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THE 


GERMAN  COMMERCIAL  CODE 


TRANSLATED  AND  BRIEFLY  ANNOTATED  BY 

A.    F.    SCHUSTER, 

OF   THE   INNER  TEMPLE,    BARRISTEK-AT-LAW. 


u Jv  of  1*91 ) 


WITH  AN  INTKODUCTION 

BY 

E.  J.  SCHUSTER  (LL.D.  MUNICH), 

OF  LINCOLN'S  INN,  BAEEISTEE-AT-LAW. 


LONDON: 

STEVENS    AND    SONS,    LIMITED, 
119   &   120,   CHANCEEY  LANE, 


1911. 


PREFACE. 


AT  the  outset  I  would  wish  to  warn  the  possible 
reader  that  if  he  opens  this  volume  hoping  to  find 
in  it  a  model  of  English  prose,  he  is  in  danger  of 
disappointment.  I  would  frankly  recommend  the 
better  works  of  Milton  or  of  Burke  as  more  suited 
for  the  purpose.  The  difficulty  of  translating  an 
enactment  of  this  kind  must  be  so  obvious  from  the 
most  cursory  perusal  of  the  German  that  I  will 
refrain  from  further  apologizing  for  the  awkward 
phrases  and  cumbrous  sentences  with  which,  as  I 
well  know,  this  volume  abounds. 

There  are  two  distinct  methods  of  translating 
from  the  German.  The  first  is  the  word-for-word 
method,  by  which  the  translator  merely  seeks  to 
render  the  German  into  English  piecemeal  and  as 
literally  as  possible.  Where  this  method  can  be 
successfully  employed  it  is  undoubtedly  the  most 
satisfactory,  but  if  followed  slavishly  it  will  fre- 
quently result  in  a  form  of  language  which,  besides 
being  grotesque  in  the  extreme,  conveys  absolutely 
no  meaning  to  the  ordinary  English  reader.  I 
believe  that  all  who  have  had  much  experience  of 

a2 


IV  PREFACE. 

German  official  translations  will  agree  with  me  in 
this.  By  the  second  method  the  translator  looks 
at  his  original  as  a  whole,  and  attempts  to  give  its 
general  effect  in  intelligible  English.  While  seek- 
ing as  far  as  possible  to  combine  both  methods  and 
to  give  in  English  the  equivalent  of  the  German 
both  in  its  separate  parts  and  its  entirety,  I  have 
allowed  myself  a  certain  amount  of  latitude  in  cases 
where  it  appeared  to  me  that  a  verbatim  translation 
would  have  been  wholly  inadequate. 

A  translation  of  the  fourth  and  last  book  of  the 
Commercial  Code  has  not  been  included  in  this 
volume.  This  deals  solely  with  the  law  of 
Maritime  Commerce,  and  is  not  usually  included  in 
the  German  annotated  editions  of  the  Commercial 
Code,  which  have  been  published.  An  excellent 
translation  of  it  has  already  appeared  from  the  pen 
of  Mr.  Wendt. 

Appendices  have  been  added  containing  transla- 
tions of  the  Custody  of  Negotiable  Instruments  Act 
(Gesetz  betreffend  die  Pflichten  der  Kaufleute  bei 
der  Aufbewahrung  fremder  Werthpapiere,  1896), 
and  the  Private  Limited  Companies  Act  (Gesetz 
betreffend  die  Gesellschaften  mit  beschrankter 
Haftung,  1898). 

In  spite  of  its  inconveniences,  I  have  retained 
the  German  system  of  sub-dividing  the  sections 
into  paragraphs  and  sentences,  instead  of  into 


PREFACE.  V 

numbered  sub-sections,  in   order  to  keep  as   close 
as  possible  to  the  original  and  facilitate  reference 

from  the  German  to  the  English,  and  vice  versd. 

* 

With  regard  to  terminology,  I  have  in  almost  all 
cases  adopted  that  used  in  Dr.  E.  J.  Schuster's 
"  Principles  of  German  Civil  Law,"  not  out  of  any 
motives  of  filial  piety,  but  because  after  prolonged 
consideration  I  have  come  to  the  conclusion  that  it 
cannot  be  improved  upon. 

While  I  have  endeavoured  always  to  translate 
the  same  German  phrase  in  the  same  manner 
wherever  it  occurs,  I  have  occasionally  departed 
from  this  rule  where,  owing  to  the  dissimilarity  of 
the  two  languages,  to  observe  it  would  have  been 
impossible  or  very  inconvenient. 

Most  of  the  technical  terms  that  appear  to  require 
elucidation  are  sufficiently  explained  by  statutory 
definitions  occurring  in  the  text  of  the  Code  itself. 
With  regard  to  others,  short  explanatory  notes  have 
been  inserted.  References  both  to  the  statutory 
definitions  and  to  the  notes  will  be  found  by  con- 
sulting the  Index.  To  furnish  a  sufficiently  full 
explanation  as  to  all  matters  which  seem  to  require 
it  would  have  been  far  beyond  the  scope  of  a  work 
like  the  present,  and  I  have  therefore  in  my  notes 
frequently  referred  the  reader  to  Dr.  E.  J.  Schuster's 
"  Principles  of  German  Civil  Law,"  of  which 
mention  has  already  been  made  in  this  Preface. 


VI  PREFACE. 

To  the  never-failing  kindness  of  the  author  of 
that  work  this  little  book,  such  as  it  is,  owes  not 
only  the  Introduction  which  he  has  written  for 
it,  but  its  very  existence  :  without  his  encourage- 
ment it  would  never  have  been  begun,  and  without 
his  help  it  could  never  have  been  completed. 

A.  F.  S. 

THE  TEMPLE, 
August,  1911. 


TABLE    OF    CONTENTS. 


PAGE 

INTRODUCTION       -                                                                          -  ix 

The  Commercial  Code  (1897). 

BOOK  I.— MERCANTILE  TRADE. 

PART        I.  MERCANTILE  TRADERS                                                -  1 

PART      II.  THE  MERCANTILE  REGISTER                                     -  4 

PART    III.  MERCANTILE  TRADE-NAMES  -                                    -  8 

PART     IV.  MERCANTILE  BOOKS  OF  ACCOUNT      -                        -  17 

PART       V.  POWER  OF  PROCURATION  AND  MERCANTILE  AGENCY-  20 

PART     VI.  MERCANTILE  EMPLOYEES  AND  APPRENTICES            -  24 

PART   VII.  MERCANTILE  AGENTS                                                  -  35 

PART  VIII.  MERCANTILE  BROKERS          -            -            -            -  37 


BOOK  II.— MERCANTILE  ASSOCIATIONS  AND  DORMANT 
PARTNERSHIP. 

PART  I.  UNLIMITED  PARTNERSHIP  -  42 

Head  I.  Formation  of  the  Partnership  -  -  42 

Head  II.  Mutual  Rights  and  Liabilities  of  Partners  -  43 

Head  III.  Rights  and  Liabilities  of  Partners  in  relation  to 

Third  Parties  -  -  49 

Head  IV.  Dissolution  of  a  Partnership  and  Retirement  and 

Expulsion  of  Partners  -  -  53 

Head  V.  Liquidation  of  a  Partnership  -  60 

Head  VT.  Prescription  -  64 

PART  II.    LIMITED  PARTNERSHIP  -    65 

PART  III.  SHARE  COMPANIES      -  -    71 

Head     I.  General  Rules        -  -     71 
Head    II.  Rights    and  Liabilities  of  the  Company  and  its 

Members  -     92 

Head  III.  Administration       -  -  102 

Head  IV.  Changes  in  a  Memorandum  of  Association  -  128 

Head    V.  Dissolution  and  Annulment  of  a  Company  -  137 

Head  VI.  Penal  Rules  -  147 

PART  IV.  SHARE  COMPANIES  EN  COMMANDITE     -  -  153 

PART    V.  DORMANT  PARTNERSHIP  -  162 


Vlll  TABLE  OF  CONTENTS. 

BOOK  ILL—  MERCANTILE  TRANSACTIONS. 

PAGE 

PART      I.  GENERAL  RULES  -  167 

PART    II.  MERCANTILE  SALE      -  -  181 

PART  III.  COMMISSION  BUSINESS  -  187 

PART   IV.  FORWARDING  AGENCY  -  197 

PART     V.  THE  BUSINESS  OF  WAREHOUSEMAN    -  -  200 

PART  VI.  THE  BUSINESS  or  CARRIAGE  BY  LAND  -  204 

PART  VII.  THE  CARRIAGE   OF  GOODS  AND   PASSENGERS  UPON 

RAILWAYS    ------  216 


APPENDIX  A. 
THE  CUSTODY  OF  NEGOTIABLE  INSTRUMENTS  ACT,  1896. 

(Gesetz  betreffend  die  Pflichten  der  Kaufleute  bei  der  Aufbewahrung 
fremder  Werthpapiere). 

APPENDIX  B. 

THE  PRIVATE  LIMITED  COMPANIES  ACT,  1898. 
(Gesetz  betrefEend  die  Gesellschaften  mit  beschrankter  Haftung.) 


INTRODUCTION. 


THE  German  Commercial  Code  (together  with  a 
number  of  statutes  dealing  with  specific  matters) 
supplements  the  Civil  Code,  and  in  some  respects 
modifies  its  provisions  in  so  far  as  they  apply  to 
certain  classes  of  transactions. 

A  separate  system  of  law  for  the  transactions  of 
merchants  known  as  "  Law  Merchant"  (Lex  Mer- 
catoria)  was  known  in  all  European  countries  during 
the  Middle  Ages;  but  while  in  England  the  "  Law 
Merchant "  became  merged  in  the  Common  Law,  on 
the  Continent  it  retained  a  separate  existence. 

The  German  General  Commercial  Code  which 
in  the  year  1866  became  the  law  of  all  German 
States  (including  Austria,  which  then  still  formed 
part  of  the  German  Confederation),  was  the 
embodiment  of  the  German  Law  Merchant.  When 
in  1897  the  German  Civil  Code  was  enacted,  many 
rules  which  had  up  to  that  date  been  applicable 
exclusively  to  mercantile  transactions,  were  embodied 
in  the  General  Law,  and  it  then  became  necessary 
to  recast  the  German  General  Commercial  Code, 
which  had  already  been  considerably  modified  by 
enactments  on  specific  matters,  more  particularly 


X  INTRODUCTION. 

by  the  statute  of  1884  relating  to  share  companies. 
The  remodelled   Code  was  given  the  shorter  title 
of   "Commercial  Code"  ( "  Handelsgesetzbuch " 
usually  quoted  by  the  initials  H.  G.  B.),  and  like 
the    Civil    Code    ("  Burgerliches     Gesetzbuch " 
usually  quoted  by  the  initials  B.  G.  B.)  came  into 
force  on  the  1st  January,  1900. 

One  of  the  distinguishing  characteristics  of  German 
commercial  law  is  to  be  found  in  the  fact  that  a 
special  class  of  traders  is  set  apart  under  the 
designation  of  "Kaufleute"  (mercantile  traders)  as 
having  peculiar  privileges  and  being  subj  ect  to  peculiar 
duties.  In  some  cases  the  question  whether  or  not 
a  particular  trader  comes  within  the  description  of  a 
mercantile  trader  is  dependent  upon  whether  he  is 
registered  in  the  Mercantile  Register  (see  sects.  2,  3). 
The  rules  applying  to  mercantile  traders  also  apply 
to  the  various  classes  of  mercantile  associations ; 
i.e.,  unlimited  mercantile  partnerships  (Offene 
Handelsgesellschaften) ;  limited  partnerships  (Kom- 
manditgesellschaften) ;  share  companies  (Aktien- 
gesellschaften)  ;  share  companies  en  commandite 
(Kommanditgesellschaften  auf  Aktien),  and  private 
limited  companies  (Gesellschaften  mit  beschrankter 
Haftungj.  The  last-named  class  of  companies  is 
left  untouched  by  the  Commercial  Code  and  is  dealt 
with  by  a  separate  statute  (translated  in  Appendix  B.), 
sect.  13  of  which  provides  that  such  a  company 
has  the  character  of  a  mercantile  association.  An 
incorporated  co-operative  association  has  also  the 
character  of  a  mercantile  trader  (except  in  so  far  as 


INTRODUCTION.  XI 

the  statute  relating  to  these  associations  contains 
no  provisions  to  the  contrary  (see  sect.  17  of  that 
statute) ). 

Among  the  privileges  of  a  mercantile  trader  the 
following  are  of  importance :  he  may  trade  under 
a  firm  name ;  he  may  appoint  a  procuration  holder 
(see  sects.  48 — 50) ;  he  is  entitled  to  claim  com- 
mission for  services  rendered,  and  to  charge  interest 
on  loans  even  in  the  absence  of  any  express  agree- 
ment to  that  effect ;  he  may  in  the  case  of  an 
account  which  is  balanced  at  regular  intervals, 
charge  interest  on  interest,  and  he  has  several  other 
rights  of  a  similar  nature  («).  On  the  other  hand  a 
mercantile  trader  is  subject  to  a  number  of  special 
obligations  :  he  is  bound  to  keep  regular  books  of 
account,  and  to  draw  up  inventories  and  balance 
sheets  at  prescribed  intervals  ;  to  keep  copies  of  all 
business  letters  forwarded  by  him,  and  to  preserve 
such  copies  and  all  business  letters  received  by  him, 
as  well  as  all  books  of  account,  for  at  least  ten 
years.  (A  disregard  of  these  provisions  subjects 
him  to  criminal  punishment  in  the  event  of  his 
bankruptcy,  see  Bankruptcy  Code,  sects.  239,  240.) 
If  his  business  consists  in  the  execution  of  orders 
for  principals,  he  is  bound  to  execute  any  order 
given  to  him  by  a  customer  unless  immediately  on 
receipt  of  the  order  he  expressly  declines  to  execute 
it.  He  is  also  under  a  special  duty  as  regards  the 
custody  of  goods  or  securities  placed  under  his  care. 

(a)  Certain  privileges  are  also  conferred  on  mercantile  traders  by 
sects.  53,  54  of  the  Bourse  Law  of  1908. 


xii  INTRODUCTION. 

All  transactions  entered  upon  by  a  mercantile 
trader  in  the  course  of  his  business  are  deemed 
mercantile  transactions  on  his  side,  though  they 
may  not  be  mercantile  transactions  on  the  side  of 
the  other  contracting  party  (for  instance,  a  publish- 
ing contract  is  a  mercantile  transaction  on  the 
publisher's  side,  but  not  on  the  author's  side).  As 
a  general  rule,  the  provisions  affecting  mercantile 
transactions  apply  to  transactions  which  are  mer- 
cantile on  one  side  only,  but  there  are  many 
exceptions  to  this  rule  (see  e.g.,  sects.  346,  352,  369, 
377). 

The  Commercial  Code  contains  the  rules  relating 
to  mercantile  traders,  mercantile  associations  and 
mercantile  transactions  only  in  so  far  as  they  differ 
from  the  general  rules.  It  is  therefore  necessary  in 
every  case  to  ascertain  the  general  rule  as  well  as 
that  laid  down  in  the  Commercial  Code.  Thus  the 
law  relating  to  mercantile  unlimited  partnerships, 
in  so  far  as  it  does  not  differ  from  the  general 
partnership  law,  has  to  be  looked  for  in  sects.  705 
—740  of  the  Civil  Code,  and  the  law  relating  to 
mercantile  sale  of  goods,  in  so  far  as  it  does  not 
differ  from  the  general  law,  has  to  be  looked  for  in 
sects.  433 — 458  of  the  same  Code  Again,  the  pro- 
visions in  the  Commercial  Code  relating  to  the  form 
of  agreements,  suretyship,  penalties,  interest,  title  to 
goods,  or  to  instruments  to  bearer,  pledge  and  lien, 
&c.,  are  only  supplemental  to  the  various  rules  on 
these  subjects  contained  in  the  Civil  Code;  and  in 
the  same  way  the  rules  as  to  mercantile  sale,  com- 


INTRODUCTION.  Xlll 

mission  merchants,  forwarding  agents,  warehouse- 
men and  carriers  are  only  given  in  so  far  as  they 
modify  or  supplement  the  general  law. 

It  will  accordingly  be  seen  that  the  Commercial 
Code  does  not  deal  exhaustively  with  the  subjects 
which  come  within  its  purview,  and  it  must  be 
added  that  even  the  subjects  themselves  which 
would  naturally  come  under  the  heads  mentioned 
above  are  not  all  touched  upon.  Thus  the  law  as 
to  private  limited  companies  which  of  late  years 
has  assumed  a  very  great  practical  importance,  has 
been  left  outside  the  Code,  being  dealt  with  in  a 
separate  statute,  of  which  a  translation  is  given  in 
Appendix  B.  The  law  as  to  negotiable  instruments 
is  only  given  in  so  far  as  it  relates  to  a  compara- 
tively unimportant  class  of  such  instruments  (see 
sects.  363 — 365).  The  other  rules  on  this  subject 
have  to  be  looked  for  in  the  Bill  of  Exchange 
Code  (&)  (originally  enacted  in  the  years  1848 — 
1850  and  re-enacted  in  an  amended  form  in  1909), 
in  the  statute  as  to  cheques  enacted  in  1908  and  in 
the  provisions  of  the  Civil  Code  (sects.  793 — 808)  as 
to  obligations  to  bearer.  The  rules  relating  to  the 
duties  of  mercantile  traders  with  reference  to  the 
custody  of  negotiable  instruments  entrusted  to  them 
are  laid  down  in  a  statute  dealing  specifically  with 
this  subject  (enacted  in  1896),  of  which  a  translation 
is  given  in  Appendix  A.  of  this  book.  The  law  as 

(6)  An  annotated  translation  of  this  Code,  by  Mr.  Sydney  Leader, 
has  just  been  published  by  Messrs.  Sweet  &  Maxwell  (The  German 
Law  of  Bills  of  Exchange  and  Cheques). 


XIV  INTRODUCTION. 

to  transactions  on  the  Stock  Exchange  and  other 
public  exchanges  is  to  a  large  extent  regulated  by 
the  Bourse  Law  (originally  enacted  in  1896  and 
re-enacted  in  an  amended  form  in  1908).  There 
are  also  special  statutes  relating  to  the  law  as  to 
publishing  contracts  and  as  to  insurance  contracts 
(exclusive  of  which  were  contracts  relating  to  marine 
insurance)  enacted  respectively  in  1901  and  1908. 

Other  subjects  which  are  generally  referred  to  in 
English  books  on  Commercial  Law,  as,  for  instance, 
the  laws  as  to  patents,  designs,  trade  marks, 
artistic  and  literary  copyright,  and  similar  matters 
are  also  dealt  with  by  specific  enactments,  as  well  as 
bankruptcy  and  the  law  as  to  the  avoidance  of 
transactions  intended  to  defeat  creditors. 

The  observations  made  above  will  show  that 
there  are  very  few  matters  which  are  regulated  by 
the  Commercial  Code  in  their  entirety,  and  that  in 
most  cases  the  Civil  Code  or  some  special  statute 
must  be  consulted  in  conjunction  with  it.  On  the 
other  hand,  it  would  not  be  safe  to  advise  on  any 
point  arising  out  of  a  commercial  transaction 
governed  by  German  law  without  referring  to 
the  Commercial  Code.  In  this  connection  it  is  of  the 
utmost  importance  to  remember  that  the  codification 
of  a  large  part  of  German  law  has  not  made  it  easier 
for  a  layman  to  ascertain  doubtful  points  without 
professional  assistance ;  he  may  find  a  rule  in  one 
of  the  Codes  which  to  his  untutored  mind  seems  to 
cover  in  the  most  complete  manner  the  question 
which  he  wishes  to  solve,  but  he  can  never  be  sure 


INTRODUCTION.  XV 

that  there  is  not  some  other  provision  in  existence 
either  in  the  same  Code  or  elsewhere  which  applies 
to  the  particular  circumstances  of  his  case  and 
completely  modifies  the  rule  which  he  has  seen. 
In  this  translation  the  modifying  enactments  have 
as  far  as  possible  been  indicated  by  cross-references 
in  the  notes. 

E.  J.  S. 


Note. 

Where  references  occur  in  the  notes  to  Dr.  E.  J. 
Schuster's  Principles  of  Civil  Law  (Clarendon  Press,  1907, 
see  Preface),  the  abbreviation  "  Schuster  "  has  for  the  sake 
of  brevity  been  made  use  of. 

Explanations  of  technical  terms  which  seem  to  require 
elucidation  will  be  found  by  means  of  references  contained 
in  the  Index,  either  to  the  explanatory  notes  or  to  the 
definitions  occurring  in  the  text  of  the  Code  itself. 


GERMAN  COMMERCIAL  CODE, 


Book  I.— Mercantile  Trade. 


PART   L— MERCANTILE   TRADERS. 

1,  Mercantile  trader  in  this  Code  means  any  person 
carrying  on  a  mercantile  trade. 

By  mercantile  trade  is  meant  every  trade  that 
has  for  its  object  one  of  the  undermentioned  kinds 
of  business : — 

(1)  The  production  and  resale  of  moveable  things 

(hereinafter  called  merchandise),  or  nego- 
tiable instruments  irrespective  of  whether 
such  merchandise  is  resold  without  change 
or  after  being  worked  upon  or  altered  in 
some  way  : 

(2)  The  undertaking  of  work  upon  or  alteration 

of  merchandise  for  others  so  long  as  such 
trade  exceeds  the  limits  of  a  mere  handi- 
craft : 

(3)  The  undertaking  of  insurance  for  a  premium  : 

(4)  The  businesses  of  banker  and  money-changer  : 
(5) — (a)  The  business  of  the  forwarding  of  goods 

or    the    carriage    of    passengers   by   sea ; 
s.  B 


2  GERMAN  COMMERCIAL  CODE. 

(b)  the  business  of  carrier  of  goods ;  (c)  the 
carrying  on  of  any  undertaking  for  the 
carriage  of  passengers  by  land  or  on 
inland  waters;  or  (d)  the  business  of 
towage : 

(6)  The  business  of  commission   merchant,   for- 

warding agent,  or  warehouseman : 

(7)  The  business  of  mercantile  agent  or  broker: 

(8)  The  business  of  publisher  and  all  other  busi- 

nesses concerned  with  book  or  art-dealing : 

(9)  That  of  printer,  so   long  as  it   exceeds  the 

limit  of  a  mere  handicraft. 

2.  An   undertaking   carried   on   for  purposes  of 
trade  in  a  manner  and  on  a  scale  which  requires  a 
mercantile  business  organisation,  even  when  it  does 
not  fall  under  any  of  the  heads  mentioned  in  the 
last  section,    is   for   the   purposes   of   this  Code  a 
mercantile  trade,  provided  the  undertaker's  trade- 
name  is  entered  in  the  Mercantile  Register.     Such 
entry  is  obligatory  upon  the  undertaker,  and  must 
be  made  in  the  manner  prescribed  for  the  registra- 
tion of  mercantile  trade-names. 

3,  Sects.    1    and  2    have    no    application   to  the 
occupations  of  agriculture  and  forestry. 

If  an  undertaking  is  connected  with  the  business  of 
agriculture  or  forestry  in  such  manner  that  it  is  only 
auxiliary  thereto,  sect.  2  applies,  with  the  reserva- 
tion that  the  undertaker  has  a  right  but  no  obliga- 
tion to  register  the  undertaking  in  the  Mercantile 
Register.  Even  if  transactions  of  a  description 


MERCANTILE  TRADERS.  3 

specified  in  sect.  1  occur  in  such  an  establishment, 
its  business  shall  nevertheless  not  be  deemed  to  be 
a  mercantile  trade  unless  the  undertaker  has  availed 
himself  of  his  right  to  enter  his  trade-name  in  the 
Mercantile  Register  in  accordance  with  sect.  2. 
Once  the  entry  is  made,  the  entry  of  the  trade- 
name  cannot  be  cancelled  except  in  accordance 
with  the  general  rules  which  hold  good  for  the 
cancellation  of  entries  relating  to  mercantile  trade- 
names. 

4.  The  rules  about  trade-names,  books  of  account, 
and  powers  of  procuration  have  no  application  to 
handicraftsmen,  or  to  persons  whose  business  does 
not  exceed  the  limits  of  a  small  trade. 

A  combination  for  the  carrying  on  of  a  business 
to  which  the  said  rules  do  not  apply  cannot  be  the 
basis  of  an  "unlimited  mercantile  partnership  "  (a) 
or  of  a  a  limited  partnership  "  (&). 

The  State  Governments  are  authorised  to  publish 
rules  by  which  the  limits  of  "  small  trade  "  can  be 
more  certainly  determined  on  the  basis  of  liability 
to  taxation  as  fixed  by  the  amount  of  business  done 
or  in  default  of  this  upon  some  other  basis. 

5.  When    once   a  trade-name  is  entered  in   the 
Mercantile  Register,  evidence  that  the  trade  carried 
on  under   such  trade-name    is   not    a  "  mercantile 
trade,"  or  that  it  is  one  of  the  trades  referred  to  in 
sect.  4,  paragraph    1,  is  inadmissible  as   against  a 
party  relying  upon  the  registration. 

(a)  See  post,  sect.  105.  (6)  See  post,  sect.  161, 

B2 


4  GERMAN  COMMERCIAL  CODE. 

6.  The  rules  applicable  to  mercantile  traders  apply 
also  to  mercantile  associations  (c).     The  rights  and 
obligations   of   an   association    to   which    the   law 
imputes  the  status  of  a  mercantile  trader,  irrespective 
of  the  object  of  the  business,  are  not  affected  by 
anything  contained  in  sect.  4,  paragraph  1. 

7.  The  application  of  the  rules  concerning  mer- 
cantile traders  contained  in  this  Code  is  not  affected 
by  the  rules  of  public  law(cc)  under  which  the  right 
to  trade  is  in  certain  cases  forbidden  or  made  depen- 
dent upon  specified  conditions. 

PART  II.— THE  MERCANTILE  REGISTER. 

8.  The  Mercantile  Register  is  under  the  control 
of  the  Courts. 

9.  The  right  to  inspect  the  Mercantile  Register 
and  the  documents  filed  with  the  Court  in  charge 
thereof  is  open  to  everyone. 

Copies  of  the  entries  can  be  obtained  upon  appli- 
cation ;  the  same  rule  applies  to  the  documents  filed 
with  the  Court  provided  the  applicant  can  give 
proof  of  a  legitimate  interest  in  the  contents  of  such 
documents.  Copies  can,  if  desired,  be  authenticated. 

The  Court  must,  if  desired,  give  a  certificate 
that  further  entries  concerning  the  subject-matter 

(c)  I.e.,  to  the  various  kinds  of  mercantile  partnerships  and  share 
companies. 

(re)  See  the  Trade  Eegulations  Act  (Gewerbe-Ordnung),  sects.  16, 
29,  31,  33,  43,  44,  55 — 63.  By  the  rules  contained  in  these  sections 
certain  trades  are  not  allowed  to  be  carried  on  without  a  license,  and 
certain  classes  of  persons  (e.g.,  public  officials,  and  persons  serving  in 
the  army)  are  prohibited  from  carrying  on  trades  at  all. 


THE  MERCANTILE  REGISTER.  5 

of  an  entry  are  not  in  existence  or  that  a  particular 
entry  has  not  been  made. 

10.  The  Court  must  publish  the  entries  made  in 
the  Mercantile  Register   in    the  German    Imperial 
Gazette  and  at  least  one  other  paper. 

Where  not  otherwise  ordered  by  law  the  publica- 
tion must  set  forth  the  whole  contents  of  the  entry. 

The  publication  shall  be  deemed  to  have  been 
completed  upon  the  expiration  of  the  day  of  appear- 
ance of  such  one  of  the  papers  whereby  it  is  made 
as  shall  appear  last  in  point  of  time. 

11.  The  Court  must  publish  every  year  in  Decem- 
ber a  list  of  the  newspapers  in  which  during  the 
ensuing  year  the  publications  provided  for  in  sect.  10 
are  to  be  made. 

12.  The  applications  for  entry  in  the  Mercantile 
Register   must    be    made    and    specimens    of    the 
signatures  necessary  for  the  retention  of  the  Court 
must  be  furnished  personally  by  the  applicants  at 
the  Court,  or  else  handed  in  in  publicly  authenticated 
form  (d). 

Publicly  authenticated  form  is  also  necessary  for 
an  application  by  power  of  attorney.  Successors  in 
title  must  give  proof  of  their  rights  as  such,  as  far 
as  possible,  in  publicly  authenticated  documents. 

13.  Where  not  otherwise  ordered  in  this  Code, 
the  entries  in  the  Mercantile  Register  and  the  appli- 

(d)  I.e.,  in.  a  document  authenticated  by  a  competent  official  or  by  a 
public  notary.  See  Schuster,  p.  91. 


6  GERMAN  COMMERCIAL  CODE. 

cations,  furnishing  of  signatures,  and  other  steps 
prescribed  as  necessary  for  registration  in  the  Mer- 
cantile Register  must  be  effected  in  the  Registry 
Court  of  each  district  in  which  the  owner  of  the 
trade-name  has  a  branch  establishment  in  the  same 
way  as  in  that  of  the  district  where  the  head  estab- 
lishment is  situated. 

An  entry  to  be  made  at  the  Court  of  the  branch 
establishment's  district  cannot  take  place  without 
proof  that  an  entry  has  been  made  at  the  Court  of 
the  head  establishment's  district. 

These  rules  apply  also  when  the  head  establish- 
ment is  situated  outside  the  German  Empire.  In 
so  far  as  the  law  of  the  foreign  country  does  not 
make  a  variation  necessary,  the  applications,  fur- 
nishing of  signatures  and  entries  must  be  effected 
in  the  Court  of  the  district  of  the  branch  establish- 
ment in  the  same  way  as  would  be  appropriate  if 
the  head  establishment  was  in  Germany. 

14.  Anyone  bound  to  make  any  application  for 
registration,  &c.  must  be  required  to  do  so  by  the 
Registry  Court  under   penalty  of   a  fine    not    ex- 
ceeding the  sum  of  M.300  on  each  occasion. 

15.  If  a  fact  which  ought  to  be  registered  in  the 
Mercantile  Register  is  not  registered  and  published, 
the  person  among  the  entries  concerning  whom  the 
fact   ought   to   have   been  registered  cannot  avail 
himself  of  the  fact  as  against  another  party,  unless 
such  party  was  aware  of  the  fact. 

If  the  fact  has   been   registered  and    published, 


THE  MERCANTILE  REGISTER.  7 

such  fact  can  be  relied  upon  as  against  the  other 
party,  unless  he  can  prove  that  he  neither  knew 
nor  ought  to  have  known  of  it  (e). 

As  regards  business  relations  with  a  branch 
establishment  which  has  been  entered  in  the  Mercan- 
tile Register,  entry  and  publication  by  means  of  the 
Court  of  the  branch  establishment's  district  is 
sufficient  for  the  purposes  of  this  section. 

16.  If  a  final  or  enforceable  (/)  order  of  the  Court 
in  which  an  action  is  tried  establishes  the  duty  of 
any  one  party  to  join  in  an  application  for  entry 
in  the  Mercantile  Register  to  be  made  by  several 
parties,  or  if  such  duty  on  the  part  of  such  one 
party  follows  upon  any  declaration  made  by  the 
Court,  an  application  made  by  the  other  party  or 
parties  concerned  is  sufficient  in  order  to  obtain 
registration.  If  the  order  upon  the  ground  of  which 
the  entry  was  made  is  reversed,  the  fact  of  such 
reversal  must  be  entered  in  the  Mercantile  Register 
upon  the  application  of  any  of  the  parties. 

If  a  final  or  enforceable  order  of  the  Court  decides 
that  a  particular  entry  is  not  permissible  ( ff ),  such 
entry  cannot  be  made  without  the  consent  of  the 
party  by  whom  the  order  was  obtained. 

(t)  E.y. ,  a  person  who  has  retired  from  a  partnership,  and  whose 
retirement  has  been  registered,  can  rely  on  his  retirement  as  a  defence 
against  a  partnership  creditor  whose  claim  arose  subsequently  to  such 
retirement,  unless  the  creditor  can  prove  that  he  neither  knew  nor 
ought  to  have  known  of  the  retirement. 

(/)  In  Germany  no  order  is  enforceable  while  still  appealable, 
unless  specially  made  so  upon  application. 

I.e.,  not  permissible  without  the  consent  of  a  particular  party. 


8  GERMAN  COMMERCIAL  CODE 

PART  III.— MERCANTILE   TRADE-NAMES. 

17.  The  trade-name  of  a  mercantile  trader  is  the 
name  under  which  he  carries  on  business  and  which 
he  signs. 

A  mercantile  trader  can  sue  and  be  sued  under 
his  trade-name. 

18.  A  mercantile  trader  who  carries  on  business 
without  a  partner,  or  only  with  a  dormant  partner, 
must  use  as  his  trade-name  his  surname  with  at  least 
one  of  his  first  names  without  abbreviation. 

No  addition  may  be  appended  to  his  trade-name 
which  would  make  it  appear  that  he  was  trading  in 
partnership,  or  which  would  otherwise  be  calculated 
to  give  a  misleading  impression  as  to  the  nature  or 
extent  of  the  business,  or  the  circumstances  of  the 
owner. 

Additions  which  serve  to  differentiate  the  person 
or  the  business  are  permitted. 

19.  The  trade-name  of  an  unlimited  mercantile 
partnership  must  either  include  the  name  of  at  least 
one  partner,  with  an  addition  indicating  the  exist- 
ence  of    a   partnership,  or   the    names    of   all   the 
partners. 

The  trade-name  of  a  limited  partnership  must 
include  the  name  of  at  least  one  of  the  general  (y) 
partners  with  an  addition  indicating  the  existence 
of  a  partnership. 

The  addition  of  first  names  is  not  necessary. 

(g)  See  post,  sect.  161. 


MERCANTILE  TRADE-NAMES.  9 

The  names  of  persons  other  than  full  partners  (h) 
may  not  be  included  in  the  trade-name  of  an 
unlimited  mercantile  partnership  or  a  limited  part- 
nership. 

20.  The  trade-name  of  a  share  company  (i)  and 
that  of  a  share  company  en  commandite  (/)  must  as 
a  rule  bear  reference  to  the  object  of  the  under- 
taking ;    the  former  besides  this   must  include  the 
designation    "  share   company,"   the   latter  "  share 
company  en  commandite" 

21.  If  without  any  change  of  ownership  the  name 
of  the  owner  of  a  business  or  of  a  partner  whose 
name  is  included  in  the  trade-name  is  changed,  the 
existing  trade-name  may  be  continued  in  use. 

22.  Anyone    acquiring    an    existing    mercantile 
business,  whether  inter  vivos  or  upon  the  death  of 
the  former  owner,  may,  subject  to  the  express  con- 
sent of  the  former  owner  or  his  heirs,  continue  the 
existing  trade-name   either  with  or   without    some 
addition  indicating  that  he  is  a  successor.     The  regu- 
lations contained  in   sect.   20  as  to  what  must  be 
included  in  the  firm-names  of  a  "share  company" 
or  "share  company  en  commandite^  are  not  hereby 
affected. 

If  a  mercantile  business  is  acquired  upon  a  grant 

(h]  The  German  term  here  translated  "  full  partners"  is  a  compre- 
hensive one,  and  includes  ordinary  partners  in  an  unlimited  partner- 
ship, and  "general  partners"  in  a  limited  partnership.  (See  post, 
sect.  161.) 

(*)  See  post,  sects.  178  et  seq. ;  Schuster,  pp.  43 — 45. 

(/)  See  post,  sect.  320 ;  Schuster,  p.  45. 


10  GERMAN  COMMERCIAL  CODE. 

of  usufruct  (k)  or  a  letting  agreement  or  any  similar 
arrangement,  these  rules  hold  good  mutatis  mutandis. 

23.  A  trade-name  cannot  be  alienated  apart  from 
the  mercantile  business  for  the  purposes  of  which  it 
is  used. 

24.  An  existing  trade-name  may  be  continued  in 
use  irrespective  of  any  changes  caused  by  the  admis- 
sion  of   a  partner  by  the   owner  of   a   mercantile 
business,  or  by  the  entry  of  a  new  partner  into  a 
mercantile   partnership,    or   by   the   retirement    or 
expulsion  of  a  partner  from  a  mercantile  partner- 
ship, pro vided(7)  always,  that  upon  the  retirement 
of  a  partner  whose  name  is  included  in  the  trade- 
name  the  express  consent  of  such  partner  or  of  his 
heirs  to  the  continuation  of  the  trade-name  must  be 
obtained. 

25.  Anyone   carrying   on    a    mercantile  business 
acquired  by  Act  inter  vivos   under   the  previously 
existing  trade-name  either  with  or  without  an  addi- 
tion signifying  that  he  is  the  successor  of  the  former 
owner,  is  responsible  for  all  such   former   owner's 
obligations  incurred  in  the  course  of  the  business.  The 
debts  owing  to  the  former  owner  in  connection  with 
the  business  in  so  far  as  the  debtors  are  concerned 
are  deemed  to  have  passed  to  the  person  who  has 
acquired  the    business,    provided    that   the  former 
owner  or  his  heirs  have  assented  to  the  continuance 
of  the  trade-name. 

(k)  I.e.,  a  right  to  the  possession  of  and  the  profits  derived  from  an 
object  of  property  belonging  to  another.     (See  Schuster,  p.  422.) 
(/)  Beginning  of  paragraph  2  in  the  German. 


MERCANTILE  TRADE-NAMES.  11 

Any  agreement  to  the  contrary  is  inoperative  as 
against  a  third  party,  unless  it  is  registered  in  the 
Mercantile  Register  and  published,  or  unless  the 
third  party  has  been  informed  of  it  by  either  of  the 
two  parties  to  such  agreement  (y}. 

Where  the  old  trade-name  is  dropped,  the  new 
owner  of  a  mercantile  business  is  not  liable  for  pre- 
viously existing  business  obligations  unless  a  public 
announcement  is  made  in  a  manner  in  accordance 
with  mercantile  custom  as  to  the  obligations  having 
been  taken  over,  or  unless  there  is  some  other  special 
ground  imposing  such  liability  on  the  new  owner. 

26.  Where  the  new  owner  of  a  mercantile  business 
is  liable  for  previously  existing  business  obligations 
on  the  ground  of  the  continuation  of  the  trade-name, 
or  of  the  publication  referred  to  in  sect.  25,  para- 
graph 3,  the  creditors'  claims  against  the  former 
owner  become  barred  after  the  lapse  of  five  years,  if 
not  already  barred  under  the  rules  of  public  law  (#). 

In  the  case  provided  for  in  sect.  25,  paragraph  1, 
the  period  of  limitation  begins  to  run  from  the  end 
of  the  day  on  which  the  new  owner  is  entered 
in  the  Mercantile  Register  of  the  Court  of  the 
district  in  which  his  head  establishment  is  situated, 
in  the  case  provided  for  in  sect.  25,  paragraph  3, 
from  the  end  of  the  day  on  which  the  public 
announcement  of  the  change  of  ownership  has  been 

made.     Where  the  creditor's  right  to  demand  per- 

• 

(?/)  Literally,  "  the  purchaser  or  the  vendor  of  the  business." 
(z)  As  to  these  rules  of  public  law,  see  Schuster,  p.  131,  and  Civil 
Code,  195,  196,  197, 


12  GERMAN  COMMERCIAL  CODE. 

formance  only  matured  at  a  later  date  the  period  of 
limitation  begins  to  run  from  such  later  date. 

27.  If  a  mercantile  business,  which  on  the  decease 
of  its  owner  forms  part  of  his  estate,  is  carried  on 
by  his   heirs,    the   liability   of    the    heirs    for   the 
previously  existing  business  liabilities  is  regulated 
mutatis  mutandis,  by  the  rules  of  vsect.  25. 

The  unlimited  liability  created  by  sect.  25,  para- 
graph 1,  does  not  come  into  operation  if  the  business 
is  discontinued  before  the  expiration  of  a  period  of 
three  months  from  the  time  at  which  the  heirs  first 
became  aware  of  the  devolution  of  the  estate. 
The  period  is  deemed  to  run  mutatis  mutandis  accord- 
ing to  the  rules  as  to  prescription  contained  in 
sect.  206  of  the  Civil  Code.  If  the  right  to  renounce 
the  inheritance  remains  operative  after  the  lapse  of 
the  three  months,  the  period  of  respite  does  not  come 
to  an  end  before  the  period  during  which  the 
inheritance  can  be  renounced. 

28.  Upon  the  entry  of  a  partner  with  unlimited 
liability  or  a  limited  partner  into  a  business  formerly 
owned  by  a  sole  owner,  the  newly -formed  partner- 
ship, even  when  the  previously  existing  trade-name 
is  not  continued,  is  liable  for  all   the  former  sole 
owner's  liabilities  incurred  in  the  course  of  business. 
The  rights  arising  out  of  debts  due  to  the  former 
owner  in  connection  with  the  business,  as  against 
the  debtors,  are  deemed  to  have  passed  to  the  newly- 
formed  partnership. 

Any  agreement  to  the  contrary  is  inoperative  as 
against  a  third  party,  unless  it  is  entered  in  the 


MERCANTILE  TRADE-NAMES.  13 

Mercantile  Register  and  published,  or  unless  the  third 
party  has  been  informed  by  one  of  the  partners. 

29.  Every  mercantile  trader  must  furnish  a  state- 
ment of  his  trade-name  and  the  address  of  his  head 
establishment  to  the  Court  of  the  district  in  which 
such  head  establishment  is  situated  for  entry  in  the 
Mercantile  Register.     He  must  also  furnish  a  speci- 
men signature  of  his  trade-name  for  retention  by 
the  Court. 

30.  Every    new    trade-name    must    be    clearly 
differentiated  from  all  trade-names  already  existing 
at  the  same  place  or  in  the  same  communal  district 
and  entered  in  the  Mercantile  Register. 

If  a  mercantile  trader  has  the  same  first  name  and 
surname  as  a  mercantile  trader  who  has  already 
registered  his,  and  wishes  to  use  these  names  as  a 
trade-name  himself  also,  he  must  introduce  some 
addition  into  the  trade-name  clearly  differentiating 
it  from  the  one  already  registered. 

If  in  a  place  or  communal  district  where  it  is 
desired  to  institute  a  branch  establishment  the  same 
trade-name  has  been  already  registered,  an  addition 
in  accordance  with  paragraph  2  of  the  present 
section  must  be  introduced  into  the  trade-name 
registered  for  the  branch  establishment. 

The  State  Governments  can  make  provisions  under 
which  neighbouring  places  or  neighbouring  com- 
munal districts  are  to  be  regarded  as  one  for  the 
purposes  of  this  section. 

31.  A  change  in  a  trade-name  or  in  the  ownership 
thereof,  as  well  as  the  removal  of  an  establishment 


14  GERMAN  COMMERCIAL  CODE. 

to  a  different  place  must  be  notified  for  entry  in  the 
Mercantile  Register  in  accordance  with  the  rules 
laid  down  in  sect.  29. 

The  same  rule  applies  upon  the  extinction  of  a 
trade-name.  If  the  notification  of  the  extinction 
cannot  be  effected  by  the  persons  whose  duty  it  is 
to  effect  it  in  the  manner  specified  in  sect.  14,  the 
Court  must  motu  proprio  cause  such  extinction  to  be 
entered  in  the  Register. 

32.  If  a  mercantile  trader  has  been  adjudicated  a 
bankrupt,  such  adjudication  must  be  entered  in  the 
Mercantile  Register  by  the  Court  motu  proprio.    The 
same  rule  applies  if  the  adjudication  is  set  aside  on 
appeal  as  well  as  if  the  bankruptcy  is  annulled  or 
revoked  (m).     No  publication  of  the  entries  is  neces- 
sary.      The   rules  contained  in    sect.    15   have  no 
application. 

33.  In  the  case  of  a  corporate  (n)  body  the  regis- 
tration   of    which    in   the    Mercantile    Register   is 
required  by  reason  of  the  object  or  the  method  and 
extent  of  its  business,  the  application  must  be  made 
by  the  members  of  the  directorate  collectively. 

The  application  must  have  annexed  to  it  a  copy 
of  the  regulations  of  the  corporate  body  and  the 

(m)  Under  German  Bankruptcy  Law  proposals  for  a  composition 
in  satisfaction  of  the  bankrupt's  debts  are  in  all  cases  made  after  the 
adjudication  (konkurs-eroffnung);  but  if  the  composition  is  accepted 
and  approved  in  the  prescribed  manner  the  bankruptcy  is  annulled 
(aufgehoben).  The  bankruptcy  is  revoked  (eingestellt)  on  the  appli- 
cation of  the  bankrupt  himself  if  the  creditors'  unanimous  assent  to 
such  revocation  can  be  obtained.  (See  German  Bankruptcy  Code, 
173—206.) 

(n)  See  Schuster,  p.  32. 


MERCANTILE  TRADE  NAMES.  15 

documents  relating  to  the  appointment  of  the 
directorate  either  in  the  original  or  in  publicly 
authenticated  copies  (0).  The  application  for  the 
registration  of  a  branch  establishment  need  not  have 
annexed  to  it  the  documents  relating  to  the  appoint 
ment  of  the  directorate. 

In  the  entry  the  trade-name  and  principal  place 
of  business  "of  the  corporate  body,  the  object  of  the 
undertaking,  and  the  names  of  the  members  of  the 
directorate  must  be  given.  Any  special  provisions 
contained  in  the  regulations  as  to  the  power  of 
agency  of  the  directorate  on  behalf  of  the  cor- 
porate body  or  as  to  the  period  for  which  the 
undertaking  is  to  remain  in  existence  must  likewise 
be  entered. 

34.  Every  change  in  the  facts  required  to  be 
registered  by  virtue  of  sect.  33,  paragraph  3,  or 
in  the  regulations,  must  be  notified  for  entry 
in  the  Mercantile  Register.  The  dissolution  of  a 
corporate  body,  if  it  is  not  the  result  of  bank- 
ruptcy, as  well  as  the  names  of  the  liquidators  and 
any  special  conditions  as  to  their  powers  of  agency 
must  also  be  notified. 

Upon  the  entry  of  a  change  in  the  regulations  it 
is  sufficient,  provided  such  change  does  not  concern 
one  of  the  facts  specified  in  sect.  33,  paragraph  3, 
to  refer  to  the  documents  filed  with  the  Court 
concerning  the  change. 

(0}  I.e.,  copies  authenticated  by  a  judicial  officer  or  notary;  see 
note  to  sect.  12,  ante. 


J6  GERMAN  COMMERCIAL  CODE. 

The  application  must  be  made  by  the  directorate, 
or,  if  the  entry  is  not  made  till  after  notification  of 
the  names  of  the  first  liquidators,  by  the  liquidators. 

The  entry  of  the  names  of  directors  or  liquidators 
appointed  by  the  Court  is  made  by  the  Court 
motu  proprio. 

In  the  case  of  bankruptcy  the  provisions  of  sect.  '32 
apply. 

35.  The   members   of    the    directorate   and   the 
liquidators  of  a  corporate  body   must  also  furnish 
specimens  of  their  signatures  for  retention  by  the 
Court. 

36.  A   business   undertaking   conducted   by   the 
Empire,  one  of  the  federal  states,  or  any  German 
Communal  Authority  need  not  be  registered  in  the 
Mercantile  Register.      If,  notwithstanding  this,  the 
application  for  registration  is  made,  the  entry  is  to 
be  limited  to  a  statement  of   the  trade-name,  the 
principal  place  of  business,  and  the  object  of  the 
undertaking. 

37.  Anyone  making  use  of  a  trade-name  to  which 
he  has  no  right,  according  to  the  rules  of  the  present 
part  of  this  Code,   must  be  required  to  relinquish 
the  use  of  such  trade-name  by  the  competent  Registry 
Court  under  penalty  of  fines,  such  fines  not  to  exceed 
the  limits  laid  down  in  sect.  14. 

Anyone  whose  rights  are  injuriously  affected  by 
another  person's  unauthorised  use  of  a  trade-name 
has  a  right  to  demand  such  party's  relinquishment  of 
its  use  without  prejudice  to  any  claim  for  damages  to 


MERCANTILE  BOOKS  OF  ACCOUNT.  17 

which  he  may  be  entitled  by  virtue  of  any  other 
rule  of  law. 


PART  IV.— MERCANTILE   BOOKS  OF 
ACCOUNT. 

38.  Every  mercantile  trader  must  keep  books  of 
account  from  which  the  business  done  and  the  dis- 
position of  his  capital  are  apparent,  according  to  the 
principles  of  proper  book-keeping. 

He  must  retain  copies  (made  by  hand  or  mechanical 
means)  of  all  business  letters  which  he  sends,  and 
keep  these  and  the  business  letters  which  he  receives 
arranged  in  proper  order. 

39.  Every  mercantile  trader  must,  upon  opening 
business,  make  an  exact  statement  of  his  immoveable 
property,  of  all  debts  owing  to  him  and  from  him, 
of  his  amount  of  cash  in  hand,   and    of  all  other 
objects  of  property  belonging  to  him,  the  value  of 
each  object  of  property  being  separately  mentioned, 
and  draw  up  a  balance  sheet  showing  the  relation 
between  his  assets  and  his  liabilities. 

He  must  subsequently  draw  up  a  similar  inventory 
and  balance  sheet  at  the  close  of  every  business 
year ;  the  duration  of  a  business  year  is  not  to 
exceed  twelve  months.  The  drawing  up  of  the 
inventory  and  balance  sheet  must  be  accomplished 
within  the  time  reasonably  required  for  such  an 
operation  in  the  ordinary  course  of  business. 

If  a  mercantile  trader  possesses  a  stock  of  mer- 
chandise of  which  it  is  inconvenient  owing  to  the 

s.  c 


18  GERMAN  COMMKRCIAL  CODE. 

nature  of  the  business  to  make  an  inventory  every 
year,  it  is  sufficient  if  one  is  made  biennially.  The 
obligation  of  preparing  an  annual  balance  sheet  is 
not  affected  hereby. 

40.  The  balance   sheet   must   be  made  up  with 
reference  to  Imperial  currency. 

In  the  inventory  and  balance  sheet  each  item 
enumerated  among  the  assets  and  liabilities  must  be 
set  down  at  the  value  which  ought  to  be  ascribed  to 
it  at  the  date  in  respect  of  which  the  inventory  and 
balance  sheet  are  being  drawn  up. 

Doubtful  book  debts  must  be  set  down  at 
their  probable  values  ;  unrecoverable  debts  must 
be  written  off. 

41.  The   inventory   and   balance  sheet   must   be 
signed  by  the  mercantile  trader.     If  there  is  more 
than  one  partner  with  unlimited  liability  they  must 
all  sign. 

The  inventory  and  balance  sheet  may  be  entered 
into  a  book  specially  kept  for  the  purpose,  or  a 
separate  document  may  be  prepared  on  each  occa- 
sion. In  the  latter  case  such  documents  must  be 
collected  and  kept  together  in  proper  consecutive 
order. 

42.  In  the  case  of  an  undertaking  conducted  by 
the  Empire,  or  by  a  Federal  State,  or  by  a  German 
communal    authority,    the   accounts   need    not    be 
balanced  in  the  manner  laid  down  in  sects.  39 — 41. 

43.  The  entries  in  the  books  and  the  other  pre- 
scribed records   must  be  made  by  the  mercantile 


MERCANTILE  BOOKS  OF  ACCOUNT.  19 

trader  in  a  living  language,  and  the  writing  must 
be  in  the  characters  of  such  a  language. 

The  books  must  be  bound  and  the  pages  or  leaves 
numbered  consecutively. 

No  blank  spaces  must  be  left  in  places  where  as 
a  rule  there  should  be  writing.  The  original  con- 
tents of  an  entry  may  not  be  crossed  out  or  other- 
wise rendered  illegible ;  nothing  may  be  erased, 
and  no  alterations  may  be  made  in  a  manner  which 
leaves  it  uncertain  whether  they  were  made  at  the 
time  of  the  original  entry  or  subsequently. 

44.  Mercantile  traders  must  retain  their  books  till 
the  expiration  of  ten  years  from  the  date  of  the  last 
entry  made  therein. 

The  same  rule  applies  to  business  letters  received, 
copies  of  business  letters  sent,  inventories  and  balance 
sheets. 

45.  In   the  course  of  an   action   the  Court   may 
upon    application    or   motu  proprio    order   the   pro- 
duction of  the   mercantile   books  of  any  party  to 
such  action. 

The  enactments  contained  in  the  Code  of  Civil 
Procedure  as  to  the  duty  of  a  party  to  an  action 
to  produce  documents  to  the  other  party  are  not 
affected  by  this  provision. 

46.  If  mercantile  books  are  produced  in  the  course 
of  an  action,  their  contents  must  be  inspected  with 
the  assistance  of  the  parties  to  such  an  extent  as 
may  be    necessary  having  regard  to  the  point  at 
issue,  and  in  appropriate  cases  an  extract  must  be 

c2 


20  GERMAN  COMMERCIAL  CODE. 

made.  The  other  contents  of  the  books  must  be 
laid  before  the  Court  to  such  extent  as  may  be 
necessary  to  prove  that  the  books  have  been  kept 
in  the  proper  manner. 

47.  In  cases  of  the  division  of  property,  more  par- 
ticularly in  the  case  of  the  administration  of  the 
estate  of  a  deceased  person,  the  partition  of  any 
common  fund,  or  the  dissolution  of  a  partnership, 
the  Court  may  order  the  production  of  mercantile 
books  for  the  purpose  of  taking  cognizance  of  the 
whole  of  their  contents. 

PART  V.— POWER    OF    PROCURATION    AND 
MERCANTILE   POWER   OF   AGENCY. 

48.  A  power  of  procuration  can  only  be  conferred 
by  the  owner  of  a  mercantile  business  or  his  statutory 
agent  (00),  and  only  by  means  of  an  express  decla- 
ration. 

Such  a  power  may  be  conferred  on  several  persons 
collectively  in  one  declaration,  and  when  so  con- 
ferred is  hereinafter  referred  to  as  a  joint  power  of 
procuration. 

49.  A  power  of  procuration  confers  authority  upon 
its  recipient  to  act  on  behalf  of  his  principal  in 
respect  of  all  judicial  proceedings  and  other  trans- 
actions that  come  within  the  scope  of  a  mercantile 
trade,  provided  (pp)  always,   that  no  holder  of   a 
power  of  procuration  shall  have  authority  to  alienate 
or  charge  land  unless  specially  authorised  to  do  so. 

(oo)  See  Schuster,  pp.  115,  550,  566,  and  see  post,  note  to  sect.  78. 
( pp]  Beginning  of  para.  2  in  the  German. 


POWER  OF  PROCURATION.  21 

50.  No  restriction  of  the  scope  of  the  authority 
conferred  by  a  power  of  procuration  is  operative  as 
against  third  parties. 

This  applies  in  particular  to  restrictions  seeking 
to  limit  the  application  of  a  power  of  procuration  to 
special  transactions  or  kinds  of  transactions,  or  to 
make  it  exerciseable  only  under  specified  circum- 
stances, or  during  a  specified  period  or  at  particular 
places. 

A  restriction  seeking  to  limit  the  exercise  of  a 
power  of  procuration  to  transactions  incidental  to 
the  business  of  one  of  several  branch  establishments 
belonging  to  the  same  owner  is  operative  as  against 
a  third  party  only  if  the  branch  establishments  are 
conducted  under  different  trade-names.  For  the 
purposes  of  this  rule  a  difference  in  trade-names  is 
deemed  to  be  constituted  when  the  branch  establish- 
ment uses  some  addition  to  the  firm-name  which 
differentiates  it  as  the  trade-name  of  the  branch 
establishment. 

51.  The  holder  of  a  power  of  procuration  must 
sign  in  such  a  way  that  the  signature  includes  his 
own  name  and  some  addition  indicating  the  existence 
of  a  power  of  procuration  as  well  as  the  firm-name. 

52.  A  power  of  procuration  is  revocable  at  any 
time  without  regard  to  the  duration  of  the  principal 
agreement  in  consequence  of  which  it  was  conferred, 
without  prejudice,  however,  to  any  claim  to  which 
the  procuration  holder  may  be  entitled  by  virtue  of 
such  agreement. 


22  GERMAN  COMMERCIAL  CODE. 

A  power  of  procuration  is  not  transferable. 

A  power  of  procuration  is  not  extinguished  by 
the  death  of  the  owner  of  the  mercantile  business 
by  whom  it  was  conferred. 

53.  The  creation  of  a  power  of  procuration  must 
be  notified  by  the  owner  of  the  business  for  entry 
in  the  Mercantile  Register.     If  the  power  of  pro- 
curation conferred  is  a  joint  one,  this  must  also  be 
notified  for  entry. 

The  holder  of  a  power  of  procuration  must 
furnish  the  Court  with  a  specimen  signature  in  his 
handwriting  of  the  trade-name  together  with  his  own 
name,  for  it's  retention. 

