, BGH NJW 2001, 1857, referred to above.)

It should be noted that surety is but an example of personal security. There are other obligations resulting out of a contract which also serve to secure a debt. The main examples are: ‘Garantie’ where the promisor undertakes an indemnity for the fulfilment of a debt of another; and the contract (again similar to an indemnity) whereby one party undertakes to be liable in the same way as the principal debtor (the so-called ‘Schuldbeitritt.’ See eg, BGH NJW 1996, 2165). (Both these types of transaction would be treated as a form of indemnity, rather than guarantee/surety. See Goode, Commercial Law, pp 816–17.) Since these contracts are not subject to the formal requirement of § 766, and the defences available to a surety are not available here, the courts are at pains to emphasise that a clear intention of the parties is required to infer that the parties did not intend a surety. Other forms of security include the security transactions of property law (eg, the different forms of mortgage, Hypothek, § 1113, Grundschuld, § 1191; retention of title, Eigentumsvorbehalt, § 449, and Sicherungseirgentum, as to which see chapter 1, section 3(c) on the principle of abstraction, in particular the lien based on possession, § 1205). (See, for an introduction to credit security instruments, Rimmelspacher, Kreditsicherungsrecht (2nd edn, 1987) and Goode, Legal Problems of Credit and Security (3rd edn, 2003).)

(l) Mixed and New Types of Contract

The parties are free to structure their contractual relationship of obligation in a way which does not fit the special types of contract for which the BGB has introduced detailed rules (§ 311 I). The types of contract contained in the BGB should be regarded as merely representing an attempt to regulate the most commonly encountered sorts of contracts. The list is neither comprehensive, nor does it attempt to be. This is the