The  extinction  of  a  power  of  procuration  must  be 
notified  for  entry  in  the  same  manner  as  its  creation. 

54.  If  anyone,  without  a  power  of  procuration 
having  been  conferred  upon  him,  has  authority  to 
carry  on  a  mercantile  business,   or  to  enter  on  a 
particular  kind  of  transaction  belonging  to  a  mer- 
cantile business,  or  any  specified  transaction  occur- 
ring in  the  course  of  such  a  business,  such  authority 
(hereinafter   called    mercantile   power   of    agency) 
extends  to  all  proceedings  and  acts  in  the  law  inci- 
dental to  such  a  mercantile  business  or  to  such  par- 
ticular kind  of  transaction  or  specified  transaction. 

The  holder  of  a  mercantile  power  of  agency  is 
not  empowered  to  alienate  or  charge  immoveable 
property,  to  incur  obligations  in  connection  with 
bills  of  exchange,  to  raise  loans  or  carry  on  legal 
proceedings  unless  specially  authorised  thereto. 


MERCANTILE  POWER  OF  AGENCY.          23 

Any  other  limitations  on  a  mercantile  power  of 
agency  are  operative  as  against  a  third  party  only 
in  so  far  as  they  were  known  or  ought  to  have  been 
known  to  him. 

55.  The  rules  contained  in  sect.  54  also  apply  to 
persons  holding  a  mercantile  power  of  agency  who 
are  employed  as  commercial  travellers  to  transact 
business  in  places  where  the  owner  of  the  business 
has  no  branch  establishment. 

Such  travellers  shall  be  more  particularly  deemed 
to  be  empowered  to  collect  the  amounts  due  on  the 
sales  effected  by  them  and  to  allow  time  for  the 
payment  of  such  amounts. 

Notices  as  to  defects  in  goods,  declarations  that 
goods  have  been  rejected,  and  are  held  at  the 
vendor's  disposal,  and  other  declarations  of  a 
similar  nature  may  be  made  to  such  travellers 
inter  praesentes. 

56.  Any  person  employed  in  a  shop  or  public 
warehouse  (p)  shall   be  held  to  be  empowered  to 
make  sales  and  give  receipts  in  such  a  manner  as  is 
customary  in  shops  or  warehouses  of  the  same  kind 
as  that  in  which  he  is  employed. 

57.  The  holder  of  a  mercantile  power  of  agency 
must  refrain  from  using  any  signature  indicating  a 
power  of  procuration,  but  his  signature  must  include 
some  expression  indicating  a  mercantile  power  of 
agency. 

( p)  I.e.,  a  warehouse  where  goods  may  be  deposited  by  the  public 
upon  payment  of  charges. 


24  GERMAN  COMMERCIAL  CODE. 

58.  The  holder  of  a  mercantile  power  of  agency 
cannot  transfer  his  agency  to  another  without  the 
consent  of  the  owner  of  the  business. 


PART  VI.— MERCANTILE  EMPLOYEES  AND 
APPRENTICES  (a). 

59.  Any  person  employed  in  a  mercantile  busi- 
ness to  perform  mercantile  services  for  a  remunera- 
tion (hereinafter  called  a  mercantile  employee)  must, 
in  the  absence  of  any  special  agreements  as  to  the 
nature  and  extent  of  his  services  or  as  to  his  remu- 
neration,   perform    the    services    and    receive    the 
remuneration  usual  according  to  local  custom.      In 
default   of   any   local    custom    the    services    to    be 
performed    must    be    held    to    be   such   as   appear 
reasonable  under  the  circumstances  of  the  case. 

60.  A  mercantile  employee  may  not  without  the 
consent  of  his  employer  either  carry  on  a  mercantile 
trade  or  enter  upon  transactions  in  the  same  branch 
of  trade  as  his  employer  either  for  his  own  or  for  a 
third  party's  account. 

Consent  to  the  carrying  on  of  a  mercantile  trade 
may  be  held  to  have  been  given,  if  the  employer  on 
the  appointment  of  the  employee  is  aware  that  he 
carried  on  such  trade,  but  refrains  from  making  any 
express  stipulation  as  to  the  relinquishment  thereof. 

(a)  The  rights  and  liabilities  of  mercantile  employees,  in  so  far  as 
not  regulated  by  this  part  of  this  Code,  are  determined  by  the  rules  as 
to  agreements  for  service  contained  in  the  Civil  Code,  sects.  611 
et  seq.  See  Schuster,  p.  258  et  seq. 


MERCANTILE  EMPLOYEES.  25 

61.  If  a  mercantile  employee  violates  the  obliga- 
tions imposed  upon  him  by  sect.  60,  the  employer 
can   claim  damages,   or  in   the   alternative  he  can 
claim  to  take  over  for  his  own  account  the  transac- 
tions entered  upon  by  the  employee  for  his  private 
account ;  if  the  employee  enters  upon  transactions 
for  the  account  of  a  third  party  the  employer  may 
claim  for  himself  any  remuneration  earned  by  the 
employee  thereby  or  an  assignment  to  him  of  the 
rights  of  action  in  respect  thereof. 

The  above-mentioned  claims  of  the  employer 
become  barred  in  three  months  from  the  time  at 
which  the  employer  became  aware  of  the  conclusion 
of  the  transaction  in  question,  or  irrespective  of  any 
knowledge  by  the  employer  in  five  years  from  the 
conclusion  of  such  transaction. 

62.  The  employer  is  bound  to  make  such  arrange- 
ments with  regard  to  the  place  of  work  and  the 
appliances  and  apparatus  used  in  connection  there- 
with, and  also  with  regard  to  the  method  and  hours 
of  work,  that  the  employee  is  protected,  as  far  as  the 
nature  of  the  work  permits,  from  any  danger  to  his 
health  ;  and  further  to  provide  for  the  maintenance 
of  morality  and  decency  in  such  place  of  work. 

If  the  employee  is  boarded  in  by  the  employer, 
the  latter  must  make  such  arrangements  with  regard 
to  dwelling  and  sleeping  accommodation,  diet,  and 
hours  of  work  and  recreation  as  are  required  to 
ensure  the  health  and  morality  of  the  employee  and 
the  due  performance  of  his  religious  observances. 

If  the  employer  fails  to  perform  his  obligations 


26  GERMAN  COMMERCIAL  CODE. 

with  regard  to  the  way  of  life  and  health  of  his 
employee,  his  liability  to  pay  damages  is  regulated 
mutatis  mutandis  by  the  provisions  of  sects.  842 — 6 
of  the  Civil  Code  dealing  with  unlawful  acts  (b). 

The  obligations  imposed  upon  the  employer  by 
this  section  cannot  be  extinguished  or  limited  in 
advance  by  contract. 

63.  If  a  mercantile  employee  is  disabled  from 
working  by  any  misfortune  not  due  to  his  own  fault, 
he  retains  his  right  to  salary,  board  and  lodging 
while  under  such  disability,  during  a  period  of  six 
weeks,  but  not  longer. 

The  employee  need  not  allow  the  amount  received 
by  him  during  the  period  of  his  disability  from  sick 
or  accident  insurance  to  be  deducted  from  the 
amount  due  to  him  under  the  above  provisions. 
Any  agreement  seeking  to  override  the  provisions 
of  this  section  is  null  and  void. 

64.  The  salary  of  mercantile  employees  must  be 
paid  at  the  close  of  every  month.     Any  agreement 
seeking  to  establish  payments  at  longer  intervals  is 
null  and  void. 

65.  If  an  agreement  is  made  for  the  receipt  of 
commission  by  a  mercantile  employee  in  respect  of 
business  transacted  or  introduced  by  him,  the  pro- 
visions of  sect.  88  and  sect.  91,  paragraph  1,  as  to 
mercantile  agents  become  applicable. 

66.  The  relation  between  employer  and  employee 

(6)  See  Schuster,  pp.  188,  337,  338. 


MERCANTILE  EMPLOYEES.  27 

can,  if  entered  upon  for  an  indefinite  period,  be 
terminated  by  either  party  at  the  end  of  any  calendar 
quarter  at  six  weeks'  notice. 

67  (c).  If  an  agreement  for  a  shorter  or  longer 
period  of  notice  is  made,  such  period  must  be  equal 
for  both  sides ;  it  may  not  be  less  than  one  month. 

Notice  can  only  be  given  to  terminate  at  the  end 
of  a  calendar  month. 

The  provisions  of  paragraph  1  hereof  apply  also 
if  the  relation  of  service  is  entered  upon  for  a 
definite  period,  with  a  proviso  that  in  default  of 
notice  before  the  expiration  of  the  period  it  shall  be 
held  to  have  been  continued. 

Any  agreement  seeking  to  override  the  provisions 
of  this  section  is  null  and  void. 

68.  The  provisions  of  sect.  67  do  not  apply  if  the 
employee  receives  a  salary  of  M.5,000  a  year,  or 
over. 

They  further  do  not  apply  if  the  employee  is 
engaged  for  employment  at  a  mercantile  establish- 
ment situated  outside  Europe,  and  the  contract- 
provides  that  if  the  employer  terminates  the  relation 
of  service  he  is  to  bear  the  costs  of  the  employee's 
journey  home. 

69.  If  a  mercantile  employee  is  only  engaged  as 
a  temporary  assistant,  unless  the  relation  of  service 
is  prolonged  for  over  three  months,  sect.  67  does  not 
apply,  provided  always  that  the  period  of  notice 
must  in  this  case  also  be  equal  for  both  sides. 

(c)  See  post,  s.  68. 


28  GERMAN  COMMERCIAL  CODE. 

70.  The  relation  of  service  may  be  terminated 
by    either    party    without    notice    on    any    cogent 
ground. 

If  the  termination  is  occasioned  by  the  wrongful 
behaviour  of  either  party,  such  party  is  liable  to  pay 
damages  for  any  loss  resulting  from  the  ending  of 
the  employment. 

71.  The  following  causes  are  to  be  regarded  more 
particularly  as  cogent  grounds  for  the  termination 
of  his  employment  by  a  mercantile  employee,  with- 
out notice,  unless  the  case  is  rendered  exceptional 
by  special  circumstances  :— 

(1)  Inability    of    the    employee  to    continue    his 

duties : 

(2)  Failure  of  the  employer  to  pay  remuneration 

or  provide  proper  board  and  lodging  as 
agreed  upon  : 

(3)  Refusal  of  the  employer  to  perform  the  obliga- 

tions imposed  on  him  by  sect.  62. 

(4 )  Mistreatment  of  the  employee  by  the  employer 

by  using  physical  violence  against  him, 
by  seriously  insulting  him,  or  by  addressing 
immoral  demands  to  him,  or  failure  by  the 
employer  to  protect  the  employee  from 
such  mistreatment  at  the  hands  of  a  fellow 
employee  or  a  member  of  his  own  family. 

72.  The  following  causes  are  to  be  regarded  more 
particularly 'as  cogent  grounds  for  the  dismissal  of  a 
mercantile    employee    by    his    employer,    without 


MERCANTILE  EMPLOYEES.  29 

notice,  unless  the  case  is  rendered  exceptional  by 
special  circumstances : — 

(1)  Infidelity    or    abuse   of    confidence    by   the 

employee  or  breach  of  the  obligations 
imposed  on  him  by  sect.  60 : 

(2)  Unauthorised  absence  from  his  work  on  the 

part  of  the  employee  for  what  under  the 
circumstances  is  a  considerable  time  or 
persistent  neglect  of  the  duties  imposed 
upon  him  : 

(3)  Failure  to  perform  his  work  owing  to  con- 

tinuous illness,  criminal  punishment,  or 
absence  on  military  service  of  duration 
exceeding  eight  weeks : 

(4)  Use  by  the  employee  of  physical  violence,  or 

serious  insult  against  his  employer  or  any- 
one representing  him. 

The  rights  of  the  employee  under  sect.  63  are 
not  affected  by  the  present  section  if  the  termi- 
nation of  the  employment  is  the  result  of  prolonged 
absence  from  work  owing  to  a  misfortune  for  which 
he  is  not  himself  responsible. 

73.  Upon  the  termination  of  the  service  the 
mercantile  employee  has  the  right  to  demand  a 
certificate  in  writing  as  to  the  description  and  dura- 
tion of  the  employment.  The  certificate  must  also, 
should  the  employee  desire  it,  deal  with  his  conduct 
and  the  work  performed  by  him. 

The  certificate  must  upon  the  application  of  the 


30  GERMAN  COMMERCIAL  CODE. 

employee    be    authenticated    by   the   local    police 
authorities  free  of  charges  and  stamp  duty. 

74.  An  agreement   between   employer   and    em- 
ployee, limiting  the  trading  activity  of  the  latter 
after   the   termination    of    the  relation   of  service, 
only  binds  the  employee  in  so  far  as  the  restrictions 
imposed  as  to  the  time,  place,  and  nature  of  trade 
are  so  limited  that  they  do  not  inequitably  embarrass 
the  future  of  the  employee. 

Such  restrictions  cannot  be  imposed  for  more  than 
three  years  from  the  date  of  the  termination  of  the 
employment. 

The  agreement  (d)  is  null  and  void  if  the  em- 
ployee was  a  minor  at  the  time  of  its  conclusion. 

75.  If  an  employer  by  his  unlawful  conduct  gives 
an  employee  ground  for  terminating  the  employment 
in  accordance  with  sects.  70  and  71,  the  employer 
cannot  put  into  force  any  claims  arising  out  of  a 
contract  of   the  description  specified   in    sect.   74. 
The  same  rule  applies  if  the  employment  is   ter- 
minated by  the  employer,  unless  there  was  some 
cogent  ground  for  the  dismissal  for  which  he  was 
not   himself    responsible,    or   unless   the   employee 
during  the  period  of  restraint  continues  to  receive 
remuneration  from  him  on  the  same  scale  as  before. 

If  the  employee  has  agreed  to  pay  a  penalty  in 


(d)  An  agreement  with  a  minor  is  in  any  case  void,  unless  made 
with  the  consent  of  his  statutory  agent.  (See  Schuster,  pp.  115,  550, 
566;  and  see  post,  sect.  78  (note).)  The  effect  of  this  paragraph  is  to 
render  an  agreement  limiting  the  minor's  trading  activity  void  even  if 
made  with  such  consent. 


APPRENTICES.  31 

the  event  of  his  not  fulfilling  his  contractual  obli- 
gations, the  employer's  rights  are  limited  to  the 
exaction  of  this  penalty,  and  any  claim  he  might 
otherwise  have  had  to  the  specific  performance  of 
these  obligations  by  the  employee  or  to  further 
damages  is  barred.  The  rules  of  the  Civil  Code  as 
to  the  reduction  of  excessive  penalties  fixed  by  con- 
tract (e)  are  unaffected  by  this  section. 

Agreements  seeking  to  override  the  provisions  of 
this  section  are  null  and  void. 

76.  The  provisions  of  sects.  60 — 63,  74,  and  75 
apply  also  to  apprentices. 

The  master  is  bound  to  see  that  the  apprentice 
receives  instruction  in  such  work  of  a  mercantile 
nature  as  is  incidental  to  the  business  carried  on ; 
he  must  conduct  the  education  of  the  apprentice 
either  personally  or  by  means  of  a  suitable  sub- 
stitute specially  told  off  for  the  purpose.  The 
instruction  must  take  place  as  regards  the  order 
and  duration  of  its  respective  parts  in  the  manner 
most  suitable  for  purposes  of  education. 

The  master  must  not  diminish  the  time  and  oppor- 
tunities necessary  for  the  apprentice's  education  by 
making  him  perform  other  services,  and  he  must 
also  see  that  he  has  the  time  and  opportunities 
necessary  for  attending  Divine  Service  on  Sundays 

(e)  B.  G.  B.,  340,  3-41,  342,  343.  See  Schuster,  189,  190.  By 
German  Law,  in  contradistinction  to  English  Law,  parties  may  agree 
to  the  payment  of  a  penalty  in  addition  to  full  damages.  But  if  the 
amount  seems  out  of  proportion  to  the  importance  of  the  matter  it  may 
be  reduced  by  the  Court  to  such  an  amount  as  appears  to  the  Court  to 
be  reasonable. 


32  GERMAN  COMMERCIAL  CODE. 

and   holidays.      He   must  encourage  the   industry 
and  morality  of  the  apprentice. 

With  regard  to  the  master's  obligation  to  allow 
the  apprentice  sufficient  time  to  attend  a  continua- 
tion school  the  provisions  of  sect.  120  of  the  Trade 
Regulations  Statute  (/)  apply. 

77.  The  duration  of  the  apprenticeship  is  regulated 
by  the  contract  creating  it,  or  in  default  of  this  by 
the  local  by-laws  or  customs. 

The  apprenticeship  can,  unless  a  longer  pro- 
bationary period  has  been  agreed  upon,  be  termi- 
nated at  any  time  during  the  first  month  after  its 
commencement  without  notice.  Any  stipulation 
seeking  to  prolong  the  probationary  period  beyond 
three  months  is  null  and  void. 

After  the  expiration  of  the  probationary  period 
the  notice  necessary  for  terminating  the  apprentice- 
ship is  to  be  regulated  in  accordance  with  the  pro- 
visions of  sects.  70—72.  Neglect  by  the  master  of 
his  duties  to  his  apprentice  in  a  manner  endangering 
his  health,  morality,  or  education  is  more  particu- 
larly to  be  deemed  a  cogent  ground  for  termination 
on  the  part  of  the  apprentice. 

In  case  of  the  death  of  the  master  the  apprenticeship 
may  be  terminated  within  a  month  of  such  death 
without  notice. 

78.  If  the  statutory  agent  (g)  of  the  apprentice  or 

(/)  By  sect.  120  of  this  statute  employers  are  bound  to  allow  time 
to  employees  under  eighteen  years  of  age  to  attend  a  continuation 
school  if  they  desire  it. 

(y]  An  infant's  statutory  agent  is  the  person  who  has  power  to  act 


APPRENTICES.  33 

the  apprentice  himself,  if  of  full  age,  presents  to  the 
master  a  written  declaration  that  the  apprentice  is 
about  to  transfer  to  another  trade  or  occupation,  the 
apprenticeship  terminates,  unless  the  apprentice  shall 
have  been  previously  dismissed,  after  the  expiration 
of  a  month. 

If  the  apprentice  notwithstanding  a  declaration 
made  to  the  contrary  within  nine  months  after  the 
termination  of  his  apprenticeship  enters  another 
business  of  the  same  description  as  apprentice  or 
mercantile  employee,  he  is  bound  to  compensate 
his  former  master  for  any  damage  occasioned  to 
him  by  the  termination  of  the  apprenticeship.  In 
respect  of  such  compensation  the  new  master  or 
employer  is  jointly  and  severally  liable  with  the 
apprentice,  provided  that  he  was  aware  of  the  true 
circumstances  of  the  case. 

79.  Claims   against   the   apprentice   for  the  un- 
authorised relinquishment  of  his  apprenticeship  can 
only  be  enforced  if  the  contract  of  apprenticeship  is 
in  writing. 

80.  On  the  termination  of  the  apprenticeship  the 
master  must  furnish  the  apprentice  with  a  written 
certificate  as  to  the  length  of  the  period  of  appren- 
ticeship, the  knowledge  and  skill  therein  acquired, 
and  the  conduct  of  the  apprentice. 

on  behalf  of  the  infant  if  incapable,  or  to  give  the  required  consent  to 
the  acts  of  any  infant  whose  capacity  is  restricted.      The  statutory 
agent  of  an  infant  is  the  person  exercising  parental  power  over  the 
infant.     As  to  statutory  agency,  see  Schuster,  pp.  115  and  550. 
S.  D 


:',4  GERMAN  COMMERCIAL  CODE. 

Such  certificate  must  upon  the  application  of  the 
apprentice  be  authenticated  by  the  local  police 
authorities  stamp-free  and  without  charges. 

81.  Persons    deprived   of    their    honorary    civic 
functions  (h)   may   neither   take   apprentices    them- 
selves nor  take  any  part   in   their  instruction.     A 
master  may  not    employ   such  persons  in  the   in- 
struction of  apprentices. 

If  apprentices  are  employed  in  a  manner  which 
violates  this  regulation,  the  police  authorities  may 
enforce  their  discharge  from  the  apprenticeship. 

82.  A    master   violating    his    obligations    to    his 
apprentice  under  sect.  62,  paragraphs  1  arid  2,  and 
sect.  76,  paragraphs  2  and  3,  in  a  manner  likely  to 
injure  his  health,  morality,  or  education,   may  be 
subjected  to  a  fine  not  exceeding  M.I 50. 

A  similar  fine  may  be  imposed  upon  masters  in- 
structing their  apprentices  or  allowing  them  to  be 
instructed  in  a  manner  contrary  to  the  provisions  of 
sect.  81. 

83.  The  conditions  of  work  of  persons,  who  in 
the  course  of  a  mercantile  trade  perform  other  than 
mercantile  services,  are  regulated  by  the  rules  in 
force  in  respect  of  the  particular  work  performed  by 
such  persons. 

(/<)  A  person  deprived  of  such  functions  cannot  sit  on  a  jury  or 
occupy  any  honorary  public  office.     See  Schuster,  p.  264  (note). 


MERCANTILE  AGENTS.  35 


PART  VII.—  MERCANTILE  AGENTS  (a). 

84.  A  mercantile  agent  is  a  person  who  is  per- 
manently engaged  by  another  person  (hereinafter 
called  the  principal)  to  transact  business  either  as 
an  intermediary  or  in  the  principal's  name  for  the 
purposes  of  the  principal's  mercantile  trade  without 
being  an  employee  in  the  principal's  establishment. 
A  mercantile  agent  must    in    the  performance    of 
his  duties  attend  *to  his  principal's  business  with  the 
diligence  of  a  careful  mercantile  trader  («). 

It  is  his  duty  to  keep  his  principal  properly 
informed  upon  all  necessary  matters,  and  in  parti- 
cular to  immediately  advise  him  of  any  transaction 
entered  upon. 

85.  If  a  mercantile  agent  who  is  only  empowered 
to  act  as  an  intermediary,  enters  upon  a  transaction 
with  a  third  party  in  the  name  of  his  principal,  it 
shall   be  deemed   to  be  ratified   by  the   principal 
unless  the  latter,  immediately  upon  being  informed 
of  it,  expressly  repudiates  it  by  notice  to  the  third 
party. 

86.  A  mercantile  agent   is  riot  entitled,   in  the 
absence  of   a  special   authority  to  that    effect,   to 
receive  payments  or  to  allow  payment  by  instal- 
ments after  the  due  date  on  behalf  of  his  principal. 

The  demonstrations  of  defects  in  goods,  declara- 

(«)  Not  to  be  confused  with  the  holders  of  a  power  of  mercantile 
agency.     See  sect.  54,  ante. 

D2 


36  GERMAN  COMMERCIAL  CODE. 

tions  that  they  have  been  rejected  and  are  held  at 
the  vendor's  disposal,  and  other  declarations  of  a 
similar  description  may  be  made  to  a  mercantile 
agent. 

87.  If  a  mercantile  agent  is  employed  as  a  com- 
mercial traveller,  the  provisions  of  sect.  55  apply. 

88.  In  the  absence  of  any  agreement  to  the  con- 
trary as  to  remuneration  of  a  mercantile  agent,  a 
commission  becomes  due  to  him  upon  every  trans- 
action entered  upon  which  has  been  brought  about 
by  his  agency  (b).     If  the  work  done  by  the  agent 
consists  in   effecting  sales,  or  acting  as  an   inter- 
mediary in   respect   thereof,    the    question    of   the 
agent's  claim  to  commission  does  not  arise  till  pay- 
ment has  been  made,  and  must  then  be  relative  to 
the  actual  sum  received. 

If  a  transaction  remains  wholly  or  partially  in- 
completed  owing  to  the  conduct  of  the  principal, 
unless  the  character  of  the  person  with  whom  the 
transaction  was  made  furnishes  cogent  grounds  for 
such  conduct,  the  full  amount  of  commission  may 
be  claimed  by  the  agent. 

If  the  amount  of  the  commission  is  not  fixed,  the 
customary  commission  must  be  paid. 

Accounts  as  to  the  amount  due  for  commission 
must,  in  the  absence  of  any  agreement  to  the  con- 
trary, be  taken  every  calendar  half-year. 

89.  If  a  mercantile  agent  is  expressly  appointed 
for  a  particular  district,  he  is  entitled,  in  the  absence 

(t)  See  also  sect.  354,  paragraph  1. 


MERCANTILE  AGENTS.  37 

of  any  agreement  or  custom  to  the  contrary,  to  com- 
mission upon  transactions  entered  upon  in  such 
district  by  or  on  behalf  of  the  principal  without  the 
co-operation  of  the  agent. 

90.  A  mercantile  agent  cannot,  in  the  absence  of 
an  agreement  or  custom  to  the  contrary,  claim  reim- 
bursement  for  costs   and   expenses  arising  in    the 
ordinary  course  of  business. 

91.  A    mercantile    agent   has   the    right   at   the 
statement  of  accounts  with  his  principal  to  demand 
an  extract   from    the   principal's    books   as  to  the 
transactions  entered  upon  through  his  agency.     He 
has  the  same  right  with  regard  to  transactions  in 
respect  of  which  commission  may  be  due  to  him  in 
accordance  with  sect.  89. 

92.  An  agreement  between    a  mercantile  agent 
and  his   principal   entered  upon    for  an  indefinite 
period  may  be  terminated   by  either  party  at  six 
weeks'  notice,  to  take  effect  at  the  end  of  a  calendar 
quarter. 

The  agreement  can  be  terminated  by  either  party 
without  notice  upon  any  cogent  ground. 

PART  VIII.— MERCANTILE  BROKERS  (a). 

93.  A  person  who,  in  the  regular  course  of  his 
trade,  acts  as  an   intermediary  on  behalf  of  other 
persons,  without  being  in  any  continuous  contractual 

(a)    For   further  rules  relating  to  brokers,   see  B.  G.  B.    652-6 ; 
Schuster,  pp.  278-9. 


38  GERMAN  COMMERCIAL  CODE. 

relation  with  them,  in  the  formation  of  contracts 
relating  to  (1)  the  purchase  or  sale  of  goods  or 
negotiable  instruments,  (2)  insurance,  (3)  the  for- 
warding of  goods,  bottomry  and  affreightment,  or 
(4)  any  other  objects  of  mercantile  intercourse,  has 
the  rights  and  obligations  of  a  mercantile  broker. 

The  provisions  of  the  present  part  of  this  Code 
have  no  application  to  transactions  entered  upon  as 
an  intermediary  in  respect  of  transactions  other 
than  of  the  description  specified  above,  e.g.,  in 
particular  transactions  connected  with  immoveable 
property,  even  when  such  transactions  are  completed 
through  the  agency  of  a  mercantile  broker. 

94.  The  mercantile  broker  must,  where  not 
specially  excused  by  the  parties  between  whom  he 
is  acting  as  an  intermediary  or  by  local  custom  in 
respect  of  the  particular  kind  of  goods  dealt  in, 
deliver  to  each  party  immediately  upon  the  conclu- 
sion of  the  transaction  a  signed  contract-note 
specifying  the  names  of  the  parties  and  the  subject- 
matter  and  terms  of  the  contract.  In  particular 
upon  the  sale  of  goods  or  negotiable  instruments 
the  contract-note  must  state  the  description,  number, 
price  and  time  for  delivery  of  the  objects  sold. 

In  transactions  not  to  be  completed  on  the  spot  the 
contract-notes  must  be  presented  to  the  parties  for 
their  signatures,  arid  each  party  must  be  sent  the 
contract-note  signed  by  the  other. 

If  any  party  refuses  to  receive  or  sign  the  contract- 
note,  the  other  party  must  be  immediately  informed 
thereof  by  the  broker. 


MERCANTILE  BROKERS.  39 

95.  If  a  party  accepts  a  contract-note,  on  which  a 
mercantile  broker  has  reserved  to  himself  the  right 
to  nominate  the  other  party,  the  first  party  is  bound 
in  his  contract  with  the  other  party  subsequently 
nominated,   unless  well-founded  objections  can  be 
raised  against  such  party. 

The  nomination  of  such  party  must  take  place 
within  the  period  prescribed  by  local  custom,  or  in 
default  of  such  custom,  within  a  period  reasonable 
according  to  the  circumstances. 

If  no  nomination  is  made  or  well-founded  objec- 
tions can  be  raised  against  the  person  or  firm 
nominated,  the  first  party  may  claim  to  have  the 
contract  performed  by  the  mercantile  broker. 
Such  a  claim  is  ousted  if  the  party,  upon  being 
requested  by  the  mercantile  broker  to  make  a 
declaration  whether  he  'claims  the  performance  of 
the  contract  or  not,  does  not  immediately  do  so. 

96.  A  mercantile  broker  must,  unless  excused  by 
the  parties  or  by  local  custom  with  regard  to  the 
particular  kind  of  goods  dealt  in,  in  the  case  of  sales 
of  goods  by  sample  effected  by  him  as  intermediary, 
retain  all  samples  of  goods  with  which  he  has  been 
entrusted  until    the   goods  in   question  have  been 
accepted  without  any  objection  being  raised  as  to 
their   quality   or   until    the   transaction    has    been 
otherwise   finally   disposed  of.      He   must  identify 
the  sample  by  means  of  a  mark. 

97.  A  mercantile  broker  shall  not  be  deemed  to 
have  authority  to  receive  payments  or  to  give  a 


40  GERMAN  COMMERCIAL  CODE. 

discharge  for  any  other  service  stipulated  for  by 
the  contract. 

98.  A  mercantile  broker  is  responsible  to  both 
parties  for  damage  incurred  by  his  default. 

99.  In  the  absence  of  a  special  agreement  between 
the  parties,  or  any  local  custom  to  the  contrary,  the 
mercantile  broker's  remuneration  must  be  paid  in 
equal  shares  by  both  parties. 

100.  A  mercantile  broker  must  keep  a  journal,  in 
which  all  transactions  concluded   are  to  be  daily 
entered.      The  entries   must   be   made   in   chrono- 
logical order  and  must  include  the  matters  specified 
in  sect.  94,  paragraph   1.     The   entries  must  each 
day  be  signed  by  the  mercantile  broker. 

The  provisions  of  sects.  43  and  44,  as  to  the 
method  of  keeping  and  as  to  the  retention  of 
mercantile  books,  apply  also  to  a  mercantile  broker's 
journal. 

101.  A  mercantile  broker  is  bound  at  any  time  to 
supply  the  parties  upon  their  request  with  signed 
extracts  from  his  journal  containing  all  entries  made 
by  him  with  respect  to  the  transaction  negotiated 
between  them. 

102.  In  the  course  of  the  hearing  of  a  case  the 
Court  can,  independently  of  the  request  of  either 
party,  order  the  production  of  the  journal  in  order 
to  see  whether  it  is  consistent  with  the  contract- 
note,  the  extracts  from  the  journal,  or  any  other 
piece  of  evidence. 


MERCANTILE  BROKERS.  41 

103.  Mercantile  brokers   failing   to  observe   the 
regulations   as   to    the    keeping   and    retention   of 
journals,  may  be  subjected  to  a  fine  not  exceeding 
M.I, 000. 

104.  The   regulations   as   to   contract-notes   and 
journals  have  no  applications  to  persons  acting  as 
middlemen  in  dealings  in  merchandise  transacted 
between  persons  carrying  on  small  trades  (c). 

(c)  See  sect.  4,  ante. 


42  GERMAN  COMMERCIAL  CODE. 


Book  II.— Mercantile  Associations  (a) 
and  Dormant  Partnership. 


PART  I.— UNLIMITED  PARTNERSHIP. 


Head  I.  Formation  of  the  Partnership. 

105.  A   partnership   formed   for  the  purpose   of 
carrying  on  a  mercantile  trade  under  a  trade-name 
is  an  unlimited  mercantile  partnership  if  there  is  no 
limitation  of  the  liability  of  any  of  the  partners  in 
respect  of  the  debts  of  the  partnership. 

The  Rules  of  the  Civil  Code  (b)  as  to  partnership 
apply  to  an  unlimited  mercantile  partnership,  where 
the  present  part  of  this  Code  does  not  expressly 
provide  otherwise. 

106.  The  partnership  must  apply  for  registration 
in  the  Mercantile  Register  of  the  Court  in  whose 
district  its  place  of  business  is  situated. 

The  application  must  state  :— 

(1)  The    name,    first    name,    description    and 
place  of  residence  of  each  partner. 

(a)  The  German  term  "  handels-gesellschaft,"  rendered  here 
"  mercantile  associations,"  is  an  expression  which  includes  companies 
as  well  as  the  various  kinds  of  partnerships. 

(6)  Civil  Code,  §§705—740.     See  Schuster,  pp.  303—309. 


UNLIMITED  PARTNERSHIP.  43 

(2)  The  trade-name  and  place  of  business  of  the 

partnership. 
(f3)  The   date   of    the   commencement   of    the 

partnership. 

107.  A  change  in  the  trade-name   of  a  partner- 
ship, the  removal  of  its  place  of  business  to  another 
locality,  or  the  entrance  of  a  new  partner  must  be 
notified  for  entry  in  the  Mercantile  Register. 

108.  Notifications  and  applications  must  be  made 
with  the  co-operation  of  all  the  partners. 

Partners  who  are  to  have  power  to  act  on  behalf 
of  partnership  must  supply  the  Court  for  its  retention 
with  specimen  signatures  in  their  handwriting  of  the 
trade-name  together  with  their  own. 

Head  II.    Mutual  Rights  and  Liabilities  of  Partners 

(inter  se). 

109.  The  mutual  rights  and  liabilities  of  partners 
are  regulated  in  the  first  place  by  the  terms  of  the 
partnership  contract;  the  rules  of  sects.  110 — 122 
only  apply  in  the  absence  of  any  express  stipulation 
to  the  contrary  contained  in  such  contract. 

110.  If  a  partner  while  acting  on  behalf  of  the 
partnership    incurs    any    outlay   which    under   the 
circumstances  he  was  entitled  to  consider  necessary, 
or  while  conducting  partnership  business  suffers  any 
loss  which  is  directly  attributable  to  such  business 
or  to  risks  inseparably  connected  therewith,  he  is 
entitled  to  be  indemnified  by  the  partnership. 


44  GERMAN  COMMERCIAL  CODE. 

Interest  for  such  outlay  or  loss  as  from  the  date 
upon  which  it  was  incurred  must  be  paid  by  the 
partnership  (b). 

111.  A  partner  who  fails  to  pay  in  his  contribu- 
tion to  the  partnership  capital  at  the  proper  time, 
or  to  repay  any  moneys  received  from  the  partner- 
ship,  or  who    draws   money  from  the  partnership 
funds,  without  being  authorised  to  do  so,  must  pay 
interest  as  from  the  day  on  which  the  money  in 
question  ought  to  have  been  paid  in  or  repaid  or 
was  drawn. 

His  liability  to  pay  further  damages  is  not  ex- 
cluded by  the  foregoing  paragraph. 

112.  A  partner  is  not  entitled,  without  the  consent 
of  the  other  partners,  either  to  transact  for  his  own 
account  business  of  the  same  description   as   that 
transacted    by   the    partnership,    or   to   become   a 
full(c)  partner   in  another   mercantile  partnership 
which  transacts  business  of  the  same  kind. 

A  partner  in  a  mercantile  partnership  shall  be 
deemed  to  have  obtained  the  consent  of  the 
remaining  partners  to  his  participation  in  another 
partnership  business  as  full  partner,  if  such 
participation  was  known  to  them  at  the  time  of 
the  formation  of  the  partnership,  and  yet  no 

(ft)  As  to  the  rate  of  interest,  see  post ,  sect.  352. 

(c)  The  German  term  here  translated  by  "  full  partner"  is  a  com- 
prehensive one,  and  includes  either  an  ordinary  partner  in  an  unlimited 
partnership,  a  general  partner  in  a  limited  partnership  (see  post, 
sect.  161),  or  a  general  member  of  a  share  company  en  commandite  (see 
post,  sect.  320),  a  form  of  association  which  for  the  purpose  of  trans- 
lation must  in  this  section  be  held  to  be  included  in  the  expression 
"mercantile  partnership." 


UNLIMITED  PARTNERSHIP.  45 

stipulation  was  made  as  to  the  relinquishment  of 
such  participation. 

113.  Upon  the  breach  by  a  partner  of  the  obliga- 
tions imposed  on  him  by  sect.  112,  the  partnership 
may  claim  damages ;  alternatively  it  may  demand 
the  transfer  of   the  business  entered  into  by  such 
partner   for   his   own   account   to    the    partnership 
account  and  the  surrender  to  the  partnership  of  the 
remuneration  received  by  him  for  business  entered 
into  for  the  account  of  a  third  party  or  any  claims 
he  may  have  to  such  remuneration. 

Claims  arising  under  the  foregoing  paragraph 
may  be  enforced  if  a  resolution  in  favour  of  such 
enforcement  is  passed  by  the  remaining  partners. 

Such  claims  become  barred  in  three  months  from 
the  date  upon  which  the  conclusion  of  transactions 
for  the  partner's  private  account  or  his  participa- 
tion in  another  partnership  business  came  to  the 
knowledge  of  the  remaining  partners  or  irrespective 
of  such  knowledge  within  five  years  of  the  date 
upon  which  the  facts  upon  which  the  claims  are 
based  came  into  existence. 

The  provisions  of  this  section  are  without  pre- 
judice to  the  right  of  the  remaining  partners  to 
demand  the  dissolution  of  the  partnership. 

114,  Every  partner  has  the  right  to  conduct  the 
business  (d)  of   the   partnership    and   is    bound   to 
do  so. 

(d}  As  to  the  scope  and  meaning  of  this  term,  see  post,  sect.  116. 


46  GERMAN  COMMERCIAL  CODE. 

If  in  creating  the  partnership  contract  the  con- 
duct of  the  business  is  expressly  given  over  to  one 
or  more  of  the  partners,  the  remaining  partners 
shall  be  deemed  to  be  excluded  therefrom. 

115.  If  all  or  several  of  the  partners  are  autho- 
rised to  conduct  the  business,  each  of  them  has  the 
right  to  enter  upon  transactions  separately  ;  but  if 
any   other   of   the   partners  so  authorised  requests 
a  partner  to  abstain  from  a  particular  transaction, 
the  request  must  be  complied  with. 

If  it  is  stipulated  by  the  partnership  contract 
that  the  partners  authorised  to  conduct  business 
may  only  do  so  collectively,  all  such  partners  must 
concur  in  every  transaction  entered  upon,  unless 
delay  involves  risk. 

116.  The  authority  to  conduct  business  extends 
to  all  transactions  incidental  to  the  ordinary  course 
of  business  of  the  mercantile  trade  carried  on  by 
the  partnership. 

The  undertaking  of  transactions  outside  such 
ordinary  course  of  business  requires  a  resolution  by 
all  the  partners. 

A  power  of  procuration  may  not  be  conferred 
without  the  consent  of  all  the  partners  authorised  to 
conduct  the  business  unless  delay  involves  risk. 
Powers  of  procuration  may  be  revoked  by  any 
partner  authorised  to  grant  them  or  to  take  part  in 
the  granting  thereof. 

117.  The  power  of  a  partner  to  conduct  the  busi- 
ness of  the  partnership  may  be  withdrawn  from  him 


UNLIMITED  PARTNERSHIP.  47 

upon  the  application  of  the  remaining  partners  by 
an  order  of  the  Court  upon  any  cogent  ground,  e.g., 
in  particular  any  grave  breach  of  duty  on  the  part 
of  such  partner,  or  his  incapacity  to  conduct  busi- 
ness in  a  proper  manner. 

118.  Any  partner,  even  when  not  authorised  to 
conduct  the  business,  has  the  right  to  inform  himself 
personally  of  the  affairs  of  the  partnership,  inspect 
the  books  of  account  and  documents  of  the  partner- 
ship, and  prepare  himself  a  balance  sheet  therefrom. 

Any  agreement  prohibiting  or  placing  any  limita- 
tion upon  this  right  ceases  to  be  operative  if  there 
is  any  ground  for  assuming  dishonesty  in  thr 
conduct  of  the  business. 

119.  Resolutions  cannot  be  framed  without  the 
consent  of  all  partners  entitled  to  participate  in  the 
framing  of  resolutions. 

If  by  the  partnership  contract  the  majority  of 
votes  is  to  be  decisive,  such  majority  shall,  if 
nothing  appears  to  the  contrary,  be  deemed  to  be 
the  numerical  (e)  majority  of  the  partners. 

120.  At   the    close    of    every   business   year   the 
profit  and  loss  of   the  year  must    bo    ascertained 
upon  the  basis  of  the  balance  sheet,  and  apportioned 
between  the  partners. 

The  sum  due  to  each  partner  must  be  credited  to 
him  on  capital  account,  and  the  loss  which  falls  on 

(e)  I.e.,  as  opposed  to  a  majority  reckoned  according  to  the  amount 
of  the  contributions  to  capital. 


48  GERMAN  COMMERCIAL  CODE. 

him,  as  well  as  the  sum  drawn  by  him  during  the 
year,  is  debited  to  the  same  account. 

121.  Out  of  the  profits  of  the  year  each  partner 
is  in  the  first  place   entitled  to  interest  upon   his 
contribution  to  the  partnership  capital  at  the  rate  of 
4  per    cent,   per  annum.     If  such  profits    are  not 
sufficient  for  the  payment  of  4  per  cent,  per  annum, 
the  rate  of  interest  to  be  paid  is  reduced  accord- 
ingly. 

In  calculating  the  share  of  profits  due  to  a  partner 
in  accordance  with  the  foregoing  paragraph,  pay- 
ments made  by  a  partner  in  increase  of  his  contri- 
bution to  capital  during  the  course  of  the  business 
year  must  be  taken  into  account  to  an  extent 
proportionate  to  the  time  which  has  elapsed  since 
they  were  made.  Amounts  drawn  by  a  partner 
from  his  contribution  to  capital  during  the  course 
of  the  business  year  must  be  taken  into  account  to 
an  extent  proportionate  to  the  time  which  elapsed 
before  they  were  drawn. 

The  balance  (if  any)  of  the  year's  profits  remaining 
after  an  apportionment  thereof  made  in  accordance 
with  paragraphs  1  and  2  of  this  section  is  to  be 
divided  between  the  partners  in  equal  shares ;  any 
loss  that  there  may  be  is  to  be  borne  by  the  partners 
in  equal  shares. 

122,  Each  partner  has  the  right  to  draw  upon  the 
partnership  funds  up  to  an  amount  equal  to  4  per 
cent,  on  the  sum  standing  to  his  credit  on  capital 
account  at  the  close  of  the  last  business  year,  and 


UNLIMITED  PARTNERSHIP.  41) 

he  may  also  draw  the  amount  credited  to  him  as 
profit  for  the  last  business  year  over  and  above  the 
4  per  cent,  upon  his  capital  if  this  is  practicable 
without  obvious  injury  to  the  partnership  business. 

Subject  to  the  above  paragraph  a  partner  may 
not  reduce  the  sum  standing  to  his  credit  upon 
capital  account  without  the  consent  of  the  other 
partners. 

Head  III.     Rights  and  Liabilities  of  Partners  in 
Relation  to  Third  Parties. 

123.  An  unlimited  mercantile  partnership  becomes 
operative  in  relation  to  third  parties  from  the  date 
at  which  the  partnership  is  entered  in  the  Mercantile 
Register. 

If  the  partnership  commences  business  before  the 
making  of  such  entry,  then  it  becomes  operative 
from  the  date  of  the  commencement  of  business, 
except  where  the  effect  of  sect.  2  is  to  the  contrary. 

Any  agreement  that  the  partnership  is  not  to 
come  into  force  until  a  later  date  is  inoperative  as 
against  third  parties. 

124.  An    unlimited   mercantile   partnership    can, 
under  its  trade-name,  acquire  rights  and  enter  upon 
obligations,  acquire  ownership  and  other  real  rights 
over  land,  and  sue  and  be  sued  before  a  Court. 

To  levy  execution  upon  partnership  property  an 

S.  E 


50  GERMAN  COMMERCIAL  CODE. 

enforceable  judgment (/)  must  be  obtained  against 
the  partnership. 

125.  Every  partner  has  authority  to  act  on  behalf 
of  the  partnership  if  not  expressly  deprived  of  such 
authority  by  the  partnership  contract. 

The  partnership  contract  may  provide  with 
respect  either  to  all  or  some  of  the  partners  that 
they  are  not  to  have  the  power  to  act  on  behalf  of 
the  partnership  except  in  conjunction  with  one 
another  (such  power  of  agency  (g]  is  hereinafter 
called  "a  power  of  collective  agency").  Partners  in 
possession  of  a  power  of  collective  agency  may  give 
authority  to  one  or  more  out  of  their  number  to 
enter  upon  a  specified  transaction  or  a  specified 
kind  of  transaction.  If  a  declaration  has  to  be 
made  as  against  the  partnership  it  is  sufficient  to 
make  such  declaration  to  one  of  the  partners  upon 
whom  a  power  of  collective  agency  has  been 
conferred. 

The  partnership  contract  may  provide  that  the 
partners,  if  two  or  more  do  not  act  jointly  with  one 
another,  cannot  act  on  behalf  of  the  partnership 
except  in  conjunction  with  the  holder  of  a  power  of 
procuration.  In  this  case  the  rules  of  paragraph  2, 
sentences  2  and  3  of  this  section,  apply  mutatis 
mutandis. 


(/)  In  Germany  judgments  are  not  enforceable,  while  still  appeal- 
able, unless  special  leave  is  obtained  to  enforce  them. 

(_c/)  The  expression  "  power  of  agency"  has  been  used  to  signify  the 
power  to  act  on  behalf  of  the  partnership ;  as  to  the  meaning  and 
extent  of  this  power,  see  post,  sect.  126. 


UNLIMITED  PARTNERSHIP.  51 

The  exclusion  of  a  partner  from  the  power  to  act 
on  behalf  of  the  partnership,  the  creation  of  a  col- 
lective agency  or  of  an  arrangement  such  as  that 
described  in  paragraph  3,  sentence  1,  of  this  section, 
or  any  change  in  the  power  of  agency  of  a  partner, 
must  be  notified  by  all  the  partners  for  entry  in  the 
Mercantile  Register. 

126.  The  power  of  agency  of  the  partners  ex- 
tends to  all  judicial  proceedings  and  other  transac- 
tions and  acts  in  the  law,  including  the  alienation 
and  charging  of  land  and  the  granting  or  revocation 
of  a  power  of  procuration. 

Any  limitation  of  the  scope  of  the  power  of  agency 
is  inoperative  as  against  third  parties  ;  this  applies 
especially  to  limitations  seeking  to  restrict  the  exer- 
cise of  the  power  to  specified  transactions  or  kinds 
of  transactions,  or  to  prohibit  its  use  except  under 
specified  circumstances,  during  a  specified  period, 
or  at  particular  places. 

With  regard  to  the  limitation  of  the  exercise  of 
the  power  to  the  business  of  one  of  several  branches 
owned  by  a  partnership,  sect.  50,  paragraph  3, 
applies  mutatis  mutandis., 

127.  The   power   of   agency  can  be  withdrawn 
from  a  partner  by  an  order  of  the  Court  upon  the 
application  of  the  remaining  partners,  if   there  is 
any  cogent    ground  for   such   withdrawal,   e.g.,   in 
particular   gross   neglect  of  duty  or  incapacity  to 
represent  the  partnership  in  a  proper  manner. 

E2 


52  GERMAN  COMMERCIAL  CODE. 

128.  The    partners    personally    are    jointly    and 
severally  liable  to  the  partnership  creditors  for  the 
obligations  of  the  partnership.     Any  agreement  to 
the  contrary  is  inoperative  as  against  third  parties. 

129.  If   a  claim   is   made   against  a   partner   in 
respect  of  a  partnership  liability,  he  cannot  set  up 
any  defence  which  it  is  not  open  to  the  partnership 
to  set  up  unless  such  defence  arises  out  of  circum- 
stances connected  with  himself  personally. 

The  partner  may  refuse  to  satisfy  the  creditor's 
claim  so  long  as  the  partnership  has  the  right  to 
avoid  the  act  in  the  law  which  forms  the  basis 
thereof  (A). 

The  partner  may  also  refuse  to  satisfy  the  claim 
if  it  can  be  met  by  setting  off  against  it  a  payment 
due  from  the  creditor  to  the  partnership. 

An  enforceable  judgment  entitling  the  creditor 
to  levy  execution  upon  the  goods  of  the  partnership 
does  not  entitle  him  to  do  so  upon  the  goods  of 
individual  partners. 

130.  Any  person  entering  an  existing  partnership 
is  liable  in  the  manner  specified  in  sects.  128,  129 
for  partnership  liabilities  incurred  before  he  became 
a  partner,  irrespective  of  whether  any  change  has 
been  made  in  the  trade-name  or  not. 

Any  agreement  to  the  contrary  is  inoperative  as 
against  third  parties. 

(A)  This  refers  to  voidable  transactions,  i.e.,  transactions  which  are 
not  void  themselves  but  may  be  rendered  so  by  a  definite  act  within 
a  specified  period  of  time.  (See  Schuster,  p.  82.) 


UNLIMITED  PARTNERSHIP.  53 


Head  IV.  —  The  Dissolution  of  a  Partnership  and  the 
Retirement  or  Expulsion  of  Partners. 

131.  An     unlimited    mercantile     partnership     is 
dissolved — 

(1)  By  the  expiration  of  the  period  of  time  for 

which  it  was  formed. 

(2)  By  a  resolution  of  the  partners. 

(3)  By  the  bankruptcy  of  the  partnership. 

(4)  In    the    absence    of   any  provision   to   the 

contrary  in  the  partnership  contract  by 
the  death  of  a  partner. 

(5)  By  the  bankruptcy  of  one  of  the  partners. 

(6)  By   due    notice  («')  being  given   or  by   an 

order  of  the  Court. 

132.  If   a  partnership  is  entered  upon    for   any 
indefinite  period,  it  can  only  be  terminated   by  a 
partner  at  the   end  of  a  business  year ;  and  such 
partner  must  give  at  least  six  months'  notice  of  his 
intention  to  terminate. 

133.  In   the  presence  of   any   cogent  ground,   a 
partnership  may  be  dissolved  by  order  of  the  Court 
upon  the  application  of  one  of  the  partners,  before 
the  expiration  of  the  period  agreed  for  its  duration, 
or  in  the  case  of  a  partnership  entered  into  for  an 
indefinite  period  without  notice  being  given. 

(/)  I.e.,  notice  which  is  permissible  under  the  terms  of  the  contract, 
or  under  the  provisions  of  sects.  132,  134  and  135. 


54  GERMAN  COMMERCIAL  CODE. 

Such  a  cogent  ground  is  furnished  in  particular 
when  a  partner  wilfully  or  by  gross  negligence 
violates  any  essential  obligation  imposed  upon  him 
by  the  partnership  contract,  or  if  the  performance 
of  such  an  obligation  becomes  impossible. 

Any  agreement  excluding  the  right  of  a  partner 
to  demand  the  dissolution  of  a  partnership  or 
limiting  such  right  in  contravention  of  these  rules 
is  null  and  void. 

134.  A  partnership  entered  into  for  the  life  of 
one  of  the  partners  or  tacitly  continued  after  the 
expiration  of  the  period  agreed  for  its  duration,  is  for 
the  purposes  of  sects.  132  and  1 33  subject  to  the  same 
rules  as  a  partnership  entered  into  for  an  indefinite 
period. 

135.  If  the  private  creditor  of  a  partner,  upon 
whose  moveable  property  execution  has  been  levied 
within  the  last  six  months  without  the  satisfaction 
thereby  of  the  debt  owing,  such  debt  being  one  not 
merely  provisionally  (k)   enforceable  by  execution, 
causes  his  claim  to  be  transferred  and  charged  upon 
the    share    of   partnership    property    to    which    his 
debtor  would    be   entitled   on   dissolution,   he  may 
terminate  the  partnership  at  the  end  of  the  business 
year  by  giving  six  months'  notice  irrespective   of 
whether  such   partnership  was  entered  into  for  a 
definite  or  an  indefinite  period. 

(k)  I.e.,  a  debt  based  upon  a  judgment  which  is  final.  A  provi- 
sionally enforceable  judgment  is  one  which  is  enforceable  though  still 
appealable.  As  a  general  rule  a  judgment  is  not  enforceable  while 
still  appealable. 


UNLIMITED  PARTNERSHIP.  55 

136.  If  a  partnership  is  dissolved  otherwise  than 
by  notice  a  partner's  authority  to  conduct  partner- 
ship business  shall  be  deemed  to  continue  until  he 
has  or  ought  to   have   become  aware  of   the   dis- 
solution. 

137.  If  the  partnership  is  dissolved  by  the  death 
of  a  partner,   the  heir  (/)  of  the   deceased  partner 
must  immediately  inform  the  remaining  partners  of 
such  death,  and  in  matters  which  do  not  allow  delay 
must  proceed  with  such  business  as  it  was  the  duty 
of    the    deceased    partner    to    conduct,    until    the 
remaining  partners  in   conjunction   with   him   can 
make  other  arrangements  in  respect  thereof.     In  a 
similar    way   the    remaining    partners    must    pro- 
visionally carry  on  the  business  which  it  is  their 
duty  to  transact.     To  this  extent  the  partnership 
shall  be  deemed  to  remain  in  existence. 

The  provisions  of  paragraph  1,  sentences  2  and  3 
of  this  section,  apply  also  in  the  event  of  a  dissolu- 
tion of  the  partnership  by  the  bankruptcy  of  a 
partner. 

138.  If  it  is  provided  by  the  partnership  contract 
that  in  the  event   of   one  partner  terminating  by 
notice,  dying  or  becoming  bankrupt,   the  partner- 
ship is  to  be  carried  on  by  the  remaining  partners, 
such  one  partner  ceases  to  belong  to  the  partnership 


(/)  As  to  the  meaning  of  the  German  expression  "  erbe  "  here  trans- 
lated by  "  heir,"  see  Schuster,  pp.  576,  581 ,  582.  An  erbe  is  at  the  same 
time  the  real  and  personal  representative  of  the  deceased  and  his 
residuary  legatee. 


56  UEKMAN  COMMERCIAL  CODE. 

from  the  moment  at  which,  in  the  absence  of  such 
a  provision,  the  partnership  would  have  been  dis- 
solved. 

139.  If  it  is  provided  by  the  partnership  contract 
that  in  the  event  of  the  death  of  one  of  the  partners 
the  partnership  is  to  be  continued  with  his  heirs  (m), 
each  of  such  heirs  may  refuse  to  continue  in  the 
partnership  except  as  a  limited  partner  (n)  entitled 
to  the  same  proportion  of  profits  as  the  deceased,  and 
except  upon  the  understanding  that  the  part  of  the 
capital  of  the  deceased  invested  in  the  business 
which  he  inherits  may  be  recognised  as  the  contri- 
bution to  partnership  capital,  which  as  a  limited 
partner  he  is  bound  to  make. 

If  the  remaining  partners  refuse  to  accept  such 
terms,  the  heir  may  without  previous  notice  declare 
that  he  will  retire  from  the  partnership. 

These  rights  can  only  be  exercised  within  a 
period  of  three  months  from  the  time  at  which  the 
heir  became  aware  of  the  devolution  of  the  inherit- 
ance. This  period  shall  be  deemed  to  run  mutatis 
mutandis  in  a  manner  regulated  by  the  provisions  of 
sect.  206  of  the  Civil  Code.  If  the  right  to  disclaim 
the  inheritance  remains  in  existence  after  the  ex- 
piration of  three  months,  such  period  shall  be  ex- 
tended till  the  expiration  of  the  period  within  which 
the  inheritance  may  be  disclaimed  (o). 

(//()  Sec  note  to  sect.  137,  ante. 

(«)  As  to  limited  partnership,  the  term  which  I  have  used  to  translate 
the  German  Kommandit-gesellschaft,  see  post,  sects.  161 — 177. 

(o)  An  inheritance  may  be  disclaimed  within  six  weeks  from  the 


UNLIMITED  PARTNERSHIP.  57 

If  the  heir  retires  from  the  partnership  or  becomes 
a  limited  partner  within  the  period  specified  in  the 
foregoing  paragraph,  or  if  the  partnership  is  dissolved 
within  such  period,  the  heir  is  not  liable  for  any 
previously  existing  partnership  debts  except  in 
accordance  with  the  provisions  of  the  Civil  Law 
dealing  with  the  liability  of  heirs  for  the  debts  of 
the  estate  (/?). 

The  provisions  of  paragraphs  1  to  4  of  this  section 
cannot  be  rendered  inoperative  by  the  partnership 
contract ;  but  in  the  event  of  an  heir  making  his 
continuation  in  the  partnership  conditional  upon  his 
holding  the  position  of  a  limited  partner,  a  stipula- 
tion that  he  shall  be  entitled  to  a  share  in  the  profits 
other  than  that  to  which  the  deceased  was  entitled  is 
good. 

140.  Upon  the  occurrence  of  any  event  connected 
with  one  partner  which  according  to  sect.  L'J3  en- 
titles the  remaining  partners  to  demand  the  dissolu- 
tion of  the  partnership,  the  Court  may  upon  the 
application  of  the  remaining  partners  instead  of 
such  dissolution  order  the  expulsion  of  the  partner 
in  question. 

For  the  purpose  of  the  division  of  property 
between  the  partnership  and  the  expelled  partner, 
the  partnership  property  must  be  assessed  at  the 

date  at  which,  the  heir  became  aware  of  the  death  of  the  deceased. 
As  to  disclaimer  of  inheritance,  see  Schuster,  p.  638. 

( /;)  The  provisions  of  the  Civil  Law  allow  an  heir  to  take  certain  steps 
for  restricting  his  liability  to  the  value  of  the  estate  which  he  takes. 
If  he  fails  to  take  these  steps  he  is  liable  for  the  debts  of  the  estate  to 
an  unlimited  extent. 


58  GERMAN  COMMERCIAL  CODE. 

value  at  which  it  stood  at  the  time  when  the  appli- 
cation for  the  expulsion  was  first  made. 

141.  If  the  private  creditor  of  a  partner  makes 
use    of   his   rights  under  sect.  135,  the  remaining 
partners   can,  upon  the  passing  of  a   resolution  to 
that  effect,  declare  to  such  creditor  that  they  intend 
to    carry    on    the    partnership.       In    this    case   the 
partner  concerned  ceases  to  be  a  member  of  the 
partnership  at  the  end  of  the  business  year. 

These  rules  apply  also  to  the  bankruptcy  of  a 
partner,  subject  to  the  provision  that  in  that  case 
the  declaration  must  be  made  to  the  trustee  in 
bankruptcy  and  the  exclusion  of  the  bankrupt  from 
the  partnership  dates  from  the  adjudication  of 
bankruptcy. 

142.  In  the  case   of  a  partnership  consisting  of 
only  two  partners,  should  circumstances  arise  with 
respect  to  one  of  them,    which  if  the  partnership 
consisted  of  more  than  two  partners  would  give  the 
remaining    partners    the    right   to    expel    him,   the 
other  partner  can   upon    application   to  the    Court 
obtain  an  order  authorising  him  to  take  over  the 
business  with  all  its   assets  and  liabilities  without 
any  process  of  liquidation. 

If  in  the  case  of  a  partnership  of  two,  the  private 
creditor  of  one  of  the  partners  makes  use  of  his 
powers  under  sect.  135,  or  if  one  of  the  partners  is 
made  a  bankrupt,  the  other  partner  has  the  right  to 
take  over  the  business  in  the  manner  specified  in 
the  foregoing  paragraph. 


UNLIMITED  PARTNERSHIP.  59 

The  division  of  property  between  the  partners  is 
governed  mutatis  mutandis  by  the  rules  applicable 
on  the  retirement  of  a  partner. 

143.  The  dissolution  of  a  partnership,  when  not 
brought  about  by  the  bankruptcy  of  the  partnership, 
must  be  notified   by  the  partners    collectively   for 
entry  in  the  Mercantile  Register. 

The  same  rule  applies  to  the  retirement  or 
expulsion  of  a  partner. 

If  it  may  be  assumed  that  the  dissolution  of  the 
partnership  or  the  retirement (^)  of  a  partner  there- 
from follows  upon  the  death  of  a  partner,  the  entry 
may  be  made  without  the  co-operation  of  his  heirs, 
if  any  special  difficulties  lie  in  the  way  of  such 
co-operation. 

144.  If  the  dissolution  of  a  partnership  is  brought 
about  by  reason  of  its  being  adjudicated  bankrupt, 
but  such  adjudication  is  subsequently  annulled  by 
the  acceptance  of  a  compulsory  composition  (r)  or 
revoked   as   the    result   of   the    application    of   the 
partnership,  the  partners  may  pass  a  resolution  for 
the  continuation  of  the  partnership. 

Such  continuation  must  be  notified  for  entry  in 
the  Mercantile  Register  by  the  partners  collectively. 

(7)  In  some  cases  in  the  German  sense  of  the  word  a  partner's 
retirement  does  not  ensue  upon  his  death,  inasmuch  as  by  the  partner- 
ship agreement  his  rights  thereunder  are  to  continue  to  be  exercised, 
and  his  duties  to  be  performed  by  his  heirs. 

(r)  Under  the  German  Bankruptcy  Code  a  composition  must  be 
accepted  if  a  lesolution  to  that  effect  is  passed  by  a  majority  of  creditors 
representing  at  least  three-fourths  of  the  aggregate  amount  of  the 
claims.  As  to  German  bankruptcy  procedure,  see  note  to  sect.  '32,  ante. 


60  GERMAN  COMMERCIAL  CODE. 


Head  V.  Liquidation  of  a  Partnership. 

145.  After  the   dissolution  of  a  partnership  the 
liquidation    shall    take    place,    unless    some    other 
method    of   adjustment    of    property    between    the 
partners  has  been  agreed  upon  or  unless  the  partner- 
ship is  adjudicated  bankrupt. 

If  the  dissolution  is  brought  about  by  notice  given 
by  a  creditor  of  one  of  the  partners  or  by  the  bank- 
ruptcy of  one  of  the  partners  the  liquidation  can 
only  be  dispensed  with  by  the  consent  of  the  cre- 
ditor or  of  the  trustee  in  bankruptcy. 

146.  The    liquidation,    where    not    entrusted    to 
individual  partners  or  other  persons  by  resolution 
of  the  partners  or  by  the  partnership  contract,  shall 
be   carried  out  by  the   entire   number  of  partners 
acting  as   liquidators.     Where  a   deceased   partner 
has  more  than  one  heir  they  must  appoint  a  single 
representative  to  represent  them  all. 

Upon  the  application  of  any  person  interested  the 
nomination  of  the  liquidators  may,  upon  any  cogent 
grounds,  be  made  by  the  Court  of  the  district  in 
which  the  principal  place  of  business  of  the  partner- 
ship is  situated.  The  Court  may  in  such  a  case 
appoint  persons  other  than  members  of  the  partner- 
ship as  liquidators.  The  term  "person  interested" 
for  the  purposes  of  this  paragraph  includes  besides 
the  partners  any  creditor  who  has  given  notice 
under  sect.  135. 


UNLIMITED  PARTNERSHIP.  61 

In  the  event  of  the  bankruptcy  of  a  partner  his 
place  is  taken  by  his  trustee  in  bankruptcy. 

147.  The  removal  of  liquidators  may  be  brought 
about   by   a  unanimous  resolution    of   the   persons 
interested  (see  sect.   146,  paragraphs  1   and  2),  or 
upon  cogent  grounds,  by  the  Court  on  the  application 
of  a  person  interested. 

148.  The  names  of  the  liquidators  must  be  notified 
by  the  partners  collectively  for  entry  in  the  Mercan- 
tile Register.     The  same  rule  applies  to  any  change 
in  the  liquidators  or  their  powers  of  agency.     In 
the  case  of  the  death  of  one  of  the  partners,  if  the 
statements  in  the  notification  may  be  assumed  to 
correspond  with  the  facts,  the  entry  may  be  made 
without  the  co-operation  of  the  heirs  if  there  is  any 
special  difficulty  in  the  way  of  such  co-operation. 

The  entry  of  the  appointment  and  removal  of 
liquidators  by  the  Court  shall  be  made  by  the  Court 
motu  proprio. 

The  liquidators  must  furnish  the  Court  with 
specimens  of  the  signatures  of  their  own  name 
together  with  the  trade-name  (5)  for  its  retention. 

149.  The     liquidators     must     terminate    current 
transactions,  call  in  debts  due,  convert  the  remaining 
partnership   property  into  money   and   satisfy  the 
creditors ;  in  order  to  terminate  pending  transactions 
they  can  enter  upon  fresh  transactions.     Liquidators 
have  power  within  the  limits  of  the  sphere  of  their 

(a)  I.e.,  the  trade-name  of  the  partnership  in  liquidation.     See  post, 
sect.  153. 


62  GKRMAN  COMMERCIAL  CODE. 

duties  to  act  on  behalf  of  the  partnership  in  all  acts 
in  the  law  and  extra-judicial  transactions. 

150.  The  liquidators,  where  there  are  more  than 
one,  have  power  to  undertake  transactions  connected 
with  the  liquidation  only  when  acting  in  conjunction 
with  one  another,  in  the  absence  of  any  agreement 
allowing   them   to   do   so   independently ;    such   an 
agreement  if  made  must  be  entered  in  the  Mercan- 
tile Register. 

Paragraph  1  of  this  section  does  not  prevent  the 
liquidators  from  authorising  individual  members  of 
their  own  number  to  enter  upon  particular  trans- 
actions or  kinds  of  transaction.  If  a  declaration 
has  to  be  made  against  the  partnership  the  rule 
laid  down  in  sect.  125,  paragraph  2,  sentence  3, 
applies  mutatis  mutandis. 

151.  Any  limitation  of  the  scope  of  the  liquidator's 
powers  is  inoperative  as  against  third  parties. 

152.  As  against  persons  interested (t)  within  the 
meaning  of  sect.  146,  paragraphs  2  and  3,  the  liqui- 
dators, even  when  appointed   by  the  Court,  must 
comply  with  resolutions  with  regard  to  the  conduct 
of  the  business  passed  unanimously  by  such  persons. 

153.  The  liquidators  must  sign  in  some  way  by 
which  their  own  names  are  appended  to  the  trade- 
name  used  hitherto  as  that  of  the  partnership,  and 
some  indication  is  given  that  the  partnership  is  in 
liquidation. 

(t)  I.e.,  if  they  do  not  comply  with  such  resolutions,  they  are  liable 
to  the  persons  interested,  but  not  to  anyone  else. 


UNLIMITED  PARTNERSHIP.  63 

154  The  liquidators  must  draw  up  a  balance 
sheet,  both  at  the  beginning  and  at  the  end  of  the 
liquidation. 

155.  Any  partnership  property  remaining  after 
the  payment  of  all  debts  must  be  distributed  by  the 
liquidators   among   the   partners    in    proportion   to 
their   respective    contributions   to    the    partnership 
capital  as  shown  in  the  final  balance  sheet. 

Any  superfluous  money  which  may  come  into  the 
liquidator's  hands  during  the  liquidation  is  to  be 
divided  provisionally  ;  but  enough  must  be  retained 
to  cover  not  yet  matured  or  disputed  liabilities,  and 
to  insure  the  receipt  by  the  respective  partners  of 
the  share  due  to  them  on  the  final  division  of  pro- 
perty. The  provisions  of  sect.  122,  paragraph  1, 
do  not  apply  during  the  period  of  liquidation. 

In  the  event  of  a  dispute  between  the  partners  as 
to  the  distribution  of  the  partnership  property,  the 
distribution  must  be  deferred  by  the  liquidators  until 
the  dispute  is  settled. 

156.  Up  to  the  close  of  the  liquidation  the  rights 
and  liabilities  of  the  partners  inter  se,  and  those  of 
the  partnership  as  against  third  parties,  are  regu- 
lated by  the  rules  of    Heads  II.  and  III.  of  the 
present  part  of  this  Code,  provided  that  nothing  to 
the  contrary  is  contained  under  the  present  head 
(Head  V.),  or  rendered  necessary  in  order  to  carry 
out  the  liquidation. 

157.  At  the  close  of  the  liquidation  the  extinction 


64  GERMAN  COMMERCIAL  CODE. 

of  the  trade-name  must  be  notified  by  the  liquidators 
for  entry  in  the  Mercantile  Register. 

The  books  and  documents  of  the  dissolved  part- 
nership are  to  be  given  to  one  of  the  partners  or  to 
a  third  party  for  retention  by  them.  Such  partner 
or  third  party  will,  in  default  of  any  agreement  in 
respect  thereto,  be  nominated  by  the  Court  of  the 
district  in  which  the  principal  place  of  business  of 
the  partnership  is  situated. 

The  right  to  inspect  and  make  use  of  such  books 
and  papers  is  retained  by  the  partners  and  their 
heirs. 

158.  If  the  partners  agree  upon  some  method  of 
division  of  property  other  than  liquidation  («),  the 
rules   laid   down  as  to  liquidation   apply   notwith- 
standing mutatis  mutandis  in  respect  of  the  relations 
between  the  partners  and  third  parties,  so  long  as 
any  partnership  property  remains  undistributed. 

Head  VI.  Prescription. 

159.  Claims   against   a   partner    arising    out    of 
partnership  liabilities  become  barred  in  five  years 
from  the  date  of  the  dissolution  of  the  partnership 
or   the   retirement   or   expulsion    of    such   partner 
therefrom,  in  so  far  as  the  claim  against  the  partner- 
ship out  of   which  they  arise  is  not  subject  to  a 
shorter  period  of  prescription  (x). 

(u)  E.y.,  if  one  partner  buys  the  others  out  at  a  valuation,  or  if  the 
business  is  sold  as  a  going  concern. 

(x]  As  to  claims  subject  to  a  shorter  period  of  prescription,  see  Civil 
Code,  §§  196,  197;  Schuster,  pp.  131,  132. 


LIMITED  PARTNERSHIP.  65 

The  period  of  prescription  begins  to  run  from  the 
end  of  the  day  on  which  the  dissolution  of  the 
partnership  or  the  retirement  or  expulsion  of  the 
partner  is  entered  in  the  Mercantile  Register  of 
the  Court  of  the  district  in  which  the  principal 
place  of  business  of  the  partnership  is  situated. 

If  the  creditor's  claim  does  not  fall  due  till  after 
the  registration,  the  period  of  prescription  begins  to 
run  from  the  date  upon  which  the  claim  falls  due. 

160.  Any  interruption  (y)  of  the  prescription  as 
against  the  dissolved  partnership  is  operative  also 
as  against  individual  partners,  who  were  members 
of  the  partnership  at  the  time  of  its  dissolution. 


PART  II.— LIMITED  PARTNERSHIP. 

161.  A  limited  partnership  is  a  partnership  having 
for  its  object  the  carrying  on  of  a  mercantile  trade 
under  a  trade-name,  and  consisting  of  one  or  more 
partners  (hereinafter  called  limited  partners)  whose 
liability  in  respect  of  the  obligations  of  the  partner- 
ship is  limited  to  the  amount  of  a  fixed  contribution, 
and  of  one  or  more  partners  (hereinafter  called 
general  partners)  whose  liability  in  respect  thereof 
is  unlimited. 

Where  not  otherwise  herein  expressly  provided 
the  rules  in  force  for  an  unlimited  mercantile 
partnership  apply  also  to  a  limited  partnership. 

(y)  As  to  interruption  of  prescription,  see  Schuster,  pp.  132-3. 
S.  F 


66  GERMAN  COMMERCIAL  CODK. 

162.  The  application  for  registration  in  addition 
to   the   matters    specified   in   sect.   106   must    state 
which  of  the  partners  are  limited  partners  and  must 
specify  the  amount  of  their  several  contributions  to 
capital. 

In  the  public  notification  of  the  entry  made  in 
the  Register  only  the  number  of  the  general  partners 
need  be  given,  the  name,  description  and  place  of 
residence  of  the  limited  partners  need  not  be  given. 

These  rules  apply  also  mutatis  mutandis  in  the 
case  of  the  entry  of  a  limited  partner  into  an 
existing  mercantile  partnership  and  the  retirement 
or  expulsion  of  a  limited  partner  from  a  limited 
partnership. 

163.  With   regard    to    the   relations  of   partner* 
inter  se,  in  the  absence  of  any  stipulation  to  the 
contrary    in   the   partnership    contract   the    special 
rules  laid  down  in  sects.  164 — 169. apply. 

164.  Limited  partners  are  excluded  from  the  con- 
duct of  the  partnership  business ;  they  have  no  right 
to  forbid  any  transaction  being  entered  into  by  a 
general  partner  unless  such  transaction  is  outside  the 
usual  scope  of  the  business  of  the  partnership,  pro- 
vided always  that  nothing  contained  in  this  section 
affects  the  rules  laid  down  in  sect.  116,  paragraph  3. 

165.  Sects.  112  and   113  have  no  application  to 
limited  partners. 

166.  A  limited  partner  has  the  right  to  demand 


LIMITED  PARTNERSHIP.  67 

copies  of  the  annual  balance  sheet  and  to  test  their 
correctness  by  inspecting-  the  books  and  documents. 

Limited  partners  do  not  possess  the  further  rights 
given  under  sect.  118  to  partners  excluded  from  the 
conduct  of  the  business. 

Upon  the  application  of  a  limited  partner  the 
Court  may  at  any  time  upon  cogent  grounds  order 
that  the  contents  of  a  balance  sheet  should  be  com- 
municated to  him,  or  that  he  should  be  furnished 
with  other  information  or  be  given  an  opportunity 
to  inspect  books  and  documents. 

167.  The  rules  of  sect.  120  as  to  the  calculation 
of  profit  and  loss  apply  also  to  the  case  of  limited 
partners. 

But  the  profit  due  to  a  limited  partner  is  not 
added  on  to  his  share  in  the  partnership  capital, 
unless  such  share  falls  short  of  the  amount  of  his 
fixed  contribution. 

A  limited  partner  only  shares  in  loss  to  the  extent 
of  the  share  he  has  already  contributed  to  the  capital 
and  the  still  unpaid  part  of  his  fixed  contribution. 

168.  The   share   in  the   profits   each   partner  is 
entitled  to  is  regulated  in  so  far  as  the  profits  do  not 
exceed  four  per  cent,  on  the  amount  of  the  contri- 
butions to  capital  by  the  rules  of  sect.  121,  para- 
graphs 1  and  2. 

With  respect  to  profits  in  excess  of  this  amount 
and  with  respect  to  loss,  in  the  absence  of  any 
agreement  to  the  contrary,  the  ratio  according  to 

v2 


68  GERMAN  COMMERCIAL  CODE. 

which  the  apportionment  is  to  be  made  shall  depend 
upon  the  circumstances. 

169.  Sect.  122  has  no  application   to   a   limited 
partner.     A  limited  partner  is  only  entitled  to  have 
his  share  of  the  profits  paid  out  to  him,  and  is  not 
entitled  to  this  if  his  share  in  the  partnership  capital 
has  sunk  below  the  amount  of  his  fixed  contribution 
or  would  sink  below  such  amount  in  the  event  of 
such  payment  out  being  made. 

A  limited  partner  is  not  obliged  to  pay  back  profits 
once  drawn  to  meet  subsequent  losses. 

170.  A  limited  partner  has  no  power  to  act  on 
behalf  of  the  partnership. 

171.  A  limited  partner  is  directly  liable  to  the 
partnership  creditors  to  the  extent  of  his  contribu- 
tion to  capital ;  but  this  liability  does  not  apply  to 
so  much  of  his  contribution  as  has  been  paid  (;?). 

In  the  event  of  the  bankruptcy  of  the  partner- 
ship the  rights  of  the  partnership  creditors  under 
paragraph  1  of  this  section  must  be  exercised 
through  the  trustee  in  bankruptcy. 

172.  The  amount  of  a  limited  partner's  fixed  con- 
tribution as  between  such  limited  partners  and  the 
partnership  creditors  is  fixed  by  the  amount  stated 
in  the  entry  in  the  Mercantile  Register. 

(z)  If  a  limited  partner  has  paid  up  all  his  contribution  to  capital 
(as  fixed  by  the  partnership  agreement)  he  has  no  direct  liability  to 
the  partnership  creditors,  but  if  he  has  not  paid  it  all  up  he  is  directly 
liable  to  the  extent  of  so  much  of  his  contribution  as  remains  unpaid. 


LIMITED  PARTNERSHIP.  69 

Partnership  creditors  cannot  avail  themselves  of 
any  unregistered  increase  in  a  limited  partner's 
fixed  contribution  as  entered  in  the  Mercantile 
Register,  unless  notice  of  such  increase  has  been 
duly  given  in  accordance  with  mercantile  custom  or 
otherwise  notified  to  them  by  the  partnership. 

Any  agreement  between  the  partners  releasing  a 
limited  partner  from  the  payment  of  his  contribu- 
tion, or  giving  him  time  for  its  payment,  is  inopera- 
tive as  against  the  partnership  creditors. 

If  part  of  a  limited  partner's  contribution  has 
been  repaid  to  him,  it  shall  be  deemed  never  to 
have  been  paid  as  between  such  limited  partner  and 
the  creditors.  The  same  rule  holds  good  if  a 
limited  partner  takes  any  share  of  profits  while  his 
share  in  the  capital,  owing  to  losses  incurred,  is  less 
than  the  paid-up  amount  of  his  contribution,  or  if 
by  drawing  a  sum  of  money  he  reduces  his  share  in 
the  capital  to  an  amount  less  than  the  paid-up 
amount  of  his  contribution. 

A  limited  partner  is  in  no  case  obliged  to  pay 
back  money  drawn  in  good  faith  as  profits  upon  the 
basis  of  a  balance  sheet  made  up  in  good  faith. 

173.  Any  person  entering  an  existing  mercantile 
partnership  as  a  limited  partner  is  liable,  in  accord- 
ance with  the  provisions  of  sects.  171  and  172,  for 
the  obligations  of  the  partnership  incurred  before 
his  entry  thereinto,  irrespective  of  whether  the 
trade-name  has  been  changed  or  not. 


70  GERMAN  COMMERCIAL  CODE. 

Any  agreement  to  the  contrary  is  inoperative  as 
against  third  parties. 

174.  A  reduction  in  the  fixed  contribution  of  a 
limited  partner  is  not  operative  as  against  the  part- 
nership creditors  until  it  is  entered  in  the  Mercantile 
Register  of  the  Court  of  the  district  in  which  the 
principal    place   of    business  of  the   partnership  is 
situated.     A    reduction,    when   so   entered,    is   not 
operative  as   against  creditors  whose   claims  were 
already  in  existence  at  the  time  of  the  making  of 
the  entry. 

175.  The  increase  as  well  as  the  reduction  of  anv 

it 

fixed  contribution  must  be  notified  for  entry  in  the 
Mercantile  Register  by  all  the  partners  collectively, 
and  must  then  be  published  as  required  by  sect.  162, 
paragraph  2.  The  provisions  of  sect.  14  do  not 
apply  to  the  entry  to  be  made  in  the  Mercantile 
Register  of  the  district  in  which  the  principal  place 
of  business  is  situated  («). 

176.  If    the    partnership     commences     business 
before  its  entry  in  the  Mercantile  Register  of  the 
district  in  which  its  principal  place  of  business  is 
situated,  every  limited  partner  consenting  to  such 
commencement  of  business  is  liable  in  respect  of  all 
obligations  incurred  by  the  partnership  before  the 
making  of    such   entry    to    the    same  extent  as    a 

(a)  But  if  the  entry  is  made  in  the  register  wherein  the  principal 
place  of  business  is  entered,  penalties  may  be  inflicted  if  it  is  not 
also  made  in  the  register  containing  the  entry  of  the  branch 
establishments. 


SHAKE  COMPANIES.  71 

general  partner,  unless  his  status  as  a  limited  part- 
ner was  known  to  the  creditors.  This  rule  does 
not  apply  if  its  operation  would  conflict  with  the 
rules  of  sect.  2. 

If  a  limited  partner  enters  an  existing  mercantile 
partnership,  paragraph  1,  sentence  1  of  this  section 
applies,  mutatis  mutandis,  in  respect  of  obligations 
incurred  during  the  period  intervening  between  his 
entry  into  the  partnership  and  the  registration 
thereof  in  the  Mercantile  Register. 

177.  The  death  of  a  limited  partner  does  not 
bring  about  the  dissolution  of  the  partnership. 


PART  III.— SHARE  COMPANIES. 
Head  I.   General  Rules. 

178.  All  the  members  of  a  share  company  have 
an  interest  in  the  share  capital  of  the  company  to 
the  extent  of  their  contributions,  without  any  per- 
sonal liability  for  its  obligations. 

179.  Shares  (b)  are  indivisible. 

They  can  be  made  out  to  bearer  or  in  the  name 

n/ 

of  the  holder.  Shares  issued  before  payment  of  the 
full  face  value  of  the  share,  or,  in  the  case  of  issue 
at  a  premium,  before  the  payment  of  the  full 
amount  of  the  price  at  which  the  shares  are  issued, 

(6)  The  word  "Aktie"  (share)  is  used  indiscriminately  to  express  the 
right  of  the  shareholder  in  respect  of  the  company's  capital,  and  the 
certificate  which  serves  as  evidence  of  that  right. 


72  GERMAN  COMMERCIAL  CODE. 

may  not  be  made  out  to  bearer.  The  same  rule 
applies  to  certificates  issued  provisionally  to  the 
allottees  of  shares  before  the  actual  issue  of  the 
shares  (hereinafter  called  provisional  certificates). 

If  shares  made  out  in  the  name  of  the  holder  are 
issued  before  the  price  of  issue  is  paid  up  in  full,  a 
statement  of  the  amount  of  the  calls  already  paid 
up  must  appear  on  the  certificates. 

180.  The  nominal  amount  of  a  share  must  be  at 
least  1,000  marks. 

In  the  case  of  undertakings  intended  to  assist 
public  objects,  the  Federal  Council  may,  to  meet 
special  local  requirements,  give  its  consent  to  the 
issue  of  shares  made  out  in  the  holder's  name  for 
any  smaller  amount  not  being  less  than  M.200. 
The  same  consent  may  be  granted  in  the  case  of 
undertakings  in  respect  of  the  shares  of  which  a 
definite  rate  of  interest  has  been  guaranteed  uncon- 
ditionally and  without  any  time  limit  by  the  Empire, 
a  Federal  State,  a  Communal  Union,  or  any  other 
public  corporation. 

Shares  made  out  in  the  holder's  name,  which  are 
not  transferable  without  the  consent  of  the  com- 
pany, may  be  for  an  amount  less  than  M.I, 000, 
but  not  less  than  M.200. 

There  must  appear  upon  the  shares,  in  the  case 
referred  to  in  paragraph  2  of  this  section,  a  state- 
ment as  to  the  permission  that  has  been  obtained, 
and  in  the  case  referred  to  in  paragraph  3,  a  state- 
ment as  to  the  limitations  in  respect  of  their  trans- 


SHARE  COMPANIES.  73 

ferability  affecting    the    shareholders   by  virtue  of 
sect.  222,  paragraph  4. 

These  rules  apply  also  to  provisional  certificates. 

181.  The  signature  of  share  certificates  and  pro- 
visional  certificates  may  be  effected  by  mechanical 
means.     The  validity   of   the   signature  can   by   a 
regulation  appearing  on  the  face  of  the  document 
be  made  dependent  on  the  observance  of  a  specified 
form. 

182.  The  settling  of  the  contents  of  the  memo- 
randum of  association  must  be  effected  by  at  least 
five  persons  who  are  taking  over  shares  and  recorded 
by   a  judicial  officer  or   a  notary  (c).     The   record 
must  state  the  amount,  and  in  the  event  of  the  issue 
of  more  than  one  class  of  shares,  the  class  of  the 
shares  taken  over  by  each  of  them. 

The  memorandum  of  association  must  specify  : 

(1)  The  trade-name  and  place  of  business  of  the 

company. 

(2)  The  object  of  the  undertaking. 

(3)  The   amount   of    the   capital    and    of    the 

individual  shares. 

(4)  The  method  or  appointment  and  composition 

of  the  directorate. 

(5)  The  manner  of  summoning  a  general  meet- 

ing of  the  shareholders. 

(6)  The  manner  in  which  public  announcements 

are  to  be  made  by  the  company. 

(c)  See  Schuster,  p.  90,  Authentication  by  public  Act. 


74  GERMAN  COMMERCIAL  CODE. 

Announcements  that  have  to  be  made  in  the  public 
press  must  be  inserted  in  the  German  Imperial 
Gazette.  Other  papers  for  this  purpose  must  be 
specified  in  the  memorandum  of  association. 

183.  In    the    absence    of    any  provision    in    the 
memorandum  of  association  as  to  whether  the  shares 
are  to  be  made  out  to  bearer  or  in  the  name  of  the 
holder,  they  must  be  made  out  in  the  name  of  the 
holder. 

The  memorandum  of  association  may  contain  a 
provision  that  shares  made  out  in  the  name  of  the 
holder  may  at  his  request  be  converted  into  shares 
to  bearer  or  vice  versa. 

184.  Shares  may  not  be  issued  at  a  lower  price 
than  their  nominal  amount. 

The  issue  of  shares  at  a  higher  price  than  their 
nominal  amount  is  permissible,  if  sanctioned  by  the 
memorandum  of  association. 

185.  The  memorandum  of  association  may  confer 
different  rights  upon  the  holders  of  distinct  classes 
of  shares,  including  in  particular  rights  in  respect  of 
the  division  of  the  profits  or  assets  of  the  company. 

186.  Any  special  advantage  to  which  an  individual 
shareholder  is  to  be  entitled  must  be  recorded  to- 
gether with  the  name  of  the  person  so  entitled  in 
the  memorandum  of  association. 

In  the  event  of  any  contribution  to  capital  being 
made  by  shareholders  otherwise  than  in  cash(W) 

(d]  I.e.,  in  the  event  of  shares  being  issued  for  any  consideration 
other  than  cash  payment. 


SHARE  COMPANIES.  75 

payment,  or  in  the  event  of  any  plant,  either  already 
existing  or  to  be  subsequently  manufactured,  or  any 
other  object  of  property  being  acquired  by  the  com- 
pany in  the  course  of  construction,  the  nature  of  the 
property  received  as  a  contribution  or  acquired,  the 
person  from  whom  it  is  so  received  or  acquired,  and 
the  amount  of  shares  to  be  allotted,  or  the  price  to  be 
paid  in  return  therefor,  must  be  stated  in  the  memo- 
randum of  association. 

Apart  from  this  the  total  sum  paid  at  the  cost  of 
the  company  to  shareholders  or  others  as  re- 
imbursement of  expenses  incurred  or  as  remunera- 
tion for  services  performed  in  the  course  of  the 
promotion  of  the  company  or  the  operations 
preliminary  thereto  must  be  separately  stated  in 
the  memorandum  of  association. 

Every  agreement  concerning  the  matters  men- 
tioned in  this  section,  which  is  not  duly  stated  in 
the  memorandum  of  association,  is  inoperative  as 
against  the  company. 

187.  The  shareholders  who  have  taken  part  in 
the  settling  of  the  memorandum  of  association  or 
have  made  their  contribution  to  the  capital  of  the 
company  otherwise  than  by  cash  payments  shall  be 
deemed  to  be  the  promoters  of  the  company. 

188.  If   all   the   shares  are   taken    over   by   the 
promoters,  the  formation  of  the  company  shall  be 
deemed  to  date  from  such  taking  over  of  the  shares. 

If  such  taking  over  is  not  effected  simultaneously 
with  the  settling  of  the  memorandum  of  association 


76  GERMAN  COMMERCIAL  CODE. 

it  can  be  efi'ected  by  a  special  transaction  recorded 
by  a  j udicial  officer  or  public  notary  (d ).  The  record 
in  this  case  must  state  any  further  amount  of  shares 
taken  over  by  the  individual  promoters. 

189.  If  not  all  the  shares  are  taken  over  by  the 
promoters,  the  formation  of  the  company  must  be 
preceded  by  the  subscription  for  all  the  remainder 
of  the  shares. 

The  subscription  for  the  shares  must  be  effected 
by  a  written  declaration,  from  which  the  interest 
thereby  acquired  must  appear  by  a  statement  of  the 
number  and,  in  the  event  of  the  issue  of  more  than 
one  class  of  shares,  the  amount  or  class  of  shares 
subscribed  for. 

Such  declaration  (hereinafter  called  the  applica- 
tion) must  be  made  out  in  duplicate  and  must 
state  : — 

(1)  The   date  upon  which  the  memorandum   of 

association  was  settled,  the  matters  directed 
by  sects.  182.  paragraph  2,  and  186,  to 
be  set  out  therein,  and  if  more  than  one 
class  of  share  is  issued  with  different 
rights  appertaining  thereto,  the  total 
amount  of  each  class  issued. 

(2)  The  name,  description  and  place  of  residence 

of  the  promoters. 

(?•)  The  amount  payable  upon  issue  of  the 
shares  and  all  fixed  amounts  subsequently 
payable. 

(d)  See  sect.  182,  ante,  note. 


SHARE  COMPANIES.  77 

(4)  The  date  upon  which  the  subscription  ceases 
to  be  binding  in  the  event  of  the  company 
not  having  been  then  formed. 

Applications  which  do  not  specify  the  above 
matters  in  full  or  which  limit  the  liability  of  the 
subscriber  otherwise  than  in  the  manner  specified 
under  No.  4  of  the  above  heads  are  null  and  void. 
If,  notwithstanding  the  fact  that  an  application 
is  by  the  rules  of  this  section  null  and  void  or  by 
reason  of  the  delay  in  the  formation  of  the  company 
has  ceased  to  be  binding,  the  entry  of  the  company 
in  the  Mercantile  Register  subsequently  takes  place, 
the  subscriber  who  signed  such  application  is  liable 
to  the  company  in  the  same  mariner  as  if  the  appli- 
cation had  been  valid,  if  by  right  of  a  declaration 
made  therein  complying  with  the  requirements  of 
paragraph  2  of  this  section  he  votes  at  the  general 
meeting  of  shareholders  called  to  pass  the  resolution 
for  the  formation  of  the  company  or  subsequently 
exercises  any  rights  or  fulfils  any  obligations  as  a 
shareholder. 

Any  limitation  of  liability  not  stated  in  the 
application  is  inoperative  as  against  the  company. 

190.  If  all  the  shares  are  taken  over  by  the  pro- 
moters, the  first  board  of  supervision  (e)  must  be 
appointed  by  them  simultaneously  with  the  forma- 
tion of  the  company,  or  by  a  special  transaction 
recorded  by  a  judicial  officer  or  public  notary. 

If  the  promoters  do  not  take  over  all  the  shares, 

(e)  See  post,  sects.  243—249. 


78  GERMAN  COMMERCIAL  CODE. 

a  general  meeting  of  shareholders  must  be  called  for 
the  election  of  the  board  of  supervision  as  soon  as 
the  original  capital  has  been  subscribed. 

These  rules  apply  also  to  the  appointment  of  the 
first  directorate,  unless  by  the  memorandum  of 
association  the  directorate  is  to  be  appointed  other- 
wise than  by  election  at  a  general  meeting. 

191.  In  the  cases  specified  by  sect.    186,   para- 
graph  2,   the    promoters  must   state   in   a  written 
declaration  the  principal  circumstances  which  show 
that  the  price  paid  for  the  property  contributed  to 
capital  in  place  of  cash  or  otherwise  acquired,  is  a 
reasonable  one. 

They  must  also  specify  any  previous  legal  trans- 
actions which  have  led  up  to  the  acquisition  of  such 
property  by  the  company,  the  price  of  acquisition 
and  cost  of  production  of  any  such  property  acquired 
or  produced  during  the  last  two  years,  and,  in  the 
case  of  a  business  undertaking  being  taken  over  by 
the  company,  the  results  of  the  operations  carried 
on  thereby  during  the  last  two  business  years. 

192.  The  members  of  the  directorate  and  board 
of  supervision  must  investigate  the  circumstances  of 
the  promotion. 

If  a  member  of  either  of  these  boards  is  one  of 
the  promoters,  or  has  taken  any  special  advantage, 
or  has  stipulated  for  any  compensation  or  remunera- 
tion in  respect  of  the  promotion  or  the  proceedings 
preliminary  thereto,  or  in  the  case  of  circumstances 
such  as  those  specified  in  sect.  186,  paragraph  2,  an 


SHARE  COMPANIES.  79 

additional  investigation  must  take  place  by  means 
of  specially  appointed  auditors  (hereinafter  called 
the  auditors). 

The  auditors  are  appointed  by  the  authority 
representing  commercial  interests  (/),  or  in  default 
of  such  body,  by  the  Court  of  the  district  in  which 
the  place  of  business  of  the  company  is  situated. 

193.  The  investigation  must  in  particular  be 
directed  to  the  correctness  and  sufficiency  of  the 
statements  made  by  the  promoters  in  respect  of  the 
subscription  and  payment  of  the  original  capital,  as 
well  as  the  matters  specified  in  sect.  186.  The 
contents  of  the  declaration  mentioned  in  sect.  191 
must  also  be  investigated,  i.e.,  examination  must  be 
made  as  to  whether  there  are  any  grounds  for  sus- 
pecting the  reasonableness  of  the  price  paid  for  the 
objects  of  property  which  have  been  contributed  to 
capital  in  lieu  of  cash  or  taken  over  by  the 
company. 

A  written  report  must  be  made  as  to  the  investi- 
gation of  the  matters  specified  in  paragraph  1  of 
this  section. 

If  the  auditors  are  appointed  by  the  authority 
representing  the  commercial  interests  they  must 
furnish  a  copy  of  their  report  to  such  authority. 
Such  report  is  open  for  inspection  by  anyone. 

(/)  The  authority  representing  commercial  interests  in  the  place 
where  the  company's  place  of  business  is  situated.  In  every  place  of 
any  importance  in  Germany  there  is  a  body  appointed  to  represent 
commercial  interests,  which  is  usually  called  a  "  Chamber  of 
Commerce." 


80  GERMAN  COMMERCIAL  CODE. 

194.  In    the   event   of    disputes  arising   between 
the  auditors  appointed  in  the  manner  specified  in 
sect.  192,  paragraph  2  and  the  promoters  as  to  the 
scope   of   the    explanation    and    information    to   be 
furnished  by  the  promoters,  such  disputes  are  to  be 
decided  by   the   authority  by   whom    the    auditors 
were   appointed,  the    decision    of   which    is   to    be 
final.     So  long  as  the  promoters  refuse  to  conform 
to  such  decision,  the  report  of  investigation  cannot 
be  made  (g). 

The  auditors  have  a  claim  to  reimbursement  for 
reasonable  expenditure  and  to  remuneration  for 
their  services.  The  amount  payable  in  respect  of 
such  reimbursement  or  remuneration  is  to  be  settled 
by  the  authority  named  in  paragraph  1  of  this 
section. 

195.  The  application  for  the  registration  of  the 
company  in  the  Mercantile  Register  must  be  made 
at  the  Court  of  the  district  in  which  the  proposed 
place  of  business  of  the  company  is  situated  by  the 
promoters  and  the  members  of  the  directorate  and 
board  of  supervision  collectively. 

The  following  documents  must  be  annexed  to  the 
application  :— 

(1)  The  memorandum  of  association  and  the 
records  specified  in  sect.  182,  paragraph  1, 
and  sect.  188,  paragraph  2. 

( </)  And  therefore  cannot  be  entered  in  the  Mercantile  Register,  and 
the  company  cannot  therefore  be  incorporated.  (See  sects.  195  and 
200.) 


SHARE  COMPANIES.  81 

(2)  In  case  of  any  of  the  special  arrangements, 

specified  in  sect.  186,  the  agreements  upon 
the  basis  of  which  they  rest  or  which 
were  concluded  upon  their  being  entered 
into,  the  declaration  provided  for  by 
sect.  191,  and  an  account  of  the  expenses 
of  promotion  falling  upon  the  company 
showing  the  description  and  amount  of 
remuneration  paid,  and  the  persons  by 
whom  each  item  of  remuneration  was 
received. 

(3)  If  the  shares  have  not  all  been  taken  over  by 

the  promoters,  then  (as  evidence  of  the 
subscription  of  the  original  capital)  the 
duplicates  of  the  applications  together 
with  a  list  of  all  the  shareholders  signed 
by  the  promoters  showing  the  shares 
allotted  to  each  shareholder  as  well  as  the 
amounts  paid  upon  them. 

(4)  The  documents  relating  to  the  appointment 

of  the  directorate  and  the  board  of  super- 
vision. 

(5)  The  reports  made  in  accordance  with  sect.  193, 

paragraph  2,  as  well  as  the  documentary 
evidence  upon  which  such  reports  were 
founded,  and  in  a  case  where  sect.  193, 
paragraph  3,  has  application,  the  certificate 
that  the  auditors'  report  has  been  duly 
handed  in  to  the  authority  representing 
commercial  interests. 


s. 


82  GERMAN  COMMERCIAL  CODE. 

(6)  If  the  undertaking  is  one  which  by  reason  of 
its  object  cannot  be  carried  on  without 
the  consent  of  the  State  or  is  one  re- 
quiring the  consent  of  a  public  authority 
in  accordance  with  sect.  180,  paragraph  2, 
the  documents  conferring  the  necessary 
consent. 

The  application  must  also  contain  a  declaration 
that  the  amount  due  upon  every  share  in  so  far  as 
it  has  to  be  paid  not  otherwise  than  in  cash  has 
been  so  paid  and  is  in  the  possession  of  the 
directorate.  The  price  at  which  the  shares  were 
issued,  and  the  amount  paid  up  in  cash  upon  allot- 
ment must  be  notified ;  such  amount  must  be  at 
least  one-fourth  of  the  nominal  amount,  and  in  the 
case  of  shares  issued  at  a  premium  must  include 
the  premium  in  addition.  Payments  shall  be 
deemed  to  be  made  only  if  made  in  German  coin, 
imperial  paper-money,  or  such  legally  authorised 
notes  of  German  banks  as  are  legal  currency. 

The  directors  must  furnish  the  Court  with  speci- 
mens of  their  signatures  for  its  retention. 

The  documents  annexed  to  the  application  are 
retained  by  the  Court  in  the  original  or  in  duly 
authenticated  copies  (ti). 

196.  If  the  promoters  have  not  taken  over  all 
the  shares,  the  Court  specified  in  sect.  195  must 
summon  a  general  meeting  of  all  the  shareholders 

(//)  See  note  to  sect.  12,  ante;  Schuster,  p.  90. 


SHARE  COMPANIES.  83 

included  in  the  list,  to  pass  a  resolution  as  to  the 
formation  of  the  company. 

Such  general  meeting  shall  take  place  under  the 
direction  of  the  Court. 

Statements  must  be  made  by  the  directorate  and 
board  of  supervision  as  to  the  results  of  the  investi- 
gations which  have  to  be  made  by  them  with  regard 
to  the  promotion  based  on  the  reports  mentioned  in 
sect.  193,  paragraph  2,  and  the  documents  from 
which  they  were  compiled.  Every  member  of  the 
directorate  and  board  of  supervision  can  withdraw 
his  signature  from  the  application  for  registration 
up  to  the  time  of  the  passing  of  the  resolution  by 
which  the  company  is  formed. 

The  majority  voting  for  the  formation  of  the 
company  must  include  at  least  one-fourth  of  the 
total  number  of  shareholders  entered  on  the  list ; 
the  aggregate  amount  of  their  shares  must  repre- 
sent at  least  one-fourth  of  the  total  capital. 
Even  if  there  is  a  majority  of  these  dimensions  no 
formation  can  take  place  if  part  of  the  shareholders 
forming  such  majority  have  acquired  their  shares 
under  or  are  otherwise  affected  by  the  circumstances 
specified  in  sect.  186,  and  if  apart  from  them  the 
majority  of  the  votes  recorded  by  the  shareholders 
is  against  the  formation. 

The  consent  of  all  the  shareholders  present  in 
person  or  by  proxy  is  necessary  if  the  terms  of  the 
memorandum  of  association  with  regard  to  the 
matters  specified  in  sect.  182,  paragraph  2,  Nos.  1  — 

G  2 


84  GERMAN  COMMERCIAL  CODE. 

4,  sect.  183,  sect.  184,  paragraph  2,  and  sect.  185  are 
to  be  altered  or  the  arrangements  specified  in 
sect.  186  extended  at  the  expense  of  the  compan}^. 
The  consent  of  all  the  shareholders  must  also  be 
obtained  if  the  duration  of  the  company  is  to  be 
prolonged  beyond  the  time  specified  in  the  memo- 
randum of  association,  or  if  it  is  desired  to  abrogate 
any  of  the  rules  of  the  memorandum  of  association 
making  the  passing  of  resolutions  subject  to  specially 
stringent  conditions  under  special  circumstances. 

The  passing  of  the  resolution  must  be  ad- 
journed if  such  adjournment  is  required  by  a  bare 
majority  (*). 

197.  Except  where  otherwise  provided  by  sects. 
190  and  196,  the  same  rules  apply  mutatis  mutandis 
to  the  method  in  which  general  meetings  are  to  be 
summoned  and  resolutions  passed  before  the  regis- 
tration of  the  company  as  are  applicable  after  its 
registration. 

198.  The   entry  registering   a   company  in   the 
Mercantile  Register  must  include  particulars  as  to 
its  trade-name,  place  of   business  and  object,  the 
amount  of  its  original  capital,  the  date  upon  which 
the   memorandum   of   association   was  settled,   and 
the  composition  of  its  directorate. 

Any  special  provisions  which  may  be  contained 
by  the  memorandum  of  association  as  to  the  dura- 
tion of  the  company  or  the  authority  of  the  directors 

(/)  I.t.,  a  bare  numerical  majority.     See  post,  sect.  251. 


SHARE  COMPANIES.  85 

or  liquidators  to  act  as  the  company's  agents  must 
also  be  entered. 

199.  The  notice  publicly  announcing  the  regis- 
tration must  state,  besides  what  is  included  in  the 
entry : — 

(1)  The  other  provisions  of  the  memorandum  of 

association  specified  in  sects.  182,  para- 
graphs 2  and  3,  183,  185  and  186. 

(2)  The  price  at  which  the  shares  were  issued. 

(3)  The  name,  description  and  place  of  residence 

of  the  promoters,  arid  whether  all  the 
shares  are  being  taken  over  by  them 
or  not. 

(4)  The  name,  description  and  place  of  residence 

of  the  members  of  the  first  board  of  super- 
vision. 

It  must  announce  at  the  same  time  that  the  docu- 
ments annexed  to  the  company's  application  for 
registration,  and  in  particular  the  report  of  the 
investigations  made  by  the  directorate,  board  of 
supervision  and  auditors,  may  be  inspected  at 
the  Court.  Under  the  circumstances  specified  in 
sect.  193,  paragraph  3,  it  must  further  state  that 
the  auditor's  report  may  be  inspected  at  the  office 
of  the  authority  representing  commercial  interests. 

200.  Before  the  entry  in  the  Mercantile  Register 
of  the  district  in  which  the  company's  principal 
place  of  business  is  situated  the  company,  as  such, 
has  no  existence.  Any  persons  purporting  to  act 


86  GERMAN  COMMERCIAL  CODE. 

in  the  name  of  the  company  before  the  making 
of  such  entry  are  personally,  and,  if  there  are 
more  than  one,  jointly  and  severally  liable. 

The  transfer  of  any  interest  in  the  company 
made  before  its  registration  is  inoperative  as  against 
the  company.  Shares  or  provisional  certificates 
cannot  be  issued  before  the  registration  of  the 
company. 

201.  The  application  of  a  company  for  registra- 
tion in  the  Mercantile  Register  of  the  Court  of  the 
district  in  which  it  possesses  a  branch  establishment 
must  be  made  by  the  members  of  the  directorate 
collectively. 

There  must  be  annexed  to  the  application  either 
the  original  memorandum  of  association  or  a 
publicly  authenticated  copy  (Jc)  thereof.  The  rules 
of  sect.  195,  paragraphs  2  and  3,  do  not  apply. 

The  entry  in  the  Mercantile  Register  must  include 
the  information  specified  in  sect.  198. 

The  notice  publicly  announcing  the  registration 
must  state,  besides  what  is  included  in  the  entry, 
the  provisions  of  the  memorandum  of  association  as 
to  the  matters  specified  in  sect.  182,  paragraphs  2 
and  3,  sects.  183  and  185 ;  if  the  entry  is  made  within 
two  years  of  the  date  at  which  the  company  was 
entered  in  the  register  of  the  district  in  which  its 
principal  place  of  business  is  situated,  all  the  infor- 
mation specified  in  sect.  199  must  be  included  in 

(k)  See  ante,  sect.  12,  note,  and  Schuster,  p.  90. 


SHARE  COMPANIES.  87 

the  announcement.  In  this  case  the  application 
must  have  annexed  to  it  a  copy  of  the  announce- 
ment made  by  the  Court  upon  the  occasion  of  the 
registration  of  the  company's  principal  place  of 
business. 

If  the  principal  place  of  business  of  the  company 
is  situated  outside  the  State  in  which  the  branch 
establishment  has  to  be  registered,  proof  of  the 
company's  existence  as  a  share  company  must  be 
annexed  to  the  application,  and  if  the  undertaking 
by  reason  of  its  object  or  otherwise  requires  the 
consent  of  the  State  in  order  to  be  carried  on 
within  its  territory,  proof  of  such  consent  must 
further  be  annexed  thereto.  The  statements  to 
be  published  in  accordance  with  paragraph  4  of 
this  section  must  be  included  in  the  application. 

202.  The  promoters  are  jointly  and  severally 
liable  to  the  company  for  the  correctness  and 
sufficiency  of  the  information  as  to  the  subscription 
and  payment  of  the  capital  and  the  matters  specified 
in  sect.  186  supplied  by  them  for  entry  in  the  Mer- 
cantile Register ;  they  must  in  particular,  irrespective 
of  their  liability  to  indemnify  the  company  for  any 
loss  arising  otherwise,  make  good  any  capital  falsely 
stated  to  have  been  subscribed  as  well  as  any  pay- 
ments on  shares  falsely  stated  to  have  been  made, 
and  they  must  repay  to  the  company  the  amount  of 
any  remuneration  paid  by  the  company  and  wrongly 
excluded  from  the  list  of  promotion  expenses 
furnished. 


88  GERMAN  COMMERCIAL  CODE. 

All  the  promoters  are  jointly  and  severally  liable 
to  indemnify  the  company  for  any  loss  occasioned 
by  the  reckless  dealings  of  any  of  their  number  in 
respect  of  contributions  to  capital  or  purchases  made 
by  the  company  of  the  description  specified  in  s.  1 86. 

This  liability  does  not  attach  to  a  promoter, 
if  he  was  neither  aware  of  the  incorrectness  or  in- 
sufficiency of  the  information  supplied  or  of  the 
reckless  dealings  in  question,  nor  ought  to  have  been 
aware  thereof  by  the  exercise  of  the  diligence  of  a 
careful  business  man. 

If  a  shareholder  accepted  as  such  by  any  promoter 
or  promoters  is  insolvent,  such  promoter  is  or  such 
promoters  are  jointly  and  severally  liable  to  the 
company  for  any  loss  arising  out  of  his  insolvency 
if  they  accepted  him  with  knowledge  thereof. 

In  conjunction  with  the  promoters  the  following 
persons  are  jointly  and  severally  liable  to  indemnify 
the  company : — 

(1)  The  recipient  of  any  remuneration  wrongfully 

excluded  from  the  list  of  notifiable  expenses 
of  promotion,  if  at  the  time  of  his  receipt 
thereof  he  was  or  ought  to  have  been 
aware  that  the  matter  was  intended  to  be 
or  had  been  concealed  from  the  public,  and 
any  third  persons  who  wilfully  aided  and 
abetted  such  concealment. 

(2)  Any  person  who  knowingly  assisted  the  pro- 

moters in  any  reckless  dealings  in  respect 
of  contributions  to  capital  or  purchases 
made  on  behalf  of  the  company. 


SHARE  COMPANIES.  89 

203.  Anyone   who  before   the   registration    of    a 
company  or  within  two  years  of  such  registration 
publicly  advertises  the  shares  in  such  company  in 
order  to  bring  them   into  the  market,   is   in  case 
of  the  incorrectness  or  insufficiency  of  the  informa- 
tion supplied    by  the    promoters  for   entry  in   the 
Mercantile  Register  with  respect  to  the  subscription 
and  payment  of  the  capital  or  the  matters  specified 
in  sect.  186,  or  in  case  of  any  reckless  dealings  in 
respect  of  special  payments  of  contributions  to  capital 
or  purchases  of  property  on  behalf  of  the  company, 
jointly  and  severally  liable  to  the  company,  together 
with    the   persons    specified   in    sect.    202,   for  the 
loss  arising  therefrom,  provided  that  he  was  aware 
of  the  incorrectness  or  insufficiency  of  such  informa- 
tion or  of  such  reckless  dealings,  or  by  the  use  of  the 
diligence  of  a  careful  business  man  ought  to  have 
become  aware  thereof. 

204.  Members  of   the  directorate  and   board  of 
supervision  who  in  the  course  of  the  investigation 
provided  for  by  sects.  192  and  193  fail  to  exercise 
the  diligence  of  careful  business  men,  are  jointly 
and  severally  liable  to  the  company  for  any  damage 
arising  therefrom,  provided  that  compensation  for 
such  damage  cannot  be  recovered  from  the  persons 
rendered  liable  by  sects.  202  and  203. 

205.  Compromises  or  settlements  in  respect  of  a 
company's   claims    arising    out    of    the   promotion 
against  the  persons  rendered  liable  by  sects.  202 — 1 
are  permissible  only  after  the  expiration  of  a  period 


90  GERMAN  COMMERCIAL  CODE. 

of  five  years  from  the  registration  of  the  company, 
and  in  all  cases  require  the  consent  of  a  general 
meeting  of  the  shareholders ;  they  are  not  permissible 
if  opposed  at  such  general  meeting  by  the  votes  of  a 
minority  the  amount  of  whose  shares  constitutes  an 
amount  not  less  than  a  fifth  part  of  the  capital  of 
the  company.  The  above  limitation  as  to  time 
does  not  apply  to  a  composition  made  by  an  insol- 
vent person  with  his  creditors  in  order  to  prevent 
or  cancel  (/)  an  adjudication  of  bankruptcy. 

206.  The  claims  of  the  company  against  persons 
rendered  liable  by  sects.  202 — 204  become  barred 
upon  the  expiration  of  a  period  of  five  years  from 
the  date  of  the  registration  of  the  company. 

207.  Contracts  entered  into  by  the  company  for 
the  acquisition  of  plant  either  already  in  existence 
or  to  be  subsequently  made  and  intended  to  be  per- 
manently used  in  the  company's  business,  or  for  the 
purchase  of  immoveables  at  a  price  in  excess  of  one 
tenth  part  of  the  original  capital  of  the  company, 
are  not  valid  without  the  consent  of  a  general  meet- 
ing if  made  before  the  expiration  of  a  period  of  two 
years   from    the   date    of    the    registration    of   the 
company. 

Before  the  passing  of  the  resolution  giving  such 
consent  the  circumstances  relating  to  the  proposed 
contract  must  be  investigated  by  the  board  of 

(Z)  The  word  here  used  in  the  German,  "  beseitigung,"  includes  both 
annulment  and  revocation.    See  ante,  note  to  sect.  32. 


SHARE  COMPANIES.  91 

supervision  and  a  written  report  of   the  results  of 
such  investigation  must  be  made  by  them. 

The  resolution  sanctioning  the  contract  requires  a 
majority  whose  shares  amount  to  at  least  three- 
fourths  of  the  capital  held  by  the  shareholders  voting. 
In  the  case  of  a  contract  made  in  the  first  year  after 
the  registration  of  the  company,  the  shares  held  by 
the  majority  voting  in  favour  of  the  resolution  must 
amount  to  at  least  one-fourth  of  the  total  capital  of 
the  company. 

After  the  consent  of  the  general  meeting  has  been 
obtained,  the  original  contract,  or  a  publicly  authen- 
ticated copy  thereof,  together  with  the  report  of  the 
Board  of  Supervision  and  the  original  documents 
on  which  it  was  based,  must  be  filed  by  the 
Directorate  with  the  Court  in  charge  of  the  Mercan- 
tile Register.  Such  documents  need  not,  however, 
be  filed  with  the  Court  in  charge  of  the  Mercan- 
tile Register  in  which  a  branch  establishment  is 
registered. 

If  the  acquisition  of  immoveables  forms  the  object 
of  the  undertaking  the  rules  of  paragraphs  1 — 4  of 
this  section  have  no  application  to  such  acquisition. 
The  said  rules  have  likewise  no  application  to  the 
acquisition  of  immoveables  upon  an  enforced  sale  by 
auction. 

208.  If  the  company  acquires  property  of  the  kind 
specified  in  sect.  207  before  the  expiration  of  the 
period  specified  in  paragraph  1  thereof  for  the  pur- 
pose of  carrying  out  any  agreement  entered  into  by 


92  GERMAN  COMMERCIAL  CODE. 

the  promoters  before  the  registration  of  the  company 
the  rules  of  sects.  202,  205  arid  206  apply  with 
regard  to  the  company's  right  to  indemnity  and  the 
persons  liable  to  pay  such  indemnity. 

209.  Shares  or  provisional  certificates  made  out 
for  a  smaller  amount  than  that  specified  by  sect.  180 
are  null  and  void.     The  persons  issuing  them  are 
jointly  and  severally  liable  to  the  holders  for  any 
damage  caused  by  their  issue. 

The  same  rule  applies  in  the  case  of  provisional 
certificates  issued  to  bearer  as  to  shares  or  provisional 
certificates  issued  before  the  registration  of  the 
company. 

Head  II.  Rights  and  Liabilities  of  the  Company  and 
its  Members. 

210.  A  share  company  has  as  such  independent 
rights  and  obligations.     It  can  acquire  the  owner- 
ship of  and  other  real  rights  over  land  and  can  sue 
and  be  sued. 

A  share  company  is  classed  as  a  mercantile 
association  (m\  even  when  the  object  of  the  under- 
taking does  not  consist  in  the  carrying  on  of  a 
mercantile  trade. 

211.  The  liability  of  a  shareholder  in  respect  of 
the  payment  of  his  contribution  to  the  capital  of 
the  company  is  limited  to  the  nominal  amount  of 

(m)  The  German  term  "  handels-gesellschaft,"  rendered  in  this 
section  "  mercantile  association,"  is  an  expression  which  includes  the 
various  kinds  of  partnership  as  well  as  companies. 


SHARE  COMPANIES.  93 

his  shares,  or  in  the  case  of  their  issue  at  a  premium, 
to  the  price  of  issue. 

212.  In    addition    to    contributions    to    capital, 
obligations  may  be  imposed  upon  the  shareholders 
by  the  memorandum   of   association  in   respect  of 
periodical  services  to  be  performed  otherwise  than 
by  money  payments,  provided  that  in  such  case  the 
shareholder's  interest   in    the    company  cannot   be 
transferred  without   the   consent  of   the   company. 
The  obligation  in  respect  of  such  services  and  the 
extent   thereof    must   appear   upon    the    shares   or 
provisional  certificates. 

The  memorandum  of  association  may  provide  for 
the  payment  of  penalties  in  the  event  of  the  non- 
discharge  or  imperfect  discharge  of  such  obligations. 

The  memorandum  of  association  may  contain  a 
provision  to  the  effect  that  the  company's  consent 
to  the  transfer  of  a  shareholder's  interest  may  only 
be  refused  upon  cogent  grounds. 

213.  Shareholders  have  not  the  right  to  demand 
the  repayment  of  their  contributions  to  capital ;  as 
long   as   the    company  remains  in   existence,   they 
have  no  claim  except  upon  the  net  profits  of  the 
company,  in  so  far  as  the  division   of  these  is  not 
prohibited    by    law    or    by    the    memorandum    of 
association. 

214.  The   interest   of    the    shareholders   in   the 
company's   profits   is   regulated    according    to   the 
amount  of  the  shares  which  they  hold. 

If  an  equal  amount  has  not  been  paid  upon  all 


94  GERMAN  COMMERCIAL  CODE. 

the  shares,  the  shareholders  have  a  right  to  4  per 
cent,  per  annum  upon  such  payments  as  have  been 
made,  before  any  other  payment  is  made ;  if  the 
profits  of  the  year  are  not  sufficient  for  this,  the 
amount  to  which  they  are  entitled  is  calculated 
upon  a  correspondingly  lower  basis.  The  amount 
payable  in  respect  of  money  called  up  during  the 
course  of  the  year  is  calculated  in  accordance  with 
the  time  which  has  run  since  the  date  at  which  the 
call  was  made. 

Another  method  for  the  division  of  the  profits 
may  be  provided  for  by  the  memorandum  of 
association. 

215.  The  promise  or  payment  of   a   fixed    per- 
centage of  interest  on  shares  is  not  allowed  ;  only 
such  amount  as  is  shown  by  the  annual   balance 
sheet   as  net   profits    may  be   divided   among   the 
shareholders. 

A  fixed  rate  of  interest  may  be  guaranteed  to  the 
shareholders  for  the  period  which  intervenes  between 
the  preliminary  preparations  for  the  undertaking 
and  the  commencement  of  business;  in  this  case 
the  memorandum  of  association  must  specify  the 
latest  date  up  to  which  the  payment  of  such  interest 
may  be  continued. 

216.  In  return  for  periodical  services  which  share- 
holders are  bound  to  perform  in  addition  to  contri- 
buting to  the  capital  of  the  company,  remuneration 
not  in  excess  of  the  value  of  such  services  may  be 


SHARE  COMPANIES.  95 

paid   irrespective    of   whether  the    annual   balance 
sheet  shows  a  net  profit  or  not. 

217.  The  shareholders  are  liable  for  the  obliga- 
tions of  the  company  to  the  extent  of  any  payments 
which  they  may  have  received  from  the  company  in 
contravention  of  the  rules  of  this  Code,   provided 
always  that  a  shareholder  is  in  no  case  under  an 
obligation  to  pay  back  money  received  by  him  in 
good  faith  as  his  share  in  the  profits  of  the  company 
or  as  interest. 

If  a  company  is  adjudicated  bankrupt  («),  the 
rights  of  the  company's  creditors  against  share- 
holders are,  during  the  course  of  the  proceedings, 
exercised  through  the  trustee  in  bankruptcy. 

Claims  based  upon  the  rules  contained  in  this 
section  become  barred  in  five  years  from  the  receipt 
of  the  payment  in  question. 

218.  A  shareholder  who  fails  to  pay  any  calls  due 
upon  his  shares  at  the  proper  time  must  pay  interest 
as  from  the  day  upon  which  the  payment  ought  to 
ha  ve  been  made.    The  right  to  claim  further  damages 
in  respect  of  such  failure  to  make  due  payments  is 
not  hereby  excluded. 

The  memorandum  of  association  may  provide  for 
the  payment  of  penalties  in  the  event  of  the  pay- 
ments not  being  made  at  the  proper  time. 

In  the  absence  of  any  provision  to  the  contrary 
in  the  memorandum  of  association,  notice  of  calls 

(«)  In  Germany  a  company  is  subject  to  the  same  rules  as  an  indi- 
vidual person  in  respect  of  bankruptcy. 


96  GERMAN  COMMERCIAL  CODE. 

on  shares  must  be  given  in  the  manner  prescribed 
in  the  memorandum  of  association  for  the  announce- 
ments to  be  made  by  the  company. 

219.  If  payment  is  not  made  at  the  proper  time, 
a  period  of  grace  may  be  allowed  to  the  defaulting 
shareholder  under  penalty  that  upon  the  expiration 
of  such  period  without  payment  having  been  made, 
such  shareholder  will  be  declared  to  have  forfeited 
his  shares  together  with  any  moneys  already  paid 
up  thereon. 

The  demand  for  payment  must  be  published  three 
times  in  the  journals  mentioned  in  sect.  182,  para- 
graph 3  (hereinafter  called  the  Company  Journals). 
The  first  publication  must  be  made  at  least  three 
months,  the  last  at  least  one  month,  before  the 
expiration  of  the  period  of  grace  allowed  for  the 
payment.  If  the  shares  are  not  transferable  without 
the  consent  of  the  company,  instead  of  such  publi- 
cation a  special  demand  made  once  to  the  defaulting 
shareholders  in  lieu  of  the  public  announcement  will 
be  sufficient ;  such  a  demand  must  allow  at  least  one 
month's  grace  from  the  receipt  thereof. 

If  notwithstanding  such  demand  a  shareholder 
does  not  make  the  required  payment,  he  shall  be 
declared  to  have  forfeited  his  shares,  together  with 
any  amounts  paid  up  thereon  for  the  benefit  of  the 
company.  Such  declaration  is  to  be  published  in 
the  Company  Journals. 

In  place  of  the  certificate  up  till  now  in  existence 
a  new  one  may  be  issued,  on  which  the  amounts  of 


SHARE  COMPANIES.  97 

all  prior  calls  paid,  together  with  the  amount  in 
respect  of  which  the  forfeiture  has  been  effected,  are 
marked  as  paid.  A  shareholder  whose  shares  have 
been  forfeited  is  liable  to  the  company  for  any  loss 
which  it  may  suffer  by  reason  of  the  non-payment 
of  the  last-mentioned  amount  together  with  any 
further  calls. 

220.  If  in  the  case  of  forfeiture  a  shareholder 
fails  to  pay  the  amount  owing  by  him  to  the 
company  on  the  shares  forfeited,  such  amount  may 
be  claimed  by  the  company  from  his  predecessor 
as  holder  of  the  shares  and  any  previous  holder  of 
them  whose  name  was  entered  in  the  company's 
books,  each  predecessor  as  holder  being  liable  for 
the  amount  irrecoverable  from  his  successor.  Such 
irrecoverability  is  to  be  presumed  if  the  amount 
demanded  is  not  paid  within  a  month  from  the 
date  at  which  the  demand  for  payment  was  made  to 
the  successor  and  due  notice  of  the  making  thereof 
sent  to  the  predecessor.  Against  payment  of  the 
amount  owing  the  predecessor  has  the  right  to 
claim  the  share  to  be  freshly  issued. 

The  predecessor's  liability  is  limited  to  calls  made 
in  respect  of  the  shares  within  a  period  of  two  years, 
such  period  to  commence  with  the  day  on  which  the 
transfer  of  interest  in  the  shares  was  entered  in  the 
books  of  the  company. 

If  the  payment  of  the  amount  in  arrear  cannot 
be  obtained  from  the  predecessor,  the  company 
may  sell  the  shares  at  the  price  quoted  on  the  Stock 

s.  H 


98  GEKMAN  COMMERCIAL  CODE. 

Exchange,  or,  if  there  is  no  such  quoted  price,  by 
public  auction. 

221.  Shareholders  and  their  predecessors  in  title 
cannot  be  released  from  their  obligations  to  make 
payments  arising  out  of  the  provisions  of  sects.  211 
and  220.     They  cannot  set-off  a  debt  due  from  the 
company  against  such  obligations. 

222,  With  regard  to  shares  made  out  in  the  name 
of  the  holder  a  detailed  entry  must  be  made  in  the 
company's  register  of   shareholders   specifying  the 
name,   place    of  residence,   and   description  of  the 
holder. 

Such  shares  may,  in  the  absence  of  any  provision 
to  the  contrary  in  the  memorandum  of  association, 
be  transferred  without  the  consent  of  the  company. 

The  transfer  may  be  effected  by  indorsement. 
With  regard  to  the  form  of  indorsement,  the 
proof  of  the  holder's  title  and  his  obligations  as  to 
delivery  to  the  lawful  owner,  the  rules  of  Articles 
11 — 13,  Article  36,  sentences  1—4,  and  Article  74 
of  the  Bills  of  Exchange  Code  apply  mutatis 
mutandis  (o]. 

The  transfer  of  shares  issued  in  accordance  with 
sect.  180,  paragraph  3,  for  a  lesser  nominal  amount 

(o)  Shares  in  German  companies  are  usually  transferred  by  indorse- 
ment in  a  manner  similar  to  a  bill  of  exchange.  They  may  also  be 
transferred  by  a  declaration  of  assignment  embodied  in  a  different 
document.  The  rules  of  the  Bills  of  Exchange  Code  mentioned  in  the 
text  deal  with  the  effect  of  forged  indorsements  and  other  matters. 
A  person  who  has  acquired  a  share  on  which  there  is  a  forged  indorse- 
ment in  good  faith  and  without  gross  negligence  is  not  required  to 
deliver  it  to  the  lawful  owner. 


SHARE  COMPANIES.  99 

than  M.  1,000,  requires  the  consent  of  the  board 
of  supervision  and  of  a  general  meeting  of  share- 
holders. It  can  only  be  effected  by  a  declaration 
specifying  the  transferee  and  authenticated  by  a 
judicial  officer  or  notary. 

223.  If  shares  made  out  in  the  holder's  name  are 
transferred,  the  change  of  ownership  must  be  noti- 
fied to  the  company,  and  upon  the  production  of 
the  shares  and  due  proof  of  their  transfer,  entered 
in  its  books. 

The  company  is  under  no  obligation  to  verify 
the  genuineness  of  any  indorsements  on  the  shares 
transferred,  or  any  signatures  on  the  declarations  of 
assignment  (q). 

As  between  himself  and  the  company,  no  one  can 
be  deemed  to  be  a  shareholder  who  is  not  duly 
entered  as  such  in  the  company's  register  of  share- 
holders. 

224.  The  provisions  of  sects.  222  and  223  apply 
also  to  the  entry  and  transfer  of  provisional  certifi- 
cates. 

225.  If  a  share  is  the  property  of  several  joint 
owners,  the  rights  in  respect  thereof  can  only  be 
exercised  by  such  persons  by  means  of  a  common 
representative. 

They  are  jointly  and  severally  liable  for  any 
obligations  in  respect  of  the  share. 

(q}  See  note  to  sect.  222,  ante. 


100  GERMAN  COMMERCIAL  CODE. 

If  a  declaration  has  to  be  made  by  the  company 
as  against  the  shareholders,  in  the  absence  of  a 
common  representative  of  the  joint  owners  it  is 
sufficient  if  the  declaration  is  made  to  any  one  of 
them.  This  rule  does  not  apply  to  the  case  of  a 
deceased  shareholder's  several  heirs,  until  after  the 
expiration  of  one  month  from  the  vesting  of  the 
inheritance. 

226.  A  share  company  may  not,  in  the  ordinary 
course  of  business,  either  acquire  its  own  shares  or 
take  them  as  security,  except  in  the  execution  of  a 
commission  to  purchase  them  for  a  third  party. 

It  may  not  in  the  ordinary  course  of  business 
acquire  its  own  provisional  certificates  or  accept 
them  as  security,  even  in  the  execution  of  a  com- 
mission. The  same  rule  applies  to  its  own  shares, 
where  payment  has  not  been  made  of  the  full 
nominal  amount,  or  in  case  of  their  issue  at  a 
premium  the  full  nominal  amount  together  with  the 
premium. 

227.  The  cancellation  of  shares  (amortisation)  can 
only  take  place  if  provided  for  or  authorised  by  an 
express  term  of   the  memorandum   of   association. 
Such  term  must  be  contained  in  the  original  memo- 
randum   of    association,    or   some    alteration    made 
therein  before  the  subscription  to  the  shares,  unless 
the  cancellation  is  to  be  made  by  purchase,  and  not 
by  drawing  by  lot,   by  notice,   or  in  any  similar 
manner  (r). 

(r)  I.e.,  the  amortisation  cannot  take  place  in  any  other  manner 


SHARE  COMPANIES.  101 

No  kind  of  cancellation,  unless  made  in  accord- 
ance with  the  rules  laid  down  for  the  reduction  of 
the  original  capital,  can  be  effected  except  out  of 
the  profits  shown  to  be  available  by  the  annual 
balance  sheet. 

228.  If  a  share  or  provisional  certificate  is  lost  or 
destroyed,  the  document,  unless  any  regulation  to 
the  contrary  is  inscribed  thereon,  may  be  declared 
null  and  void  by  public  notice.     The  provisions  of 
sect.  799,  paragraph  2,  and  sect.  800  of  the  Civil 
Code  apply  mutatis  mutandis. 

If  dividend  warrants (s]  have  been  issued  to  bearer, 
any  claim  founded  on  such  warrants  which  has  not 
yet  accrued  due  is  destroyed  by  the  declaration 
annulling  the  share  or  provisional  certificate. 

229,  If  a  share  or  provisional  certificate  by  reason 
of  damage  or  defacement  is  no  longer  capable  of 
being  negotiated,  the  person  thereto  entitled  can, 
provided  the  essential  parts  of  the  document  and  the 
differentiating  marks  can  still  be  recognised  with 
certainty,  demand  from  the  company  the  issue  of  a 


than  by  purchase,  unless  it  is  authorised  by  a  provision  contained  in 
the  original  memorandum  of  association  or  some  alteration  therein 
made  before  the  subscription  for  the  shares. 

(s)  Although  the  expression  "  Gewinn-Antheils-Scheine "  is  here 
translated  dividend  warrants,  the  documents  referred  to  are  not  strictly 
the  same  as  what  are  usually  known  as  dividend  warrants  in  England. 
"  Gewinn-Antheils-Scheine"  are  warrants  or  coupons  generally  issued 
with  the  shares,  on  each  of  which  appears  a  statement  that  the  bearer 
is  entitled  to  the  dividend  for  a  particular  year ;  the  amount  of  such 
dividend  being,  of  course,  uncertain  until  the  profits  for  the  particular 
year  are  divided. 


102  GERMAN  COMMERCIAL  CODE. 

new  document  upon  his  giving  up  to  them  the  one 
so  damaged  or  defaced. 

The  costs  of  any  such  transaction  must  be 
borne  by  such  person  and  an  approximate  amount 
advanced  (t). 

230.  New  dividend  warrants  may  not  be  issued 
to  the  holder  of  a  talon  if  the  holder  of  the  share  or 
provisional  certificate  (in  respect  of  which  it  was 
issued)  has  forbidden  such  issue  (u}.  In  this  case  the 
dividend  warrants  must  be  handed  over  to  the 
holder  of  the  share  or  provisional  certificate  upon 
his  production  of  the  original  document. 


Head  III.     Administration. 

231.  For  the  purpose  of  all  judicial  and  extra- 
judicial  transactions  the  company  is  represented 
by  the  directorate. 

The  directorate  may  consist  of  one  or  more 
persons. 

The  appointment  to  the  office  of  director  is  subject 
to  revocation  at  any  time,  provided  that  such  revo- 
cation does  not  affect  any  claim  that  the  holder  of 


(t}  Before  the  new  document  is  issued,  the  person  desiring  it  must 
pay  the  company  for  the  expense  incurred ;  as  the  amount  of  the 
expense  cannot  be  known  until  the  transaction  is  carried  out,  an 
approximate  amount  must  he  advanced,  the  superfluity,  if  any,  to  be 
subsequently  repaid. 

(u)  See  note  to  sect.  228,  ante.  Besides  the  "dividend  warrants" 
or  coupons  there  is  usually  issued  with  each  share  a  document  called 
a  "talon"  on  presentation  of  which  fresh  "dividend  warrants"  are 
issued  (except  under  the  circumstances  specified  in  this  section). 


SHARE  COMPANIES.  103 

such  office  may  have  to  remuneration  in  accordance 
with  contract. 

232.  In  the  absence  of  any  provision  to  the  con- 
trary in  the  memorandum  of  association,  where  the 
directors  have  to  make  any  declaration  of  intention 
on  behalf  of  the  company  and  more  particularly  to 
sign  on  its  behalf,  the  co-operation  of  the   entire 
directorate  is  necessary,  provided  always  that  it  is 
in  the   power  of  the  directorate  to   authorise  any 
particular  director    or  directors    to  undertake  any 
particular    transaction    or     class    of     transactions. 
Declarations  as  against  a  company  are   sufficiently 
made  if  made  to  one  director. 

If  the  memorandum  of  association  does  not  give 
each  individual  director  the  right  to  act  on  behalf 
of  the  company,  it  may  provide  that  each  individual 
director  has  power,  in  the  absence  of  the  other 
directors,  to  act  on  behalf  of  the  company  in  con- 
junction with  the  holder  of  a  power  of  procuration. 
The  memorandum  of  association  may  also  contain 
a  provision  empowering  the  board  of  supervision  to 
authorise  individual  directors  to  act  on  behalf  of  the 
company  either  alone  or  in  conjunction  with  the 
holder  of  a  power  of  procuration.  The  rules  of 
paragraph  1  of  this  section,  sentences  2  and  3,  apply 
in  such  cases  mutatis  mutandis. 

233.  The  directorate  must  sign  in  such  a  way  as 
to  include  their  own  names  as  well  as  the  trade- 
name  of  the   company,   or  the  designation   of  the 
directorate. 


104  GERMAN  COMMERCIAL  CODE. 

234.  Every    change  in    the   composition    of    the 
directorate   or  the  power  of    agency  of  individual 
directors,  as  well  as  any  arrangement  made  by  order 
of  the  board  of  supervision  by  virtue  of  their  powers 
under    sect.    232,    paragraph    2,   sentence   2,  must 
be    notified    by    the    directorate  for   entry   in    the 
Mercantile  Register. 

The  notification  must  have  annexed  to  it  a  publicly 
authenticated  copy  (#)  of  the  documents  relating  to 
such  alteration  or  arrangement.  This  does  not 
apply  to  a  notification  made  for  entry  in  the 
Mercantile  Register  in  which  a  branch  establish- 
ment is  registered. 

The  directors  must  furnish  the  Court  with  speci- 
mens of  their  signatures  for  its  retention. 

235.  The  directors  are  liable  to  the  company  for 
the  due  observance  of  the  limitations  on  the  scope 
of  their  powers  of  agency  on  behalf  of  the  company 
imposed  upon  them  by  the  memorandum  of  associa- 
tion or  by  resolutions  at  a  general  meeting. 

As  against  third  parties  a  limitation  of  the  powers 
of  the  directors  to  act  on  behalf  of  the  company  is 
inoperative.  This  applies  more  particularly  to  the 
case  of  limitations  making  such  powers  exercisable 
only  in  respect  of  particular  transactions  or  kinds  of 
transactions  under  particular  circumstances,  during 
a  particular  period  or  at  particular  places,  or  making 
it  necessary  to  obtain  the  consent  of  a  general 
meeting,  the  board  of  supervision,  or  any  other 

(x)  See  note  to  sect.  12  ;  Schuster,  p.  'JO. 


SHARE  COMPANIES.  105 

body  representing  the  company  in   order  to  enter 
upon  individual  transactions. 

236.  The  directors  may  not  without  the  consent 
of  the  company  either  carry  on  a  mercantile  trade 
or  do  business  for  their  own  account  or  for  that  of  a 
third  party  in  the  same  branch  of  commerce  as  the 
company,  nor  may  they  be  interested  in  a  mercan- 
tile partnership  as  general  partners.     The  power  to 
grant  such  consent  rests  with  the  body  by   whom 
the  directorate  is  appointed. 

Any  director  violating  his  obligations  to  the  com- 
pany arising  under  paragraph  1  of  this  section  is 
liable  to  pay  damages  to  the  company ;  as  an  alter- 
native remedy  the  company  may  demand  that  such 
director  should  transfer  the  transaction  entered  upon 
for  his  own  account  to  the  account  of  the  company, 
or  pay  over  to  the  company  any  remuneration 
received  in  respect  of  transactions  entered  upon  by 
him  for  the  account  of  a  third  party,  or  assign  to 
the  company  his  claim  to  such  remuneration. 

The  company's  rights  of  action  under  the  fore- 
going paragraph  become  barred  in  three  months 
from  the  date  at  which  the  conclusion  of  the  trans- 
action in  question  by  the  director  in  question  or  his 
interest  in  the  partnership  became  known  to  the 
other  directors  and  the  board  of  supervision ;  they 
become  barred  irrespective  of  such  knowledge  in 
five  years  from  the  date  upon  which  they  accrued. 

237.  If  the  directors  are  remunerated  by  a  share 
in  the  annual  profits,  such  share  must  be  calculated 


106  GERMAN  COMMERCIAL  CODE. 

according  to  the  net  profit  remaining  after  making 
proper  provision  for  depreciation  and  reserve  funds. 

238.  Unless    otherwise  provided    by   the   memo- 
randum of  association  or  by  resolution  of  a  general 
meeting,  the  directorate  may  only  confer  powers  of 
procuration  with  the  consent  of  the  board  of  super- 
vision.     This  limitation   is  inoperative   as  against 
third  parties. 

239.  The  directorate  must  see  that  the  necessary 
books  are  kept  by  the  company. 

240.  If  the  loss  appearing  upon  the  drawing  up 
of  the  annual  balance  sheet  or  an  interim  balance 
sheet  reaches  a  figure  equal  to  half  the  amount  of 
the  capital  of  the   company,   the  directorate    must 
without  delay  summon  a  general  meeting  and  inform 
such  meeting  thereof. 

As  soon  as  the  company  becomes  insolvent,  the 
directorate  must  apply  for  the  initiation  of  bank- 
ruptcy proceedings ;  the  same  rule  applies  if  upon 
the  drawing  up  of  the  annual  balance  sheet  or  an 
interim  balance  sheet,  it  appears  that  the  company's 
assets  are  not  sufficient  to  cover  its  liabilities. 

241.  The  directors  must  in  their  conduct  of  the 
business  apply  the  diligence  of  a  careful    business 
man. 

Directors  committing  a  breach  of  duty  are  jointly 
and  severally  liable  to  the  company  for  any  damage 
arising  out  of  such  breach. 

In  particular  they  are  bound  to  compensate  the 


SHARE  COMPANIES.  107 

company  if   in   contravention  of  the   rules  of  this 
Code- 

(1)  Contributions  to  capital  are  repaid  to  share- 

holders. 

(2)  Interest  or  dividends  are  improperly  paid  to 

the  shareholders. 

(3)  Shares  or  provisional  certificates  in  the  com- 

pany itself  are  acquired,  taken  as  security 
or  cancelled  by  the  company. 

(4)  Shares  are  issued  before  full  payment  of  the 

nominal  amount  or  in  the  case  of  issue  at 
a  premium,  the  price  of  issue. 

(5)  The  assets  of  the  company  are  divided  or  the 

original  capital  is  partially  repaid. 

(6)  Payments  are  made  after  the  company  has 

become   insolvent    or  when    its    liabilities 
exceed  its  assets. 

In  the  cases  specified  in  the  foregoing  paragraph 
a  right  to  compensation  can  be  enforced  by  the 
company's  creditors  as  well,  in  so  far  as  their  claims 
remain  unsatisfied  by  the  company.  The  liability 
on  the  part  of  the  directors  to  pay  such  compensa- 
tion to  the  creditors  cannot  be  avoided  either  on 
the  ground  of  a  release  by  the  company  or  on  the 
plea  that  the  transaction  in  question  was  the  result 
of  the  resolution  of  a  general  meeting. 

Rights  of  action  arising  out  of  these  rules  become 
barred  in  five  years. 

242.  Rules   applying   to   directors  apply  also   to 
persons  representing  them. 

243.  In    the    absence    of    any    provision    in    the 
memorandum  of  association  fixing  a  higher  number, 


108  GERMAN  COMMERCIAL  CODE. 

the  board  of  supervision  shall  consist  of  three 
members,  to  be  elected  by  a  general  meeting. 

The  period  for  which  the  first  board  of  super- 
vision is  elected  extends  to  the  conclusion  of  the 
first  general  meeting  called  for  the  purpose  of  pass- 
ing a  resolution  with  reference  to  the  annual  balance 
sheet  after  the  expiration  of  one  year  from  the  date 
of  the  company's  registration. 

Subsequently  to  this  the  board  of  supervision 
cannot  be  elected  for  a  period  extending  beyond 
the  conclusion  of  the  general  meeting  called  to  con- 
sider the  balance  sheet  for  the  fourth  year  after  the 
appointment  of  such  board  of  supervision,  exclusive 
of  the  year  in  which  such  appointment  was  made. 

An  appointment  to  membership  of  the  board  of 
supervision  may  be  revoked  by  a  general  meeting 
before  the  expiration  of  the  period  for  which  the 
member  in  question  was  elected.  If  not  otherwise 
provided  by  the  memorandum  of  association,  the 
resolution  by  which  such  appointment  is  revoked 
requires  to  be  supported  by  a  majority  holding- 
shares  of  an  aggregate  amount  equal  to  at  least 
three-fourths  of  the  total  amount  of  capital  repre- 
sented at  the  meeting. 

244.  Any  change  in  the  composition  of  the  board 
of  supervision  must   be  immediately  published   by 
the  directorate  in   the  Company  Journals  (vv),  and 
must  also  be  notified   by  them    for   entry   in    the 
Mercantile  Register. 

245.  If  the  members  of  the  board  of  supervision 

(w)  See  aide,  sect.  -19. 


SHARE  COMPANIES.  109 

receive  a  remuneration  for  their  services  consisting 
in  a  share  in  the  annual  profits,  such  share  must  be 
calculated  according  to  the  net  profits  remaining 
after  making  proper  provision  for  depreciation  and 
reserve  funds  and  the  setting  aside  for  the  share- 
holders of  a  fixed  amount  equal  to  at  least  four  per 
cent,  of  the  paid-up  capital. 

If  the  remuneration  of  the  members  of  the  board 
of  supervision  is  fixed  by  the  memorandum  of 
association,  any  alteration  in  the  provisions  thereof 
in  reduction  of  such  remuneration  may  be  effected 
by  the  resolution  of  a  bare  majority (xx]  at  a  general 
meeting. 

A  remuneration  can  be  granted  to  the  members 
of  the  first  board  of  supervision  only  by  the  resolu- 
tion of  a  general  meeting.  Such  resolution  cannot 
be  passed  earlier  than  at  the  general  meeting  at  the 
conclusion  of  which  the  period  for  which  they  were 
elected  expires. 

246.  The  board  of  supervision  must  watch  the 
conduct  of  the  company's  business  in  all  its  branches, 
and  for  that  purpose  keep  itself  informed  of  the 
course  of  all  the  transactions  in  which  the  company 
is  concerned.  It  may  at  any  time  demand  a  report 
as  to  such  transactions  from  the  directorate,  and 
either  in  its  entirety  or  by  means  of  representatives 
which  it  may  select  from  its  number,  inspect  the 
company's  books  and  documents  as  well  as  the  state 
of  the  cash  held  by  the  company  and  such  property 
as  it  holds  in  the  form  of  negotiable  instruments 

(xx)  See  post,  sect.  251. 


110  GERMAN  COMMERCIAL  CODE. 

and  merchandise.  It  must  investigate  the  annual 
accounts  and  balance  sheets  and  the  proposals  for 
the  division  of  profits,  and  report  thereon  to  the 
general  meeting. 

It  must  call  a  general  meeting  whenever  it  is 
necessary  to  do  so  in  the  interests  of  the  company. 

Further  duties  on  the  part  of  the  board  of  super- 
vision may  be  specified  by  the  memorandum  of 
association. 

Its  members  may  not  transfer  the  performance  of 
their  duties  to  other  parties. 

247.  The  board  of  supervision  has  authority  to 
act    on    behalf   of    the    company    in    transactions 
between    the    company   and    the  directors,   and  to 
conduct  any  legal   proceedings  against   the   latter 
which  may  have  been  enjoined  by  the  resolution  of 
a  general  meeting. 

If  the  liability  of  the  members  of  the  board  of 
supervision  themselves  is  in  question  they  can  pro- 
ceed against  the  directors  without  the  authority  of, 
and  even  in  opposition  to,  a  resolution  of  a  general 
meeting. 

248.  Members  of  the  board  of  supervision  may 
not  at  the  same  time  be    directors  or  permanent 
representatives  of  directors,  or  conduct  business  for 
the  company  as  its  officers. 

The  board  of  supervision  may  appoint  individual 
members  of  its  own  body  to  act  in  the  place  of 
incapacitated  directors,  but  only  for  a  period,  the 
limits  of  which  are  to  be  fixed  beforehand.  During 


SHARE  COMPANIES.  Ill 

this  period  and  until  the  revocation  of  the  appoint- 
ment the  person  appointed  may  not  act  as  a  member 
of  the  board  of  supervision. 

The  rules  of  sect.  236  do  not  apply  to  a  person 
appointed  to  act  in  the  place  of  a  director  in  this 
manner.  Directors  upon  leaving1  the  directorate 
cannot  be  elected  on  to  the  board  of  supervision 
before  receiving  their  discharge  as  directors  (#). 

249.  The  members   of  the  board  of  supervision 
must  exercise  in  the  discharge  of  their  duties  the 
diligence  of  a  careful  business  man. 

Members  of  the  board  of  supervision  committing 
any  breach  of  duty  are  jointly  and  severally  liable 
to  the  company,  together  with  the  directors,  for  any 
damage  resulting  therefrom. 

In  particular  the}'  are  liable  in  damages  to  the 
company  if  transactions  of  the  kind  specified  in 
sect.  241,  paragraph  3,  are  undertaken  with  their 
knowledge  and  without  their  interference.  The 
rules  of  sect.  241,  paragraph  4,  apply  to  the 
enforcement  of  claims  in  respect  of  such  liability. 

Rights  of  action  arising  under  the  rules  of  para- 
graphs 1 — 3  of  this  section'  become  barred  in  five 
years. 

250.  The  shareholders'  rights  in  relation  to  the 
affairs  of  the  company,  and  more  particularly  to  the 
method  of    carrying  on   business,  are  exercised  by 
means  of  resolutions  at  general  meetings. 

251.  For  the  passing  of  resolutions  at  a  general 

(z)  See  sect.  269,  para.  1. 


112  GERMAN  COMMERCIAL  CODE. 

meeting  a  numerical  majority  of  votes  given  (here- 
inafter called  a  "bare  majority")  is  sufficient,  except 
in  cases  where  a  larger  majority  or  other  additional 
conditions  are  rendered  necessary  by  law  or  by  the 
memorandum  of  association. 

With  respect  to  voting  at  the  election  of  officers 
different  conditions  may  be  laid  down  by  the 
memorandum  of  association  (a). 

252.  Every  share  carries  with  it  the  right  to  vote, 
the  value  of  which  when  exercised  is  proportionate 
to  the  amount  of  the  shares  held. 

The  memorandum  of  association  may  provide  for 
the  case  of  more  than  one  share  being  held  by  the 
same  person  by  fixing  a  limit  to  the  amount  of 
shares  in  respect  of  which  the  right  to  vote  may  be 
exercised,  or  by  other  modifications.  If  more  than 
one  class  of  shares  is  issued,  the  memorandum  of 
association  may  attach  a  more  valuable  right  to  one 
class  than  to  another. 

The  right  to  vote  may  be  exercised  by  a  proxy, 
for  the  appointment  of  whom  the  written  form  (b]  is 
necessary  and  sufficient.  The  document  containing 

(a)  In  other  words,  in  the  case  of  resolutions  generally  the  minimum 
majority  required  is  a  "bare  majority."  This  rule  cannot  be  relaxed 
by  the  memorandum  of  association,  though  additional  conditions  may 
be  imposed  by  it. 

With  regard  to  the  election  of  officers,  on  the  other  hand,  the 
memorandum  of  association  may  lay  down  altogether  different  con- 
ditions, e.g.,  may  say  that  a  "  bare  majority"  is  unnecessary,  and  that 
if  the  votes  are  equal  on  either  side  the  election  may  be  decided 
by  lot. 

(6)  I.e.,  it  must  be  in  writing,  and  must  be  signed  by  the  party 
appointing  the  proxy,  or  must  have  a  mark  affixed  by  him  to  it  in  the 
presence  of  a  judicial  officer  or  notary.  See  Schuster,  p.  91. 


SHARE  COMPANIES.  113 

such  appointment  is  to  remain  in  the  custody  of  the 
company. 

Any  person  to  be  released  or  freed  from  an  obli- 
gation by  a  proposed  resolution  may  not  exercise  his 
own  vote,  or  vote  as  proxy  for  another  in  favour  of 
such  resolution.  The  same  rule  applies  to  a  resolu- 
tion as  to  the  conclusion  of  a  transaction  between 
the  company  and  a  shareholder,  or  the  institution 
or  settlement  of  legal  proceedings  between  the  com- 
pany and  a  shareholder  (c). 

Save  as  aforesaid  the  conditions  as  to  the  right  to 
vote  and  the  method  in  which  it  is  to  be  exercised 
are  regulated  by  the  memorandum  of  association. 

253.  The  power  of  summoning  a  general  meeting 
rests  with  the  directors,  in  so  far  as  it  is  not  con- 
ferred  upon   other   persons   by  law  or  the  memo- 
randum of  association. 

A  general  meeting  must  be  summoned  upon  all 
occasions  when  the  interests  of  the  company  demand 
it  in  addition  to  those  expressly  specified  by  law  or 
by  the  memorandum  of  association. 

254.  A   general  meeting    must   be   called    if    a 
demand  in  writing  is  made  therefor  by  shareholders, 
the  aggregate  value  of  whose  shares  amounts  to  a 
twentieth  part  of  the  capital  of  the  company ;  such 
written  demand  must  state  the  purpose  for  which 
and  the  ground  upon  which  such  meeting  is  to  be 
called.     If  in  the  memorandum  of  association  there 

(c)  I.e.,  the  shareholder  in  question  may  not  vote  when  such  reso- 
lution is  put  to  the  general  meeting. 


s. 


114  GERMAN  COMMERCIAL  CODE. 

is  a  provision  fixing  the  amount  of  shares  which  will 
entitle  shareholders  to  demand  a  general  meeting  at 
a  smaller  fraction  of  the  capital,  such  provision  is 
here  applicable. 

In  a  similar  way  the  shareholders  have  the  right 
to  demand  that  particular  matters  should  be  placed 
on  the  agenda  for  a  general  meeting. 

If  the  demand  for  the  summoning  of  a  general 
meeting  is  not  complied  with  either  by  the  direc- 
torate or  by  the  board  of  supervision,  the  Court  of 
the  district  in  which  the  company's  principal  place 
of  business  is  situated  may  authorise  the  share- 
holders by  whom  the  demand  was  made  to  summon 
a  general  meeting  or  to  place  the  particular  matters 
on  the  agenda  for  a  general  meeting.  The  Court 
may  at  the  same  time  determine  how  the  chair  is  to 
be  taken  at  the  meetings.  The  authority  of  the 
Court  must  be  mentioned  in  the  form  of  notice 
used. 

Whether  the  costs  of  the  proceedings  above 
referred  to  are  to  be  borne  by  the  company  or  not 
is  a  question  to  be  decided  by  resolution  at  the 
general  meeting  summoned. 

255.  A  general  meeting  must  be  summoned  in 
the  method  prescribed  in  the  memorandum  of  asso- 
ciation at  least  two  weeks  before  the  date  fixed  for 
such  meeting,  exclusive  of  the  day  upon  which  the 
notice  of  summons  was  given  and  the  day  of  the 
meeting. 

If  by  a  provision  of  the  memorandum  of  associa- 
tion the  right  to  vote  cannot  be  exercised  unless  the 


SHARE  COMPANIES.  115 

voters'  shares  have  been  deposited  (W)  for  a  given 
time  before  the  general  meeting,  notice  of  such 
general  meeting  must  be  given  in  time  to  allow  at 
least  two  clear  weeks  for  the  effecting  of  the 
deposit.  Deposit  with  a  notary  is  sufficient  for 
the  purpose. 

If  the  memorandum  of  association  contains  no 
provision  such  as  that  referred  to  in  paragraph  2  of 
this  section,  applications  to  take  part  in  the  general 
meeting  must  be  granted  if  sent  in  not  later  than 
on  the  third  day  before  the  general  meeting  (e). 

256.  The  purpose  for  which  a  general  meeting 
is  to  be  called  must  be  stated  on  the  notice  sum- 
moning it.  A  copy  of  the  proposals  to  be  laid 
before  such  meeting  must  be  given  to  every  share- 
holder who  applies  for  it. 

Resolutions  may  not  be  passed  relating  to  matters, 
of  the  proposal  to  deal  with  which  due  notice  has 
not  been  given  in  the  proper  manner  at  least  one 
week  before  the  day  of  the  meeting.  If  the  pro- 
posed resolutions  require  by  law  or  by  the  rules  of 
the  memorandum  of  association  more  than  a  bare 
majority  in  order  to  be  passed,  notice  of  them  must 
be  given  at  least  two  weeks  before  the  day  of  the 
general  meeting.  In  cases  where  the  right  to  vote 

(d)  As  to  the  word  "  hinterlegung,"  here  translated  deposited,  see 
Schuster,  p.  178. 

(e]  I.e.,  if  no  deposit  of  shares  is  required,  any  shareholder  may  take 
part  in  a  general  meeting  who  sends  in  an  application  to  do  so  on  the 
third  day  before  the  general  meeting. 


116  GERMAN  COMMERCIAL  CODE. 

cannot  be  exercised  without  a  previous  deposit 
of  shares,  the  above-mentioned  periods  of  notice 
are  to  run  as  up  to  the  date  by  which  the  deposits 
have  to  be  made  instead  of  the  date  of  the  general 
meeting. 

No  notice  is  required  for  passing  a  resolution  put 
at  a  general  meeting  to  summon  an  extraordinary 
general  meeting  or  as  regards  particular  pro- 
posals (ee)j  or  for  the  mere  discussion  of  matters 
in  respect  of  which  no  resolutions  are  to  be  passed. 

257.  Every   shareholder   who    deposits    a   share 
with  the  company  has  the  right  to   demand  that 
special  notice  of  a  general  meeting  and  its  objects 
should  be  sent  to  him  by  registered  letter  as  soon 
as  public  notice  is  given  thereof.     He  is  entitled  to 
receive  notice  in  the  same  manner  as  to  resolutions 
passed  at  a  general  meeting. 

258.  At  the  general  meeting  a  list  must  be  made 
of  the  shareholders  present  or  their  proxies,  giving 
their  names  and  addresses  and  the  amount  of  shares 
by  right   of   which    they   have  power  to  vote(/). 
Such  list  must  be  open  for  general  inspection  before 
the  commencement  of  voting ;  it  must  be  signed  by 
the  chairman  of  the  meeting. 

259.  Every  resolution  of  a  general  meeting  must, 
in  order  to  be  valid,  be  authenticated  by  a  minute 
taken  by  a  judicial  officer  or  notary  and  recording 

(ee)  I.e.,  proposals  relating  to  the  subject-matter  of  which  notice 
has  been  given. 

(/)  Literally,  "  the  amount  of  shares  which  they  represent." 


SHARE  COMPANIES. 

the  proceedings  by  which  such  resolution  was 
passed. 

The  minute  must  state  the  place  and  date  of  the 
proceedings,  the  name  of  the  judicial  officer  or 
notary,  and  the  method  of  passing  and  result  of 
the  resolutions. 

The  list  of  persons  present  at  the  general  meeting 
made  in  accordance  with  sect.  258  must  be  annexed 
to  the  minute,  as  must  the  documents  proving  that 
the  general  meeting  was  properly  summoned,  unless 
such  documents  are  specified  in  the  minutes  with  an 
indication  of  their  contents. 

The  minutes  must  be  executed  by  the  judicial 
officer  or  notary,  the  execution  need  not  be 
witnessed. 

A  publicly  authenticated,  (g)  copy  of  the  minutes 
must  be  furnished  by  the  directors  for  entry  in  the 
Mercantile  Register  immediately  after  the  general 
meeting. 

260.  The  approval  of  the  year's  balance  sheet, 
the  division  of  profits,  and  the  release  of  the  directo- 
rate and  board  of  supervision  are  subjects  for  general 
resolutions  at  a  general  meeting. 

The  directorate  must,  within  the  first  three  months 
of  each  business  year,  present  to  the  board  of  super- 
vision a  balance  sheet  and  a  profit  and  loss  account 
for  the  last  year,  and  a  report  showing  the  state  of 
the  assets  and  affairs  of  the  company,  and  must  then 
lay  these  documents  before  a  general  meeting, 

( </)  See  ante,  note  to  sect.  12. 


118  GERMAN  COMMERCIAL  CODE. 

together  with  the  comments  of  the  board  of  super- 
vision. The  time  within  which  this  duty  must  be 
performed  may  be  varied  by  the  memorandum  of 
association,  but  may  in  no  case  exceed  six  months. 

261.  As  regards  the  preparation  of  the  balance 
sheet,  the  provisions  of  sect.  40  apply,  subject  to  the 
due  observance  of  the  following  rules : — 

(1)  Negotiable  instruments  and  merchandise  that 

have  an  exchange,  or  market  quotation, 
may  not  be  valued  higher  than  at  the  price 
at  which  they  were  quoted  at  the  time  in 
respect  of  which  the  balance  sheet  was 
prepared,  or  if  such  price  exceeds  the  price 
for  which  they  were  acquired  or  produced, 
then  not  higher  than  at  the  last-mentioned 
price : 

(2)  The  highest  value  to  be  put  upon  other  pro- 

perty is  the  purchase  price  or  cost  of 
production  : 

(3)  Plant  and  other   property  intended   not  for 

re-sale,  but  to  be  permanently  employed  in 
the  business,  may  be  valued  at  its  purchase 
price  or  cost  of  production  without  regard 
to  the  fact  that  its  intrinsic  value  may  be 
smaller,  provided  that  a  sufficient  sum  is 
written  off  to  cover  wear  and  tear,  or  a 
sum  corresponding  in  amount  thereto  has 
been  placed  to  the  credit  of  a  renovation 
fund : 

(4)  The   costs   of   formation   and  administration 


SHARE  COMPANIES. 

must  not  be  set  down  as  assets  on  the 
balance  sheet : 

(5)  The    amount   of    the    capital    and   of    every 

reserve  fund  or  renovation  fund  must  be 
set  down  among  the  liabilities  : 

(6)  The    profit    and    loss    appearing    upon    the 

balancing  of  the  collective  assets  and 
liabilities  must  be  expressly  stated  at  the 
foot  of  the  balance  sheet. 

262.  A  reserve  fund  must  be  created  to  cover  any 
loss  which  may  appear  upon  the  balance  sheet,  To 
the  credit  thereof  must  be  placed — 

(1)  At  least  one-twentieth  part  of  the  net  profits 

for  each  year  so  long  as  the  reserve  fund 
does  not  exceed  one-tenth  part  of  the 
capital  of  the  company  or  such  higher 
proportion  thereof  as  may  be  stipulated  in 
the  memorandum  of  association  : 

(2)  The  sum   resulting  from   premiums  payable 

upon  the  issue  of  shares  at  a  premium 
either  upon  the  formation  of  the  company 
or  the  increase  of  its  capital  after  the 
deduction  of  the  costs  of  the  issue : 

(3)  The  .sum  resulting  from  payments  made  by 

members  without  any  increase  in  the 
capital  of  the  company  for  the  acquisition 
of  preferential  rights  in  respect  of  their 
shares,  unless  such  sum  is  already  appro- 
priated to  meet  any  extraordinary  amounts 


120  GERMAN  COMMERCIAL  CODE. 

to  be  written  off  or  extraordinary  losses  to 
be  covered. 

263.  The  documents  specified  in  sect.  260,  para- 
graph 2,  must  remain  on  view  in  the  offices  of  the 
company   for   the    inspection    of    the   shareholders 
during  the  last  two  weeks  at  least  before  the  day  of 
the  general  meeting. 

Every  shareholder  must,  upon  application,  be 
supplied  with  a  copy  of  the  balance  sheet,  the  profit 
and  loss  account,  and  the  comments  of  the  board  of 
supervision  thereon  at  least  two  weeks  before  the 
date  of  the  general  meeting. 

If  the  right  to  vote  cannot  be  exercised  without 
the  deposit  of  shares,  then  the  latest  day  upon 
which  such  deposit  can  be  made  must  be  substituted 
for  the  day  of  the  general  meeting. 

264.  Proceedings  as  to  the  passing  of  the  balance 
sheet  must  be  adjourned  if  at  the  general  meeting 
a   resolution    to   that   effect   is   passed    by   a   bare 
majority  or  by  a  minority,  the  aggregate  amount 
of  whose  shares  represents  at  least  one-tenth  part  of 
the  capital,  but  in  the  latter  case  only  if  they  bring 
forward  some  complaint  as  to  definite  items  in  the 
balance  sheet. 

If  the  proceedings  have  been  adjourned  on  the 
demand  of  such  a  minority  a  fresh  adjournment  can 
only  be  obtained  if  no  proper  explanation  has  been 
given  in  respect  of  the  items  complained  of. 

265.  After  the  balance  sheet  and  profit  and  loss 
account  have  been  passed  by  a  general  meeting  they 


SHARE  COMPANIES.  121 

must  be  immediately  published  by  the  directorate 
by  a  notice  inserted  in  the  Company  Journals. 

Such  notice,  together  with  the  report  referred  to 
in  sect.  260  and  the  comments  of  the  board  of 
supervision  thereon,  must  be  tiled  with  the  Court 
in  charge  of  the  Mercantile  Register.  This  does 
not  apply  to  the  Mercantile  Register  in  which  a 
branch  establishment  is  registered. 

266.  A  "  bare  majority  "  (h)  at  a  general  meeting 
suffices  for  the  appointment  of  auditors  for  the 
investigation  of  the  balance  sheet,  or  the  investiga- 
tion of  the  circumstances  of  the  promotion,  or  the 
conduct  of  the  business. 

If  at  a  general  meeting  a  proposal  for  the 
appointment  of  auditors  to  investigate  an  occur- 
rence connected  with  the  promotion  or  one  con- 
nected with  the  conduct  of  the  business  which 
took  place  less  than  two  years  before  the  meeting 
is  rejected,  such  auditors  may  be  appointed  by 
the  Court  of  the  district  in  which  the  company's 
principal  place  of  business  is  situated  upon  the 
application  of  shareholders,  the  aggregate  amount 
of  whose  shares  represents  at  least  a  tenth  part  of 
the  capital  of  the  company. 

Such  application  may  only  be  granted  if  primd 
facie  evidence  is  given  that  the  occurrence  in  question 
was  accompanied  by  dishonest  practices,  or  by 
serious  breaches  of  the  law  or  of  the  rules  laid 
down  by  the  memorandum  of  association.  The 

(A)  See  ante,  sect.  251. 


122  GERMAN  COMMERCIAL  CODE. 

applicants  must,  pending  a  decision  as  to  the  appli- 
cation, deposit  their  shares  and  furnish  primd  facie 
evidence  that  they  have  been  the  owners  thereof 
for  at  least  six  months  before  the  general  meeting. 

Before  the  appointment  of  the  auditors  a  hearing 
must  be  granted  to  the  directorate  and  board  of 
supervision.  The  appointment  may,  if  desired,  be 
made  conditional  upon  a  payment  being  made  as 
security  for  costs,  the  amount  of  which  is  to  be  in 
the  discretion  of  the  Court. 

267.  In  the  case  specified  in  sect.  266  the  direc- 
torate must  allow  the  auditors  to  inspect  the  books 
and  papers  of  the  company,  and  investigate  the 
state  of  the  cash,  negotiable  instruments,  and  mer- 
chandise held  by  the  company. 

The  report  on  the  result  of  such  investigations 
must  be  filed  without  delay  with  the  Court  in 
charge  of  the  Mercantile  Register,  and  the  con- 
sideration of  such  report  must  be  placed  by  the 
directorate  on  the  agenda  to  be  notified  for  the 
next  general  meeting.  The  report  need  not  be 
filed  with  the  Court  in  charge  of  the  Mercantile 
Register  in  which  a  branch  establishment  is 
registered. 

In  the  case  specified  in  sect.  265  it  is  for  a 
general  meeting  to  decide  whether  the  resulting 
costs  are  to  be  borne  by  the  company  or  not. 
If  the  Court  refuses  to  grant  the  application  for 
the  appointment  of  auditors,  or  if  the  results  of  the 
investigation  show  that  there  were  no  grounds  for 


SHARE  COMPANIES.  123 

the  making  of  such  application,  any  shareholders 
who  have  been  guilty  of  reckless  conduct  (i)  are 
jointly  and  severally  liable  to  the  company  for  any 
damage  resulting  to  the  company  in  consequence  of 
such  application. 

268.  The  company's  rights  of  action  arising  out 
of  the  promotion  against  the  persons  rendered  liable 
by  sects.  202 — 204  and  208,  or  arising  out  of  the 
conduct  of  the  business  against  the  members  of  the 
directorate  and  board  of  supervision  must  be  enforced 
if  a  resolution  in  favour  of  such  enforcement  is 
passed  at  a  general  meeting  by  a  bare  majority  (ii), 
or  if  such  enforcement  is  demanded  by  a  minority, 
the  aggregate  amount  of  whose  shares  is  not 
less  than  a  tenth  part  of  the  capital  of  the 
company. 

Special  representatives  may  be  elected  at  a 
general  meeting  for  the  purpose  of  conducting 
the  legal  proceedings  on  behalf  of  the  company. 
If  the  proceedings  are  to  be  taken  upon  the 
demand  of  a  minority,  persons  designated  by  such 
minority  may  be  appointed  as  its  representatives 
for  the  purpose  of  such  proceedings  by  the  Court  of 
the  district  in  which  the  company's  principal  place 
of  business  is  situated.  If  no  special  representatives 
are  appointed  the  provisions  of  sect.  247  apply  even 
when  the  proceedings  are  to  be  instituted  upon  the 
demand  of  a  minority. 

(t)  I.e.,  in  unnecessarily  causing  the  application  for  the  appointment 
of  the  auditors. 

(ii)  See  ante,  sect.  251. 


124  GERMAN  COMMERCIAL  CODE. 

269.  The  institution  of  proceedings  upon  the 
demand  of  a  minority  must  take  place  within  three 
months  from  the  date  of  the  general  meeting  at 
which  the  demand  therefor  was  made.  To  the 
writ  (k)  must  be  annexed  a  publicly  authenticated  {/) 
copy  of  the  minutes  of  such  general  meeting  in  so 
far  as  they  concern  the  proceedings  in  question. 

The  minority  must,  till  the  termination  of  such 
proceedings,  deposit  shares,  the  aggregate  value  of 
which  amounts  to  one-tenth  part  of  the  capital  of 
the  company,  and  primd  facie  evidence  must  be  given 
that  such  shares  have  been  the  property  of  the 
shareholders  composing  such  minority  for  at  least 
six  months  prior  to  the  general  meeting. 

Upon  the  application  of  the  defendant  the  Court 
must  order  the  minority  to  give  security  for  the 
damage  which  the  defendant  may  incur  by  the 
proceeding  in  such  manner  and  to  such  extent  as 
the  Court  in  its  discretion  may  direct.  The  rules 
of  the  Civil  Procedure  Act  as  to  the  period  of  grace 
allowed  for  the  provision  of  security  and  the  con- 
sequences of  default  apply  also  in  the  above  case. 

The  minority  is  liable  to  the  company  for  any 
costs  of  such  proceedings. 

Any  shareholders  who  have  been  guilty  of  reck- 
less conduct  are  jointly  and  severally  liable  to  the 

(k)  The  word  "  writ"  is  here  used  as  the  nearest  equivalent  to  the 
German  "  klage,"  the  document  by  "which  proceedings  are  instituted, 
but  which  differs  from  English  writs  when  not  specially  indorsed,  in 
that  it  serves  as  a  statement  of  claim  as  well  as  a  writ. 

(I')  See  note  to  sect.  12,  ante. 


SHAKE  COMPANIES.  125 

defendant  for  any  damage  incurred  by  him  owing 
to  groimdlessly  instituted  proceedings. 

270,  In  respect  of  proceedings  instituted  to  enforce 
a  right  of  action  upon  the  demand  of  a  minority  in 
accordance  with  sect.  268,  paragraph  1,  a  waiver  of 
the  claim  or  a  compromise  may  not  be  made  by  the 
company  unless  consented  to  by  such  a  number  of 
the  shareholders  composing  the  minority  that  the 
shares  held  by  the  remaining  members  thereof  no 
longer  represent  one-tenth  part  of  the  capital  of  the 
company. 

271.  The  validity  of    a   resolution    passed   at  a 
general  meeting  may  be  impugned  by  means  of  an 
action  at  law  on  the  ground  of  its  violation  of  the 
law   or   of  the   provisions    of  the  memorandum   of 
association. 

The  action  must  be  commenced  within  one  month 
(after  the  passing  of  the  resolution). 

The  validity  of  a  resolution  may  be  impugned  by 
any  shareholder  who  was  present  at  the  general 
meeting  at  which  it  was  passed,  provided  that  he 
has  caused  a  protest  against  such  resolution  to  be 
recorded  in  the  minutes  of  the  meeting  arid  by  every 
shareholder  who  was  not  present  at  such  meeting,  if 
he  was  unlawfully  prevented  from  being  present 
thereat,  or  if  the  ground  upon  which  he  seeks  to 
impugn  the  validity  of  the  resolution  is  the  improper 
manner  in  which  the  general  meeting  at  which  it 
was  passed  was  summoned,  or  notice  given  as  to  the 
subject-matter  of  such  resolution.  If  the  ground 


126  GERMAN  COMMERCIAL  CODE. 

upon  which  the  validity  of  the  resolution  is  disputed 
is  that  such  resolution  seeks  to  direct  provision  to 
be  made  for  depreciation  or  reserve  funds  to  an 
amount  in  excess  of  that  allowed  by  law  or  by  the 
memorandum  of  association,  proceedings  are  only 
permissible  if  the  shares  held  by  the  shareholder  or 
shareholders  seeking  to  institute  them  amount  to  at 
least  a  twentieth  part  of  the  capital  of  the  company. 
Such  proceedings  for  impugning  a  resolution  may 
also  be  taken  by  the  directorate,  and,  if  the  resolu- 
tion they  are  directed  against  deals  with  a  measure, 
the  introduction  of  which  would  render  the  members 
of  the  directorate  and  board  of  supervision  liable  to 
be  criminally  punished  or  to  pay  damages  to  the 
creditors  of  the  company,  by  each  individual  member 
of  the  directorate  and  the  board  of  supervision. 

272.  Proceedings  must  be  directed  against  the 
company.  The  company  is  represented  in  such 
proceedings  by  the  directorate,  provided  that  it  is 
not  the  directorate  itself  which  is  instituting  them, 
and  by  the  board  of  supervision. 

The  Provincial  Court  of  the  district  in  which  the 
company's  principal  place  of  business  is  situated 
has  exclusive  jurisdiction  in  such  proceedings,  the 
hearing  of  which  is  not  to  take  place  before  the 
expiration  of  the  period  specified  in  sect.  271,  para- 
graph 2.  If  there  are  several  actions  directed 
against  the  validity  of  a  resolution  they  must  be 
consolidated  and  heard  and  decided  simultaneously. 

The  Court  may  direct  the  shareholders  bringing 


SHARE  COMPANIES.  127 

the  action  to  give  the  company  security  for  the 
expense  of  any  damage  that  may  arise  therefrom. 
The  form  and  amount  of  such  security  is  within  the 
discretion  of  the  Court.  The  rules  of  the  Civil 
Procedure  Act  (m)  as  to  the  period  of  grace  allowed 
for  the  provision  of  security  and  the  consequences  of 
default  are  applicable. 

The  institution  of  the  proceedings  and  the  date 
appointed  for  the  hearing  thereof  must  be  imme- 
diately notified  by  the  directorate  in  the  Company 
Journals. 

273.  If  the  resolution  is  declared  by  a  final  judg- 
ment of  the  Court  to  be  null  and  void,  such  judgment 
is  binding  upon  all  shareholders,  whether  it  is  in 
favour  of  them  or  against  them,  and  whether  they 
were  parties  to  the  proceedings  or  not.  The  judg- 
ment must  immediately  be  filed  by  the  direc- 
torate with  the  Court  in  charge  of  the  Mercantile 
Register.  If  the  resolution  was  entered  in  the 
register,  the  judgment  must  also  be  entered ;  the 
entry  of  the  judgment  must  be  publicly  notified  in 
the  same  manner  as  that  of  the  resolution. 

If  a  company  suffers  damage  by  reason  of  ground- 
less proceedings  instituted  to  impugn  the  validity  of 
a  resolution,  any  persons  guilty  of  recklessness  in 
the  institution  of  such  proceedings  are  jointly  and 
severally  liable  to  the  company  in  respect  of  such 
damage. 

(m)  Civil  Procedure  Act,  s.  113.  The  Court  may  require  a  plaintiff 
to  furnish  security  within  a  certain  period.  Should  he  fail  to  do  this 
the  writ  may  be  cancelled  upon  the  application  of  the  defendant. 


128  GERMAN  COMMERCIAL  CODE. 

Head  IV,     Changes  in  the  Memorandum  of  Association. 

274.  A  change  in  the  memorandum  of  association 
can    only  be  effected   by   resolution   of   a   general 
meeting.     The  execution  of  merely  verbal  changes 
may  by  a  resolution  of   the   general    meeting   be 
entrusted  to  the  board  of  supervision. 

In  the  notice  ordered  to  be  sent  out  by  sect.  256, 
paragraphs  1  and  2,  the  essential  character  of  the 
proposed  alteration  in  the  memorandum  of  associa- 
tion must  be  clearly  indicated. 

275.  Unless  otherwise  provided   by  the   memo- 
randum of  association,  resolutions  of  the  description 
specified  in  sect.  274,  paragraph  1,  require  a  majo- 
rity whose  shares  amount  to  at  least  three-fourths  of 
the  aggregate  capital  represented  at  the  voting. 

A  majority  of  these  dimensions  is  in  all  (n)  cases 
necessary  for  the  passing  of  resolutions  seeking  to 
effect  a  change  in  the  object  of  the  undertaking  of 
the  company ;  more  stringent  conditions  may  be 
laid  down  by  the  memorandum  of  association. 

If  a  change  is  to  be  made  in  the  existing 
preferential  relations  between  different  classes  of 
shares  to  the  disadvantage  of  one  class  of  share- 
holders, such  change  requires  to  be  sanctioned  not 
only  by  the  resolution  of  a  general  meeting  but  by 
a  separate  resolution  passed  by  the  shareholders 
disadvantageously  affected,  which  cannot  be  passed 
except  by  a  majority  of  the  dimensions  specified  in 

(«)  I.e.,  even  if  the  memorandum  of  association  seeks  to  provide 
otherwise. 


SHARE  COMPANIES.  129 

paragraph  1  of  this  section.  The  passing  of  the 
resolution  by  the  shareholders  disadvantageous^ 
affected  can  only  take  place  if  notice  thereof  has 
been  expressly  included  in  the  notification  of  the 
agenda  for  the  general  meeting  sent  out  in  accord- 
ance with  sect.  2o6,  paragraph  2. 

276.  A  duty  on   the  part  of  the  shareholders  in 
respect   of  services  of  the  description  specified  in 
sect.  212,  if  not  provided  for  in  the  original  memo- 
randum of  association  can  only  be  created  with  the 
consent  of  all  the  shareholders  who  would  be  affected 
by  such  duty. 

277.  A  change  in  the  memorandum  of  association 
must  be  notified  for  entry  in  the  Mercantile  Register, 
and  such  notification,  where  not  otherwise  herein- 
after provided,  is  to  be  made  by  the  directorate. 

If  the  change  does  not  concern  any  of  the 
subjects  specified  in  sect.  198,  it  will  be  sufficient  if 
the  entry  merely  refers  to  the  documents  concern- 
ing such  change  which  were  handed  in  to  the  Court. 
Public  notice  must  be  given  of  all  changes  relating 
to  the  matters  directed  to  be  notified  by  sects.  199 
and  201. 

The  change  does  not  take  effect  before  it  has  been 
entered  in  the  Mercantile  Register  of  the  district  in 
which  the  company's  principal  place  of  business  is 
situated. 

278  (0).  The  capital  of  a  company  may  not  be 
increased  by  a  fresh  issue  of  shares  before  all  the 

(o)  As  to  this  and  the  following  sections,  see  sect.  305. 
S.  K 


130  GERMAN  COMMERCIAL  CODE. 

capital  hitherto  subscribed  has  been  fully  paid  up. 
In  the  case  of  insurance  companies,  this  rule  may 
be  varied  by  the  memorandum  of  association,  and 
the  increase  of  the  capital  need  not  be  prevented  by 
arrears  outstanding  in  respect  of  a  relatively  unim- 
portant part  of  the  capital  called  up. 

If  several  classes  of  shares  are  in  existence  to 
which  different  preferential  rights  are  attached,  an 
increase  in  capital  in  order  to  be  made  needs  to  be 
sanctioned  not  only  by  the  resolution  of  a  general 
meeting,  but  by  a  separate  resolution  passed  by  each 
individual  class  of  shareholders.  In  respect  of  such 
resolutions  the  rules  of  sect.  275,  paragraph  1,  and 
paragraph  3,  sentence  2,  are  applicable. 

If  the  new  shares  by  which  the  capital  is  to 
be  increased  are  to  be  issued  at  a  premium,  the 
minimum  premium  at  which  they  may  be  issued 
must  be  specified  in  the  resolution  for  the  increase 
of  capital. 

279.  If  any  contribution  to  the  new  capital  is 
either  to  be  paid  otherwise  than  in  cash  or  set  off 
against  the  price  payable  by  the  company  in  respect 
of  any  property  to  be  purchased  by  the  company, 
the  description  of  the  contribution  thus  made  or 
property  acquired,  the  name  of  the  person  making 
such  contribution  or  disposing  of  such  property  to 
the  company,  and  the  amount  of  shares  to  be  given 
in  exchange  for  such  contribution  or  the  purchase 
price  to  be  paid  for  the  property  must  be  incorpo- 
rated in  the  resolution  sanctioning  the  increase  of 
capital. 


SHARE  COMPANIES.  131 

Any  arrangement  of  this  kind  which  is  not 
incorporated  in  such  resolution  in  the  above  specified 
mariner  is  inoperative  as  against  the  company.  The 
rules  of  sects.  207  and  208  remain  unaffected 
hereby. 

280.  A  resolution  respecting  an  increase  of  capital 
must  be  notified  by  all  the  members  of  the  directo- 
rate   and    board   of    supervision    for   entry   in   the 
Mercantile  Register. 

Such  notification  must  contain  an  assurance  that 
all  the  original  capital  has  been  paid  up,  or  if  not, 
that  only  the  amounts  specified  in  the  notification 
remain  outstanding. 

281.  The  subscription  to  the  new  shares  is  effected 
by  application.      Each  application  must   be  made 
out   in    duplicate.       Upon    the    applications    must 
appear,  besides  the  matters  specified  in  sect.  189  : — 

(1)  The  date  of   the   resolution   authorising  the 

increase  of  capital. 

(2)  The  amount  of  the  issue  of  shares  to  be  made, 

and  of  the  fixed  payments  to  be  made  in 
respect  thereof. 

(8)  Any  arrangements  of  the  description  specified 
in  sect.  279,  or  if  several  classes  of  shares 
with  different  rights  attached  thereto  are 
being  issued,  the  total  amount  of  each 
class  issued. 

(4)  The  date  at  which  the  subscription  will  cease 
to  be  binding  upon  the  subscriber,  if  the 
increase  of  the  capital  has  not  yet  been 


132  GERMAN  COMMERCIAL  CODE. 

effected    and    entered   in   the    Mercantile 
Register. 

The  rules  of  sect.  189,  paragraphs  4  and  5,  are 
applicable  mutatis  mutandis,  the  registration  of  the 
increase  of  capital  in  the  Mercantile  Register  being 
for  the  purposes  of  the  present  section  substituted 
for  the  registration  of  the  company. 

282.  Where  not  otherwise  provided  by  the  reso- 
lution   sanctioning   the   increase   of    capital,   every 
shareholder  has  a  right  to  claim  to  have  allotted  to 
him  an  amount  of  the  newly  issued  shares  propor- 
tionate   to  his  holding  in   the   previously   existing 
capital. 

The  price  at  which  the  new  shares  are  issued 
to  the  shareholders  must  be  publicly  notified  by 
the  directorate  in  the  Company  Journals.  Such 
notification  may  state  a  limited  period  for  the  exer- 
cise of  the  above-mentioned  rights,  provided  that 
such  period  is  not  less  than  a  fortnight. 

283.  Any    agreement   conferring    rights    to    the 
allotment  of  new  shares  about  to  be  issued  takes 
effect   subject   to   the   rights    of    the    shareholders 
specified  in  sect.  282. 

Any  such  agreement  made  before  the  passing  of 
the  resolution  for  an  increase  of  capital  is  inopera- 
tive as  against  the  company. 

284.  The  increase  of  capital  must  upon  completion 
be  notified  for  entry  in  the  Mercantile  Register  by 
the  members  of  the  directorate  and  the  board  of 
supervision  collectively. 


SHARE  COMPANIES.  133 

There  must  be  annexed  to  the  notification  :  — 

(1)  The  duplicates  of  the  applications  and  a 

list  of  the  subscribers  signed  by  the 
directors,  specifying  the  shares  allotted 
to  each  and  the  payments  made  in 
respect  thereof. 

(2)  In  the  case  referred   to  in  sect.  279,  the 

contracts  upon  which  the  arrangements 
of  the  description  therein  specified  are 
based  or  the  contracts  which  were  con- 
cluded in  order  to  enable  them  to  be 
carried  out. 

(3)  An  account  of  the  expense  incurred  by  the 

company  in  respect  of  the  issue  of  new 
shares. 

(4)  If    the    increase    of    capital    requires   the 

consent  of  the  State  by  reason  of  the 
nature  of  the  undertaking,  or  if  consent 
is  required  in  accordance  with  sect.  182, 
paragraph  2,  the  document  confirming 
such  consent. 

The  rules  of  sect.  195,  paragraph  2,  apply. 

The  documents  annexed  to  the  notification  are  to 
be  retained  by  the  Court  in  the  original  or  in  duly 
attested  copies. 

The  public  notification  announcing  the  entry  in 
the  Mercantile  Register  must  state  the  price  at  which 
the  shares  are  issued. 

285.  The  notification  and  entry  as  to  the  accom- 
plishment of  the  increase  of  capital  can  be  combined 


134  GERMAN  COMMERCIAL  CODE. 

with  the  notification  and  entry  as  to  the  resolution 
authorising  it. 

286.  The  notifications  specified  in  sects.  280  arid 
284  must  be  made  by  the  directorate  to  the  Court, 
of  the  district  in  which  the  company  has  a  branch 
establishment  for  purposes  of  entry  in  the  Mercantile 
Register    of    such    district.      The    rule    stated    in 
sect.  284,  paragraph   5,  applies  to  the  making  of 
such  notification,  but  not  the  rules  of   sect.   280, 
paragraph  2.  and  sect.  284,  paragraphs  2 — 4. 

287.  Shares  and  provisional  certificates  in  respect 
of  the  new  capital  cannot  be  issued  before  the  com- 
pletion of  the  increase  of  capital  has  been  entered 
in  the  Mercantile  Register. 

Any  purported  transfer  of  an  interest  in  such 
new  capital  is  inoperative  as  against  the  company 
until  such  entry  has  been  effected. 

288.  A  reduction  in  the  capital  of  a  company  can 
be  sanctioned  only  by  the  resolution  of  a  majority 
whose  shares  amount  to  at  least  three-fourths  of  the 
capital   represented    at   the    voting    in   respect    of 
such  resolution.     More  stringent  conditions  may  be 
rendered  necessary  for  the  passing  of  such  a  resolu- 
tion by  the  memorandum  of  association. 

The  resolution  must  be  worded  so  as  to  state  the 
object  of  the  proposed  reduction  of  capital,  mention- 
ing in  particular  if  it  is  in  partial  repayment  of 
capital  to  the  shareholders  and  the  method  in  which 
the  measure  is  to  be  carried  out. 

If  several   classes  of  shares  are  in  existence  with 


SHARE  COMPANIES.  135 

different  preferential  rights  attached  thereto,  besides 
the  resolution  of  the  general  meeting,  a  special 
resolution  passed  separately  by  each  class  of  share- 
holders, is  necessary.  The  rules  of  paragraph  I  of 
this  section  and  of  sect.  278,  paragraph  3,  sentence  2, 
apply  to  the  passing  of  these  resolutions. 

289.  A  resolution  as  to  the  reduction  of  the 
capital  of  a  company  must  be  notified  by  all  the 
directors  for  entry  in  the  Mercantile  Register. 

Following  upon  such  resolution  and  after  the 
entry  thereof,  the  directors  must  request  the 
company's  creditors  to  send  in  their  claims. 
Such  request  must  be  made  publicly  three  times 
by  means  of  a  notice  inserted  in  the  Company 
Journals,  and  privately  by  special  notice  to  the 
creditors  known  to  the  directors. 

The  claims  of  creditors  which  accrued  before  the 
last  appearance  of  the  above-mentioned  notices  in 
the  Company  Journals,  must  be  satisfied  or  security 
must  be  given  in  respect  thereof,  if  due  application 
has  been  made  therefor. 

Payments  to  the  shareholders  upon  the  ground  of 
the  reduction  of  capital  may  not  be  made  before 
the  expiration  of  one  year  from  the  date  of  the  third 
appearance  of  the  public  notices  referred  to  in 
paragraph  2,  and  the  satisfaction  of  the  claims  of 
all  the  creditors  who  have  presented  themselves 
either  by  payment  or  by  the  giving  of  security. 
Any  release  of  the  shareholders  from  the  liability 
to  make  payments  in  respect  of  the  shares  based  on 
the  diminution  of  capital  does  not  take  effect  until 


GERMAN  COMMERCIAL  CODE. 

such  period  has  expired  and  such  claims  have  been 
satisfied. 

290.  If  a  reduction  of  capital  is  to  be  effected  by 
a  diminution  of  the  number  of  the  shares  by 
exchange,  stamping,  or  any  similar  method,  the 
company  may  declare  any  shares  null  and  void 
which  have  not  been  handed  in  to  them  in  spite  of 
notice  duly  made  requiring  them  to  be  handed  in. 
The  same  rule  applies  in  respect  of  shares  which 
have  been  handed  in,  but  not  in  a  number  sufficient 
to  entitle  the  owner  to  receive  new  shares  in 
exchange,  and  which  are  not  placed  at  the  com- 
pany's disposal  for  realisation  for  the  account  of  the 
owner. 

The  notice  requiring  shares  to  be  handed  in  must 
state  that  in  the  event  specified  above  the  shares 
will  be  declared  null  and  void.  Such  declaration 
can  only  take  place  if  the  notice  has  been  published 
in  the  manner  prescribed  by  sect.  '219,  paragraph  2  ; 
it  must  be  effected  by  means  of  advertisements 
inserted  in  the  Company  Journals. 

The  new  shares  to  be  issued  in  the  place  of  those 
declared  null  and  void  must  be  sold  by  the  company 
for  the  account  of  the  owner  at  the  price  quoted  on 
the  Stock  Exchange,  or  in  default  of  any  such  price, 
by  public  auction.  The  money  obtained  must  be 
paid  out  to  the  owners,  or,  if  the  company  has  a 
right  to  have  it  deposited,  deposited  ( p). 

(  p]  E.g. ,  if  they  belong  to  an  infant  or  any  person  who  cannot  give 
a  proper  discharge,  or  if  the  title  to  them  is  in  dispute.  (See  Schuster, 
p.  178.) 


SHARE  COMPANIES.  137 

291.  The  reduction  of  capital  when  completed 
must  be  notified  for  entry  in  the  Mercantile  Register 
by  all  the  directors. 


Head  V.      The  Dissolution  and  Annulment  of  a 
Company. 

292.  A  share  company  is  dissolved — 

(1)  By  expiration  of  the  period  specified  in  the 

memorandum  of  association  for  the  dura- 
tion of  the  company. 

(2)  By  the  resolution   of  a  general  meeting ; 

such  resolution  must  be  supported  by  a 
majority  representing  at  least  three- 
fourths  of  the  capital  held  by  the  share- 
holders voting  in  respect  thereof.  More 
stringent  conditions  for  the  passing  of 
such  resolution  may  be  laid  down  by 
the  memorandum  of  association. 

(3)  By  the  bankruptcy  of  the  company. 

The  rules  laid  down  under  the  present  Head  (V.) 
apply  also  upon  the  dissolution  of  the  company  on 
any  other  grounds  (q). 

293.  The  dissolution  of  the  company,  except  when 
brought  about  by  bankruptcy,  must  be  notified  by 
the  directors  for  entry  in  the  Mercantile  Register. 

294.  After  the  company  has  been  dissolved  the 

(3)  This   section  does  not   state  the    grounds   of    dissolution   ex- 
haustively.    (See  sect.  303.) 


138  GERMAN  COMMERCIAL  CODE. 

liquidation    takes    place,    unless    the    company    has 
been  adjudicated  bankrupt. 

Until  the  termination  of  the  liquidation  the  rules 
laid  down  under  the  foregoing  Heads  continue  to 
apply,  except  when  the  contrary  is  rendered  neces- 
sary by  the  rules  under  the  present  Head  (V.),  or  by 
the  object  of  the  liquidation. 

295.  In    the    liquidation    the    directors    act  as 
liquidators,  unless  other  persons  are  nominated  to 
fill  this  office  by  the  memorandum  of  association  or 
the  resolution  of  a  general  meeting. 

Upon  the  application  of  the  board  of  supervision 
or  of  a  number  of  shareholders  whose  aggregate 
contributions  to  capital  amount  to  at  least  the 
twentieth  part  of  the  capital  of  the  company,  the 
appointment  of  liquidators  may  upon  cogent  grounds 
be  made  by  the  Court  of  the  district  in  which  the 
company's  principal  place  of  business  is  situated. 
The  shareholders  making  such  application  must 
furnish  primd  facie  evidence  that  they  have  held 
their  shares  for  at  least  six  months  prior  to  the 
making  of  the  application. 

The  Court  may  deprive  liquidators  of  their  office 
under  the  same  conditions  as  it  may  appoint  them. 
Liquidators  not  appointed  by  the  Court  may  be 
deprived  of  their  office  by  a  general  meeting  before 
the  expiration  of  the  period  for  which  they  were 
appointed. 

296.  The  names  of  the  first  liquidators  must  be 
notified  by  the  directors  for  entry  in  the  Mercantile 


SHARE  COMPANIES.  139 

Register,  any  change  in  the  composition  of  their 
own  numbers  must  be  notified  by  the  liquidators 
themselves.  If  upon  the  appointment  of  the  liqui- 
dators any  provision  is  made  as  to  their  powers 
of  agency,  such  provision  must  also  be  notified 
for  entiy. 

Annexed  to  the  notification  must  be  a  publicly 
authenticated  (r)  copy  of  the  documents  dealing 
with  their  appointment  or  the  change  notified ; 
this  rule  does  not  apply  to  the  notification  to  be 
made  to  the  Court  in  charge  of  the  Mercantile 
Register  in  which  a  branch  establishment  is  regis- 
tered. 

The  entry  of  the  appointment  or  removal  from 
office  of  liquidators  by  the  Court  is  effected  by  the 
Court  motu  proprio. 

The  liquidators  must  provide  the  Court  with  a 
specimen  signature  of  the  company's  trade-name 
together  with  their  own,  for  its  retention. 

297.  The  liquidators  must,  in  view  of  the  disso- 
lution of  the  company,  call  upon  the  creditors  to 
send  in  their  claims  by  means  of  a  notice  referring 
to  the  dissolution,   which   must    be   inserted   three 
times  in  the  Company  Journals. 

298.  The  nature  and  extent  of  the  liquidators' 
functions  and  the  form  in  which  they  must  sign  the 
trade-name  are  regulated  by  the  rules  of  sects.  149, 
151,  153. 

In  all  other  respects  they  must  exercise  the  rights 

(r}  See  note  to  sect.  12. 


140  GERMAN  COMMERCIAL  CODE. 

and  duties  of  directors  and  are  under  the  control  of 
the  board  of  supervision  in  the  same  manner  as 
directors. 

With  respect  to  the  co-operation  of  all  the  liqui- 
dators in  declarations  to  be  made  on  behalf  of 
the  company,  the  rule  of  sect.  232,  paragraph  1, 
sentence  1,  applies  unless  a  contrary  provision  in 
respect  of  liquidators  was  contained  in  the  memo- 
randum of  association  or  made  upon  their  appoint- 
ment. 

Powers  of  procuration  may  not  be  conferred  by 
liquidators.  The  rules  of  sect.  286  do  not  apply. 

299.  The    liquidators    must    draw  up  a  balance 
sheet  for  the  commencement  of  the  liquidation  and 
from    that   time    on    for   the    close    of    every   year 

•/         •/ 

during  which  the  liquidation  continues  :  the  rules 
as  to  what  constitutes  the  business  year  of  the 
company  previously  observed  may  be  retained. 

The  rules  of  sects.  260  and  263—267  apply  with 
the  exception  of  those  dealing  with  the  division  of 
profits  and  those  of  sects.  261  and  262. 

300.  The  assets  of  the  company  remaining  after 
the  payment  of  its  liabilities   shall  be  distributed 
among  the  shareholders. 

The  distribution  is  made  in  proportion  to  the 
amount  of  shares  held,  unless  several  classes  of 
shares  with  different  rights  attached  thereto  are  in 
existence. 

If  the  amount  payable  on  the  shares  has  not  in 
all  cases  been  paid  up  to  the  same  extent,  the 


SHARE  COMPANIES.  141 

money  actually  paid  must  first  be  returned  and 
any  surplus  divided  in  proportion  to  the  nominal 
amounts  of  the  shares  held.  If  the  assets  are  not 
sufficient  to  allow  the  repayment  of  all  the  money 
paid  up,  the  loss  must  fall  upon  the  shareholders  in 
proportion  to  the  amount  of  the  shares  which  they 
hold  ;  any  amounts  payable  on  shares  and  still  out- 
standing must  be  got  in,  so  far  as  it  may  be 
necessary  for  the  purposes  of  this  section. 

301.  The  distribution  of  the  assets  may  not  take 
place  until  the  expiration  of  a  period  of  one  year 
from  the  date  of  the  third  publication  of  the  notice 
prescribed  in  sect.  297  calling  upon  the  creditors  to 
send  in  their  claims. 

If  no  claim  is  sent  in  by  a  creditor  who  is  known 
to  the  liquidators,  the  amount  owing  to  him  must 
be  deposited  with  a  public  authority,  if  there  is  a 
right  to  make  such  deposit  (s). 

If  a  liability  on  the  part  of  the  company  cannot 
be  immediately  performed  or  is  disputed,  the  assets 
may  not  be  divided  until  security  has  been  given  to 
the  creditor  in  respect  of  such  liability. 

302.  When  the  liquidation  is  terminated  and  the 
final  account  submitted,  the  liquidators  must  notify 
the  extinction  of  the  company's  trade-name  for  entry 
in  the  Mercantile  Register. 

The  company's  books  and  papers  are  to  be 
deposited  for  ten  years  for  safe-keeping  in  some 
place  of  security  to  be  named  by  the  Court  of  the 

(s)  See  supra,  p.  136,  and  Schuster,  p.  178. 


142  GERMAN  COMMERCFAL  CODE. 

district  in  which  the  company's  principal  place  of 
business  is  situated. 

Shareholders  and  creditors  of  the  company  may 
obtain  authority  from  the  Court  to  inspect  such 
books  and  papers. 

If,  subsequently  to  the  division  of  the  company's 
assets,  further  assets  in  addition  are  discovered,  the 
Court  of  the  district  in  which  the  company's 
principal  place  of  business  is  situated  must  upon 
the  application  of  an  interested  party  re-appoint 
the  old  liquidators  or  appoint  fresh  ones. 

303.  A  realization  of  the  assets  of  a  company  by 
a  general  sale  of  its  entire  property  is  only  per- 
missible if  authorised  by  a  resolution  of  a  general 
meeting.  Such  resolution  must  be  supported  by  a 
majority  representing  at  least  three-fourths  of  the 
aggregate  amount  of  capital  held  by  the  share- 
holders voting ;  more  stringent  conditions  requisite 
for  the  passing  of  such  resolution  may  be  laid  down 
by  the  memorandum  of  association. 

The  effect  of  such  resolution  is  to  dissolve  the 
company  if  not  already  dissolved. 

The  rules  of  sects.  294 — 302  apply  in  such  case 
with  the  reservation  that  in  this  case  the  liquidators 
have  authority  to  enter  upon  all  such  transactions 
and  to  perform  all  such  acts  in  the  law  as  are 
necessary  in  order  to  put  the  resolution  into  force. 
The  delivery  up  of  the  assets  to  the  purchaser 
may  not  take  place  unless  the  conditions  laid  down 
by  sects.  '297  and  301  for  the  division  of  the  com- 


SHARE  COMPANIES.  143 

party's  property  among  the  shareholders  have  been 
complied  with. 

304.  If  the  assets  of  a  share  company  are  taken 
over  in   their  entirety  by  the  German   Empire,  a 
federal    State   or   a    German    communal    authority 
situated  in  the  German  Empire,  an  agreement  dis- 
pensing with  the  liquidation  may  be  made  upon  the 
arrangement  being  entered  into. 

Such  an  agreement  needs  the  consent  of  a  general 
meeting  to  be  given  in  the  manner  specified  in 
sect.  303,  paragraph  1. 

The  resolution  of  the  general  meeting  must, 
together  with  the  dissolution  of  the  company,  be 
notified  by  the  directors  for  entry  in  the  Mercantile 
Register ;  annexed  to  the  notification  must  be  the 
contract  entered  into  with  the  purchaser  either  in 
the  original  or  in  a  publicly  authenticated  copy. 

The  resolution  cannot  take  effect  before  it  has 
been  registered  at  the  Court  of  the  district  in 
which  the  company's  principal  place  of  business  is 
situated. 

Upon  the  entry  of  such  resolution  the  transfer  of 
the  company's  property,  including  its  liabilities, 
shall  be  deemed  to  be  complete  ;  the  trade-name  of 
the  company  is  extinguished. 

305.  If  the  assets  of  a  share  company  are  taken 
over  in  their  entirety  by  another  share  company,  or 
a  share,  company  en  commandite,  payment  therefor 
being  made  in  shares  in  the  company  so  acquiring 
them,   the    increase   of  capital  of  such  company  is 


144  HERMAN  COMMERCIAL  CODE. 

not  affected  by  the  rules  of  sect.  278,  paragraph  1 ; 
sect.  280,  paragraph  2;  sects.  281,  282,  283, 
paragraph  1  ;  sect.  284,  paragraph  2,  No.  1,  arid 
paragraph  3. 

Annexed  to  the  notification  to  the  Court  in 
charge  of  the  Mercantile  Register  as  to  the  increase 
in  capital  must  be  the  original  or  a  publicly 
authenticated  copy  of  the  contract  of  purchase, 
which  must  have  been  approved  by  a  general 
meeting  of  the  dissolved  company. 

The  rules  of  sect.  290  apply  to  the  exchange  of 
the  shares  of  the  dissolved  company  for  those  of 
the  purchasing  company. 

306.  If  in  the  case  of  an  arrangement  of  the 
description  specified  in  sect.  305  an  agreement  is 
made  that  no  liquidation  of  the  assets  of  the  dis- 
solved company  is  to  take  place,  the  rales  of 
sect.  304  apply  mutatis  mutandis  concurrently  with 
the  following  special  rules  :— 

(1)  The  assets  of  the  dissolved  company  must  be 

administered  separately  by  the  purchasing 
company  : 

(2)  The  legal  domicile  (t)  of  the  dissolved  company 

remains  unaltered  until  the  amalgamation 
of  the  assets  of  both  companies. 
Until  such    amalgamation   as   between   the    pur- 
chasing company  or  its  creditors  and  the  creditors 
of  the  dissolved  company,  the  assets  acquired  are 
to  be  deemed  to  remain  the  assets  of  the  dissolved 
company. 

(t)  I.e.,  the  place  in  which  it  can  sue  and  be  sued. 


SHARE  COMPANIES.  145 

The  amalgamation  of  the  assets  may  not  be 
effected  till  notice  in  accordance  with  sect.  297  has 
been  given  by  the  purchasing  company  to  the 
creditors  of  the  dissolved  company,  requesting  them 
to  send  in  their  claims,  and  can  only  be  effected 
conditionally  on  the  due  observance  of  the  rules 
laid  down  in  sect.  301  with  reference  to  the  distri- 
bution of  assets  among  the  shareholders. 

The  members  of  the  directorate  and  board  of 
supervision  of  the  purchasing  company  are  jointly 
and  severally  liable  to  the  creditors  of  the  dissolved 
company  for  the  separate  administration  of  such 
assets,  with  the  reservation  that  the  members  of  the 
board  of  supervision  are  only  liable  if  an  amal- 
gamation of  assets  has  taken  place  with  their 
knowledge  and  without  their  interference. 

307.  If  a  share  company  is  dissolved  with  the 
object  of  the  alienation  of  its  assets  in  their  entirety 
or  with  the  object  of  being  converted  into  another 
company,  if  the  object  in  question  is  not  achieved, 
a  resolution  for  the  renewed  carrying  on  of  the 
company  may  be  passed  by  a  general  meeting. 

The  same  rule  applies  in  the  event  of  the  dissolu- 
tion of  a  company  by  bankruptcy,  if  the  bankruptcy 
proceedings  are  subsequently  annulled  (u)  upon  the 
acceptance  of  a  compulsory  composition,  or  revoked 
upon  the  application  of  the  bankrupt  company. 

The  renewed  carrying  on  of  the  company  must 
be  notified  by  the  directorate  for  entry  in  the 
Mercantile  Register. 

(u)  See  note  to  sect.  144. 


s. 


146  GERMAN  COMMERCIAL  CODE. 

308.  If  the  trade-name  of  a  company  is  extin- 
guished  by  the  alienation  of  its  assets  to  another 
company  or  to  a  corporate    body  (v]  without    any 
previous  liquidation  having  taken  place,  any  action 
taken    to   impugn   the    validity   of    the    resolution 
sanctioning     such     alienation     must     be     directed 
against   the   successors    in    title    of    the    dissolved 
company. 

309.  If  the  memorandum  of  association  does  not 
contain  the  essential  provisions  specified  in  sect.  182, 
paragraph  2,  or  if  any  of  such  provisions  is  void, 
every  member  of  the  company  and  of  the  directorate 
and  board  of  supervision  may,  by  means  of  the  issue 
of  a  writ,  claim  to  have  the  company  declared  a 
nullity.     The  rules  of   sects.   272   and    273  apply 
mutatis  mutandis. 

310.  Any  defect  in  the  memorandum  of  associa- 
tion in  respect  of  the  provisions  as  to  the  trade- 
name  or   place  of   business   of   the  company,  the 
object    of    the    undertaking,    the    appointment   or 
composition   of    the    directorate,    the  form    of    the 
notices  to  be  used  by  the  company,  or  the  method 
of  summoning  general  meetings,  may  be  rectified 
by  the  resolution  of  a  general  meeting  passed  in 
accordance  with  the  rules  of  this   Code  as  to  the 
method  of  making  alterations  in  the  memorandum 
of  association.     If  the  defect  to  be  rectified  is  in 
respect  of  a  provision  as  to  the   method   of  sum- 
moning   general    meetings,    the    general    meeting 

(v)  See  Schuster,  p.  32. 


SHARE  COMPANIES.  147 

called  for  the  purpose  of  such  rectification  must  be 
summoned  by  means  of  advertisements  inserted  in 
the  journals  nominated  for  the  publication  of  the 
entries  to  be  made  in  the  Mercantile  Register  of 
the  district  in  which  the  company's  place  of  business 
is  situated. 

311.  If  the  nullity  of  a  company  has  been  entered 
in  the   Mercantile   Register,  the  winding-up  of  its 
affairs  must  be  governed   mutatis  mutandis  by  the 
rules  laid  down  in  respect  of  the  dissolution  of  a 
company. 

The  validity  of  contracts  entered  into  with  third 
parties  is  not  affected  by  the  company  being 
declared  a  nullity. 

The  members  of  the  company  must  make  any 
payments  due  upon  their  shares  in  so  far  as  such 
payments  are  rendered  necessary  by  the  liabilities 
entered  into  in  the  name  of  the  company. 

Head  VI.     Penal  Rules. 

312.  Members    of    the    directorate    or   board   of 
supervision    or   liquidators,   in    the   event    of   their 
wilfully  acting  to  the  disadvantage  of  the  company, 
are  punishable  by  imprisonment  and  simultaneously 
by  a  fine  not  exceeding  M.  20,000. 

Sentence  of  loss  of  civic  rights  may  also  be  passed 
upon  them. 

If  there  are  extenuating  circumstances,  only  a 
fine  may  be  imposed. 

L2 


148  GERMAN  COMMERCIAL  CODE. 

313.  Sentence  of  imprisonment  and  of  a  fine 
not  exceeding  M.  20.000  simultaneously  may  be 
passed  on  : — 

(1)  Promoters   or  members  of  the  directorate  or 

board  of  supervision  who,  for  the  purposes 
of  the  entry  of  the  company  in  the  Mer- 
cantile Register,  knowingly  give  false 
information  in  respect  of  the  subscription 
or  payment  of  the  original  capital,  the 
price  at  which  the  shares  were  issued,  or 
arrangements  of  the  description  specified 
in  sect.  186. 

(2)  Persons  who  knowingly  make  false  statements 

in  respect  of  the  above-mentioned  matters 
in  an  advertisement  of  shares  of  the 
description  specified  in  sect.  203. 

(3)  Members  of  the  directorate  or  board  of  super- 

vision who,  for  the  purposes  of  the  entry 
of  an  increase  in  capital  in  the  Mercantile 
Register,  wilfully  make  false  statements 
in  respect  of  (a)  the  payment  of  the  pre- 
viously existing  capital  or  the  subscription 
or  payment  of  the  additional  capital ;  or 
(b)  the  price  at  which  the  shares  were 
issued;  or  (c)  any  arrangements  that  may 
have  been  made  of  the  description  specified 
in  sect.  279. 
Such  persons  may  also  be  sentenced  to  loss  of 

honorary  civic  functions  (x). 

If  there  are  extenuating  circumstances  only  a  fine 

may  be  imposed. 

(a;)  See  ante,  note  to  sect.  81,  and  Schuster,  p.  264,  note. 


SHARE  COMPANIES.  149 

314.  Members  of  the  directorate  or  board  of  super- 
vision or  liquidators  are  punishable  by  imprison- 
ment for  a  period  not  exceeding  one  year  and 
simultaneously  by  a  fine  not  exceeding  M.  20,000 
if  they  wilfully — 

(1)  Misrepresent  or  conceal  the  true  state  of  the 

company's  affairs  in  statements  made  by 
them  or  in  their  reports  as  to  the  financial 
position  of  the  company,  or  in  their  speeches 
at  a  general  meeting. 

(2)  Issue   shares   made   out  in  the  name  of  the 

holder  not  bearing  upon  them  the  informa- 
tion specified  in  sect.  179,  paragraph  4,  or 
issue  shares  made  out  to  bearer  before  the 
full  payment  of  the  nominal  amount  of 
such  shares,  or  in  the  event  of  their  issue 
at  a  premium  the  nominal  amount  together 
with  the  premium. 

(3)  Issue    shares    or    provisional    certificates  (y] 

before  the  company  is  registered  in  the 
Mercantile  Register,  or  in  the  case  of  an 
increase  of  capital  before  such  increase  is 
registered  therein. 

(4)  Issue  shares  or  provisional  certificates  for  a 

lesser  amount  than  M.  1,000  in  any  case 
other  than  those  specified  in  sect.  180, 
paragraphs  2  and  3. 

(5)  In  the  cases  specified  in  sect.  180,  paragraphs  2 

and  3,  issue  shares  or  provisional  certifi- 

(z/)  See  ante,  sect.  179. 


150  GERMAN  COMMHRCIAL  CODE. 

cates  not  bearing  upon  them  the  informa- 
tion specified  in  sect.  180,  paragraph  4. 

Offenders  under  No.  1  may  be  also  sentenced 
simultaneously  to  loss  of  honorary  civic  functions. 

If  there  are  extenuating  circumstances  only  a  fine 
may  be  imposed. 

315.  Sentence  of  imprisonment  for  a  period  of 
not  exceeding  five  months  and  simultaneously  a 
fine  of  an  amount  not  exceeding  M.  20,000  may  be 
imposed  upon — 

(1)  Directors    or  liquidators    if    a   company    has 

remained  without  any  board  of  supervision 
for  longer  than  three  months,  and  upon 
directors,  liquidators,  and  members  of  the 
board  of  supervision  if  for  more  than 
three  months  there  have  not  been  enough 
members  of  the  latter  to  form  a  quorum. 

(2)  Directors    or    liquidators,    if    in    breach    of 

the  rules  of  sect.  240,  paragraph  2,  and 
sect.  298,  paragraph  2,  they  omit  to  apply 
for  the  initiation  of  bankruptcy  pro- 
ceedings. 

if  there  are  extenuating  circumstances  only  a  fine 
may  be  imposed. 

No  punishment  may  be  inflicted  upon  any  person 
who  can  prove  that  the  omission  to  appoint  or 
complete  the  board  of  supervision  or  apply  for  the 
initiation  of  bankruptcy  proceedings  was  not  due 
to  any  default  on  his  part. 


SHARE  COMPANIES.  151 

316.  Anyone  who,  where    shares   or  provisional 
certificates  have  to   be  deposited,  knowingly  issues 
false  documents  to  serve  as  evidence  of  a  right  to 
vote,  or  for  such   purpose  fraudulently  alters  docu- 
ments in  existence,    or  makes   use    of  any  such   a 
document  for  the  purpose  of  voting  knowing  it  to 
be  false  or  fraudulently  altered,  shall  be  punishable 
with  imprisonment  for  a  period  not  exceeding  one 
year,  and  may  be  simultaneously  sentenced  to  pay 
a  fine  of  M.  10,000.     Sentence  of  loss  of  honorary 
civic  functions  may  also  be  passed.     If  there  are  ex- 
tenuating circumstances  only  a  fine  may  be  inflicted. 

317.  A  shareholder  agreeing  in  consideration  of 
some  special  advantage  granted  or  promised  to  him 
to  vote  in  a  particular  manner  or  to  abstain  from 
voting  at  a  general  meeting,  shall  be  punishable  by 
a  fine  not  exceeding  M.  3,000,  or  by  imprisonment 
for  a  period  not  exceeding  one  year. 

The  same  punishment  is  to  be  inflicted  upon  any 
person  granting  or  promising  any  special  advantage 
to  a  shareholder  in  consideration  of  his  exercising 
his  vote  in  a  particular  manner  or  abstaining  from 
voting  at  a  general  meeting. 

318.  Anyone  making  use  of  shares  belonging  to 
another  person  whom  he  is  not  authorised  to  repre- 
sent, without  the  consent  of  such  other  person  for 
the  purpose  of   exercising  the  right  to  vote  at  a 
general  meeting  or  any  of  the  rights  specified  in 
sects.  254,  264,  266,  268,  271,  295,  309,  shall  be 
punishable  by  a  fine  of  not  less  than  M.  10  and  not 


152  GERMAN  COMMERCIAL  CODE. 

more  than  M.  30  in  respect  of  every  share  so  used, 
the  total  amount  of  such  fine  to  be  in  no  case  less 
than  M.  1,000.  The  same  punishment  is  to  be  im- 
posed upon  any  person  borrowing  any  other  person's 
shares  in  return  for  a  remuneration  paid  and  by 
means  of  such  shares  exercising  any  of  the  above- 
mentioned  rights,  as  also  upon  the  person  wilfully 
aiding  and  abetting  him  by  lending  him  such  shares. 

319.  The  directors  or  liquidators  must  be  com- 
pelled to  observe  the  rules  contained  in  sect.  240, 
paragraph  1  ;  sect.  260,  paragraph  2 ;  sect.  263, 
paragraph  1  ;  sect.  267,  paragraphs  1  and  2  ;  sect. 
272,  paragraph  4  ;  sects.  299  and  302,  paragraph  2, 
by  the  Court  specified  in  sect.  195  under  penalty  of 
fines,  the  amount  of  which  is  to  be  regulated  by 
sect.  14,  sentence  2. 

Penalties  are  not  to  be  inflicted  for  failure  to 
comply  with  the  regulations  as  to  notifications  to 
be  made  to  the  Court  in  charge  of  the  Mercantile 
Register  contained  in  sect.  195,  paragraph  1  ;  sect. 
277,  paragraph  1  ;  sect.  280,  paragraph  1  ;  sect.  284, 
paragraph  1 ;  sect.  304,  paragraph  3  ;  and  sect.  305, 
paragraph  2,  where  the  Court  concerned  is  that  of 
the  district  in  which  the  company's  principal  place 
of  business  is  situated. 


SHARE  COMPANIES  EN  COMMANDITE.  153 

PART  IV.— SHARE  COMPANIES  EN 
COMMANDITE. 

320.  A  share  company  en  commandite  is  composed 
of  at  least   one   member  with  unlimited    personal 
liability  in  respect  of  the  company's  debts  (herein- 
after called  a  general  member),  and  other  members 
who  share  in  such  liability  merely  to  the  extent  of 
their  contributions  to  the  capital  of    the  company 
which   is    divided    into    shares   (hereinafter   called 
limited  members). 

The  mutual  rights  and  liabilities  of  the  general 
members  as  against  one  another  and  as  against  the 
limited  members  collectively,  as  well  as  against 
third  parties,  and  in  particular  the  authority  of  the 
general  members  to  conduct  business  and  act  on 
behalf  of  the  company,  is  regulated  by  the  rules 
laid  down  for  limited  partnerships. 

In  all  other  respects  the  rules  of  the  third  part 
relating  to  share  companies  apply  to  share  com- 
panies en  commandite )  where  not  rendered  inappli- 
cable by  the  following  rules  or  the  absence  of  a 
directorate. 

321.  The  settling  of  the  contents  of  the  memo- 
randum of  association  must  be  recorded  by  a  judicial 
officer  or  notary,  and  must  be  effected  by  a  number 
of  persons   not  less  than  five,  which  must  include 
all  the  general  members,  and  must  otherwise  consist 
solely    of    persons   taking   over    shares   as   limited 
members.     The  record  must  state  the  amount  of 


154  GERMAN  COMMERCIAL  CODE. 

shares  taken  over  by  each  of  the  persons  included 
in  such  number. 

The  members  who  have  taken  part  at  the  settle- 
ment of  the  contents  of  the  memorandum  of 
association  or  who  have  contributed  to  the  capital 
of  the  company  otherwise  than  by  cash  payments, 
shall  be  deemed  to  be  the  promoters  of  the  company. 

322.  The  memorandum  of  association  must  state 
in  addition  to  the  matters  provided  for  in  sect.  182, 
paragraph  2,  headings  1 — 3,  5  and  6,  the  names,  first 
names,  description  and  place  of  residence  of  each 
general  member. 

The  value  and  nature  of  any  contributions  on  the 
part  of  general  members  to  the  assets  of  the  com- 
pany which  do  not  form  part  of  the  capital  (z)  of  the 
company,  must  be  stated  in  the  memorandum  of 
association. 

The  rule  stated  in  sect.  1 86,  paragraph  1 ,  applies 
to  any  stipulation  conferring  a  special  advantage 
upon  any  individual  general  member. 

323.  Upon  the  application  for  shares  must  appear 
besides  the  information  specified  in  sect.  189,  the 
names   of  such   promoters  of  the  company  as  are 
general  members  thereof. 

The  declaration  to  be  annexed  to  the  company's 
application  for  registration  in  the  Mercantile  Register 
in  accordance  with  sect.  1 95,  paragraph  3,  sentence  1, 
must  contain  a  statement  that  such  amount  of  the 

(z)  I.e.,  which  do  not  form  part  of  the  share  capital  of  the  company. 


SHARE  COMPANIES  EX  COMMANDITE.  155 

contributions  to  capital  which  must  be  paid  in  cash 
as  lias  already  been  called  up  has  been  so  paid  and 
is  in  the  possession  of  the  general  members. 

The  general  members  have  a  right  to  take  part 
in  the  proceedings  specified  in  sect.  196.  The 
majority  voting  in  favour  of  the  formation  of  the 
company  must  include  at  least  one-quarter  of  the 
limited  members  whose  names  appear  on  the  list. 
The  amount  of  their  shares  must  represent  at  least 
one -quarter  of  the  capital  other  than  that  taken  over 
by  the  general  members. 

In  the  entry  in  the  Mercantile  Register  the  names 
of  the  general  members  must  be  stated  in  place  of 
those  of  the  directors. 

Any  special  provisions  contained  by  the  memo- 
randum of  association  as  to  the  powers  of  the 
general  members  to  act  on  behalf  of  the  company 
must  also  be  included  in  the  entry. 

324.  A  resolution  of  the  description  specified  in 
sect.  207,  if  it  concerns  a  contract  made  in  the  first 
year  after  the  registration  of  the  company,  requires 
to  be  supported  by  a  majority  whose  shares  represent 
at  least  one-fourth  of  such  part  of  the  share  capital 
of  the  company  as  is  not  held  by  the  general  mem- 
bers.    The  rule  stated  in  sect.   207,  paragraph  3, 
sentence  1,  remains  unaffected  by  this  section. 

325.  The  rules  applying  to  the  directorate  of  a 
share  company  apply  mutatis  mutandis  to  the  general 
members  in  respect  of  the  following  matters  :— 

(1)  Notifications,    deliveries   of   documents,    and 


156  GERMAN  COMMERCIAL  CODE. 

declarations  to  be  made  to  the  Court  in 
charge  of  the  Mercantile  Register  : 

(2)  The  summoning  of  general  meetings  : 

(3)  The  preparation,  submission,  and  publication 

of  the  annual  balance  sheet  and  profit  and 
loss  account,  as  well  as  the  submission  of 
statements  concerning  the  business  : 

(4)  The  impugnment  of  the  validity  of  resolutions 

of  a  general  meeting  : 

(5)  The  procedure  of  appointing  auditors  to  in- 

vestigate the  balance  sheet  or  incidents 
concerning  the  promotion  or  conduct  of 
the  business  and  the  obligations  of  the 
directors  towards  the  auditors  and  board 
of  supervision  : 

(6)  The   notices  to    be    sent   to   the    company's 

creditors  in  the  event  of  a  reduction  of 
capital : 

(7)  The  enforcement  of  the  company's  claims  to 

compensation  arising  out  of  the  mode  of 
conduct  of  the  business : 

(8)  The  method  of  applying  for  the  initiation  of 

bankruptcy  proceedings  on  behalf  of  the 
company : 

(9)  Liability  to  criminal  proceedings  and  penalties. 

326.  A  general  member  may  not,  without  the  con- 
sent of  the  company,  either  enter  upon  transactions 
in  the  same  branch  of  commerce  as  the  company  or 
belong  to  any  other  mercantile  association  of  the 


SHARE  COMPANIES  EN  COMMANDITE.  157 

same  description  (a)  as  the  company  as  a  general 
partner  or  member.  Such  consent  to  be  valid  must 
be  granted  by  the  other  general  members  and  by 
the  resolution  of  a  general  meeting,  unless  the 
power  of  granting  such  consent  has  been  transferred 
to  the  board  of  supervision  by  the  memorandum  of 
association  or  by  resolution  of  a  general  meeting. 

If  a  general  member  violates  the  obligations 
imposed  on  him  by  paragraph  1  of  this  section,  the 
rule  laid  down  in  sect.  236,  paragraph  2,  applies. 

The  company's  claims  under  this  section  become 
barred  after  the  expiration  of  a  period  of  three 
months  from  the  date  at  which  the  remaining  general 
members  and  the  board  of  supervision  became  aware 
of  the  conclusion  of  the  transaction  in  question  or 
the  fact  of  the  general  partner's  participation  in  the 
other  mercantile  association.  They  become  barred 
irrespective  of  such  knowledge  in  five  years  from 
the  date  upon  which  they  accrued. 

327.  A  general  member  has  no  vote  at  a  general 
meeting  even  when  he  is  a  shareholder. 

The  resolutions  of  a  general  meeting  require  the 
consent  of  the  general  members,  if  they  concern 
matters  which  in  a  limited  partnership  need  the  con- 
sent of  both  the  limited  and  general  partners. 

The  consent  of  the  general  members  is  not 
required  for  the  exercise  of  the  powers  belonging 
to  a  general  meeting  or  to  a  minority  of  share- 
holders by  virtue  of  sects.  266 — 269  with  respect 

(«)  I.e.,  which  carries  on  a  business  of  the  same  description. 


158  GERMAN  COMMERCIAL  CODE. 

to  the  appointment  of  auditors  and  the  enforce- 
ment of  the  company's  rights  of  action  arising  out 
of  the  promotion  or  the  method  of  conduct  of  the 
business. 

Resolutions  of  a  general  meeting  which  require 
the  consent  of  the  general  members  are  not  to  be 
filed  with  the  Court  in  charge  of  the  Mercantile 
Register  before  such  consent  is  obtained.  In  respect 
of  resolutions  which  require  registration  in  the 
Mercantile  Register  the  consent  of  the  general 
members  must  be  recorded  in  the  minute  to  be 
drawn  up  as  to  the  proceedings  in  respect  of  such 
resolutions  or  in  an  appendix  thereto. 

328.  In  the  absence  of  any  provision  to  the 
contrary  in  the  memorandum  of  association,  the 
resolutions  of  the  limited  members  are  to  be  carried 
out  by  the  board  of  supervision. 

In  any  legal  proceedings  which  may  be  instituted 
by  the  limited  members  collectively  against  the 
general  members,  or  vice  versa,  the  limited  members 
are  to  be  represented  by  the  board  of  supervision, 
unless  special  representatives  for  the  purpose  have 
been  elected  at  a  general  meeting.  The  company  is 
liable  for  the  costs  of  legal  proceedings,  for  which 
the  limited  members  are  responsible,  without  pre- 
judice to  its  right  to  indemnity  against  such  limited 
members. 

The  rule  stated  in  sect.  247,  paragraph  2,  applies 
mutatis  mutandis. 

General  members  cannot  be  members  of  the 
board  of  supervision. 


SHARE  COMPANIES  EN  COMMANDITE.  1,59 

329.  If  the  general  members  are  entitled  out  of 
the  proceeds  of  the  year  to  a  share  in  the  profits 
other  than  that  due  to  them  in  respect  of  the  shares 
which  they  hold,  such  share  in  profits  may  not  be 
paid  out,  if  there  is  a  deficiency  in  assets  (£)  exceed- 
ing   the    amount  of   their  contributions   to   capital 
represented  otherwise  than  by  shares.     So  long  as 
such  deficiency  in  assets  exists  they  are  not  allowed 
to  draw  in  any  other  way  upon  such  contributions 
to  capital. 

The  rule  stated  in  sect.  262,  No.  1,  as  to  the 
reserve  fund  applies  with  regard  to  the  general 
members'  share  of  profits. 

330.  The  rules  applicable  in  the  case  of  a  limited 
partnership  hold  good  also  in  the  case  of  a  share 
company  en  commandite  as  regards — 

(1)  The  facts  by  the  occurrence  of  which  dissolu- 

tion is  brought  about ; 

(2)  The  retirement  or  expulsion  of  one  of  several 

general  members  ; 
with  the  following  modifications  : — 

The  bankruptcy  of  a  limited  member  does  not 
bring  about  the  dissolution  of  the  company  :  the 
creditors  of  a  limited  member  have  no  right  to  give 
notice  to  the  company  demanding  its  dissolution. 

For   the  giving  of   such    notice    by  the   limited 

(b)  This  does  not  mean  "  if  the  company  is  insolvent."  What  is 
meant  by  a  "  deficiency  in  assets"  is  the  amount,  if  any,  by  which 
the  liabilities  as  shown  on  the  balance  sheet  (upon  which  the  capital 
of  the  company  is  put  down  among  its  liabilities)  exceed  the  assets  as 
shown  on  the  balance  sheet. 


160  GERMAN  COMMERCIAL  CODE. 

members  as  well  as  for  the  obtaining  of  their  consent 
to  the  dissolution  of  the  company  the  resolution  of 
a  general  meeting  is  necessary ;  such  resolution 
requires  to  be  supported  by  a  majority  representing 
at  least  three-fourths  of  the  capital  held  by  the 
members  voting  in  respect  of  such  resolution.  The 
same  majority  is  necessary  for  a  resolution  in  favour 
of  an  application  to  have  the  company  dissolved  by 
order  of  the  Court.  More  stringent  requirements 
may  be  created  by  the  memorandum  of  association. 

A  general  member  may  not  cease  to  be  such 
except  in  the  case  of  his  expulsion — unless  voluntary 
retirement  is  made  permissible  by  the  memorandum 
of  association. 

The  dissolution  of  the  company  or  the  fact  of  a 
general  member  ceasing  to  be  such  must  be  notified 
by  all  the  general  members  for  entry  in  the  Mercan- 
tile Register.  The  rule  stated  in  sect.  143,  para- 
graph 3,  applies. 

331.  Where  not  otherwise  provided  by  the  memo- 
randum of  association,  the  liquidation  is  carried  out 
by  all  the  general  members  and  by  one  or  more 
persons  elected  as  liquidators  by  a  general  meeting. 

Every  general  member  has  power  to  apply  to  have 
liquidators  appointed  or  their  authority  revoked  by 
the  Court. 

332.  A   share    company    en   commandite    may    be 
converted  into  a  share  company  by  the  resolution 
of  a  general  meeting  and  the  consent  of  all  the 
general  members. 


SHARE  COMPANIES  EN  COMMANDITE.  1G1 

The  rules  as  to  changes  in  a  memorandum  of 
association  apply  (<?). 

The  aggregate  amount  of  the  shares  of  the 
majority  of  limited  members  voting  in  favour 
of  the  conversion  must  represent  at  least  one-fourth 
of  the  share  capital  of  the  company  not  held  by  the 
general  members.  The  resolution  must  state  the 
measures  necessary  to  carry  out  the  conversion,  and 
in  particular  the  trade-name  to  be  used  and  the 
method  of  appointment  of  and  composition  of  the 
directorate. 

333.  The  notification  of  the  resolution  for  con- 
version must  state  the  names  of  the  directors  for 
entry  in  the  Mercantile  Register,  and  except  in  the 
case  of  a  notification  for  entry  in  the  Mercantile 
Register  of  the  district  where  a  branch  establish- 
ment is  situated,  must  have  annexed  to  it  a  publicly 
authenticated  copy  of  the  minutes  respecting  their 
appointment. 

The  application  for  registration  in  the  Mercantile 
Register  of  the  district  in  which  the  principal  place 
of  business  of  the  company  is  situated  is  not  affected 
by  sect.  14. 

The  application  must  have  annexed  to  it  a  balance 
sheet  drawn  up  with  reference  to  a  date  not  more 
than  two  months  prior  to  such  application  and 
passed  by  a  general  meeting.  With  respect  to 
such  balance  sheet,  the  rules  of  sects.  261,  263, 
paragraph  1,  and  sect.  264  apply. 

(c)  See  ante,  sect.  274  et  seq. 
S.  M 


162  GERMAN  COMMERCIAL  CODE. 

Upon  the  entry  being  effected  the  general 
members  cease  to  be  such  ;  and  the  company  is  a 
share  company  from  this  time  forward. 

334.  Immediately  after  the  entry  the  directorate 
must  publish  a  balance  sheet  complying  with  the 
requirements   of    sect.    333,    paragraph    2,    in    the 
Company  Journals. 

The  directors  must  also  give  notice  to  the  com- 
pany's creditors  to  send  in  their  claims  by  an 
announcement  referring  to  the  conversion.  Such 
announcement  must  appear  three  times  in  the  Com- 
pany Journals,  and  creditors  known  to  the  company 
must  receive  special  personal  notices. 

Creditors  whose  claims  accrued  before  the  last 
appearances  of  the  above  specified  public  announce- 
ments are  entitled  to  receive  satisfaction  or  security 
if  they  apply  therefor. 

The  members  of  the  directorate  and  board  of 
supervision  are  jointly  and  severally  liable  to  the 
company's  creditors  for  the  due  observance  of  these 
rules,  provided  always  that  the  members  of  the 
board  of  supervision  are  only  liable  in  respect  of 
any  breach  thereof  which  has  taken  place  witli  their 
knowledge  and  without  their  intervention. 

PART  V.     DORMANT  PARTNERSHIP. 

335.  Any  person   participating    by  means  of   a 
contribution  of  property  as  a  dormant  partner  in  a 
business  establishment  in  which  a  mercantile  trade 


DORMANT  PARTNERSHIP.  163 

is  carried  on  by  another  must  effect  such  contribu- 
tion in  such  a  manner  as  to  make  it  the  property  of 
the  owner  of  the  business. 

The  owner  alone  acquires  rights  and  incurs  obli- 
gations by  means  of  the  transactions  arising  in  the 
course  of  business. 

336.  In    the    absence    of    any    express    stipula- 
tion as  to  the  share  to  be  taken  by  the  dormant 
partner   in   the    profit   and    loss   of    the    business, 
there   is    an    implied    agreement    that    such    share 
shall     be    a    reasonable    one    according     to     the 
circumstances. 

The  partnership  agreement  may  contain  a  proviso 
that  the  dormant  partner  is  not  to  share  in  the  loss ; 
but  his  right  to  a  share  in  the  profit  cannot  be 
excluded. 

337.  At  the  close  of  every  business  year  the  profit 
and  loss  account  must  be  drawn  up  and  the  dormant 
partner's  share  in  the  profit  paid  out  to  him. 

The  dormant  partner's  share  in  the  loss  is  limited 
to  the  amount  of  his  contribution  paid  up  or  due. 
Profits  which  he  has  once  drawn  need  not  be  paid 
back  in  the  event  of  subsequent  losses ;  but  if  his 
contribution  to  capital  has  been  diminished  by  losses 
the  yearly  profits  must  be  appropriated  to  make  up 
the  deficiency. 

In  the  absence  of  any  express  stipulation,  profits 
not  drawn  by  a  dormant  partner  are  not  added  to 
his  contribution  to  capital. 

M2 


164  GERMAN  COMMERCIAL  CODE. 

338.  A  dormant  partner  has  the  right  to  demand 
a  copy   of   the  annual  balance  sheet  and  test  its 
correctness   by   an   inspection    of    the   partnership 
books  or  papers. 

The  further  rights  conferred  by  German  Civil 
Code,  sect.  716  (e],  upon  partners  excluded  from 
the  right  of  conducting  partnership  business  are 
not  exercisable  by  a  dormant  partner. 

The  Court  may  upon  the  application  of  a  dormant 
partner,  in  the  presence  of  cogent  grounds,  at  any 
time  make  an  order  directing  the  delivery  of  a 
balance  sheet,  or  any  other  explanatory  statement 
as  to  partnership  affairs,  or  the  production  of  the 
partnership  books  or  documents. 

339.  The  termination  of  a  dormant  partnership 
by  notice  given  by  one  of  the  partners,   or  by  a 
creditor  of  the  dormant  partner,  is  regulated  mutatis 
mutandis  by  sects.  132,  134,  135,  provided  always, 
that  nothing  contained  in  this  section  affects  the 
right   conferred   upon    a    partner  by  sect.    723  of 
the  Civil  Code  to  terminate  without   notice  upon 
any  cogent  grounds. 

A  partnership  is  not  dissolved  by  the  death  of  a 
dormant  partner. 

340.  Upon  the  dissolution  of  the  partnership  the 
owner  of  the  business  must  settle  accounts  with  the 
dormant  partner,  and  pay  over  to  him  any  balance 
in  his  favour. 

(e]  I.e.,  the  right  to  inspect  books,  obtain  information  about  the 
business,  &c.     See  Schuster,  p.  304. 


DORMANT  PARTNERSHIP.  165 

Any  transactions  pending  at  the  time  of  the  dis- 
solution are  to  be  conducted  to  their  conclusion  by 
the  owner  of  the  business,  the  dormant  partner 
participating  in  the  profit  or  loss  arising  therefrom. 

The  dormant  partner  may  at  the  close  of  every 
business  year  demand  an  account  of  the  transactions 
brought  to  termination  during  such  year,  the  pay- 
ment of  any  sums  that  may  be  due  to  him,  and 
information  as  to  the  progress  of  any  transactions 
still  pending. 

341.  Upon    the    owner   of    a    business   becoming 
bankrupt  a  dormant  partner  may  prove  as  a  creditor 
in   respect  of   his  contribution   to   the   partnership 
capital,  provided  that  such  contribution  is  in  excess 
of  the  share  of  loss  falling  to  him. 

If  the  dormant  partner  has  not  yet  paid  up  his 
contribution  or  any  part  thereof,  he  must  pay  into 
the  bankrupt's  estate  so  much  of  the  amount  still 
due  as  may  be  necessary  to  cover  his  share  in 
the  loss. 

342.  If  upon  the  ground  of  any  agreement  made 
during  the  course  of  the  last  year  before  the  bank- 
ruptcy between   the  owner  of  the  business  and   a 
dormant    partner,    such     partner's    contribution    to 
capital  has   been  wholly  or  in  part  repaid  to  him, 
or  a  complete  or  partial  release  granted  to  him  in 
respect  of  his  share  of  the  loss  incurred,  the  validity 
of  such  repayment  or  release  may  be  contested  by 
the    trustee    in  bankruptcy,  whether  it   was  made 
upon  a  dissolution  of  the  partnership  or  not. 


166  GERMAN  COMMERCIAL  CODE. 

If  the  circumstances  giving  rise  to  the  bank- 
ruptcy did  not  come  into  existence  till  after  such 
repayment  or  release  was  agreed  upon,  then  no 
objection  to  its  validity  may  be  raised. 

The  rules  of  the  Bankruptcy  Act(/)  as  to  the 
method  and  effect  of  disputing  the  validity  of 
payments  apply. 

(/)  See  (German)  Bankruptcy  Act,  ss.  29—42. 


(      167     ) 


Book  III.— Mercantile  Transactions. 


PART  I.     GENERAL  RULES. 

343.  The  term  "  mercantile  transaction  "  denotes 
any   transaction    entered    upon    by    a    mercantile 
trader  in  the  course  of  the  mercantile  trade  which 
he  carries  on. 

Transactions  of  the  description  specified  in  sect.  1, 
paragraph  2,  entered  upon  by  a  mercantile  trader 
are  mercantile  transactions  even  if  entered  upon  in 
the  course  of  a  business  which  is  usually  concerned 
with  transactions  of  other  descriptions. 

344.  Any  transactions  having  a  legal  effect  which 
are  entered  upon  by  a  mercantile  trader  shall    be 
deemed,  in  the  absence  of  proof  to  the  contrary,  to 
have  been  within  the  course  of  his  mercantile  trade. 

Any  documentary  acknowledgment  of  a  debt 
signed  by  a  mercantile  trader  shall  be  deemed  to 
have  been  signed  in  the  course  of  his  mercantile 
trade,  unless  evidence  to  the  contrary  is  contained 
in  the  document  itself. 

345.  Any  transaction  which,  as  far  as  one  of  the 
parties  is  concerned,  is  a  mercantile  transaction  is 
governed  as  regards  both  parties  alike,  subject  to 


168  GERMAN  COMMERCIAL  CODE. 

any  provision  to  the  contrary  contained  in  this  part 
of  this  Code,  by  the  rules  applying  to  mercantile 
transactions. 

346.  All  acts  and  omissions  as  between  mercantile 
traders  must  be  interpreted  as  regards  their  signifi- 
cance and  effect  with  reference  to  mercantile  usage 
and  customs. 

347.  If  any  person,  in  respect  of  a  transaction, 
which  on  his  side  is  a  mercantile  transaction,  owes 
a    duty   to    another   person    to   use    diligence,    the 
standard  of  diligence  required  is  that  habitual  to  a 
careful  mercantile  trader. 

The  foregoing  paragraph  does  not  affect  the  rules 
of  the  Civil  Code,  according  to  which  the  party 
liable  in  certain  cases  has  only  to  answer  for  gross 
negligence  (g)  or  is  only  bound  to  use  such  degree  of 
diligence  as  he  habitually  applies  to  his  own 
affairs  (h). 

348.  A  penalty  agreed  to  be  paid  by  a  mercantile 
trader   in    the    course    of    his   mercantile    business 
cannot  be  reduced  on  the  ground  of  sect.  34o  of 
the  Civil  Code  (i). 

349.  A  surety    is    not  entitled   to  the  beneficium 

(</)  E.g.,  in  cases  of  property  lost  or  found,  &c.,  see  Civil  Code, 
ss.  300,  sub-s.  1,  521,  523,  51)9,  600,  680,  968. 

(h]  E.g.,  inter  alia,  in  cases  of  unremunerated  bailments.  Civil 
Code,  s.  690;  and  see  Civil  Code,  ss.  252,  259,  412,  sub-s.  8,442;  and 
see  Schuster,  pp.  150,  151. 

(»')  Civil  Code,  s.  343.  If  the  amount  of  a  penalty  is  disproportion- 
ately high  it  may  be  reduced  by  the  Court  to  a  reasonable  amount. 
(See  Schuster,  p.  190.) 


MERCANTILE  TRANSACTIONS  :    GENERAL  RULES.       169 

excussionis  (/?)  if  his  liability  arises  either  (1)  out  of  a 
guarantee  agreement  which  was  on  his  side  a  mer- 
cantile transaction,  or  (2)  out  of  a  request  to  give 
credit  which  was  on  his  side  a  mercantile  transaction. 

350.  The  rules  as  to  form  prescribed  by  sect.  766, 
clause  1 ;  sect,   780  and  sect.  781,  clause   1,  of  the 
Civil  Code  (1)  do  not  apply  to — 

( 1 )  A   guarantee  which  constitutes  a  mercantile 

transaction  upon  the  side  of  the  surety : 

(2)  A    promise    creating    an    obligation    or   an 

acknowledgment  of  an  obligation  which 
constitutes  a  mercantile  transaction  on  the 
side  of  the  person  incurring  such  obliga- 
tion. 

351.  The  rules  of  sects.  348—350  do  not  apply  to 
persons  carrying  on  trades  of  the  description  specified 
in  sect.  4. 

352.  The  rate  of  interest  implied  by  law  as  pay- 
able   in    bilateral  (ni)   mercantile    transactions,     in- 
cluding interest   due  in  the   event  of  delay  (w)  in 
the  performance   of   an   obligation,  is    5  per  cent. 
The  same  rate  of  interest  is  payable  in  respect  of 

(&)  See  Schuster,  pp.  318,  319.  A  betieficium  excussionis  is  the 
right  by  which  a  surety  may  require  the  creditor  to  prove  that  he 
has  obtained  a  judgment  against  the  principal  debtor  and  that  his 
attempt  to  enforce  such  judgment  was  unsuccessful. 

(1)  See  Schuster,  p.  323. 

(m]  I.e.,  transactions   which   are  mercantile  transactions  on   both 


(?v)  The  term  used  here  is  a  technical  one,  and  has  elsewhere 
been  in  some  places  translated  by  the  Eoman  legal  term  "Mora." 
See  post,  note  to  sect.  376;  and  see  Schuster,  "Mora,"  p.  160. 


170  GEKMAN  COMMKKCIAL  CODE. 

a  debt  arising  out  of  such  a  contract  where  there  is 
an  express  stipulation  for  the  payment  of  interest, 
but  the  rate  thereof  is  not  specified. 

Wherever  by  this  Code  interest  is  made  payable 
without  the  rate  thereof  being  specified,  such  interest 
is  to  be  payable  at  the  rate  of  -i  per  cent. 

353.  Mercantile  traders   have   the   right  inter  sc 
in  respect  of  claims  arising  out  of  bilateral  mercantile 
transactions  to  charge  interest  from  the  date  of  the 
maturity  of  such  claims,  provided  always  that  com- 
pound interest  is  not  chargeable  under  this  section. 

354.  Any  person  who,  in  the  course  of  the  mer- 
cantile trade  which  he  carries  on,  transacts  business 
or  performs  services  on  behalf  of  another  may,  in 
the  absence  of  express  agreement,  claim  commission, 
and.  in  the  case  of  the  warehousing  of  goods,  ware- 
housing charges  at  rates  in  accordance  with  local 
custom. 

In  respect  of  loans,  advances,  outlay,  and  other 
disbursements  made,  he  may  claim  interest  calculated 

'  «/ 

as  from  the  day  of  the  making  of  such  disburse- 
ments. 

355.  If  the  business   relations  existing  between 
any  person  and  a  mercantile  trader  is  one  of  current 
account,  i.e.,  if  it  is  of  such  a  nature  that  the  money 
values  of  all  claims  and  performances  on  both  sides, 
together  with    interest   thereon,    are    set    down   in 
account,   and  if  such  account  is  duly  balanced  at 
regular  intervals  and  the  amount  due  thereon  to  one 
side  or  the  other  ascertained,  the  party  to  whom 


MERCANTILE  TRANSACTIONS  :  GENERAL  RULES.   171 

such  amount  is  due  may  charge  interest  upon  such 
amount  from  the  day  upon  which  the  account  was 
balanced  even  if  interest  was  an  item  included  in. 
the  account  (o). 

The  balance  of  accounts,  in  the  absence  of  any 
agreement  to  the  contrary,  is  struck  annually. 

Notice  may,  in  the  absence  of  anything  appearing 
to  the  contrary,  be  given  for  a  current  account  to 
be  closed  at  any  time  in  the  course  of  the  period 
intervening  between  the  regular  times  for  the 
balancing  of  accounts.  In  such  case  the  party  to 
whom  a  balance  is  found  to  be  due  may  claim 
immediate  payment. 

356.  If  a  debt  which  is  secured  by  a  pledge  or 
by  a  guarantee  or  otherwise  is  included  in  a  current 
account,  the  creditor  is  not  precluded  by  admitting 
the  correctness  of  the  balance  from  having  recourse 
to   his  security  to   an  extent   not  in  excess  of  the 
amount   found    to   be   due  to   him   on   the   current 
account. 

If  a  third  party  is  jointly  and  severally  liable 
with  the  principal  debtor  upon  a  debt  included  in  a 
current  account,  paragraph  1  applies  mutatis  mutandis 
to  the  manner  of  enforcing  payment  in  respect 
thereof. 

357.  If   the   judgment    creditor  of   one   of   two 
parties   between  whom    there   exists    a  relation   of 
current  account  for  the  purpose  of  enforcing  pay- 

(o)  /.<'.,   this  constitutes    an  exception   to    the   general   rule   that 
interest  on  interest  is  never  payable.     See  Schuster,  p.  104. 


172  GERMAN  COMMERCIAL  CODE. 

nient  has  obtained  an  attachment  and  assignment  (p) 
of  the  balance  due  to  his  debtor  upon  the  current 
account,  debit  entries  made  in  respect  of  fresh 
transactions  after  such  attachment  and  assignment 
may  not  be  set  off  against  the  claim  of  such 
judgment  creditor.  Transactions  entered  upon  by 
reason  of  any  right  of  the  one  party  or  of  any 
obligation  of  the  other  party  to  the  current  account 
which  was  in  existence  before  the  making  of  such 
attachment  and  assignment,  are  not  fresh  trans- 
actions within  the  meaning  of  this  section. 

358.  In  mercantile  transactions  a  payment  may 
only  be  made  or  demanded  during  the  customary 
business  hours. 

359.  If  the  time  agreed  upon  for  a  payment  is 
described  as  "  the  spring  "  or  "  the  autumn,"  or  by 
any  similar  expression,  in  the  absence  of  anything 
to  the  contrary  appearing,  such  expression  shall  be 
interpreted  in  accordance  with  the  custom  of    the 
place  of  performance. 

If  a  period  of  eight  days  is  specified  as  that 
within  which  a  payment  is  to  be  made,  such  period 
shall,  in  the  absence  of  anything  appearing  to  the 
contrary,  include  eight  full  days  (q). 

360.  Where  there  is  an  obligation  to  deliver  goods 

(p)  "  Pfandung  und  Uberweisung,"  which  is  here  rendered  attach- 
ment and  assignment,  is  the  German  process  of  enforcing  judgment 
•which  corresponds  to  obtaining  a  garnishce  order. 

(</)  In  ordinary  colloquial  German  "  acht  Tagen  "  (eight  days)  means 
really  a  week  or  seven  days. 


MERCANTILE  TRANSACTIONS  :  GENERAL  RULES.   173 

defined  generioally  (rj,    merchantable    goods   of  an 
average  kind  and  quality  must  be  delivered. 

361.  Terms   of    measurement,   weight,   currency, 
or  time,  made  use  of  in  a  mercantile  contract  are, 
in  the  absence  of  anything  appearing  to  the  con- 
trary, to  be  interpreted  in  accordance  with  the  rule 
prevailing  in  the  place  where  such  contract  is  to  be 
performed. 

362.  If  a  mercantile  trader,  whose  trade  includes 
the  undertaking  of  transactions  on  behalf  of  others, 
receives  a  proposal  that  lie  should  undertake  any 
such  transactions  from  a  person  between  whom  and 
himself  regular  business  relations  exist,  he  is  bound 
to  answer  immediately  or  he  will  be  deemed  to  have 
accepted  such  proposal.     The  same  rule  applies  in 
respect   of   a   proposal   received    by   a    mercantile 
trader  from  any  person  upon  whose  behalf  he  has 
offered  to  undertake  transactions. 

If  goods  accompany  the  document  by  which  such 
proposal  is  made,  the  mercantile  trader  must,  even 
if  he  refuses  the  proposal,  provisionally  keep  the 
goods  protected  from  damage  at  the  expense  of 
the  proposer,  provided  that  he  has  security  for  the 
outlay  incurred  and  can  do  so  without  disadvantage 
to  himself. 

363.  Any  written   order  by   which   a  mercantile 
trader  is  requested  to  pay  or  deliver  to  the  order  of 

(r)  I.e.,  as  opposed  to  goods  defined  specifically,  fi.g.,  an  obliga- 
tion to  deliver  "  4,000  iron  bars"  as  opposed  to  an  obligation  to  deliver 
"the  4,000  iron  bars  now  lying  in  the  hold  of  the  S.S.  '  Electra.'  " 


174  GERMAN  COMMERCIAL  CODE. 

another  a  sum  of  money  or  a  negotiable  instrument 
or  any  fungible  thing,  provided  that  such  payment 
or  delivery  is  not  made  dependent  on  some  counter- 
performance  on  the  part  of  the  holder,  is  transferable 
by  indorsement.  Any  written  promise  by  which  a 
mercantile  trader  undertakes  to  make  any  payments 
or  deliveries  of  the  description  above  specified  to 
the  order  of  another,  provided  that  such  payment 
is  not  made  dependent  on  some  counter-perform- 
ance on  the  part  of  the  holder,  is  transferable  by 
indorsement. 

The  following  documents  are  likewise  transferable 
by  indorsement  if  made  out  to  order :  Bills  of 
lading,  carriers'  receipts,  warehouse  receipts  issued 
by  any  establishment  licensed  by  the  State  for  that 
purpose,  bottomry  bonds,  and  policies  of  insurance 
against  risks  of  carriage. 

364.  By  the  indorsement  of  an  instrument  all 
rights  arising  therefrom  out  of  such  instrument  are 
transferred  to  the  indorsee. 

The  indorsee  of  an  instrument,  if  in  the  position 
of  a  lawful  holder,  can  only  be  met  by — 

(1)  Defences  arising  from  the  invalidity  of  the 

declaration  purporting  to  be  made  by  him 
on  the  face  of  the  instrument : 

(2)  Defences  arising  from  the  tenor  of  the  instru- 

ment (s) : 

(s)  I.e.,  from  the  manner  in  which  the  instrument  is  -worded. 
E.g.,  a  defence  that  the  bill  is  on  its  face  described  as  non-trans- 
ferable. 


MERCANTILE  TRANSACTIONS  I    GENERAL  RULES.       175 

(3)  Defences  directly  available  as  between  the 
indorsee  and  the  debtor  (£). 

The  debtor  is  only  obliged  to  make  payment  upon 
the  delivery  up  to  him  of  the  instrument  with  a 
receipt  indorsed  thereon. 

365.  With   regard   to    the  form  of   indorsement 
required,  the  holder's  title  and  the  method  of  proof 
thereof,   and  the  holder's    obligation    to    surrender 
documents  to  the  true  owner,  the  rules  of  Arts.  11  — 
13,   36,  and  74  (u)  of  the   Bills  of  Exchange  Act 
apply  mutatis  mutandis. 

If  the  instrument  is  destroyed  or  lost  it  may  be 
declared  inoperative  by  process  of  public  citation. 
As  soon  as  the  application  to  obtain  such  declaration 
has  been  made  the  person  entitled  to  the  instrument 
may,  upon  furnishing  security  (#),  claim  perform- 
ance from  the  person  liable  upon  the  instrument 
according  to  its  terms.  Such  security  is  to  remain 
operative  till  the  declaration  has  been  effected. 

366.  If  a  mercantile  trader  in  the  usual  course  of 
his  trade  sells  or  pledges  moveable  property  which 
does  not  belong  to  him,  the  rules  of  the  Civil  Code 
operating  to  the  benefit  of  persons  deriving  their 
title  from   a  person  without  any  title  to  confer  (//), 
are  applicable  even  if  the  good  faith  of  the  persons 
acquiring  such  property  merely  consisted  in  a  belief 

(t]  E.g.,  a  right  of  set-off  operating  directly  between  transferee  and 
debtor. 

(u)  See  Byles  on  Bills,  Appendix  III. 
(a;)  See  Schuster,  p.  77. 
(//)  Civil  Code,  ss.  932—935,  and  1207;  see  Schuster,  pp.  396-399. 


176  GERMAN  COMMERCIAL  CODE. 

that  the  vendor  or  pledgor  was  duly  authorised  to 
dispose  of  such  property  on  behalf  of  the  true 
owner. 

Jf  such  property  is  charged  with  right  of  a  third 
party,  the  rules  of  the  Civil  Code  operating  to  the 
benefit  of  persons  deriving  their  titles  from  a  person 
without  any  title  to  confer,  are  applicable  even  if 
the  good  faith  of  the  person  acquiring  such  property 
merely  consisted  in  a  belief  that  the  vendor  or 
pledgor  had  a  right  to  dispose  of  such  property 
without  making  the  transaction  subject  to  the  rights 
of  such  third  party. 

For  the  purposes  of  the  protection  given  to  parties 
acting  in  good  faith  the  statutory  right  of  pledge  (2) 
of  commission-merchants,  forwarding  agents,  ware- 
housemen, and  carriers — has  the  same  effect  as  a 
right  of  pledge  acquired  by  contract  in  the  manner 
specified  in  paragraph  1  of  this  section. 

367.  If  an  instrument  issued  to  bearer  which  has 
been  stolen  from  the  owner,  lost,  or  otherwise 
become  missing  is  sold  or  pledged  to  a  mercantile 
trader  carrying  on  a  banking  or  change  business, 
evidence  of  such  mercantile  trader's  good  faith  will 

(z)  "  Pfandrecht,"  here  translated  right  of  pledge,  is  a  charge  on  a 
moveable  thing  created  for  the  purpose  of  securing  the  performance 
of  an  existing  or  future  obligation.  The  person  who  can  exercise  this 
right  is  called  the  pledgee  (pfand-glaiibiger),  the  person  against  whom 
it  is  exercised  is  called  the  pledgor  (verpfander),  by  his  "  pfandrecht  " 
the  pledgee  is  entitled  to  satisfy  his  claim  against  the  pledgor  out  of 
the  obj  ect  pledged.  This  may  be  effected  by  selling  it :  but  the  sale 
must  take  place  in  a  specified  manner.  A  "pfandrecht"  is  in  some 
cases  given  by  statute.  See  sects.  397,  410,  421,  440,  post. 

As  to  "  pfandrecht"  generally,  see  Schuster,  pp.  459—475. 


MERCANTILE  TRANSACTIONS  :  GENERAL  RULES.   177 

be  inadmissible  if  at  the  time  of  such  sale  or  pledg- 
ing the  loss  of  such  instrument  had  been  notified  in 
the  German  Imperial  Gazette  by  a  public  authority 
or  by  the  person  rendered  liable  by  the  instrument, 
and  if  not  more  than  one  year  has  elapsed  from  the 
expiration  of  the  year  in  which  such  notification 
was  made. 

Such  evidence  will,  however,  not  be  inadmissible 
by  reason  of  such  notification  if  such  mercantile 
trader,  owing  to  special  circumstances,  was  neither 
aware  nor  ought  to  have  been  awrare  thereof. 

The  rules  of  this  section  have  no  application  to 
interest,  annuity,  or  dividend-warrants,  payable  not 
later  than  at  the  next  day  of  payment  subsequent  to 
the  date  of  the  sale  or  pledging,  or  to  banknotes  and 
other  instruments  to  bearer  payable  at  sight  and  not 
carrying  with  them  the  right  to  interest. 

368.  In  respect  of  the  sale  of  property  pledged 
under  a  bilateral  mercantile  transaction,  the  period 
of  grace  («)  of  one  month  specified  by  sect.  1234  of 
the  Civil  Code  is  replaced  by  one  of  a  week. 

This  rule  applies  mutatis  mutandis  to  the  statutory 
right  of  pledge  of  commission  merchants,  forwarding 
agents,  warehousemen  and  carriers,  in  the  case  of 


(a)  Where  a  pledgee  intends  to  sell  the  property  pledged  he  must 
notify  the  owner  of  the  property  of  his  intention  where  practicable. 
By  the  Civil  Code,  s.  1234,  one  month  must  elapse  between  the  date 
of  the  notification  and  the  date  of  the  sale,  or  where  notification  is 
impracticable  between  the  date  upon  which  the  right  of  sale  arose  and 
the  date  of  the  sale.  See  Schuster,  pp.  471,  472. 


S. 


178  GERMAN  COMMERCIAL  CODE 

forwarding  agents  and  carriers,  even  if  the  contract 
of  forwarding  or  carriage  was  a  mercantile  one  on 
their  side  only. 

369.  A  mercantile  trader  has  in  respect  of  debts  due 
to  him  from  another  mercantile  trader  and  arising 
out  of  bilateral  mercantile  transactions  concluded 
between  them,  a  right  of  lieu(b)  over  any  objects  of 
moveable  property  or  any  negotiable  instruments 
belonging  to  the  debtor,  which  have  come  into  his 
possession  with  the  consent  of  the  debtor  and  bv 
reason  of  any  mercantile  transactions,  so  long  as  he 
retains  them  in  his  possession,  including  constructive 
possession,  arising  from  his  right  of  disposal,  which 
he  can  exercise  over  them  by  means  of  bills  of 
lading,  carrier's  receipts  and  warehouse  receipts. 
The  lien  arises  equally  in  cases  where  the  property 
in  the  object  thereof  has  been  transferred  from  the 
debtor,  or  a  third  party  on  his  behalf,  to  the 
creditor,  but  retransferred  by  him  to  the,  debtor. 

As  against  a  third  party  the  right  of  lien  holds 
good  if  the  defences  which  can  be  set  up  against 

(&)  "  Zuriickbehaltungsrecht "  (here  translated  lien)  is  a  right  of 
retention,  which  can  be  exercised  over  moveable  property  by  a  creditor 
to  secure  his  debtor's  performance  of  his  obligation.  A  mercantile 
"  Zuriickbehaltungsrecht "  (the  only  kind  with  which  this  Code  is 
concerned)  corresponds  roughly  to  a  general  lien  in  English  law,  while 
the  ordinary  "  Zuriickbehaltungsrecht"  corresponds  to  a  particular 
lien.  Unlike  the  English  general  lien  a  mercantile  ' '  Zuriickbehaltungs- 
recht "  gives  the  creditor  a  right  to  satisfj-  his  debt  by  a  sale  of  the 
property  which  forms  the  object  of  it.  But  this  right  can  only  be 
exercised  if  an  order  of  the  Court  is  obtained  authorising  such  sale, 
while  under  a  "  Pfandrecht "  or  right  of  pledge  (see  ante,  note  to 
sect.  66)  no  such  authorisation  is  required  in  order  to  effect  the  sale. 
As  to  "  Zuriickbehaltungsrecht,"  see  Schuster,  p.  192. 


MERCANTILE  TRANSACTIONS  :    GENERAL  RULES.       179 

the  debtor's  claim  to  the  right  to  dispose  of  the 
object  of  the  lien  can  be  set  up  against  the  third 
party  also. 

The  right  of  lien  is  excluded,  if  the  retention  of 
the  object  thereof  is  inconsistent  with  any  direction 
given  by  the  debtor  at  the  time  of  or  before  the 
delivery  thereof,  or  with  any  obligation  on  the  credi- 
tor's part  to  deal  in  a  specified  manner  therewith. 

The  debtor  may  avoid  the  effects  of  the  right  of 
lien  by  the  furnishing  of  security  (c),  but  security 
by  means  of  a  guarantee  is  excluded. 

370.  The  right  of  lien  may  also  be  exercised  in 
respect  of  debts  not  yet  accrued  due  in  the  following 
cases : — 

(1)  If  the  debtor  has  been  adjudicated  bankrupt, 

or  if  he  has  suspended  payment. 

(2)  If   an  execution  has   been   levied   upon  the 

property  of  the  debtor  but  not  satisfied. 

The  right  of  lien  is  not  defeated  by  a  direction 
given  by  the  debtor,  or  an  obligation  on  the  part  of 
the  creditor  to  deal  with  the  property  in  question  in 
a  particular  manner  if  the  facts  specified  in  para- 
graph 1,  heads  No.  1  and  No.  2,  of  this  section  did 
not  become  known  to  the  creditor  until  after  the 
delivery  of  the  property  in  question  or  the  creation 
of  such  obligation. 

371.  The  creditor   has    power   by  virtue   of   his 
right  of  lien  to  satisfy  his  debt  out  of  the  property 

(c)  See  Schuster,  p.  76. 


180  GEKMAN  COMMERCIAL  CODE. 

over  which  such  right  is  exercised.  If  a  third  party 
has  any  right  in  respect  of  such  property,  which  is 
overridden  by  the  creditor's  right  of  lien  in  accord- 
ance with  sect.  369,  paragraph  2,  in  respect  of  such 
satisfaction,  the  creditor's  debt  takes  priority  over 
the  debt  of  such  third  party. 

The  satisfaction  takes  place  in  accordance  with 
the  rules  laid  down  as  to  right  of  pledge  by  the 
Civil  Code(d),  the  month's  period  of  grace  laid 
down  by  sect.  1234  thereof  being  replaced  by  one 
of  a  week. 

If  such  satisfaction  is  not  effected  in  the  course 
of  the  execution  of  a  general  judgment,  it  is  not 
permissible  before  the  creditor  has  obtained  an 
enforceable  order  declaring  his  right  to  satisfaction 
against  the  owner  of  the  property,  or  if  he  himself 
is  the  owner  (e),  against  the  debtor ;  in  the  latter 
case  the  rules  of  the  Civil  Code  (/)  applying  to  the 
owner  of  property  apply  mutatis  mutandis  to  the 
debtor.  In  default  of  any  such  enforceable  judg- 
ment the  sale  of  the  property  is  not  lawful. 

The  action  to  obtain  a  judgment  authorising  satis- 
faction may  be  commenced  in  the  Court  of  the 
district  in  which  the  creditor  may  be  sued  either  by 
reason  of  his  personal  domicile  or  by  reason  of  his 
place  of  business  being  situated  therein. 


(d)  See  Schuster,  pp.  470  et  seq. 

(e)  I.e.,  in  cases  where  a  purchaser  refuses  to  take  delivery  and  the 
vendor  exercises  a  "  pfandrecht"  or  right  of  pledge  over  the  goods  by 
way  of  securing  his  right  to  the  purchase  price. 

(/)  As  to  these  rules,  see  Schuster,  pp.  471 — 473. 


MERCANTILE  SALE.  181 

372.  With  respect  to  the  creditor's  right  of  satis- 
faction out  of  the  property  which  forms  the  object 
of  the  lien,  the  debtor,  if,  at  the  time  when  the 
creditor  acquired  the  possession  of  such  property, 
he  was  the  owner  thereof,  shall,  as  between  himself 
and  the  creditor,  be  deemed  to  continue  to  be  the 
owner,  unless  the  creditor  is  aware  that  lie  has 
ceased  to  be  so. 

If  a  third  party  acquires  the  ownership  of  such 
property  after  it  has  passed  into  the  possession  of 
the  creditor,  any  enforceable  judgment  in  an  action 
claiming-  satisfaction  brought  by  the  creditor  against 
the  debtor  holds  good  as  against  such  third  party, 
if  the  creditor  was  unaware  at  the  time  of  the  com- 
mencement of  the  proceedings  that  the  debtor  had 
ceased  to  be  the  owner  of  the  property. 


PART  II.     MERCANTILE  SALE. 

373.  If  the  purchaser  is  in  mord  accipiendi(g\  the 
vendor  may  either  store  the  goods  in  a  public  ware- 
house, at  the  purchaser's  risk  and  expense,  or  deposit 
them  in  some  other  safe  place. 

In  addition  he  may,  after  having  previously  given 
notice  to  the  purchaser  of  his  intention,  either  sell 
the  goods  by  public  auction,  or,  if  they  have  a 
quoted  exchange  or  market  price,  sell  them  by 
private  contract  at  the  current  price  through  a  broker 


(</)  I.e.,  if  he  refuses  to  accept  the  goods  when  offered  at  the  proper 
time.     See  Schuster,  p.  161. 


182  GERMAN  COMMERCIAL  CODE. 

authorised  to  transact  such  sales,  or  an  authorised 
auctioneer.  If  the  goods  are  of  a  perishable  nature 
and  delay  involves  risk,  or  if  there  are  other  reasons 
making  the  giving  of  notice  impracticable,  it  may 
be  dispensed  with. 

Such  sale  must  be  made  for  the  account  of  the 
defaulting  purchaser. 

Where  such  sale  is  effected  by  auction,  both 
vendor  and  purchaser  may  bid  thereat. 

In  the  case  of  a  sale  by  auction  the  vendor  must 
previously  notify  the  purchaser  of  the  time  and  place 
thereof.  Upon  the  completion  of  the  sale,  in  what- 
ever manner  effected,  he  must  immediately  notify 
the  purchaser  of  the  result  thereof.  Neglect  to  do 
so  renders  him  liable  to  pay  damages.  Where  such 
notifications  are  impracticable  they  may  be  dispensed 
with. 

374.  The  powers  conferred  upon   the  vendor  in 
the  event  of  the  purchaser  being  in  mord  accipicndi 
by  the  Civil   Code  are  unaffected   by  the  rules  of 
sect.  373  (A). 

375.  If  upon   the  sale  of    a  moveable   thing,    a 
detailed    specification    as    to    the    required   form, 
measurements,   &c.  thereof  is  left  to  the  determi- 
nation of  the  purchaser,  he  is  bound  to  furnish  such 
specification. 

(h)  The  vendor  may  (1)  claim  reimbursement  for  the  expenses  of 
his  unsuccessful  tender.  (Civil  Code,  s.  304.)  (2)  Deposit  the  goods 
with  a  public  authority  in  accordance  with  Civil  Code,  s.  372.  (See 
Schuster,  p.  178.)  As  to  mord  accipiendi  or  refusal  to  accept  the 
performance  tendered  by  the  other  contracting  party,  see  Schuster, 
p.  161. 


MERCANTILE  SALE.  183 

If  the  purchaser  is  in  mord  («')  with  respect  to  the 
furnishing  of  such  specification,  the  vendor  may 
himself  make  out  the  specification  instead  of  the 
purchaser  or  claim  damages  for  breach  of  contract 
in  accordance  with  sect.  326  of  the  Civil  Code,  or 
rescind  the  contract.  In  the  first  alternative  the 
vendor  must  make  known  to  the  purchaser  the  speci- 
fication he  has  himself  made  out,  and  name  a  reason- 
able period  within  which  the  purchaser  may  send  in 
a  different  one.  If  no  such  specification  is  sent  in 
by  the  purchaser  within  the  period  named,  that 
made  out  by  the  vendor  is  to  hold  good  for  the 
purposes  of  the  contract. 

376.  If  there  is  a  stipulation  that  the  performance 
by  one  party  of  his  part  of  the  contract  must  be 
completed  at  a  definitely  fixed  time  or  within  a 
definitely  fixed  period,  the  other  party  may,  if  it  is 
not  so  completed,  either  rescind  the  contract,  or  if 
the  defaulting  party  is  in  mord  (#),  may  claim 
damages  for  breach  of  contract  instead  of  specific 
performance  thereof.  Such  party  can  only  claim 

(/)  I.e.,  refuses  to  furnish  it  at  the  proper  time  in  spite  of  due 
demand  made  therefor.  See  post,  note  to  sect.  376. 

(&)  As  to  the  meaning  of  the  technical  term  in  mord,  which  has 
been  used  to  render  the  technical  German  term  "in  verzug,"  see 
Schuster,  p.  160.  A  contracting  party  is  in  'inord  if  his  part  of  the 
contract  remains  unperformed,  the  time  for  performance  having 
arrived  and  due  demand  for  performance  having  been  made  by  the 
other  contracting  party.  Such  demand  is  dispensed  with  if  the  time 
for  performance  was  fixed  with  reference  to  the  calendar  year.  A 
contracting  party  is  not  deemed  to  be  in  mord  if  the  punctual 
performance  of  his  obligation  is  prevented  by  circumstances  for  which 
he  is  not  responsible  under  certain  rules. 


184  GERMAN  COMMERCIAL  CODE. 

specific  performance  if  he  gives  notice  that  he 
intends  to  enforce  it  immediately  after  the  definitely 
fixed  time  or  the  expiration  of  the  definitely  fixed 
period. 

In  an  action  for  damages  for  breach  of  contract, 
if  the  goods  in  question  have  an  exchange  or  market 
price,  the  amount  of  the  claim  may  be  based  upon 
the  difference  between  the  contract  price  and  the 
exchange  or  market  price  at  the  time  and  place  at 
which  the  contract  should  have  been  performed. 

If  the  goods  have  an  exchange  or  market  price, 
the  result  of  an  actual  sale  or  purchase  thereof 
made  otherwise  than  at  such  price  can  only  be 
made  the  basis  of  the  claim  for  damages  if  such 
sale  or  purchase  was  effected  immediately  after  the 
time  or  the  expiration  of  the  period  stipulated  for 
performance.  The  sale  or  purchase,  if  not  effected 
by  auction,  must  be  effected  at  current  price  through 
a  broker  authorised  to  effect  sales  of  a  similar 
nature  or  an  authorised  auctioneer. 

The  rule  stated  in  sect.  373,  paragraph  4,  applies 
to  such  sale  by  public  auction.  The  creditor  must 
immediately  notify  the  debtor  of  the  sale.  In 
default  of  such  notification  he  is  liable  to  pay 
damages  for  any  resulting  loss. 

377.  If  the  sale  is  a  bilateral  mercantile  trans- 
action the  purchaser  must  examine  the  goods  imme- 
diately after  their  delivery  by  the  vendor,  as  far  as 
this  is  practicable  in  the  ordinary  course  of  business, 
and  upon  the  discovery  of  any  defect  must  imme- 
diately give  notice  thereof  to  the  vendor. 


MERCANTILE  SALE.  185 

A  purchaser  failing  to  give  such  notice  shall  be 
deemed  to  have  accepted  the  goods,  unless  the 
defect  in  question  is  one  not  discernible  by  such 
examination. 

Upon  the  subsequent  appearance  of  a  defect  not 
discoverable  by  such  examination,  notice  thereof 
must  be  given  immediately  upon  its  being  dis- 
covered, otherwise  the  goods  will  be  held  to  have 
been  accepted  notwithstanding  such  defect. 

The  purchaser's  rights  are  sufficiently  protected 
by  the  sending  off  of  the  notice  at  the  proper  time. 

If  a  vendor  intentionally  conceals  any  defect  he 
cannot  rely  upon  the  rules  of  this  section. 

378.  The  rules  of  sect.  377  apply  also  to  a  case 
where  goods  are  delivered  the  description  or  quan- 
tity of   which  is  other   than    that    contracted    for, 
unless    the   goods   delivered    are   so    obviously    at 
complete  variance  with  the  order  given  that  the 
vendor  could  not  have  contemplated  the  possibility 
of  acceptance  by  the  purchaser. 

379.  In  the  case  of  a  sale  which  is  a  bilateral 
mercantile  transaction,  the  purchaser  is  bound,  upon 
rejecting  goods  sent  to  him  from  another  place,  to 
provide  for  their  temporary  safe  keeping 

If  the  goods  are  perishable  and  there  is  risk  in 
delay,  he  may  have  them  sold  in  accordance  with 
the  rules  of  sect. 


380.  If  the  purchase  price  is  fixed  by  the  weight 
of  the  goods  sold,  the  weight  to  be  deemed  to  be 
intended  is  that  of  the  goods  after  the  deduction  of 


186  GERMAN  COMMERCIAL  CODE. 

the  weight  of  the  material  used  in  packing  (herein- 
after called  the  tare-weight),  unless  otherwise  pro- 
vided by  the  contract  or  prohibited  by  the  mercantile 
custom  of  the  place  where  the  vendor  has  to  perform 
his  part  of  the  contract. 

Questions  as  to  whether,  and  if  so  to  what  extent, 
the  tare-weight  is  to  be  deducted  according  to  a 
special  method  of  reckoning  or  in  a  special  manner 
instead  of  according  to  accurate  measurement,  as 
well  as  what,  if  any,  allowance  is  to  be  made  to  the 
purchaser  and  what  deduction  (hereinafter  called 
abatement)  is  to  be  made  in  respect  of  damaged  or 
unusable  goods,  are  to  be  decided  by  the  terms  of 
the  contract  or  by  the  mercantile  custom  of  the 
place  where  the  vendor  has  to  perform  his  part  of 
the  contract. 

381.  The  rules  contained  in  the  present  part  of 
this  Code  as  to  the  sale  of  goods  apply  also  to  the 
sale  of  negotiable  instruments. 

They  hold  good  also  in  the  case  of  a  non- 
fungible  (A"^)  moveable  chattel  to  be  manufactured 
by  the  party  contracting  to  do  so  from  material  to 
be  supplied  by  himself. 

382.  The  rules  of  the  present  part  of  this  Code 
do  not  affect  those  of  sects.  481 — 492  of  the  Civil 
Code  dealing  with  warranties  in  respect  of  animals. 

(kk)  By  fungible  things  are  meant  things  sold  by  weight  or  measure, 
and  which,  if  lost,  can  be  replaced  by  an  equal  quantity  of  things  of 
the  same  description  (e.g.,  coffee  is  a  fungible  thing  and  an  oak  chair 
ia  a  non-fungible  thing). 


COMMISSION  BUSINESS.  187 


PART  III.     COMMISSION  BUSINESS 

383.  A  commission  merchant  is  a  person  who  in 
the  regular  course  of  his  trade  undertakes  to  buy  or 
sell    goods  or  negotiable    instruments   in    his  own 
name  upon  the  instructions  of  another(7)  (hereinafter 
called  the  principal). 

384.  A  commission  merchant  is  bound  to  transact 
the  business  undertaken  by  him  with  the  diligence 
of  a  careful  mercantile  trader  ;  he  must  watch  over 
his  principal's  interest  and  follow  his  instructions. 

He  must  furnish  his  principal  with  all  necessary 
information,  and  in  particular  must  without  delay 
inform  him  of  the  execution  of  the  order  given  ;  he 
must  render  an  account  of  every  transaction  entered 
upon  on  the  principal's  instructions  and  hand  over 
to  him  anything  he  may  have  received  in  connection 
with  such  transactions. 

A  commission  merchant  is  liable  to  his  principal 
for  the  carrying  out  of  any  transaction  entered 
upon  on  his  instructions,  unless  when  making  his 
report  as  to  the  conclusion  of  such  transaction  to 
his  principal  he  names  the  party  with  whom  it  has 
been  concluded. 

385.  If  a  commission  merchant  does  not  deal  in 
accordance  witli  his  instructions,  he  is  liable  to  his 
principal    in   damages ;     the  principal   may   at  his 

(/)  Literally  "for  the  account  of  another.''  See  Schuster,  p.  280, 
note  1. 


188  GERMAN  COMMERCIAL  CODE. 

option    refuse   to   let   the    transactions    stand    for 
his  account. 

This  section  does  not  affect  the  rules  of  sect.  685  (w) 
of  the  Civil  Code. 

386.  If  a  commission  merchant  sells  at  a  lower  or 
buys  at  a  higher  price  than  that  in  accordance  with 
his  instructions,  the  principal  must,  if  he  wishes  to 
repudiate  the  transaction  for  his  account,  make  a 
declaration  to  that  effect  immediately  upon  receiv- 
ing  the    notification    as   to   the    conclusion    of   the 
transaction ;    failing  this  he  will  be  held  to   have 
ratified  the  departure  from   his  instructions  as  to 
price. 

If  the  commission  merchant,  when  reporting  the 
conclusion  of  the  transaction,  offers  to  cover  the 
difference  in  price  himself,  the  principal  may  not 
repudiate,  provided  always  that  the  right  of  the 
principal  to  claim  damages  in  respect  of  any  loss 
incurred  in  excess  of  the  difference  between  the  two 
prices  remains  hereby  unaffected. 

387.  If    the  commission   merchant   concludes    a 
transaction   on  more  favourable  terms   than    those 
mentioned  in  his  instructions,   the   principal  is  to 
have  the  benefit  of  such  terms. 

This  applies  in  particular  to  sales  effected  at  a 


(m)  See  Schuster,  p.  269.  By  this  section,  an  employee  may  deviate 
from  his  instructions  if  he  has  good  reason  to  think  his  employer 
•would  have  varied  them  had  he  known  the  true  facts.  But  he  may 
only  do  so  if  the  matter  does  not  permit  of  the  delay  which  would  be 
necessary  for  obtaining  fresh  instructions. 


COMMISSION  BUSINESS.  189 

price  above,  and  purchases  effected  at  a  price  below 
that  named  by  the  principal  as  his  limit. 

388.  If  goods  forwarded  to  a  commission  merchant 
are  delivered  in  a  damaged  or  defective  condition 
recognisable  by  their  outward  appearance,  the  com- 
mission merchant  must  preserve  all  rights  against 
the  carrier  of  the  goods,  or  the  master  of  the  vessel 
in  which  they  were  carried  must  take  care  to  pre- 
serve the  evidence  of  their  condition  upon  delivery, 
and  inform  his  principal  forthwith  ;  failure  to  do  so 
renders  him  liable  to  pay  damages. 

If  the  goods  are  of  a  perishable  nature,  or  if  they 
are  subsequently  affected  in  a  manner  likely  to  cause 
their  depreciation,  or  if  there  is  no  time  to  obtain 
the  instructions  of  the  principal  as  to  the  disposal  of 
the  goods,  or  if  the  principal  is  dilatory  in  giving 
his  instructions,  the  commission  merchant  may  sell 
the  goods  in  accordance  with  the  rules  of  sect.  373. 

389.  If  the  principal  fails  to  give  any  instructions 
as  to  the  disposal  of  the  goods,  although  it  is  his 
duty  so  to  do  by  reason  of  the  circumstances,   the 
commission  merchant  may  exercise  the  rights  con- 
ferred upon  a  vendor  by  sect.  373. 

390.  A  commission  merchant  is  liable  for  the  loss 
or  deterioration  of  goods  which  come  into  his  cus- 
tody, unless  such   loss   or   deterioration   is   due  to 
circumstances  which   could  not  have  been  avoided 
by  the  diligence  of  a  careful  mercantile  trader  (ri). 

(ri)  The  burden  of  proof  is  on  the  commission  merchant  to  show 
that  he  has  exercised  the  diligence  of  a  careful  mercantile  trader. 


190  GERMAN  COMMKRCIAL  CODE. 

A  commission  merchant  is  only  liable  for  failure 
to  insure  goods  if  his  principal  had  instructed  him 
to  insure  them. 

391.  Upon  the  purchase  of  goods  on  behalf  of  a 
principal  by  a  commission  merchant,   if  the  trans- 
action is  a  mercantile  one  bilaterally,  the  principal 
is  affected  mutatis  mutandis  by  the  rules  applying 
to    a   purchaser    contained    in    sects.    377 — 379,   in 
respect  of — 

(1)  His  duty  to  examine  the   goods  and  imme- 

diately inform  the  commission  merchant  of 
any  defects  discovered : 

(2)  The  safe  keeping  of  the  rejected  goods  : 

(3)  The    sale    of    goods   where   there   is   risk  of 

deterioration. 

The  principal's  right  to  have  assigned  to  him  the 
claims  of  the  commission  merchant  against  the  party 
from  whom  the  latter  bought  upon  his  instructions 
is  unaffected  by  delay  in  making  a  declaration  as  to 
any  defect  discovered. 

392.  Claims  arising  out  of  transactions  concluded 
by  a  commission  merchant  cannot  be  enforced  by 
his  principal  against  the  debtor  until  they  have  been 
assigned  to  him. 

But  even  before  such  assignment  is  made,  such 
claims  as  between  the  commission  merchant  or  his 
creditors  and  the  principal  are  deemed  to  be  vested 
in  the  principal. 

393.  A    commission    merchant  who,   without  the 


COMMISSION  BUSINESS.  191 

consent  of  his  principal,  makes  an  advance  or  allows 
credit  to  a  third  party,  deals  at  his  own  risk. 

If,  however,  the  mercantile  custom  of  the  place 
at  which  the  transaction  is  concluded  allows  credit 
to  be  given  in  respect  of  the  purchase  money,  such 
credit  may,  in  default  of  instructions  to  the  contrary 
from  the  principal,  be  allowed  by  the  commission 
merchant. 

A  commission  merchant  who  sells  goods  on  credit 
without  authority  to  do  so,  becomes  liable  to  the 
principal  for  the  immediate  payment  of  the  purchase 
price.  If  this  price  would  have  been  less  if  paid  in 
cash,  he  is  only  liable  for  the  lesser  amount,  and  if 
this  amount  is  less  than  the  lowest  price  in  accord- 
ance with  his  instructions,  the  difference  between 
the  two  prices  in  addition  in  accordance  with 
sect.  386. 

394.  The  commission  merchant  is  responsible  for 
the  performance  of  the  obligations  undertaken  by 
the  party  with  whom  he  concluded  the  transaction 
on  the  instructions  of  his  principal  only  if  he 
expressly  undertook  such  responsibility  or  if  such 
responsibility  on  his  part  is  presumed  by  the 
mercantile  custom  of  the  place  where  he  carries  on 
business. 

The  commission  merchant  is,  where  so  responsible, 
directly  liable  to  his  principal  for  the  strict  perform- 
ance of  the  agreement  entered  into  in  point  of  time, 
in  so  far  as  performance  can  be  claimed  by  virtue 
of  the  contract.  Where  so  responsible  he  can  claim 
a  special  commission  (del  credere  commission). 


192  HERMAN  COMMERCIAL  CODE. 

395.  A  commission    merchant  instructed   to  pur- 
chase a  bill  of  exchange,  if  he  endorses  it,  is  bound 
to  do  so  in  the  customary  mariner  without  making 
any  reservations  as  to  his  liability. 

396.  A  commission  merchant  may  claim  his  com- 
mission upon  the  completion  of  the  transaction.     If 
the  transaction   has   not   been    completed,    he   has 
nevertheless    a     claim    to     a    commission     on    re- 
delivery  (0),  if  such  claim    is   sanctioned   by  local 
custom.     In  addition  he  may  claim  commission  upon 
non-completed  transactions,  the  non-completion  of 
which  is   due  solely  to  some  cause  for  which  the 
principal  himself  is  responsible. 

The  commission  merchant's  right  to  make  the 
charges  authorised  by  sects.  670  and  675  of  the 
Civil  Code  (p)  includes  also  the  right  to  charge  his 
principal  for  the  warehousing  and  transport  of 
goods  when  performed  by  himself. 

397.  A  commission  merchant,  so  long  as  he  is  in 
possession  of   the    goods  which  form  the  subject- 
matter  of  his  instructions,  or  more  particularly  can 
exercise  a  right  of  disposal  over  them  by  means  of 
a   bill    of    lading,    carrier's    receipt    or    warehouse 
receipt,  has  a  right  of  pledge  (q]  over  them  available 
to  secure  any  claims  he  may  have  in  respect  of 
disbursements  made  in    respect  of   the   goods,    his 

(o)  I.e.,  on  redelivering  to  the  principal  the  goods  entrusted  to  him 
to  sell. 

(p)  I.e.,  charges  in  respect  of  any  outlay,  the  necessity  of  which  the 
commission  merchant  was  entitled  to  assume.  See  Schuster,  p.  269. 

(</}  See  ante,  note  to  sect.  367. 


COMMISSION  BUSINESS.  193 

commission,  advances  and  loans  made  on  the  secu- 
rity of  the  goods  and  liabilities  incurred  in  con- 
nection therewith,  either  by  signing  negotiable 
instruments  or  otherwise  as  well  as  for  all  claims  on 
current  account  (r)  in  respect  of  business  transacted 
upon  commission. 

398.  The  commission  merchant  may,  even  when 
the  goods  which    form    the   subject-matter  of    his 
instructions  are  his  own  property,  satisfy  any  claim 
he  may  have  of  the  description  specified  in  sect.  397 
out  of  the  proceeds  of  sale  of  the  goods  themselves 
in  accordance  with  the  rules  applicable  to  the  right 
of  pledge  (s). 

399.  A   commission   merchant   may  satisfy  any 
claims  he  may  have  of  the  description  specified  in 
sect.    397    out   of   any   payments    due   from    third 
parties   in   respect  of   business   transacted    on   the 
instructions   of    his    principal    in    priority   to    the 
principal  or  his  creditors. 

400.  A  commission  merchant  instructed  to  buy 
or  sell  goods  which  have  a  market  price  or  securities 
quoted  on  any  public  exchange  may,  in  the  absence 
of  instructions  to  the  contrary  from  his  principal, 
carry  out  the  transaction  in  such  a  manner  that  he 
himself    becomes  the   purchaser  or  vendor  of  the 
goods  or  securities  in  question  (f). 

(r}  See  ante,  s.  355. 
(s)  See  Schuster,  p.  470. 

•  (£)  Literally,  "That  he  himself  delivers  the  goods  which  he  is 
ordered  to  buy  as  seller,  or  takes  over  the  goods  which  he  is  ordered 
to  sell  as  buyer." 

8.  O 


194  GERMAN  COMMERCIAL  CODE. 

In  such  cases  the  commission  merchant's  duty  of 
rendering  an  account  as  to  the  execution  of  the  sale 
or  purchase  is  restricted  to  that  of  proving  to  his 
principal  that  the  price  at  which  the  sale  or  purchase 
was  effected  did  not  vary  from  the  exchange  or 
market  price  current  at  the  time  of  such  sale  or 
purchase.  The  time  of  such  sale  or  purchase  is  to 
be  deemed  to  be  that  at  which  the  commission 
merchant  sent  off  to  his  principal  the  notification 
as  to  its  execution. 

If  the  notification  as  to  the  execution  of  a  sale  or 
purchase,  which  was  to  be  effected  according  to  the 
instructions  in  the  business  hours  of  the  exchange  or 
market,  is  not  sent  off  till  after  the  closing  of  the 
exchange  or  market,  the  price  set  down  in  account 
must  not  be  less  favourable  to  the  principal  than 
the  price  quoted  at  the  closing  of  the  exchange  or 
market. 

In  the  case  of  a  sale  or  purchase  to  be  effected  at 
a  specified  price  (e.g.,  the  opening,  middle,  or  closing 
price),  the  commission  merchant  is  authorised  and 
bound  to  set  down  such  transaction  in  account  at 
the  price  specified  irrespective  of  that  quoted  at  the 
time  the  notification  was  sent  off. 

In  the  case  of  the  sale  or  purchase  of  securities  or 
goods  which  have  an  officially  quoted  exchange  or 
market  price,  if  the  commission  merchant  constitutes 
himself  a  principal  in  the  transaction,  it  must  be 
carried  out  at  a  price  not  less  favourable  than  that 
quoted  officially. 

401.  In  respect  of  transactions  in  which  the  com- 


COMMISSION  BUSINESS.  195 

mission  merchant  constitutes  himself  a  principal,  if 
by  the  exercise  of  greater  diligence  he  could  have 
effected  them  at  a  price  more  favourable  to  his 
principal  than  that  fixed  in  the  manner  specified  in 
sect.  400,  the  price  entered  in  the  account  must  be 
the  most  favourable  one  for  the  principal  which  was 
obtainable. 

If  the  commission  merchant  before  sending  off 
the  notification  to  his  principal  has,  in  consequence 
of  the  order  given,  effected  a  transaction  with  a  third 
party  upon  the  exchange  or  in  the  market,  the  price 
set  down  in  account  with  his  principal  must  be  not 
less  favourable  to  him  than  the  price  fixed  upon  the 
conclusion  of  such  transaction  (w). 

402.  The  rules  of  sect.  400,  paragraphs  2 — 5,  and 
sect.  401  cannot  be  modified  by  agreement  to  the 
prejudice  of  the  principal. 

403.  A    commission    merchant    who    constitutes 
himself  buyer  or  seller  to  his  principal,  is  entitled 
to  the  customary  commission,  and   may  claim  all 
other  charges  customary  in   respect  of  transactions 
entered  into  on  commission. 

404.  The  rules  of  sect.  397  and  sect.  398  apply 
also  to  transactions  in  which  the  commission  mer- 
chant constitutes  himself  a  principal. 

(w)  I.e.,  if  the  commission  merchant  sells  his  own  goods  or  securities 
to  his  principal,  but  before  sending  off  the  notification  covers  himself 
by  buying  from  a  third  party  on  the  exchange  or  in  the  market,  he 
must  not  charge  his  principal  a  price  less  favourable  than  that  which 
he  himself  obtained  from  the  third  party. 


196  GERMAN  COMMERCIAL  CODK. 

405.  If  the  commission  merchant,  in  his  notifica- 
tion as  to  the  carrying  out  of  the  transaction,  does 
not  expressly  state  that  he  wishes  to  constitute  him- 
self a  principal,  such  notification  has  the  effect  of  a 
declaration   that  the  transaction  has  been  effected 
with  a  third  party  for  the  account  of  the  principal. 

Any  agreement  between  principal  and  commission 
merchant  to  the  effect  that  a  declaration  as  to 
whether  the  transaction  was  effected  by  the  com- 
mission merchant  as  principal  or  as  an  intermediary 
may  be  made  later  than  on  the  day  on  which  the 
notification  as  to  the  execution  of  the  transaction 
was  sent  off  is  null  and  void. 

If  the  principal  revokes  his  order  and  the  revoca- 
tion reaches  the  commission  merchant  before  he  has 
sent  off  his  notification  of  the  execution  of  the  order, 
the  right  to  constitute  himself  a  principal  may  no 
longer  be  exercised  by  the  commission  merchant. 

406.  The  rules  of  the  present  part  of  this  Code 
apply  also  to  transactions  other  than  those  of  the 
description  specified  in  sect.  383  which  a  commis- 
sion merchant  in  the  course  of  his  mercantile  trade 
undertakes  to  enter  upon  in  his  own  name  upon  the 
instructions  of  another,   as  well  as  to  transactions 
undertaken  in  a   similar  manner  by  a  mercantile 
trader  who  is  not  a  commission  merchant  in  the 
course  of  his  mercantile  trade. 

For  the  purposes  of  the  present  part  of  this  Code, 
orders  for  sale  or  purchase  shall  be  deemed  to 
include  orders  in  respect  of  a  non-fungible  (v) 

(v)  See  note  on  p.  186,  ante. 


FORWARDING  AGENCY.  197 

moveable  chattel,  to  be  manufactured  by  the  person 
undertaking  so  to  do  from  his  own  material. 


PART  IV.     FORWARDING  AGENCY. 

407.  A  forwarding  agent  is  a  person  who  in  the 
regular  course  of  his  trade  undertakes  the  forward- 
ing of  goods  by  the  agency  of  carriers  by  land  or 
sea  in  his  own  name  but  upon  the  instructions  of 
another. 

Upon  all  points  not  specifically  dealt  with  by  the 
present  part  of  this  Code,  the  rights  and  liabilities  of 
a  forwarding  agent  are  regulated  by  the  rules  apply- 
ing to  commission  merchants,  and  more  particularly 
those  of  sects.  388 — 390  dealing  with  the  receipt, 
safe-keeping  and  forwarding  of  goods. 

408.  The  forwarding  agent,  in  carrying  out  the 
forwarding  of   the  goods  and  in  particular  in  the 
selection  of  carriers  by  land  or  sea  and  sub-agents, 
must  act  with  the  diligence  of  a  careful  mercantile 
trader ;  he  must  protect  the  interests  of  the  sender 
and  carry  out  his  instructions. 

He  may  not  charge  the  sender  with  a  higher  rate 
than  that  agreed  upon  between  himself  and  the 
carrier. 

409.  The  forwarding  agent  is  entitled  to  claim  his 
commission (w}  when  the  goods  have  been  delivered 
to  the  carrier  by  land  or  sea  for  the  purpose  of 
being  forwarded. 

(w)  The  forwarding  agent  is  usually  remunerated  by  a  commission 
on  the  freight. 


198  GERMAN  COMMERCIAL  CODE. 

410.  The    forwarding    agent    has    a    right    of 
pledge  (rr)  over  the  goods  forwarded  by  way  of  secu- 
rity for  freight  paid  for  his  own  commission  for  outlay 
and  for  expenditure  as  well  as  for  advances  made 
on  the  goods,  so  long  as  he  retains  them   in  his 
possession,  or  more  particularly  can  exercise  a  right 
of  disposal  over  them  by  means  of  a  bill  of  lading, 
carrier's  or  warehouse  receipt. 

411.  A    sub-agent   employed    by    a   forwarding 
agent  may  exercise  the  same  rights  as  the  principal 
forwarding  agent   and   in    particular  his   right   of 
pledge. 

If  the  principal  agent's  claim  is  satisfied  by  his 
sub-agent,  the  claim  and  right  of  pledge  of  the 
former  pass  to  the  latter.  In  the  same  way  the 
claim  and  right  of  pledge  of  the  carrier  pass  to  the 
sub-agent  upon  his  satisfying  the  carrier's  claim. 

412.  The  forwarding  agent  has  authority,  in  the 
absence    of    any   agreement    to    the    contrary,    to 
perform  the  forwarding  himself. 

If  he  makes  use  of  this  authority,  he  has  at  the 
same  time  the  rights  and  obligations  of  a  carrier, 
he  may  claim  commission  and  such  other  charges  as 
are  regular  in  respect  of  forwarding  transactions,  as 
well  as  the  usual  freight  or  charge  for  carriage. 

413.  The  rights  and  liabilities  of   a  forwarding 
agent  who  has  made  an  agreement  with  the  sender 
of  goods  to  charge  a  fixed  rate  for  the  forwarding 
thereof   are   those   of    a   carrier    exclusively.     He 

(a;)  See  ante,  note  to  sect.  366,  p.  176. 


FORWARDING  AGENCY.  199 

cannot  claim  a  forwarding  agent's  commission  in  the 
absence  of  express  stipulation. 

If  he  effects  the  forwarding  of  the  goods  of  any 
one  principal  in  conjunction  with  those  of  other 
principals  by  means  of  a  single  contract  entered 
into  for  the  carriage  of  all  such  goods,  the  provisions 
of  paragraph  1  apply,  even  if  no  agreement  as  to  a 
fixed  rate  has  been  come  to.  In  such  a  case  the 
charge  made  must  be  for  freight  or  carriage  at  a 
rate  reasonable  under  the  circumstances,  but  in  no 
case  higher  than  the  ordinary  rate  which  would  have 
been  chargeable  had  the  goods  been  forwarded 
separately. 

414.  Claims  against  a  forwarding  agent  in  respect 
of  the  loss,  deterioration,  damage,  or  late  delivery 
of  goods  become  barred  in  one  year.  The  period 
of  prescription  may  be  extended  by  agreement. 

In  the  case  of  damage  or  deterioration  such  period 
runs  from  the  expiration  of  the  day  upon  which  the 
goods  were  delivered,  or  in  the  case  of  loss  or  late 
delivery,  from  the  day  upon  which  they  ought  to 
have  been  delivered. 

After  the  termination  of  the  period  of  prescription 
the  claims  specified  in  paragraph  1  can  only  be  set 
off  against  claims  by  the  forwarding  agent  if  notice 
of  the  loss,  deterioration,  damage,  or  late  delivery 
was  given  or  sent  off  before.  The  notice  to  the 
forwarding  agent  is  equally  good  if  an  application 
has  been  made  to  take  evidence  of  the  facts  judi- 
cially for  the  sake  of  preserving  the  evidence  or 


200  GERMAN  COMMERCIAL  CODE. 

if  the  forwarding  agent  obtains  such  notice  in  the 
course  of  litigation  arising  out  of  such  loss, 
deterioration,  damage,  or  late  delivery  and  carried 
on  between  the  sender  and  the  consignee,  or  some 
person  subsequently  acquiring  the  property  in  the 
goods. 

These  rules  do  not  apply  to  loss,  deterioration, 
damage,  or  late  delivery  wilfully  caused  by  the 
forwarding  agent. 

415.  The  rules  of  the  present  part  of  this  Code 
are  applicable  in  the  case  of  any  mercantile  trader 
who  is  not  a  forwarding  agent  within  the  definition 
given  above,   but  who  in    the  course  of  his  trade 
undertakes    the    forwarding    of    goods    upon   the 
instructions  of    another   in   his  own  name  by   the 
agency  of  a  carrier  by  land  or  sea. 

PART  V.     THE   BUSINESS   OF   WARE- 
HOUSEMAN. 

416.  A  warehouseman  is  a  person  who   in  the 
regular  course  of  his  trade  undertakes  the  storage 
and  custody  of  goods. 

417.  The  rights  and  liabilities  of  a  warehouseman 
in  respect  of  the  receipt,  custody  and  insurance  of 
goods  are  regulated  by  the  rules  of  sects.  388 — 390, 
having  application  to  commission  merchants. 

Should  the  goods  be  affected  by  a  change  of 
circumstances  of  such  a  kind  as  to  cause  appre- 
hension of  their  depreciation,  the  warehouseman 


THE  BUSINESS  OF  WAREHOUSEMAN.  201 

must  immediately  notify  the  bailor  thereof.  Failure 
to  do  so  renders  him  liable  to  pay  compensation  for 
any  resulting  damage. 

418.  A  warehouseman  must  allow  a  bailor  access 
to  the  warehoused  goods  at  any  time  during  business 
hours  for  the  purposes  of  inspecting  them,  taking 
samples  of  them,  or  providing  for  their  preservation. 

419.  In  the  case  of  the  warehousing  of  fungible  (x) 
things  a  warehouseman  may  not,  in  the  absence  of 
express  permission,  intermix  them  with  other  things 
of  the  same  variety  and  quality. 

Even  where  such  permission  is  given,  a  ware- 
houseman does  not  acquire  any  property  in  the 
goods  (j/).  Out  of  the  aggregate  formed  by  the 
intermixture  he  may  deliver  to  each  individual 
bailor  the  portion  to  which  he  is  entitled  without 
obtaining  the  consent  of  the  other  parties  entitled 
to  a  share  in  such  aggregate. 

If  the  goods  are  deposited  in  such  a  manner  that 
the  property  therein  passes  to  the  warehouseman, 
and  he  is  bound  to  redeliver  goods  of  the  same 
variety,  quality  and  quantity,  the  rules  of  the 
present  part  of  this  Code  have  no  application. 


(a;)  See  note  on  p.  186,  ante. 

(y]  It  is  quite  clear  from  sects.  447,  448  of  the  Civil  Code  that  where 
goods  belonging  to  different  owners  are  inseparably  intermixed,  each 
of  such  owners  takes  an  undivided  share  in  the  mixture,  and  the 
warehouseman  acquires  no  rights  of  ownership  whatsoever.  The 
express  statement  to  this  effect  in  this  paragraph  is  apparently 
inserted  to  avoid  any  misunderstanding  which  might  arise  from  the 
warehouseman  performing  acts  in  respect  of  the  goods  which  might 
otherwise  appear  only  consistent  with  ownership. 


202  GERMAN  COMMERCIAL  CODE. 

420.  The  warehouseman  is  entitled  to  warehouse 
rent  in  accordance  with  agreement,   or  in  default 
thereof   in  accordance  with    local   custom,   as  well 
as  to  reimbursement  for  all  outlays   in  respect  of 
freight  or  duties  or  any  other  expenditure  incurred 
in  connection  with  the  goods,  in  so  far  as  he  was 
entitled  to  consider  such  outlays  as  necessary  under 
the  circumstances. 

In  respect  of  such  of  the  above-named  claims  of 
the  warehouseman  (hereinafter  called  warehousing 
charges)  as  arise  out  of  payments  made  in  cash, 
immediate  repayment  may  be  claimed.  The  re- 
maining warehousing  charges  must  be  paid  on 
the  expiration  of  a  period  of  three  months  after 
the  bailment  of  the  goods  or,  if  the  goods  are 
withdrawn  from  the  warehouse  before  the  expira- 
tion of  such  a  period,  then  at  the  date  of  the 
withdrawal  thereof ;  if  the  goods  are  partially 
withdrawn,  only  a  proportionate  part  of  the 
warehouse  charges  are  payable,  unless  the  goods 
left  in  warehouse  are  insufficient  to  provide  the 
warehouseman  with  security  for  the  balance  owing 
to  him. 

421.  The  warehouseman  has  a  right  of  pledge  (g) 
over  the  goods  for  the  warehousing  charges,  so  long- 
as  he  retains  possession   of   them,   or  more  parti- 
cularly can  exercise  a  power  of  disposal  over  them 
by  means  of  a  bill  of  lading,  carrier's  or  warehouse 
receipt. 

(a)  See  note  to  sect.  366,  p.  176,  ante. 


THE  BUSINESS  OF  WAREHOUSEMAN.  203 

422.  The    warehouseman    cannot    demand    the 
removal    of    the    goods   by   the    bailor   before   the 
expiration  of  the  period  of  bailment  agreed  upon, 
or  in  default  of  any  agreement  as  to  such  period, 
then   not   before  three  months  after  the  delivery. 
In  the  absence  of  any  agreement  as  to  the  duration 
of  the   period  of  bailment,   or  in  the  case  of  the 
goods   being  retained  by  the  warehouseman   after 
the  expiration  of  the  agreed  period,  he  can  only 
demand   their   removal    after   giving   one    month's 
previous  notice. 

A  warehouseman  may  upon  any  cogent  grounds 
demand  the  removal  of  the  goods  before  the  ex- 
piration of  the  period  of  bailment  and  without 
notice. 

423.  The  limitation   of    claims   against   a  ware- 
houseman   in   respect   of    the    loss,    deterioration, 
damage    or   late    delivery    of    goods    is    regulated 
mutatis  mutandis  by  the  rules  of  sect.  414.     In  case 
of  total  loss  the  period  of  limitation  runs  from  the 
expiration  of  the  day  upon  which  notice  of  such 
loss  was  given  by  the  warehouseman  to  the  bailor. 

424.  If    the   warehouseman    issues   a   warehouse 
receipt  which  is  transferable  by  indorsement,  then, 
if  he  has  taken  over  the  goods,  the  delivery  of  such 
receipt    to   the   person    thereby    entitled   to    claim 
possession  of    the  goods  has  the   same  effect  with 
regard  to  the  acquisition  of  rights  in  the  goods  as 
the  delivery  of  the  goods  themselves. 


204  GERMAN  COMMERCIAL  CODE. 

PART  VI.     THE  BUSINESS   OF   CARRIAGE 
BY   LAND. 

425.  A  carrier  by  land  is  one  who  in  the  usual 
course  of   his   trade   undertakes   to   carry   out   the 
forwarding  of  goods  by  land  (including  the  carriage 
of  goods  on  rivers  and  other  inland  waters). 

426.  A  carrier  (0)  is  entitled  to  demand  the  issue 
of  a  letter  of  advice  by  the  sender. 

Such  letter  of  advice  must  state  :— 

( 1 )  The  place  and  date  of  the  issue  thereof. 

(2)  The  name  and  address  of  the  carriers. 

(3)  The  name  of  the  person  to  whom  the  goods 

are  to  be  delivered  (hereinafter  called 
the  consignee). 

(4)  The  place  for  delivery. 

(5)  The  description  of   the  goods  as  regards 

their  nature,  quantity,  and  marks. 

(6)  The  description  of  the  papers  which  must 

accompany  them  for  purposes  of  customs 
and  excise  and  of  police  examination. 

(7)  The  agreement  as  to  the  carriage  payable, 

and  in  the  case  of  payment  thereof  in 
advance  an  acknowledgment  of  such 
payment. 

(8)  Any  special  arrangements  which  may  have 

been  come  to  between  the  parties  in- 
terested as  to  other  points. 

(z)  Iii  the  present  part  (Part  VI.)  the  term  "  frachtfiihrer,"  literally 
"  carrier  by  land,"  has  for  purposes  of  brevity  been  rendered  simply 
"  carrier." 


CARRIAGE  BY  LAND.  205 

E.g.,  the  time  within  which  delivery  is  to  be  made, 
the  compensation  to  be  payable  in  case  of  late 
delivery,  and  the  payments  upon  the  making  of 
which  deliverv  is  conditional. 

•/ 

(9)   The  signature  of  the  sender. 

For  this  purpose  a  signature  produced  by  any 
process  of  mechanical  reduplication  is  sufficient. 

The  sender  is  liable  to  the  carrier  for  the  correct- 
ness and  sufficiency  of  the  information  included  in 
the  letter  of  advice. 

427.  The  sender  is  bound  to  deliver  to  the  carrier 
the  papers  which,  for  the  purposes  of  the  customs, 
excise,  and  police  regulations,  must  be  presented  to 
the  proper  authorities  before  the   delivery  of  the 
goods  to  the  consignee.     He  is  liable  to  the  carrier 
for  any   consequences   resulting  from  the  absence, 
insufficiency,    or  incorrectness   of   such  papers,   for 
which  the  carrier  himself  is  not  responsible. 

428.  If   no    agreement   is   made   as  to   the  time 
within  which  the  carrier  must  complete  the  carriage 
of  the  goods,  the  time  limits  for  the  commencement 
and  completion  of  the  journey  are  to  be  regulated 
by  local  custom,  or  in  default  of  any  local  custom 
are  to  be  such  as  are  reasonable  according  to  the 
special  circumstances. 

If  the  beginning  or  continuation  of  the  carriage 
of  the  goods  is  temporarily  prevented  by  circum- 
stances for  which  the  sender  is  not  responsible,  he 
may  rescind  the  contract ;  but  he  must  in  such  case 
compensate  the  carrier  if  he  is  not  in  default  for  his 


206  GERMAN  COMMERCIAL  CODE. 

work  and  expense  in  respect  of  his  preparations  for 
the  journey,  the  unloading  of  the  goods,  and  any 
part  of  the  journey  already  performed.  The  amount 
of  such  compensation  is  to  be  regulated  by  local 
custom,  or  in  default  of  any  such  custom  is  to  be 
determined  according  to  what  is  reasonable  under 
the  circumstances. 

429.  The  carrier  is  liable  for  damages  resulting 
from  loss  or  injury  occurring  to  the  goods  in  the 
period   intervening   between    their   receipt   by  the 
carrier  and  his  delivery  of  them,  or  resulting  from 
late  delivery,  unless  such  loss,  injury,  or  lateness  is 
due  to  circumstances  which   could   not  have  been 
avoided  by  the  diligence  of  a  careful  carrier. 

A  carrier  is  not  liable  for  the  loss  or  deterioration 
of  valuables,  works  of  art,  money,  or  negotiable 
instruments,  unless  he  was  informed  of  their  nature 
or  value  at  the  time  they  were  entrusted  to  him. 

430.  In    the   case  of   compensation   for   total  or 
partial  loss  payable  by  a  carrier  under  the  contract 
of  carriage,  the  amount  to  be  paid  is  the  ordinary 
market  value  of  the  goods,  or  in  the  absence  of  any 
such  value  ( «),  then  the  ordinary  value  possessed  by 
goods  of  the  same  description  and  quality  at  the 
place  and   time   at  which   delivery  ought  to   have 
been  made,  deducting  therefrom  the  amount  saved 
owing  to  the  loss  in  customs  duties,  other  expenses, 
and  carriage. 

(a)  I.e.,  if  the  goods  are  of  a  kind  which  do  not  possess  a  regular 
market  value,  e.g.,  "  carved  oak  sideboards." 


CARRIAGE  BY  LAND.  207 

In  the  case  of  injury  to  the  goods,  the  amount 
payable  is  the  difference  between  the  selling  value 
of  the  goods  in  their  damaged  condition  and  their 
ordinary  market  value  (when  undamaged),  or  the 
ordinary  value  which  they  would  have  had  if  un- 
damaged at  the  time  and  place  at  which  delivery 
ought  to  have  been  made,  deducting  the  amount 
saved  in  customs  duties  and  other  expenses  owing 
to  the  goods  having  been  injured. 

If  the  damage  occurred  owing  to  the  wilful  act, 
or  owing  to  gross  negligence  of  the  carrier,  the 
full  damage  suffered  may  be  recovered. 

431.  A  carrier  is  liable  for  the  defaults   of   his 
employees  or  of  other  persons  whom  he  makes  use 
of  in  the  course  of  the  transport  of  the  goods  to  the 
same  extent  as  for  his  own  defaults. 

432.  If  a  carrier  in  order  to  carry  out  the  contract 
of  carriage  undertaken  by  himself  hands  over  the 
goods  to  another  carrier,  he  remains  liable  for  the 
carrying  out  of  such  contract  until  the  delivery  of 
the  goods  to  the  consignee.. 

The  carrier  to  whom  the  goods  are  handed  over 
by  the  receipt  of  the  original  letter  of  advice 
becomes  a  party  to  the  contract,  and  thereby 
directly  takes  over  the  obligation  to  carry  out  the 
transport  according  to  the  terms  of  the  letter  of 
advice. 

If  by  reason  of  these  rules  one  of  the  carriers 
concerned  has  been  forced  to  pay  damages,  he  has 


208  GERMAN  COMMERCIAL  CODE. 

a  right  of  indemnity  over  against  the  carrier  by 
whose  default  the  damage  was  caused. 

If  it  cannot  be  ascertained  which  currier  was 
responsible  for  the  damages,  each  of  the  carriers 
concerned  must  contribute  to  the  compensation  pay- 
able pro  rata  of  his  share  in  the  total  amount  of  the 
carriage  payable,  provided  that  he  is  unable  to  prove 
that  the  damage  did  not  happen  while  the  goods 
were  in  his  charge. 

433.  (b)  The  sender  has  power  to  give  notice  to 
the  carrier  to  retain  or  return  the  goods,  or  to  deliver 
them  to  a  consignee  other  than  the  one  named  in  the 
letter  of  advice.     The  extra  cost  incurred  by  such 
a  proceeding  must  be  repaid  to  the  carrier. 

The  sender's  right  of  disposal  over  the  goods  is 
extinguished  if  the  letter  of  advice  is  delivered  to 
the  consignee  after  the  goods  have  once  arrived 
at  the  place  of  delivery  or  if  proceedings  under 
sect.  435  have  been  commenced  by  the  consignee 
against  the  carrier.  In  such  a  case  the  carrier  is 
bound  to  obey  the  instructions  of  the  consignee 
alone,  under  pain  of  becoming  liable  to  him  in 
respect  of  the  goods. 

434.  The  consignee  has  authority  as  against  the 
carrier,  even  before  the  arrival  of  the  goods  at  the 
place  of  delivery,  to  take  all  necessary  measures  for 
the  preservation  of    the  goods,  and    for   this   pur- 
pose to  give  the  carrier  all  necessary  instructions. 

(6)  The  provisions  of  this  section  do  not  apply  in  a  case  where  a 
carrier's  receipt  has  been  issued.     See  port,  sect.  447. 


CARRIAGE  BY  LAND.  209 

He  can  only  require  the  carrier  to  deliver  the 
goods  before  their  arrival  at  the  place  of  delivery  if 
the  carrier  has  the  sender's  permission  to  do  so. 

435.  After  the  arrival  of  the  goods  at  the  place 
of  delivery,  the  consignee  is  authorised  to  enforce 
the  rights  arising  out  of  the  contract  of  carriage, 
provided  that  he  has  performed  his  own  obligations 
thereunder  in  his  own  name  as  against  the  carrier, 
irrespectively  of  whether  in  so  doing  he  is  acting 
on  behalf  of  himself  or  another.     In  particular  he 
has  the  right  to  demand  that  the  letter  of  advice 
should   be  given   up  to  him   and   that   the   goods 
should  be  delivered  to  him.     The  right  is  extin- 
guished upon  the  receipt  by  the  carrier  of  contrary 
instructions  from   the    sender,   given  in   a   manner 
permissible  under  sect.  433. 

436.  The  receipt  of  the  goods  and  the  letter  of 
advice  renders   the   consignee   liable   to    make   all 
payments  due  to  the  carrier  in  accordance  with  the 
letter  of  advice. 

437.  If  the  consignee  cannot  be  found,  or  if  he 
refuses  to  take  delivery,  or  if  delivery  is  prevented 
in  any  other  manner,  the  carrier  must  immediately 
notify  the  sender  thereof  and  obtain  his  directions. 

If  circumstances  render  this  impracticable,  or  if 
the  sender  fails  to  send  in  his  directions  at  the 
proper  time  or  sends  directions  which  cannot  be 
carried  out,  the  carrier  has  power  to  deposit  the 
goods  in  a  public  warehouse  or  in  some  other  safe 
manner.  If  the  goods  are  perishable,  and  delay 

s.  p 


210  GERMAN  COMMERCIAL  CODE. 

involves  risk,  he  may  also  have  the  goods  sold  in 
accordance  with  sect.  373,  paragraphs  2 — 4. 

The  carrier  must,  unless  it  is  impracticable, 
inform  the  sender  or  consignee  of  such  deposit  or 
sale  without  delay ;  failure  to  do  so  renders  him 
liable  to  pay  damages. 

438.  The  payment  of  the  carriage  and  all  other 
sums  due  in  respect  of  the  goods  in  conjunction 
with  the  acceptance  thereof  extinguishes  all  claims 
against  the  carrier  arising  out  of  the  contract  of 
carriage. 

This  rule  does  not  apply  if  the  damage  or  dete- 
rioration of  the  goods  was  certified  by  officially 
appointed  experts  prior  to  the  acceptance  thereof. 

A  claim  in  respect  of  the  damage  or  deterioration 
of  goods,  not  discoverable  from  their  outward  con- 
dition, may  be  made  against  the  carrier  even  after 
their  acceptance  and  the  payment  of  the  carriage, 
if  the  defect  was  caused  during  the  period  inter- 
vening between  the  receipt  of  the  goods  by  the 
carrier  and  their  delivery,  and  if  the  existence  of 
the  defect  is  certified  by  officially  appointed  experts 
immediately  after  the  discovery  thereof  and  not 
later  at  most  than  "one  week  after  the  acceptance  of 
the  goods.  If  notice  of  the  defect  is  given  to  the 
carrier  immediately  after  the  discovery  thereof  and 
within  the  period  specified,  it  will  be  sufficient  if  the 
certification  by  experts  is  applied  for  immediately 
after  that  point  of  time  at  which,  under  ordinary 
circumstances,  an  answer  from  the  carrier  might 
have  been  expected  to  arrive. 


CARRIAGE  BY  LAND.  211 

The  costs  of  a  certification  by  officially  appointed 
experts  applied  for  by  tbe  consignees  must  be  borne 
by  the  carrier  if  damage  or  deterioration  is  dis- 
covered, with  respect  to  which  the  carrier  is  liable  in 
damages. 

The  carrier  cannot  avail  himself  of  these  rules  if 
the  damage  was  caused  by  his  own  wilful  act  or  by 
gross  negligence. 

439.  The  limitation  of  rights  of  action  against  a 
carrier  in  respect  of  loss,  deterioration,  damage  or 
late  delivery  of  goods  is  regulated  mutatis  mutandis 
by  the  rules  of  sect.  414,  but  this  does  not  apply  to 
the   rights   of  action   specified  in  sect.    432,   para- 
graph 3. 

440.  The  carrier  has  a  right  of  pledge  (b)  over  the 
goods   to    secure   all    claims   which    he   may   have 
arising  out  of  the  contract  of  carriage,  and  more 
particularly  in  respect  of  carriage  and  demurrage, 
the  payment  of  duty  and  other  outlays,  as  well  as 
advances  made  on  the  security  of  the  goods. 

The  right  of  pledge  holds  good  as  long  as  the 
carrier  retains  the  goods  in  his  possession  or  more 
particularly  can  exercise  a  right  of  disposal  over 
them  by  means  of  a  bill  of  lading,  warehouse 
receipt,  or  carrier's  receipt  (cj. 

A  right  of  pledge  over  the  goods  is  retained  even 
after  the  delivery,  provided  that  the  carrier  enforces 
it  judicially  within  three  days  of  the  delivery 

(6)  See  note  to  sect.  366,  p.  176,  ante. 
(c)  See  Schuster,  pp.  460,  461. 


212  GERMAN  COMMERCIAL  CODE. 

and  the  goods  still  remain  in  the  possession  of  the 
consignee. 

Due  warning  in  accordance  with  sect.  1234  (d), 
paragraph  1,  of  the  Civil  Code,  of  the  carrier's 
intention  to  sell  the  object  of  his  right  of  pledge  as 
well  as  the  notifications  specified  in  sects.  1237 
and  1241  of  the  Civil  Code,  must  be  given  to  the 
consignee.  If  the  consignee  cannot  be  found  or 
refuses  to  accept  the  goods,  the  warning  and  notifi- 
cation must  be  given  to  the  sender. 

441.  Unless  otherwise  provided  by  the  letter  of 
advice,  the  last  carrier  in  possession  of  the  goods 
must,  when  making  delivery,  collect  the  amounts 
owing  to  the  preceding  carriers,  and  the  payments 
on  the  making  of  which  delivery  is  conditional,  and 
exercise  on  their  behalf  the  rights  which  they 
possess,  and  more  particularly  their  right  of 
pledge  (dd}.  The  right  of  pledge  of  the  preceding 
carriers  remains  in  existence  till  the  extinction  of 
the  right  of  pledge  of  the  last  carrier. 

If  a  carrier  satisfies  the  claim  of  one  of  those 
preceding  him,  the  rights  of  the  latter  in  respect  of 
payment  and  his  right  of  pledge  pass  to  the  former. 

In  the  same  manner  the  rights  of  a  forwarding 
agent  in  respect  of  payment  and  his  right  of  pledge 
pass  to  the  forwarding  agent  who  succeeds  him  or 
to  the  carriers. 

(d)  As  to  sects.  1234  and  1237  of  the  Civil  Code,  see  Schuster, 
p.  472. 

(dd]  See  note,  p.  167,  ante. 


CARRIAGE  BY  LAND.  213 

442.  A    carrier   who  delivers  goods  without  re- 
ceiving payment  and   does  not  within  three   days 
enforce    his    right    of    pledge  by  judicial  process, 
is  liable  to   the  preceding    carriers   or  forwarding 
agents  (e).     He  loses  his  right  of  indemnity   over 
against    the    preceding    carriers    and    forwarding 
agents  and  in  the  same  manner  they  lose  their  right 
of  indemnity  against  those  preceding  them.     His 
claim  against  the  consignee  remains  good. 

443.  If  in  respect  of  the  same  goods  there  is  in 
existence  more  than  one  right  of  pledge  based  upon 
the  provisions  of  sects.  397,  410,  421  and  440,  which 
has  arisen  by  reason  of  the  despatch  or  forwarding 
of  the  goods,   such  rights  rank  in  accordance  with 
the   time   at   which   they  arose,    the    later  taking 
priority  over  the  earlier. 

All  of  such  rights  take  priority  over  any  rights  of 
pledge  arising  otherwise  than  by  the  forwarding  of 
the  goods  which  may  be  vested  in  commission 
merchants  or  warehousemen  as  well  as  any  rights 
of  pledge  of  forwarding  agents  or  carriers  to  secure 
advances  made. 

444.  A  document  (hereinafter  called  a  carrier's 
receipt)    stating    his   obligations    with    regard    to 
delivery  may  be  issued  by  a  carrier. 

445.  The  carrier's  receipt  must  state  :  — 

(1)  The  place  and  date  of  the  issue  thereof. 

(2)  The  name  and  address  of  the  carrier. 

(3)  The  name  of  the  sender. 

(e)  I.e.,  liable  for  any  resulting  loss  of  rights. 


214  GERMAN  COMMKRCIAL  CODE. 

(4)  The  name  of   the  person  to  whom   or  to 

whose  order  the  goods  are  to  be  de- 
livered ;  if  the  receipt  is  only  made  out 
to  order,  the  sender  is  to  be  deemed 
such  person. 

(5)  The  place  of  delivery. 

(6)  The  description  of   the  goods  as  regards 

their  nature,  quantity,  and  marks. 

(7)  The  agreement  as  to  the  rate  of  carriage, 

as  to  the  charges  upon  payment  of  which 
delivery  is  to  be  conditional,  and  in  case 
of  payment  of  the  carriage  in  advance 
an  acknowledgment  of  such  payment. 

The  receipt  must  be  signed  by  the  carrier. 

The  sender  must  upon  request  furnish  the  carrier 
with  a  copy  of  the  carrier's  receipt  signed  by 
himself. 

446.  The  carrier's  receipt  is  decisive  as  to  the 
rights  and  liabilities  existing  as  between  the  carrier 
and  the  consignee.     Any  terms  of  the  contract  of 
carriage  not  actually  stated  in  the  carrier's  receipt 
are    inoperative   as   against   the    consignee,    unless 
expressly  referred  to  in  the  carrier's  receipt. 

The  rights  and  liabilities  existing  as  between  the 
carrier  and  the  sender  are,  notwithstanding  the  issue 
of  a  carrier's  receipt,  determined  by  the  contract  of 
carriage. 

447.  The  person  to  whom  the  goods  are  made 
deliverable  by  the  carrier's  receipt,  or  if  such  receipt 


CARRIAGE  BY  LAND.  215 

is  made  out  to  order,  the  indorsee,  is  the  person 
authorised  to  receive  the  goods. 

The  person  authorised  to  receive  the  goods  has, 
even  before  their  arrival  at  the  place  of  delivery, 
the  same  rights  relating  to  the  disposal  thereof 
as  the  sender  has  when  no  carrier's  receipt  is 
issued  (/). 

The  carrier  may  not  obey  any  directions  of  the 
sender  to  retain  or  return  the  goods,  or  deliver  them 
to  any  person  other  than  the  person  entitled  by  the 
carrier's  receipt  to  receive  them,  unless  such  receipt 
is  returned  to  him.  Any  breach  of  this  rule  renders 
him  liable  for  the  value  of  the  goods  to  the  lawful 
holder  of  the  carrier's  receipt. 

448.  A  carrier  is  not  bound  to  deliver  the  goods 
unless  the  carrier's  receipt  is  returned  to  him  with 
an   acknowledgment  of  the  delivery  of  the  goods 
indorsed  thereon. 

449.  In  the  case  specified  in  sect.  -±32,  paragraph  1, 
the  liabilities  of  a  carrier  who  takes  over  goods  from 
another  carrier  upon  the  basis  of  a  carrier's  receipt 
are  regulated  by  the  terms  of  such  receipt. 

450.  The   delivery  of  a  carrier's  receipt  to  the 
person  thereby  entitled  to  receive  the  goods  has,  if 
the  goods  have  been  taken  over  by  the  carrier,  the 
same  effect  as  regards  the  acquisition  of  rights  in 
respect  of  the  goods  as  the  delivery  of  the  goods 
themselves. 

(/)  See  ante,  sect.  433,  para.  1. 


216  GERMAN  COMMERCIAL  CODE. 

451.  The  rules  of  sects.  426 — 450  apply  also  in 
the  case  of  a  mercantile  'trader  not  being  a  regular 
carrier  but  who  in  the  course  of  his  business  under- 
takes to  carry  out  the  forwarding  of  goods  by  land, 
river  or  other  inland  waters. 

452.  The  rules  of  the  present  part  of  this  Code 
have  no  application  to  the  forwarding  of  goods  by 
the  postal  authorities  of  the  Empire  or  the  Federal 
States.     Such  postal  authorities  are  not  mercantile 
traders  within  the  meaning  of  this  Code. 


PART  VII.     THE  CARRIAGE  OF  GOODS  AND 
PASSENGERS  UPON  RAILWAYS. 

453.  A  railway  (y)  which  carries  on  a  public 
goods  traffic  may  not  refuse  to  receive  goods  for 
forwarding  at  any  station  adapted  to  goods  traffic 
within  the  German  Empire,  provided  that— 

(1)  The  sender  conforms  to  the  conditions  as  to 

forwarding  and  other  general  regulations 
of  the  railway. 

(2)  The  forwarding  is  not  forbidden  by  any  rule 

of  law  or  otherwise  upon  public  grounds. 

(3)  The  goods  are  such  as  are  permitted  to  be 

carried    by    the    railway    traffic     regula- 

(g)  The  railway  has  throughout  this  part  (VII.)  of  the  Code  been 
personified  in  the  translation  in  the  same  way  as  it  is  in  the  original. 
Although  this  personification  may  at  times  render  the  English  some- 
what unusual,  it  was  necessary  in  order  not  to  depart  too  far  from  the 
original,  and  in  order  to  avoid  cumbrousness. 


CARRIAGE  BY  RAILWAYS.  217 

tions  (h\  or  any  rules  published  in  accord- 
ance therewith,  and  are  such  as  are  possible 
to  be  carried  in  view  of  the  nature  and 
traffic  of  the  lines  concerned. 

(4)  The   forwarding    is    possible    by   the   usual 

machinery  for  the  carriage  of  goods. 

(5)  The  forwarding  is  not  prevented  by  events 

which  constitute  vis  major. 

A  railway  is  only  obliged  to  receive  goods  for 
forwarding,  if  the  forwarding  can  take  place  imme- 
diately. The  liability  to  receive  goods  for  temporary 
safe-keeping  which  cannot  be  forwarded  immediately 
depends  on  the  provisions  of  the  railway  traffic 
regulations. 

The  forwarding  of  goods  is  to  be  effected  in  the 
order  of  priority  in  which  they  were  received  for 
the  purpose  of  forwarding,  unless  there  are  cogent 
grounds  for  making  an  exception  to  this  rule  by 
reason  of  the  state  of  traffic  on  the  railway  or  the 
public  interest. 

Any  breach  of  these  rules  may  be  the  foundation 
of  a  claim  in  respect  of  the  resulting  damage. 

454.  Where  not  expressly  otherwise  provided  by 
the  present  part  of  this  Code  or  by  the  railway 
traffic  regulations,  the  rules  of  Book  III.,  Part  VI., 
of  this  Code  apply  to  the  case  of  railways  carrying 
on  a  public  goods  traffic. 

(Ji)  These  regulations  are  issued  from  time  to  time  by  the  Imperial 
Chancellor  with  the  consent  of  the  Federal  Council  for  the  whole  of 
the  German  Empire  with  the  exception  of  Bavaria.  In  Bavaria  they 
are  issued  by  a  particular  Government  Department. 


218  GERMAN  COMMERCIAL  CODE. 

455.  It  is  the  duty  of  a  railway,  at  the  request  of 
the  sender,  to  acknowledge  the  receipt  of  goods 
upon  a  duplicate  of  the  letter  of  advice  stating  the 
date  upon  which  they  were  received  for  the  purpose 
of  forwarding ;  the  sender  must  produce  the  dupli- 
cate together  with  the  original  letter  of  advice. 

In  the  case  of  the  issue  of  a  duplicate  letter  of 
advice,  the  sender  can  only  exercise  the  powers 
specified  in  sect.  433  upon  production  of  such 
duplicate.  If  the  railway  follows  the  instructions 
of  the  sender  without  demanding  the  production 
of  the  duplicate  letter  of  advice,  it  becomes  liable 
for  any  resulting  damage  to  the  consignee  to 
whom  such  document  has  been  handed  over  by 
the  sender. 

456.  The  railway  is  liable  for  damage  caused  by 
any  loss  or  deterioration  of  the  goods  occurring 
during  the  period  between  the  acceptance  of  the 
goods  for  the  purpose  of  forwarding  them  and  the 
delivery  thereof,  unless  such  damage  was  caused— 

( 1 )  By  the  default  of  the  person  entitled  to  dis- 

pose of  the  goods,  or  by  any  directions 
received  from  such  person  and  not  given 
by  reason  of  any  default  on  the  part  of 
the  railway ;  or 

(2)  By  vis  major  ;  or 

(3)  By  some  defect  in  the  packing  of  the  goods 

not  discoverable  from  their  external  appear- 
ance; or 

(4)  By  the  nature  of  the  goods  themselves 


CARRIAGE  BY  RAILWAYS.  219 

e.g.,  by  spontaneous  deterioration  (e),   shrinkage,  or 
ordinary  leakage. 

The  rules  laid  down  in  sect.  429,  paragraph  2, 
apply. 

457.  If   by  reason   of   a  contract  of   carriage  a 
railway  becomes  liable  to  pay  compensation  for  the 
total  or  partial  loss  of  goods,  such  compensation  is 
to  be  assessed  according  to  the  ordinary  mercantile 
value  of  the  goods,  or  in  default  of  any  such  value, 
then  the  ordinary  value  fetched  by  goods  of  the  same 
description  and  quality  at  the  place  of  consignment 
at  the  time  of  their  receipt  by  the  railway  for  the 
purpose  of  forwarding  in  addition  to  the  amount  of 
the  expense  already  incurred  in  respect  of  duties, 
other  charges,  and  carriage. 

In  the  case  of  the  deterioration  of  the  goods  the 
amount  to  be  paid  is  the  amount  by  which  the  value 
assessed  in  the  method  specified  in  paragraph  1  has 
been  diminished. 

If  the  damage  was  caused  by  the  wilful  act  or 
gross  negligence  of  the  railway,  compensation  may 
be  claimed  for  the  full  amount  of  damage  suffered. 

458.  The  railway  is  responsible  for  the  acts  of  its 
employees,  and  for  other  persons  of  whose  services 
it  avails  itself,  in  executing  a  contract  of  carriage. 

459.  A  railway  is  not  liable: — 

(1)  In   respect    of   damage  to  goods   incurred 

(i)  By  "  inneren  verderb,"  the  phrase  here  translated  "  spontaneous 
deterioration,"  is  meant  any  process  engendered  by  the  goods  them- 
selves by  which  they  are  damaged,  e.g. ,  spontaneous  combustion. 


220  GERMAN  COMMERCIAL  CODE. 

owing  to  their  being  forwarded  in  open 
trucks  in  accordance  with  the  conditions 
of  the  company's  tariffs  or  the  special 
terms  of  the  letter  of  advice. 

(2)  In  respect  of  damage  resulting  from  the 

failure  to  pack,  or  the  improper  packing 
of  goods  the  nature  of  which  makes 
proper  packing  necessary  in  order  to 
prevent  loss  or  injury  during  the 
transport,  but  which,  as  shown  by  a 
declaration  of  the  sender  written  on  the 
letter  of  advice,  were  handed  over  for 
transport  unpacked,  or  packed  in  a 
defective  manner. 

(3)  In   respect  of   damage  resulting  to  goods 

from  risks  connected  with  the  loading 
and  unloading  or  defective  loading  of 
goods  the  loading  and  unloading  of 
which,  in  accordance  with  the  con- 
ditions of  the  railway's  tariff  or  the 
terms  of  the  letter  of  advice,  are  under- 
taken by  the  sender  or  the  consignee. 

(4)  In  respect  of  damage  arising  out  of  certain 

risks  (e.g.,  breakage,  rust,  spontaneous 
deterioration  (A*),  unusual  leakage,  eva- 
poration, or  disintegration)  to  goods  the 
nature  of  which  makes  them  peculiarly 
liable  to  such  risks. 

(5)  In  respect  of  damage  resulting  from  injury 

£    See  note  to  sect.  456. 


CARRIAGE  BY  RAILWAYS.  221 

to  living  animals  arising  out  of  the 
special  risks  incident  to  the  carriage 
thereof : 

(6)  In  respect  of  damage  to  goods  (including 
animals),  caused  by  some  risk  which  is 
sought  to  be  avoided  by  a  provision 
contained  in  the  railway  traffic  regula- 
tions, the  tariff  of  the  railway  or  the 
letter  of  advice  according  to  which  such 
goods  must  be  accompanied  during  the 
journey  by  some  person  placed  in  charge 
thereof. 

If  any  damage  which  has  occurred  to  goods 
might  under  the  circumstances  have  been  caused  by 
any  of  the  risks  specified  in  paragraph  1  of  this 
section,  such  damage  shall  be  presumed  to  have 
been  so  caused. 

The  railway  cannot  avail  itself  of  the  rules  of 
this  section  if  the  damage  in  question  was  caused 
by  its  own  default. 

460.  In  the  case  of  goods  which  by  their  nature 
regularly  undergo  a  reduction  of  weight  in  the 
course  of  the  transport,  no  liability  in  respect  of  loss 
of  weight  is  incurred  by  the  railway  up  to  the  limit 
laid  down  in  the  railway  traffic  regulations. 

Such  limit  will,  in  the  case  of  several  parcels 
forwarded  under  the  same  letter  of  advice,  be 
determined  separately  in  respect  of  each  of  such 
parcels  if  the  weight  of  the  individual  parcels  is 


222  GERMAN  COMMERCIAL  CODE. 

shown  separately  in  the  letter  of  advice  or  can  be 
otherwise  determined. 

Such  limitation  as  to  liability  does  not  apply  if, 
under  the  circumstances,  the  loss  cannot  be  deemed 
to  have  been  caused  by  the  nature  of  the  goods,  or  if 
the  limit  which  it  is  sought  to  apply  is  inapplicable, 
having  regard  to  the  nature  of  the  goods  or  the 
other  circumstances  of  the  case. 

In  the  case  of  a  total  loss  no  deduction  from  the 
amount  payable  in  damages  is  allowed  on  the  ground 
of  loss  of  weight  (I}. 

461.  Railways    may    by    a   special    arrangement 
(hereinafter  called    a   special    tariff)  name  a   limit 
beyond  which  they  will  not  be  liable  for  the  loss  of  or 
injury  to  goods  forwarded  provided  that  such  special 
tariff  is  published,  that  a  reduction  is  made  on  the 
ordinary  rates  of  carriage  for  the  entire  forwarding, 
and  that  the  same  limit  of  liability  remains  in  force 
during  the  entire   transport   of  the  goods.     Such  a 
limitation  of  liability  is  inoperative  in   the  case  of 
damage  caused  by  wilful  default  or  gross  negligence 
on  the  part  of  the  railway. 

462.  The  extent  to  which  the  liability  of  a  rail- 
way  in   respect    of    the    loss    or    deterioration    of 
valuables,    works    of    art,    money    and    negotiable 
instruments   can    be    limited    by   the   fixing   of   a 
maximum  amount  by  the  railway  is  determined  by 
the    railway    traffic    regulations.       The    rule    laid 

(I)  E.g.,  the  railway  company  is  not  allowed  to  say,  "  True,  we  have 
lost  6  tons  of  your  sawdust,  but  in  any  case  1  cwt.  would  have  leaked 
away  :  so  we  will  only  pay  you  compensation  for  5  tons  19  cwte." 


CARRIAGE  BY  RAILWAYS.  223 

down    in   sect.    461,  paragraph   2,    applies    mutatis 
mutandis. 

463.  If  the  amount  of  the  interest  involved  in  the 
punctual  delivery  of  goods  is  stated  in  a  declaration 
made  in  accordance  with  the  provisions  of  the  rail- 
way traffic  regulations  and  included  in  the  letter  of 
advice,  luggage  receipt  or  way-bill,  in  the  event  of 
the  loss  of  or  injury  to  the  goods,  damages  over 
and  above  those  assessed  in  the  manner  specified  in 
sect.  457,  paragraphs  1  and  2,  may  be  claimed  for 
the  additional  loss  suffered  up  to  the  amount  stated 
in  the  declaration. 

If  the  railway's  liability  is  limited  to  a  maximum 
amount  in  accordance  with  the  rules  of  sect.  461  or 
sect.  462,  the  amount  stated  in  the  declaration  of 
the  interest  involved  in  punctual  delivery  must  not 
exceed  such  maximum  amount. 

464.  In  the  case  of  damage  or  deterioration  not 
discoverable  from  the  outward  appearance  of    the 
goods,  upon  their  receipt  by  the  consignee  no  claim 
under  sect.  438,  paragraph  3,  may  be  made  against 
the  railway,  unless  within  one  week  of  such  receipt 
an  application  is  made  either  to  the  Court  for  an 
examination  by  experts  or  in  writing  to  the  railway 
for  an  investigation  to  be  conducted  by  the  railway 
itself  in  accordance  with   the  railway  traffic  regu- 
lations for  the  purpose  of  establishing  the  existence 
of  the  defect  discovered. 

The  railway  cannot  avail  itself  of  this  rule  in  the 
case  of  damage  occasioned  by  its  own  wilful  default 
or  gross  negligence. 


224  GERMAN  COMMERCIAL  CODE. 

465.  A   railway   is   not    liable   for   the   loss   of 
passenger's  luggage  handed  in  to  it  for  carriage  to 
a  particular  station  unless  such  luggage  is  claimed 
at  such  station  within  eight  days  after  the  arrival  of 
the  train  for  carriage  by  which  it  was  handed  in. 

The  extent  to  which  the  railway  company  can 
limit  its  liability  to  pay  damages  for  the  loss  or 
injury  to  luggage  entrusted  to  it  for  carriage  by 
naming  a  maximum  amount  for  which  it  accepts 
liability  is  controlled  by  the  railway  traffic  regula- 
tions. 

In  respect  of  damage  occasioned  by  wilful  default 
or  gross  negligence  on  the  part  of  the  railway,  no 
such  limitation  is  operative.  In  respect  of  the  loss 
of  or  injury  to  passenger's  luggage  not  entrusted 
to  it  for  carriage,  and  of  objects  left  in  railway 
carriages  (w),  the  railway  is  not  liable  unless  in 
default. 

466.  The  railway  is  liable  for  damage  arising  out 
of  late  delivery,  unless  such  lateness  arose  from  an 
event   which    it    neither   caused    nor    could   have 
prevented. 

Such  damage  is  not  recoverable  to  an  extent  in 
excess  of  the  amount  stated  in  the  declaration  of  the 
amount  involved  in  punctual  delivery  made  in  the 
letter  of  advice,  luggage  receipt,  or  way-bill,  in 
accordance  with  the  railway  regulations,  and  in 
default  of  any  such  declaration  the  amount  of  the 
carriage  chargeable.  In  the  case  of  passenger's 

(m)  Literally,  "  in  rolling  stock  which  has  been  sent  off." 


CARRIAGE  BY  RAILWAYS.  225 

luggage  another  limit  may  be  fixed  in  accordance 
with  the  railway  traffic  regulations  in  place  of  the 
amount  of  the  carriage. 

The  extent  to  which  compensation  may  be  claimed 
for  damage  in  the  absence  of  proof  thereof  is  con- 
trolled by  the  railway  regulations. 

Compensation  is  recoverable  for  the  full  amount 
of  damage  suffered  if  the  failure  to  deliver  at  the 
proper  time  was  caused  by  wilful  default  or  by  gross 
negligence  on  the  part  of  the  railway. 

467.  If  objects,  the  carriage  of  which  is  prohibited 
or  only  undertaken  under  special  conditions,  are 
handed  in  to  the  railway  under  a  false  or  inaccurate 
description,  or  if  the  sender  fails  to  observe  the 
precautionary  rules  in  force  with  reference  to  such 
objects,  the  railway  is  divested  of  any  liability 
arising  out  of  the  contract  of  carriage. 

468  A  railway  may,  if  the  place  named  for 
delivery  in  the  letter  of  advice  is  one  not  situated 
upon  its  line,  stipulate  to  be  liable  as  carriers  only 
as  far  as  the  station  nearest  to  the  place  of  delivery, 
and  to  undertake  the  liability  of  forwarding  agents 
in  respect  of  the  further  carriage  of  the  goods. 

469.  If  the  forwarding  of  goods  is  effected  upon 
the  terms  of  the  same  letter  of  advice  by  several 
successive  railways  in  a  manner  similar  to  that 
specified  in  sect.  432,  paragraph  2,  claims  arising 
out  of  the  contract  of  carriage  can  only  be  enforced 
by  action  against  the  railway  which  originally 
received  the  goods,  or  the  last  railway  to  take  them 

s,  Q 


226  GERMAN  COMMERCIAL  CODE. 

over  together  with  the  letter  of  advice,  or  the  rail- 
way upon  the  line  of  which  the  damage  occurred ; 
provided  always,  that  nothing  contained  in  this 
paragraph  affects  the  right  of  the  railways  con- 
cerned to  claim  indemnity  inter  se. 

The  plaintiff  may  elect  to  sue  which  he  likes  of 
the  above  specified  railways ;  but  such  right  of  elec- 
tion is  extinguished  by  the  issue  of  the  writ. 

Claims  arising  out  of  a  contract  of  carriage  may 
be  raised  by  way  of  counterclaim  or  set-off  against 
a  railway  other  than  one  of  those  specified,  if  the 
claim  in  respect  of  which  such  railway  is  suing  is 
based  upon  the  same  contract  of  carriage. 

470.  Claims  by  a  railway  for  additional  payments 
in  respect  of  insufficient  charges  for  carriage  or  dues, 
as  well  as  claims  against  a  railway  for  reimbursement 
in  respect  of  excessive  charges,  provided  that  they 
are  based  upon  a  mistaken  application  of  the  tariff  or 
calculation  of  the  amount  due,  become  barred  after 
the  lapse  of  one  year  from  the  date  upon  which 
payment  was  made. 

The  barring  of  claims  for  the  repayment  of  such 
excessive  charges,  as  well  as  of  claims  of  the  descrip- 
tion specified  in  sect.  439,  sentence  l,is  suspended^) 
by  the  making  of  a  written  demand  in  respect  of 
such  claim  to  the  railway.  If  such  demand  is 
answered  by  a  refusal,  the  period  of  limitation 
begins  to  run  again  from  the  date  upon  which  the 
railway  company  makes  known  its  intention  by 
writing  to  the  claimant  and  returns  him  any  docu- 

As  to  the  suspension  of  prescription,  see  Schuster,  p.  132. 


CARRIAGE  BY  RAILWAYS.  227 

merits  which  may  have  accompanied  such  demand 
as  evidence.  Further  applications  to  the  railway 
company  or  the  superior  authorities  have  no  sus- 
pensive effect  upon  the  barring  of  such  claims. 

471.  The  obligations  of  railways  arising  out  of 
sect.  432,  paragraphs  I  and  2,  sects.  438,  439,  453, 
455 — 470,  cannot  be  avoided  or  limited  either  by 
means    of    the   railway    traffic    regulations   or  by 
contract. 

Agreements  seeking  to  override  this  rule  are  null 
and  void,  as  also  are  agreements  at  variance  with 
the  rules  of  the  railway  traffic  regulations. 

472.  The  rules  as  to  the  carriage  of  passengers 
upon  railways  are  contained  in  the  railway  traffic 
regulations. 


•'to' 


473.  In  the  case  of  a  railway  undertaking  carry- 
ing on  a  public  traffic,  to  which  the  railway 
regulations  do  not  apply  (e.g.,  a  light  railway), 
for  the  purposes  of  sects.  453,  459,  460,  462 — 466, 
the  traffic  regulations  of  such  railway  undertaking 
are  to  be  substituted  for  the  railway  traffic  regu- 
lations (#). 

The  rules  of  sect.  453  apply  to  such  an  under- 
taking only  if  it  is  prohibited  from  refusing  to 
undertake  the  forwarding  of  goods  upon  its  line. 

(z)  I.e.,  the  general  Railway  Traffic  Regulations,  see  note  on  p.  217. 

NOTE. — The  fourth  and  last  book  of  the  Commercial  Code,  which 
relates  exclusively  to  Maritime  Trade,  and  of  which  a  translation  has 
already  been  published  (Wendt :  The  Maritime  Code)  has  not  beeii 
included  in  this  volume. 


(      229      ) 


APPENDIX  A. 


THE  CUSTODY  OF  NEGOTIABLE  INSTRUMENTS 
ACT  (1896). 

(Gesetz  betrejfend  die  Pflichten  der  Kaufleute  bei  der 
Aufben'ahrung  frcmdcr  Wcrthpapiere.}  (a). 

A  MERCANTILE  trader  who  in  the  course  of  his  trade  receives 
shares,  mining-  shares,  provisional  certificates  (6),  talons  (c), 
bonds  made  out  to  bearer  or  transferable  by  indorsement, 
or  any  other  replaceable  (d)  negotiable  instruments,  with  the 
exception  of  bank-notes  and  paper  money,  either  for  safe 
keeping  or  by  way  of  pledge,  the  same  not  being  contained 
in  any  locked  receptacle,  has  the  following  obligations :  — 

1 .  To  keep  such  negotiable  instruments  separate  from  his 

own  property  and  that  of  third  parties,  and  recog- 
nizably marked  as  the  property  of  each  depositor 
or  pledger. 

2.  To  keep  a  book  in  the  manner  directed  by  mercantile 

law  (e),  in  which  the  negotiable  instruments  of 
each  depositor  or  pledger  are  entered  with  refer- 

(«)  Literally,  ' '  Act  relating  to  the  obligations  of  mercantile  traders  with 
regard  to  the  safe  keeping  of  negotiable  instruments  iu  their  possession 
which  are  the  property  of  others." 

(b}  See  p.  72. 

(c)  See  p.  102,  note. 

(d)  By  a    replaceable    (vertretbar)   negotiable  instrument  is   meant   one 
belonging  to  a  class  composed  entirely  of  other  instruments  of  the  same 
nominal  value,  and  with  the  same  rights  attached  thereto. 

(e)  Literally,  "  to  keep  a  mercantile  Book  of  Accouut."     See  Commercial 
Code,  §  38,  on  p.  17. 


230        CUSTODY  OF  NEGOTIABLE  INSTRUMENTS  ACT. 

enco  to  the  class  of  instrument  to  which  they 
belong,  their  nominal  value,  numbers  or  other  dis- 
tinguishing- marks.  The  entry  may  also  be  made 
by  means  of  a  reference  to  lists  kept  in  addition 
to  the  book.  No  entry  need  be  made  if  the  nego- 
tiable instruments  are  returned  to  the  depositor 
or  pledger  before  the  entry  could  be  effected  in 
the  regular  course  of  business. 

The  rights  and  obligation  (if  any)  of  the  bailee  or  pledgee 
to  make  dispositions  or  carry  out  administrative  acts  con- 
nected with  the  negotiable  instruments  in  the  interests  of 
the  depositor  or  pledger  are  not  affected  by  the  rule  above 
stated  under  head  1. 

2.  Any  declaration  on  the  part  of  the  depositor  or  pledger 
authorising  the  bailee  or  pledgee  in  place  of  negotiable  in- 
struments of  the  description  specified  in  sect.  1  which  have 
been  deposited  or  pledged  with  him,  to  return  other  nego- 
tiable instruments  of  the  same  description  or  to  dispose  of 
negotiable  instruments  deposited  with  him  for  his  own  bene- 
fit is,  unless  the  depositor  or  pledgor  carries  on  a  banker's  or 
money-changer's  business  in  the  regular  course  of  his  trade, 
only  valid  if  made  expressly  and  in  writing  with  reference 
to  a  particular  transaction. 

If  the  bailee  or  pledgee  has  authority  in  place  of  the  nego- 
tiable instruments  of  the  description  specified  in  sect.  1 
which  have  been  deposited  with  or  pledged  to  him  to  return 
other  negotiable  instruments  of  the  same  description,  the 
provisions  of  sect.  1  do  not  apply. 

3.  A  commission   merchant    (Art.    360,   378  (/)   of  the 
Commercial  Code)  on  executing  an  order  to  purchase  nego- 
tiable instruments  of  the  description  specified  in  sect.  1  must 
within  three  days  send  his  principal  a  list  of  the  instruments 

(/)  I.e.,  Arts.  360,  378  of  the  old  Commercial  Code  now  replaced,  hy 
sects.  383,  406  respectively  of  the  Commercial  Code  (1897)  translated  in  this 
volume. 


APPENDIX  A.  231 

purchased,  specifying  the  class  of  instrument  to  which  they 
belong,  their  nominal  value,  numbers,  and  other  distinguish- 
ing marks.  If  the  commission  merchant  has  named  the 
seller  in  his  notification  as  to  the  execution  of  the  commis- 
sion, the  period  of  three  days  runs  from  the  delivery  of  the 
instruments,  in  all  other  cases  from  the  expiration  of  such 
time  after  the  notification  of  the  execution  of  the  commission 
has  been  sent  off,  as  may  be  necessary  in  order  to  enable 
the  commission  merchant  to  obtain  delivery  of  the  instru- 
ments in  the  ordinary  course  of  business  without  culpable 
delay . 

4.  If    the    commission    merchant    is    in  mord  (g)    with 
respect  to  the  obligations  imposed  on  him  by  sect.  3,  and 
if  he  does  not  within  three  days  comply  with  a  demand  from 
his  principal  to  carry  out  his  unperformed  obligations,  the 
principal  has  the  right  to  repudiate  the  transaction  as  not 
entered   upon  for  his  account,   and  to  claim  damages    for 
breach  of  contract. 

The  demand  made  by  the  principal  has  no  effect  if  he  does 
not,  within  three  days  after  the  expiration  of  the  period  of 
grace  allowed  after  the  making  thereof,  make  a  declaration 
to  the  commission  merchant  that  he  intends  to  make  use  of 
his  rights  under  para.  1  of  this  section. 

5.  A  commission  merchant,  upon    the   execution   of   an 
order  to  exchange  negotiable  instruments  of  the  description 
specified  in  sect.  1,  or  to  exercise  on  behalf  of  his  principal 
any  right  to  obtain  delivery  of  any  such  negotiable  instru- 
ments, must  within  two  weeks  after  the  receipt  of  the  new 
instruments  send  his  principal  a  list  of  such  instruments 
containing  the  information    specified    in  sect.  3,  para.  1, 
unless  before  the  expiration  of  this  period  he  has  delivered 
them  to  his  principal. 

6.  A  commission  merchant  who  does  not  fulfil  his  obliga- 
tions under  sect.  5,  loses  his  right  to  claim  commission  on 

(g)  See  p.  183,  note. 


232        CUSTODY  OF  NEGOTIABLE  INSTRUMENTS  ACT. 

the  execution  of  ,the  order    (Commercial  Code,  Art.  371, 
para.  2)  (A). 

7.  With  the  despatch  of  the  list  of  instruments,  the  pro- 
perty in  the  instruments  therein  designated  passes  to  the 
principal,  in  so  far  as  the  commission  merchant  has  a  right 
to  dispose  of  them,  provided  always  that  the  rules  of  the 
civil  law  in  accordance  with  which  the  property  passes  at 
an  earlier  moment  remain  unaffected  hereby. 

With  reference  to  negotiable  instruments  in  his  keeping, 
the  property  in  which  has  passed  to  his  principal,  the  com- 
mission merchant  is  subject  to  the  obligations  of  a  bailee 
specified  in  sect.  1. 

8.  A  mercantile  trader  who,  in  the  course  of  his  mercan- 
tile trade,  delivers  to  a  third  party,  negotiable  instruments 
of  the  description  specified  in  sect.  1,  which  are  the  property 
of  another,  for  the  purpose  of  safe  keeping,  sale,  or  ex- 
change, or  in  order  to  obtain  delivery  of  other  negotiable 
instruments  or  of  interest-  or  dividend-warrants,  must  inform 
such  third  party  that  such  negotiable  instruments  are  the 
property  of  another.     In  the  same  manner,  in  the  event  of 
his  passing  on  to  a  third  party  an  order  for  the  purchase  of 
negotiable   instruments,  he  must  inform  such  third  party 
that  the  purchase  is  being  made  for  the  account  of  another  (i) . 

A  third  party  who  has  received  such  information  cannot 
exercise  a  right  of  pledge  or  lien  over  the  negotiable  instru- 
ments delivered  to  him  or  purchased  by  him,  except  to  secure 
claims  against  the  person  who  gave  him  the  order,  which 
have  arisen  with  reference  to  such  negotiable  instruments. 

9.  Any  mercantile  trader  who  disposes  of  negotiable  in- 
struments of  the  description  specified  in  sect.  1,  which  have 
been  delivered  to  him  for  safe  keeping  or  by  way  of  pledge, 

(A)  I.e.,  Art.  371,  para  2,  of  the  old  Commercial  Code,  now  replaced  by 
sect.  396,  para.  1,  of  the  Commercial  Code  (1897),  which  is  translated  in  this 
volume. 

(t)  I.e.,  on  another's  behalf  ;  for  the  account  of  another  merely  as  between 
such  other  and  the  mercantile  trader,  not  as  between  the  mercantile  trader 
and  the  third  party. 


APPENDIX  A.  233 

or  which  he  has  received  as  commission-merchant  on  behalf 
of  his  principal,  for  his  own  benefit  or  that  of  another  in  an 
unlawful  manner  other  than  that  specified  in  sect.  246  of 
the  Penal  Code,  is  punishable  with  imprisonment  for  a 
period  not  exceeding  one  year,  and  with  a  fine  not  exceeding 
M.  3,000,  or  one  of  those  punishments. 

Any  person  wilfully  acting  in  a  manner  contrary  to  the 
provisions  of  sect.  8  for  his  own  benefit  or  that  of  another 
is  liable  to  a  similar  punishment. 

If  the  person  so  acting  is  a  dependant  of  the  aggrieved 
person  (as  defined  by  sect.  52,  para.  2,  of  the  Penal  Code), 
proceedings  can  only  be  taken  against  him  upon  the  appli- 
cation of  such  aggrieved  person.  Such  application,  if  made, 
may  be  withdrawn.  Sect.  247,  paras.  2  and  3  of  the  Penal 
Code  apply  mutatis  mutandis. 

10.  A  mercantile  trader,  who  has  suspended  payment  or 
been  adjudicated  bankrupt  is  punishable  with  imprisonment 
for  a  period  not  exceeding  two  years — 

(1)  If  he  has  committed  a  wilful  breach  of  the  rules  of 

sect.  1,  heads  1  or  2,  whereby  any  person  is  preju- 
diced in  respect  of  his  rights  to  have  the  nego- 
tiable instruments  entrusted  by  him  to  such  mer- 
cantile trader  for  safe  keeping,  kept  separate  from 
the  insolvent  estate;  or 

(2)  If  being  a  commission-merchant,  he  has  committed 

a  wilful  breach  of  the  rules  of  sects.  3  or  5,  whereby 
any  person  has  been  prejudiced  in  respect  of  his 
rights  to  have  the  negotiable  instruments,  pur- 
chased, taken  in  exchange,  or  received  on  his 
behalf  by  such  commission-merchant,  kept  separate 
from  the  insolvent  estate. 

11.  A  mercantile  trader,  who  has  suspended  payment  or 
been  adjudicated  bankrupt  is  punishable  with  penal  servi- 
tude if,  with  knowledge  of  his  insolvency  or  of  the  fact  that 
his  liabilities  exceed  his  assets,  he  has  unlawfully  appro- 
priated  to  his  own  use  negotiable  instruments  which  are 
the  property  of  another,  and  which  in  the  course  of  his  trade 


234         CUSTODY  OP  NEGOTIABLE  INSTRUMENTS  ACT. 

ho  has  received  into  his  custody  as  bailee,  pledgee,  or  com- 
mission-merchant.      , 

In  the  presence  of  extenuating  circumstances,  the  punish- 
ment is  imprisonment  for  a  period  of  not  less  than  three 
months . 

12.  The  penal  rule  of  sect.  9  is  applicable  in  the  case  of 
directors   of  a  share  company,    or  any    registered  associa- 
tion,  managers  of  a  private  limited  company,  and  liqui- 
dators of  a  mercantile  partnership  or  any  registered  asso- 
ciation who  have  been  guilty  of  the  acts  thereby  penalized 
in   respect  of  negotiable  instruments  in  the  possession  of 
the  company  or  association,  or  delivered  by  it   to  a   third 
party. 

The  above-mentioned  persons,  in  the  event  of  the  company 
or  association  suspending  payment  or  being  adjudicated 
bankrupt,  are  punishable — 

1.  In  accordance  with  sect.  10,  if  they  have  committed 

a  wilful  breach  of  the  rules  of  sects.  1,  2,  3  or  5, 
whereby  any  person  has  been  prejudiced  in  respect 
of  his  rights  to  have  the  negotiable  instruments 
entrusted  by  him  to  the  company  or  association 
for  safe  keeping,  or  purchased,  taken  in  exchange, 
or  received  by  the  company  or  association  on  his 
behalf,  kept  separate  from  the  insolvent  estate. 

2.  In  accordance  with  sect.  11  if,  with  knowledge  of  the 

insolvency  of  the  company  or  association  or  the 
fact  that  its  liabilities  exceed  its  assets,  they  have 
unlawfully  appropriated  to  their  own  use  nego- 
tiable instruments  which  are  the  property  of 
another,  and  which  the  company  or  association 
received  as  bailees,  pledgees  or  commission-mer- 
chants. 

13.  This  Act  has  no  application  to  those  classes  of  mer- 
cantile traders  who,  in    accordance    with  Art.  10    of    the 
Commercial  Code  (fc),  are  unaffected  by  the  rules  as  to  mer- 
cantile books  contained  in  such  Code. 

(k)  I.e.,  Art.  10  of  the  old  Commercial  Code,  now  replaced  by  sect.  4  of 
the  Commercial  Code  of  1897,  which  is  translated  in  this  volume. 


(      235      ) 


APPENDIX  B. 


THE  PRIVATE  LIMITED  COMPANIES  ACT 

(1898). 

(Gesetz  betreffend  die  Gesellschaftcn  mit  beschrankter  Haftung.} 

PART  I. 
FORMATION  OF  THE  COMPANY. 

1.  PRIVATE  limited  companies  may  be  formed  in  accord- 
ance with  the  provisions  of  this  Act  for  any  purpose  legally 
permissible . 

2.  The  memorandum  of  association  must  be  executed  by 
declaration  before  a  judicial  officer  or  a  notary.     It  must 
be  signed  by  all  the  members. 

Signing  by  power  of  attorney  is  only  permissible  if  the 
instrument  creating  the  power  of  attorney  was  executed  in 
a  declaration  made  before  or  authenticated  by  a  judicial 
officer  or  a  notary. 

3.  The  memorandum  of  association  must  state — 

1.  The  trade  name  and  principal  place  of  business  of 

the  company. 

2.  The  object  of  the  undertaking  conducted  by  it. 

3.  The  amount  of  its  capital. 

4.  The  amount  to  be  paid  by  each  member  as  his  con- 

tribution, to    the    capital   (hereinafter  called    his 
contribution) . 


2:J6  PRIVATE  LIMITED  COMPANIES  ACT. 

If  the  duration  of  the  undertaking  is  limited  to  a  fixed 
period,  or  if  other  duties  towards  the  company  in  addition 
to  the  payment  of  their  contributions  are  to  be  imposed 
upon  the  members,  the  provisions  as  to  these  matters  must 
also  be  included  in  the  memorandum  of  association. 

4.  The  trade  name  of  the  company  must  either  bear  refer- 
ence to  the  object  of  the  undertaking,  or  must  include  the 
names  of  the  members,  or  at  any  rate  the  name  of  one  of 
the  members  with  an  addition  appended  thereto  signifying 
the  existence  of  a  company.     The  names  of  persons   other 
than  the  members  may  not  be  included  in  the  trade  name, 
provided  always  that  the  right  to  retain  the  trade  name  of 
any  business  taken  over  by  the  company  in  accordance  with 
the  provisions  of  sect.  22  of  the  Commercial  Code  is  not 
hereby  excluded. 

The  trade  name  must  in  all  cases  have  appended  thereto 
the  designation  "  Limited  "(«)• 

5.  The  amount  of  the  capital  of  the  company  must  'be 
at  least  M.  20, 000,  and    that   of  the   contribution  of   each 
member  at  least  M.500. 

The  amount  of  capital  which  may  be  subscribed  by 
members  upon  the  formation  of  the  company  is  limited  to 
a  single  contribution. 

The  contributions  of  individual  members  may,  by  agree- 
ment, differ  in  amount  from  one  another,  but  all  must  bo 
for  an  amount  of  marks  divisible  by  one  hundred.  The 
aggregate  amount  of  the  contributions  must  be  identical 
with  the  amount  of  the  capital. 

If  contributions  to  capital  are  to  be  made  by  any  member 
otherwise  than  in  cash,  or  if  the  consideration  due  from 
the  company  for  property  purchased  by  it  is  to  be  set  off 
against  an  amount  due  to  it  in  respect  of  a  contribution, 
the  name  of  the  member  concerned  and  the  description 
of  the  property  contributed  by  the  member  or  purchased 

(a)  I.e.,  the  words  "  mit  beschrankter  haftung."  The  German  equivalent 
of  the  English  limited  company  (in  the  ordinary  sense  of  the  word)  is  aktien- 
gesellschaft,  or  share -company. 


APPENDIX  B.  237 

by  the  company,  as  well  as  the  value  at  which  it  was  assessed 
for  the  purpose  of  the  contribution  or  the  price  to  be  paid 
for  its  purchase,  must  be  stated  in  the  memorandum  of 
association . 

6.  The  company  must  have  one  or  more  managers. 
Either   members  or  other  persons  may  be  appointed   as 

managers.  The  appointment  is  to  be  made  either  in  the 
memorandum  of  association  or  in  accordance  with  the  pro- 
visions of  Part  III.  of  this  Act. 

If  the  memorandum  of  association  contains  a  provision  to 
the  effect  that  all  the  members  are  to  have  the  right  to  act 
as  managers,  only  such  persons  as  were  members  of  the 
company  at  the  time  this  provision  was  made  shall  be  held 
to  be  the  appointed  managers. 

7.  The  company  must  apply  to  the  Court  of  the  district 
in  which  its  principal  place  of  business  is  situated  for  regis- 
tration  in  the  Mercantile  Register. 

The  application  may  not  be  made  until  an  amount  has 
been  paid  up  in  respect  of  each  contribution  to  be  made 
not  otherwise  than  in  cash,  equal  to  at  least  one  fourth  part 
thereof,  and  in  no  case  less  than  M .  250 . 

8.  Annexed  to  the  application  must  be — 

1.  The  memorandum  of  association,  and  in  the   case 

specified  in  sect.  2,  para.  2,  the  instruments  con- 
ferring a  power  of  attorney  upon  any  holders 
of  a  power  of  attorney  who  signed  the  memo- 
randum of  association  or  authenticated  copies  of 
these  documents. 

2.  The  documents    from    which    the    managers  derive 

their  authority,  where  not  appointed  by  the 
memorandum  of  association . 

3.  A  list   of  the   members,   showing  the  name,  first- 

names,  description,  and  place  of  residence  of 
each  of  them,  and  the  amount  of  their  respec- 
tive contributions,  such  list  to  be  signed  by  all 


238  PRIVATE  LIMITED  COMPANIES  ACT. 

the  persons  co-operating  in  the  making  of  the 
application. 

4.  In  a  case  where  the  undertaking  requires  license  by 
the  State  in  order  to  be  carried  on,  the  document 
conferring  such  license. 

The  application  must  contain  an  assurance  that  the  pay- 
ments in  respect  of  the  contributions  specified  in  sect.  7, 
para.  2,  have  been  effected,  and  that  such  part  of  the  contri- 
butions as  has  already  been  made  is  at  the  uncontrolled  dis- 
posal of  the  managers. 

The  managers  must  furnish  the  Court  with  specimens  of 
their  signatures  for  its  retention. 

9.  The  persons  making  the  application  are  jointly   and 
severally  liable  to  the  company  for  the  correctness  of   tho 
information  supplied  by  them  as  to  the  payments  that  have 
been  made  in  respect  of  contributions  (sect.  7,  para.  2). 

Compromises  or  releases  of  the  company's  claims  to  com- 
pensation arising  under  para.  1  of  this  section  are  inopera- 
tive in  so  far  as  such  compensation  is  necessary  in  order  to 
satisfy  the  creditors  of  the  company.  This  provision  does 
not  apply  to  compositions  made  by  the  person  liable  in  case 
of  insolvency  for  the  purpose  of  preventing  or  cancelling 
an  adjudication  of  bankruptcy. 

Claims  arising  by  virtue  of  the  above  provisions  become 
barred  in  five  years  from  the  date  of  the  entry  of  the  com- 
pany in  the  Mercantile  Register. 

10.  The  entry  in  the  Mercantile  Register  must  include  the 
trade  name  and  principal  place  of  business  of  the  company, 
the  object  of  the  undertaking,  the  amount  of  the  capital, 
and  the  date  of  the  execution  of  the  memorandum  of  asso- 
ciation, and  the  names  of  the  managers. 

Any  special  provisions  which  may  be  contained  in  the 
memorandum  of  association  as  to  the  duration  of  the  com- 
pany or  as  to  powers  of  agency  of  the  managers  or  liqui- 
dators must  also  be  included  in  the  entry. 


APPENDIX  B.  239 

The  announcement  publicly  notifying  the  entry  must 
state,  besides  the  contents  of  the  entry,  any  arrangements 
of  the  description  specified  in  sect.  5,  para.  4,  which  may 
have  been  made,  and  any  provisions  which  may  be  contained 
by  the  memorandum  of  association  as  to  the  form  in  which 
public  announcements  are  to  be  made  by  the  company. 

11.  Before  the  entry  of  its  principal  place  of  business  in 
the  Mercantile  Register,  the  company  has  no  existence  as 
such . 

Persons  trading  in  the  name  of  the  company  before  the 
making  of  such  entry  are  jointly  and  severally  liable. 

12.  The  provisions  of  sect.  8,  paras.  1  and  2,  do  not  apply 
to  the  application  for  entry  in  the  Mercantile  Register  of  a 
Court  in  the  district  of  which  a  company's  branch  estab- 
lishment is  situated.     Such  an  application  must  have  an- 
nexed to  it  a  copy  of  the  memorandum  of  association  and  a 
list  of  members  authenticated  by  the  Court  of  the  district 
in  which  the  principal  establishment  is  situated. 

The  entry  must  contain  the  information  specified  in 
sect.  10,  paras.  1  and  2.  The  announcement  publicly  noti- 
fying the  entry  must  state  also  the  provisions  specified  in 
sect.  10,  para.  3,  but  not  any  arrangements  which  may 
have  been  made  of  the  description  specified  in  sect.  5,  para.  4, 
unless  thje  entry  is  made  within  the  first  two  years  after  the 
entry  in  the  Mercantile  Register  of  the  principal  place  of 
business  of  the  company. 

PART  II. 

RIGHTS  AND  LIABILITIES  OF  THE  COMPANY  AND  ITS 
MEMBERS. 

13.  A  private  limited  company  has  rights  and  liabilities 
as  such ;  it  can  acquire  the  ownership  of  and  other  real  rights 
over  immovables,  and  can  sue  and  be  sued. 

The  property  of  the  company  only  is  available  to  meet 
the  claims  of  the  company's  creditors. 


240  PRIVATE  LIMITED  COMPANIES  ACT. 

A  private  limited  company  shall  be  deemed  to  be  a  mer- 
cantile association  within  the  meaning  of  the  Commercial 
Code. 

14.  The  amount  of  the  share  of  individual  members  in 
the  business  is  determined  by  the  amount  of  their  contri- 
butions. 

15.  A  member's  share  is  transmissible  by  alienation  inter 
vivos  and  by  succession  on  death. 

If  a  member  acquires  the  shares  of  other  members  in  addi- 
tion to  his  own,  the  shares  acquired  remain  separate  and 
independent. 

The  assignment  of  his  share  by  a  member  must  be  effected 
by  a  declaration  made  before  a  judicial  officer  or  notary. 

Any  agreement  giving  rise  to  an  obligation  on  the  part 
of  a  member  to  make  such  an  assignment  must  be  made  in 
the  same  manner.  But  such  an  agreement,  if  not  made, 
may  be  rendered  valid  by  means  of  an  assignment  executed 
in  the  manner  prescribed  by  the  foregoing  paragraph. 

Additional  conditions  for  the  assignment  of  an  interest 
in  the  business  may  be  imposed  by  the  memorandum  of 
association;  the  possibility  of  such  assignments  may  more 
particularly  be  made  dependent  upon  the  consent  of  the 
company  being  obtained. 

16.  In   the  case  of  the  alienation  of  a  member's  share 
only  such  person  shall  be  deemed  to  be  the  transferee  as 
shall  be  named  as  such  in  a  notification  to  the  company, 
proof  of  the  transfer  being  duly  given. 

Any  transactions  between  the  transferor  and  the  com- 
pany affecting  the  rights  and  liabilities  of  the  company 
which  are  entered  upon  prior  to  such  notification  shall  be 
operative  as  against  the  transferee. 

The  transferee,  as  well  as  the  transferor,  is  liable  to  tho 
company  for  any  payments  due  to  be  made  at  the  time  of 
the  notification  in  respect  of  the  share  transferred, 


APPENDIX  B.  241 

17.  The  transfer  of  a  part  of  a  member's  share  is   not 
permissible  without  the  consent  of  the  company. 

Such  consent  requires  to  be  made  in  the  written  form  (6); 
it  must  specify  the  name  of  the  transferee  and  the  amount 
of  each  of  the  new  shares  created  out  of  the  original  con- 
tribution: 

Provided  always  that  the  memorandum  of  association 
may  dispense  with  the  necessity  of  obtaining  the  consent 
of  the  company  for  the  transfer  of  part  of  a  share  from 
one  member  to  another,  or  for  the  division  of  a  deceased 
partner's  share  among  his  heirs. 

The  provisions  of  sect.  5,  paras.  1  and  3,  as  to  the  amount 
of  the  contributions  apply  mutatis  mutandis  upon  the  divi- 
sion of  a  member's  share. 

A  simultaneous  transfer  of  more  than  one  part  of  a  mem- 
ber's share  to  the  same  transferee  shall  not  be  permissible. 

Except  in  the  case  of  alienation  inter  vivos,  or  in  the 
case  of  transmission  upon  death,  no  division  of  a  member's 
share  may  take  place;  it  may  be  prohibited  even  in  these 
cases  by  the  memorandum  of  association. 

18.  If  an  undivided  share  is  held  by  several  persons  as 
joint  owners,  they  can  only  exercise  their  rights  in  respect 
thereof  in  co-operation  with  one  another. 

They  are  jointly  and  severally  liable  to  the  company  for 
any  payments  to  be  made  in  respect  thereof. 

Acts-in-the-law  to  be  performed  by  the  company  as 
against  the  owners  of  the  share,  in  the  absence  of  a  common 
representative  appointed  to  represent  all  the  joint  owners, 
may  be  sufficiently  performed  if  executed  as  against  one 
only  of  the  joint  owners.  In  the  case  of  several  heirs  of 
a  deceased  member  this  provision  only  applies  in  respect  of 
acts-in-the-law  executed  after  the  expiration  of  one  month 
from  the  vesting  of  the  inheritance. 

19.  The  payments  to  be  made  in  respect  of  contributions 
shall  be  determined  in  proportion  to  the  amount  of  the  con- 
tributions. 

(6)  See  Schuster,  p.  91. 
S.  R 


242  PRIVATE  LIMITKD  COMPANIES  ACT. 

Except  in  the  case  of  a  reduction  of  capital,  a  member 
may  neither  be  released  from  nor  allowed  to  defer  the  pay- 
ment  of  his  contribution.  No  right  of  set-off  may  be  ex- 
ercised by  a  member  in  respect  of  such  payment;  in  the 
same  manner,  no  right  of  lien  may  be  exercised  over  proper!  y 
constituting  a  contribution  to  be  made  otherwise  than  in 
cash  in  respect  of  claims  not  connected  with  such  properly. 

A  payment  by  a  member  in  respect  of  a  contribution, 
which  is  made  otherwise  than  in  cash,  or  which  is  set  off 
against  the  purchase  price  payable  by  the  company  for  pro- 
perty acquired  by  it,  releases  such  member  from  liability 
only  in  so  far  as  it  is  made  or  set  off  in  the  performance  of 
an  agreement  made  in  the  manner  specified  in  sect.  5, 
para.  4. 

20.  Any  member   failing   to    make   a  payment   duo   in 
respect  of  his  contribution  at  the  proper  time,  is  bound  by 
law  to  pay  interest  in  respect  of  the  delay . 

21.  In  the  case  of  payments  not  made  at  the  proper  time 
a  fresh  demand  may  be  sent   to   the   defaulting    member, 
calling  upon  him  to  make  the  required  payment  within  a 
specified  period  under  penalty  of  the  forfeiture  of  the  share 
in  respect  of  which  payment  has  to  be  made.    Such  demand 
must    be   made  by  registered  letter.       The  period  allowed 
for  payment  must  be  at  least  one  month. 

Upon  the  expiration  of  such  period  without  payment 
having  been  made,  the  member's  share,  and  such  payments 
as  he  may  have  made  in  respect  thereof,  are  to  be  declared 
to  be  forfeited  for  the  benefit  of  the  company.  Such  de- 
claration is  to  be  made  by  registered  letter. 

The  member  whose  share  has  been  forfeited  remains  liable 
to  the  company  for  the  amount  due  thereon  and  for  any 
subsequent  amounts  which  may  become  payable  in  respect 
thereof. 

22.  If  a  member's  share  is  forfeited  by  reason  of  failure 
to  pay  an  amount  due  in  respect   of  his   contribution,  his 


APPENDIX  B.  243 

last  predecessor  in  title  and  all  former  predecessors  whose 
ownership  of  the  share  was  notified  to  the  company  are 
liable  to  the  company  for  such  amount. 

A  predecessor  in  title  is  only  liable  if  payment  is  unob- 
tainable from  his  successor;  such  payment  shall,  in  the 
absence  of  evidence  to  the  contrary,  be  deemed  to  be  unob- 
tainable, if  it  has  not  been  made  after  the  expiration  of  one 
month  from  the  date  at  which  demand  therefor  was  made 
to  the  successor,  and  notice  of  such  demand  given  to  the  pre- 
decessor : 

Provided  always  that  the  predecessor's  liability  is  limited 
to  calls  payable  in  respect  of  the  contribution  in  question 
within  a  period  of  five  years,  running  from  the  day  upon 
which  the  transfer  of  the  share  was  notified  to  the  company . 

Against  payment  of  the  amount  in  arrear  the  predecessor 
acquires  the  property  in  the  share  forfeited  by  the  default- 
ing member. 

23.  If  the  amount  in  arrears  cannot  be  obtained  from  the 
predecessors   in  title,  the  company  may  sell  the  share  by 
public  auction.     Any  other  method  of  sale  is  only  permis- 
sible with  the  consent  of  the  member  whose  share  has  been 
forfeited. 

24.  If  the  amount  of  a  contribution  cannot  be  obtained 
either  from  the  persons  liable  or  by  means  of  a  sale  of  the 
share,  the  remaining  members  must  make  good  the  defici- 
ency in  capital  by  contributing  in  proportion  to  the  amounts 
of  their  shares.     Amounts  not  to  be  obtained  in  this  way 
from  individual  members  must  be  made  good   by  the  re- 
maining members  in  the  proportion  specified  (c) . 

25.  Members  may  not  be  released  from  the  legal  con- 
sequences of  the  provisions  of  sects.  21 — 24. 

(c)  I.e.,  specified  in  the  preceding  paragraph. 


244  PRIVATE  LIMITED  COMPANIES  ACT. 

26.  The  memorandum  of  association  may  provide  that  it 
is  within  the  power  of  the  members  to  pass  a  resolution  sanc- 
tioning further  calls  for  payments  to  be  made  on  members' 
sha.ree   over  and  above  the  amount  of  their  contributions 
(hereinafter  called  additional  calls). 

The  payment  of  additional  calls  must  be  made  in  a  ratio 
proportionate  to  members'  shares. 

The  memorandum  of  association  may  limit  the  members' 
liability  in  respect  of  additional  calls  to  a  specified  amount 
proportionate  to  their  shares. 

27.  If  the  members'  liability    in    respect  of  additional 
calls   is  not  limited  to  a  specified  amount,  every  member 
who  has  paid  up  the  full  amount  of  his  contribution  has 
the  right  to  free  himself  from  liability  to  pay  an  additional 
call  by  a  declaration  placing  his  share  at  the  disposal  of  the 
company   for  the  purpose  of  meeting  such  call  within    a 
month  from  the  making  thereof.     In  the  same  manner,  if 
within  the  prescribed  period  the  member  neither  avails  him- 
self of  the  above  specified  right  nor  makes  the  required  pay- 
ment, the  company  may  declare  to  him  by  registered  letter 
that  it  will  consider  his  share  as  placed  at  the  company's 
disposal. 

The  company  must,  within  a  month  after  the  making 
of  such  declaration,  either  by  the  member  or  by  itself,  have 
the  share  sold  by  public  auction.  Any  other  method  of 
sale  is  only  permissible  with  the  consent  of  the  member. 
The  member  is  entitled  to  any  surplus  remaining  after  the 
payment  of  the  costs  of  the  sale  and  the  amount  of  the  addi- 
tional call. 

If  payment  of  the  company's  claim  cannot  be  obtained 
by  a  sale,  the  share  becomes  the  property  of  the  company, 
and  may  be  sold  by  it  for  its  own  account. 

The  memorandum  of  association  may  limit  the  applica- 
tion of  the  foregoing  provisions  to  cases  where  the  amount 
owing  on  an  additional  call  is  in  excess  of  a  specified  amount. 

28.  If  the  liability  of  members  in  respect  of  additional 
calls  is  limited  to  a  specified  amount,  in  the  absence  of  any 


APPENDIX  B.  245 

provision  to  the  contrary  contained  in  the  memorandum  of 
association,  the  rules  of  sects.  21 — 23  applying  to  the  failure 
to  make  payments  in  respect  of  contributions  at  the  proper 
time  apply  rriutatis  mutandis  to  the  failure  to  make  pay- 
ments in  respect  of  additional  calls.  In  the  case  specified 
in  sect.  27,  para.  4,  the  same  rule  applies  also  where  the 
liability  on  additional  calls  is  unlimited,  provided  that  the 
amount  of  the  additional  calls  does  not  exceed  that  specified 
in  the  memorandum  of  association. 

The  memorandum  of  association  may  provide  that  addi- 
tional calls  as  to  the  payment  of  which  the  rules  of  sects. 
21 — 23  apply  are  permissible  even  before  the  members' 
original  contributions  have  been  fully  called  up. 

29.  The  members  are,  in  the  absence  of  any  provision 
to  the  contrary  contained  in  the  memorandum  of  associa- 
tion, entitled  to  the  net  profits  as  shqwn  by  the  annual 
balance  sheet. 

The  division  of  profits  shall  be  made  in  a  ratio  propor- 
tionate to  the  shares.  Other  methods  for  such  division  may 
be  specified  by  the  memorandum  of  association. 

30.  Such  property  of  the  company  as  must  necessarily 
be  retained  in  order  to  keep  its  capital  intact  must  not  be 
paid  out  to  the  members. 

Additional  calls  which  have  been  paid  may,  if  they  are 
not  necessary  in  order  to  cover  a  loss  of  capital,  be  repaid 
to  the  members.  Such  repayment  may  not  be  effected  before 
the  expiration  of  a  period  of  three  months  from  the  date 
upon  which  notice  of  the  resolution  sanctioning  it  was  given 
in  the  public  newspapers  designated  for  the  making  of  an- 
nouncements by  the  company  in  the  memorandum  of  asso- 
ciation, or  in  default  thereof  by  the  public  newspapers  desig*- 
nated  for  the  publication  of  entries  in  the  Mercantile  Regis- 
ter. In  the  case  specified  in  sect.  28,  para.  2,  the  repayment 
of  additional  calls  is  not  permissible .  Additional  calls  which 
have  been  repaid  shall  be  deemed  never  to  have  been  paid. 


246  PRIVATE  LIMITED  COMPANIES  ACT. 

31.  Payments  made  in  breach  of  the  rules  of  sect.  30 
must  be  made  good  to  the  company. 

If  they  were  received  in  good  faith,  repayment  can  only 
be  demanded  in  so  far  as  it  is  necessary,  for  the  satisfaction 
of  the  company's  creditors. 

If  such  repayment  cannot  be  obtained  from  the  person  to 
whom  the  original  payment  was  made,  the  amount  of  such 
payment  must  be  made  good  by  the  remaining  members  in 
a  ratio  proportionate  to  the  amount  of  their  shares  in  so  far 
as  this  may  be  necessary  in  order  to  satisfy  the  claims  of 
the  company's  creditors.  Amounts  which  are  unobtainable 
from  individual  members  must  be  made  good  by  the  re- 
maining members  in  the  ratio  above  specified. 

Persons  may  not  be  released  from  their  liability  to  make 
payments  arising  under  the  above  rules. 

The  claims  of  the  company  become  barred  in  five  years 
from  the  expiration  of  the  day  upon  which  the  payment, 
which  it  is  sought  to  make  good  by  means  of  such  claims, 
was  made.  The  above  rule  does  not  apply  if  the  persons 
liable  have  been  guilty  of  reckless  conduct. 

In  the  case  specified  in  para.  3  the  managers  who  were 
guilty  of  any  default  in  respect  of  the  making  of  the  pay- 
ment in  question  are  jointly  and  severally  liable  to  com- 
pensate the  members  for  the  sums  paid  by  them  in  order 
to  make  good  such  payment. 

32.  Except  in  the    circumstances    specified  in  sect.  31, 
para.   1,  members  are  in  no  case  liable  to  repay  amounts 
received  by  them  in  good  faith  as  their  share  in  the  profits. 

33.  Shares  in  the  company,  the  contributions  in  respect  of 
which  have  not  been  fully  paid  up,  may  not  be  acquired  by 
the  company. 

They  may  not  be  acquired  by  the  company,  even  if  the 
contributions  have  been  fully  paid  up,  unless  the  company 
possesses  property  over  and  above  the  amount  of  its  capital, 
out  of  which  the  purchase  price  can  be  paid. 


APPENDIX  B.  247 

34.  The  cancellation  (amortisation)  of  shares  may  only 
be  effected  if  expressly  permitted  by  the  memorandum  of 
association . 

Except  with  the  consent  of  the  owner  of  the  share,  it  can 
only  take  place  if  the  provisions  of  the  memorandum  of 
association  making-  it  permissible  were  in  existence  prior 
to  the  acquisition  of  the  share  by  its  owner. 

The  rule  stated  in  sect.  30,  para.  1,  remains  unaffected 
hereby. 

PART  III. 

POWERS  OF  AGENCY  AND  MANAGEMENT. 

35.  In  all  judicial  and    extra-judicial    transactions  the 
managers  shall  act  on  behalf  of  the  company. 

The  managers  must  effect  declarations  and  sign  on  behalf 
of  the  company  in  the  manner  specified  in  the  memorandum 
of  association.  Such  declarations  and  signatures  must,  in 
the  absence  of  anything  appearing  to  the  contrary,  be  effected 
by  the  managers  collectively.  If  a  declaration  has  to  be 
made  as  against  the  company  it  shall  be  made  sufficiently 
if  made  to  one  of  the  managers. 

The  signature  must  be  effected  in  some  manner  by  which 
the  managers  signing  append  their  own  signatures  to  that 
of  the  trade  name  of  the  company. 

36.  The  company  acquires  rights  and  incurs  liabilities  by 
reason  of  the  transactions  entered  upon  on  its  behalf  by 
the  managers,  irrespective  of  whether  such  transactions  were 
entered  upon  expressly    in    the  name  of  the  company    or 
whether  the  circumstances  show  that  it  was  the  intention 
of  the  parties  concerned  that  they  should  be  entered  upon 
on  behalf  of  the  company . 

37.  The   managers  are  liable  to  the  company    for    the 
observance   of  the  limitations   imposed  upon  the  scope    of 
their   authority  to  act  on  behalf  of  the  company  by  the 


248  PRIVATE  LIMITED  COMPANIES  ACT. 

memorandum  of  association  or  the  resolutions  of  the  mem- 
bers, provided  that  the  memorandum  of  association  permits 
such  limitations  to  be  imposed  by  resolution. 

Any  limitation  of  the  power  of  the  managers  to  act  on 
behalf  of  the  company  is  not  legally  operative  as  against 
third  parties.  This  applies  more  particularly  to  limita- 
tions seeking  to  restrict  the  exercise  of  such  power  to  par- 
ticular transactions  or  kinds  of  transactions,  or  to  prohibit 
its  use,  except  under  specified  circumstances  during  a  speci- 
fied period,  or  at  particular  places,  or  to  make  the  consent  of 
the  members  or  of  some  body  representing  the  company  a 
condition  precedent  to  the  exercise  thereof. 

38.  The  appointment  of  the  managers  may  be  revoked 
at  any  time,  without  prejudice  to  any  right  to  compensa- 
tion which  they  may  have  in  accordance  with  an  existing 
contract. 

The  memorandum  of  association  may  restrict  the  power 
to  revoke  such  appointments  to  occasions  where  there  are 
cogent  grounds  for  such  revocation.  As  cogent  grounds  are 
to  be  regarded  more  particularly  any  gross  neglect  of  duty 
or  incapacity  to  conduct  business  in  a  proper  manner. 

39.  Any  change  of  managers  as  well  as  any  change  in 
a  manager's  power  of  agency  is  to  be  notified  for  entry  in 
the  Mercantile  Register. 

Annexed  to  the  notification  must  be  a  copy  of  the  docu- 
ments relating  to  the  appointment  of  the  new  managers  or 
the  change  in  the  powers  of  agency  of  the  previously  existing 
ones.  This  rule  does  not  apply  to  the  notification  to  be 
made  to  the  Court  in  charge  of  the  Register  in  which  a 
branch  establishment  is  entered. 

The  managers  must  supply  the  Court  with  specimens  of 
their  signatures  for  its  retention. 

40.  Every  year,  in  the  month  of  January,  the  managers 
must  file  with  the  Court  in  charge  of  the  Mercantile  Register 


APPENDIX  B.  249 

a  list  of  members,  signed  by  them,  and  showing  the  name, 
first-name,  description,  and  place  of  residence  of  each  mem- 
ber as  well  as  the  respective  amounts  of  their  contribu- 
tions. If  no  change  has  occurred  since  the  filing  of  the  last 
list  either  with  regard  to  the  identity  of  the  members  or 
their  respective  interests  in  the  company,  a  declaration  to 
that  effect  will  suffice. 

41.  It  is  the  duty  of  the  managers  to  see  that  the  books  of 
the  company  are  kept  in  a  proper  manner. 

Within  the  first  three  months  of  the  business  year  they 
must  draw  up  a  balance-sheet  for  the  last  business  year, 
together  with  a  profit  and  loss  account. 

The  time  for  the  drawing  up  of  such  documents  may  be 
extended  by  the  memorandum  of  association  to  six  months, 
and  in  the  case  of  companies  whose  business  consists  in 
operations  conducted  in  countries  situated  beyond  the  seas, 
to  nine  months. 

In  the  case  of  companies,  the  object  of  which  is  the  carry- 
ing on  of  a  banking  business,  the  balance-sheet  must  be  pub- 
lished within  the  prescribed  period  in  the  public  newspapers 
specified  in  sect.  30,  para.  2.  The  notice  effecting  the 
publication  must  be  filed  with  the  Court  in  charge  of  the 
Mercantile  Register. 

42.  In  respect  of  the  drawing  up  of  the  balance-sheet  the 
rules  of  sect.  40  of  the  Commercial  Code  apply,  with  the 
following  modifications:  — 

1 .  Plant  and  other  property  intended  not  for  re-sale,  but 

to  be  permanently  employed  in  the  business,  may 
at  highest  be  valued  at  its  purchase-price  or  cost  of 
production,  but  may  be  valued  at  this  price  without 
regard  to  the  fact  that  its  intrinsic  value  may  be 
smaller,  provided  that  a  sufficient  sum  is  written 
off  to  cover  wear  and  tear,  or  provided  that  a  sum 
corresponding  in  amount  thereto  has  been  placed 
to  the  credit  of  a  renovation  fund. 

2.  The  costs  of  organisation  and  administration  must  not 

be  set  down  as  assets  -on  the  balance-sheet. 

3.  The  right  of  the  company  to  make  additional  calls 


250  PRIVATE  LIMITED  COMPANIES  ACT. 

may  only  be  set  down  among  the  assets  on  the 
balance-sheet  provided  that  resolutions  to  make 
such  calls  have  already  been  passed,  and  provided 
that  the  members  have  not  the  right  to  free  them- 
selves from  the  liability  to  make  payments  in 
respect  thereof  by  putting  their  shares  at  the  com- 
pany's disposal;  if  the  amount  due  to  the  com- 
pany in  respect  of  additional  calls  is  set  down 
among  the  assets  of  the  company,  a  corresponding 
amount  must  be  set  down  as  capital  among  the 
liabilities. 

4.  The  amount  of  the  capital  as  stated  in   the    memo- 

randum of  association  must  be  set  down  among 
the  liabilities. 

The  same  rule  applies  to  every  reserve  fund  or 
renovation  fund  and  to  the  aggregate  amount  paid 
upon  additional  calls,  unless  such  amount  has  been 
applied  in  a  manner  justifying  the  cancellation 
of  the  entry  which  would  otherwise  have  had  to 
be  made  among  the  liabilities. 

5.  The  profit  or  loss  appearing  upon  the  balancing  of 

the  collective  assets  and  liabilities  must  be  ex- 
pressly stated  at  the  foot  of  the  balance-sheet. 

43.  The  managers  must  apply  the  diligence  of  careful 
business  men  to  the  conduct  of  the  business. 

Managers  violating  their  obligations  are  jointly  and 
severally  liable  to  the  company  for  any  damage  resulting 
therefrom  to  the  company. 

They  are  more  particularly  liable  to  pay  compensation  in 
respect  of  payments  made  contrary  to  the  provisions  of 
sect.  30  out  of  money  which  it  is  necessary  for  the  com- 
pany to  retain  in  order  to  prevent  the  capital  sinking  below 
the  requisite  amount  or  in  respect  of  transactions  by  which 
the  company  purchases  shares  in  itself  in  breach  of  the  rules 
of  sect.  33.  The  rules  of  sect.  9,  para.  2,  apply  mutatis 
mutandis  to  claims  for  compensation.  In  so  far  as  such 
compensation  is  necessary  in  order  to  satisfy  the  company's 
creditors,  the  managers'  liability  is  not  extinguished  by  the 


APPENDIX  B.  251 

fact  that  they  acted  in  accordance  with  a  resolution  of  the 
members. 

Claims  based  upon  the  foregoing  provisions  become  barred 
in  five  years. 

44.  The  rules  affecting  the  managers  affect  persons  ap- 
pointed to  act  as  their  substitutes. 

45.  The  nature  of  the  rights  appertaining  to  the  mem- 
bers with  reference  to  the  affairs  of  the  company,  and  more 
particularly  the  conduct  of  its  business,  as  well  as  the  mode 
of  exercise  of  such  rights,  are  in  the  absence  of  statutory 
provisions  to  the  contrary  regulated  by  the  memorandum 
of  association. 

In  default   of   any   special    provisions   contained   in   the 
memorandum  of  association,  the  rules  of  sects.  46 — 51  apply. 

46.  Resolutions  of  the  members  are  necessary  in  respect 
of  the  following  matters:  — 

1 .  The  passing  of  the  annual  balance-sheet  and  the  divi- 

sion of  the  net  profits  shown  thereby. 

2.  The  making  of  calls  in  respect  of  contributions. 

3.  The  repayment  of  additional  calls. 

4.  The  division  and  cancellation  of  shares. 

5.  The  appointment  and  removal  of  managers  and  the 

granting  of  their  discharge. 

6 .  The  passing  of  regulations  for  investigating  and  super- 

vising the  management. 

7.  The  conferring  of  powers  of  procuration  and  mercan- 

tile agency  upon  persons  intended  to  conduct  the 
whole  of  the  company's  business. 

8.  The  enforcement  of  the  company's  claims  for  com- 

pensation arising  out  of  the  promotion  or  the 
management  of  the  business  against  any  of  the 
managers  or  members,  as  well  as  the  appointment 
of  representatives  to  act  on  behalf  of  the  com- 
pany in  litigation  to  be  conducted  against  the 
managers . 


252  PRIVATE  LIMITED  COMPANIES  ACT. 

47.  Resolutions  requiring  to  be  passed  by  the  members 
with   respect  to  measures  affecting  the  affairs  of  the  com- 
pany must  be  passed  by  a  majority  of  the  votes  given. 

The  holding  of  a  share  confers  one  vote  for  every  hun- 
dred marks  which  it  represents . 

Instruments  authorising  voting  by  proxy  require  the 
written  form. 

A  member  has  no  right  to  vote  on  behalf  either  of  him- 
self or  another  at  the  passing  o  f  a  resolution  conferring  upon 
him  a  discharge  or  a  release  from  any  obligation,  or  at  the 
passing  of  a  resolution  for  the  performance  of  some  act  in 
the  law  as  against  himself  or  for  the  institution  or  settle- 
ment of  litigation  against  himself. 

48.  Resolutions  shall  be  passed  at  members'  meetings . 
No  meeting  is  required  for  the  passing  of  a  resolution  if 

all  the   members   declare  their    consent   thereto   in  writing 
or  give  their  consent  to  the  votes  being  given  in  writing. 

49.  Members'  meetings  shall  be  summoned  by  the  man- 
agers. 

They  must  be  summoned  whenever  the  company's  interests 
seem  to  demand  it,  as  well  as  upon  the  occasions  where  it 
is  expressly  prescribed  that  they  should  be  summoned. 

They  must  more  particularly  be  summoned  whenever  a 
loss  equal  to  half  the  capital  of  the  company  is  shown  upon 
the  annual  or  any  interim  balance-sheet. 

50.  A  number  of  members  the  aggregate  amount  of  whose 
shares  is  not  less  than  a  tenth  of  the  company's  capital, 
have  a  right  to  demand  the  summoning  of  a  meeting  upon 
stating  the  purpose  for  which  and  the  ground  upon  which 
they  wish  it  to  be  summoned. 

Under  the  same  circumstances,  members  have  the  right 
to  demand  that  a  particular  matter  should  be  placed  on  the 
agenda  for  a  meeting. 

A  number  of  members  holding  shares  of  the  amount  speci- 
fied in  para.  1  can,  if  their  demand  for  the  summoning  of 


APPENDIX  B.  253 

a  meeting  is  not  complied  with,  or  in  the  absence  of  any 
persons  to  whom  such  demand  can  be  addressed,  themselves, 
upon  stating  the  circumstances,  effect  the  summoning  of  the 
meeting  desired,  or  the  placing  of  the  required  matter  upon 
the  agenda.  Whether  the  costs  incurred  thereby  are  to  be 
borne  by  the  company  or  not  is  a  matter  for  the  resolution 
of  the  meeting  summoned. 

51.  The  summoning  of  the  meeting  is  to  be  effected  by 
notices  sent  by  registered  letter  to  the  members  requesting 
their  presence  at   least   one    week   before   the   date   of   the 
meeting. 

The  purpose  for  which  the  meeting  is  summoned  must 
in  every  case  be  stated  on  the  notice. 

If  the  meeting  has  not  been  summoned  in  the  regular 
manner,  resolutions  can  only  be  passed  thereat  if  all  the 
members  are  present. 

The  same  rule  applies  to  resolutions,  notice  as  to  the  sub- 
ject-matter of  which  has  not  been  given  at  least  three  days 
before  the  meeting  in  the  manner  prescribed  for  the  sum- 
moning of  the  meeting. 

52,  If  the  memorandum  of  association  provides  for  the 
appointment    of     a    board    of     supervision,     the    rules    of 
sect.  243,  paras.  1,  2  and  4,  sects.  244 — 8,  and  sect.  249, 
paras.   1  and  2,  of  the  Commercial  Code,  which  deal  with 
the  board  of  supervision  of  share  companies,  apply  mutatis 
mutandis  in  the  absence  of  any  contrary  provision  contained 
in  the  memorandum  of  association. 

Claims  for  compensation  against  members  of  the  board 
of  supervision  arising  out  of  any  breach  of  their  obliga- 
tions, become  barred  in  five  years. 


2f>4  PRIVATE  LIMITED  COMPANIES  ACT. 

PART  IV. 
CHANGES  IN  THE  MEMORANDUM  OF  ASSOCIATION. 

53.  A  change  in  the  memorandum  of  association  can  only 
be  effected  by  a  resolution  passed  by  the  members. 

Such  resolution  must  be  authenticated  by  a  judicial  offi- 
cer or  notary,  and  requires  a  majority  composed  of  at  least 
three-fourths  of  the  votes  given.  Other  requirements,  in 
addition,  may  be  imposed  by  the  memorandum  of  associa- 
tion. 

A  resolution  in  favour  of  any  addition  to  the  obligations 
of  the  members  imposed  by  the  memorandum  of  associa- 
tion can  only  be  passed  with  the  consent  of  all  the  members 
concerned. 

54.  A  change  in  the  memorandum  of  association  must 
be  notified  for  entry  in  the  Mercantile  Register. 

If  the  change  does  not  concern  any  of  the  matters  speci- 
fied in  sect.  10,  paras.  1  and  2,  it  is  sufficient  if  reference 
is  made  in  the  notification  to  the  documents  concerning  the 
changes  which  have  been  filed  with  the  Court.  Public  notice 
must  be  given  of  the  change  if  it  concerns  any  of  the  matters 
concerning  which  public  notification  is  directed  by  sect.  10, 
para.  3,  and  sect.  12. 

No  change  becomes  legally  operative  till  it  has  been 
entered  in  the  Mercantile  Register  in  which  the  principal 
place  of  business  of  the  company  is  entered. 

55.  If  an  increase  of  capital  has  been  sanctioned  by  reso- 
lution,  the  subscription  for  each  fresh  contribution    must 
be  executed  by  means  of  a  declaration  either  drawn  up  or 
authenticated  by  a  judicial  officer  or  notary. 

The  new  shares  may  be  allotted  by  the  company  either 
to  existing  members  or  to  other  persons,  who,  by  signing 
the  declarations  by  which  they  acquire  their  shares,  become 
members  of  the  company.  In  the  last  case,  besides  the 


APPENDIX  B.  255 

amount  of  the  contribution  to  be  paid,  any  other  obliga- 
tions imposed  upon  the  persons  so  becoming-  members  by 
the  memorandum  of  association  must  appear  upon  the  docu- 
ment specified  in  para.  1. 

If  a  person  who  is  already  a  member  of  the  company  sub- 
scribes for  a  contribution  forming  part  of  the  new  capital, 
he  acquires  an  additional  share. 

The  provisions  of  sect.  5,  paras.  1  and  3,  as  to  the  amount 
of  the  contributions  as  well  as  the  rule  stated  in  sect.  5, 
para.  2,  as  to  the  non-permissibility  of  the  subscription  for 
more  than  one  contribution,  apply  also  with  respect  to  the 
contributions  forming  part  of  the  new  capital. 

56.  If  any  contribution  to  the  new  capital  is  made  other- 
wise than  by  the  payment  of  money,  or  is  set  off  against 
the  purchase  price  payable  by  the  company  for  any  property 
acquired  by  it,  the  name  of  the  person  making  the  con- 
tribution in  the  above-specified  manner,  or  selling  the  pro- 
perty in  question  to  the  company,  the  nature  of  the  contri- 
bution made  or  property  purchased,  and  the  price  at  which 
such   contribution  is  valued  or  at  which  such  property  is 
purchased,  must  be  fixed  by  the  resolution  for  the  increase 
of  the  capital,  and  stated  in    the    declaration  specified  in 
sect.  55,  para.  1. 

The  rule  stated  in  sect.  19,  para.  3,  applies  mutatis  mu- 
tandis. 

57.  Application  must  be  made  for  the  entry  in  the  Mer- 
cantile Register  of  the  resolution  for  the  increase  of  capital, 
as  soon  as  the  fresh  capital  has  been  provided  by  subscrip- 
tions for  contributions. 

The  rule  stated  in  sect.  7,  para.  2,  as  to  the  payments  to 
be  effected  before  the  making  of  the  application,  and  that 
stated  in  sect.  8,  para.  2,  as  to  the  assurance  to  be  contained 
in  the  application  apply  mutatis  mutandis 
Annexed  to  the  application  must  be — 

1.  The  declaration  specified  in  sect.   55,  para.   1,    or 
authenticated  copies  thereof. 


256  PRIVATE  LIMITED  COMPANIES  ACT. 

2.  A  list  of  persons  subscribing  the  fresh  contributions, 
signed  by  the  persons  making  the  application, 
and  showing  the  amount  of  each  of  such  contri- 
butions. 

The  provisions  of  sect.  9  apply  mutatis  mutandis  to  the 
responsibility  of  the  persons  making  the  application  for  the 
correctness  of  the  information  given  by  them. 

58.  A  reduction  of  the  capital  can  only  be  made  under 
due  observance  of  the  following  rules:  — 

1.  The  resolution  for  the  reduction  must  be  notified  by 

the  managers  by  means  of  an  advertisement  in- 
serted on  three  separate  occasions  in  the  news- 
papers specified  in  sect.  30,  para.  2;  such  adver- 
tisement must  contain  a  request  to  the  creditors 
of  the  company  to  give  notice  of  their  claims; 
a  special  request  must  be  sent  to  creditors  whose 
names  appear  in  the  books  of  the  company,  or  are 
otherwise  known. 

2.  Creditors  who  give  notice  of  their  claims,  and  do  not 

consent  to  the  reduction  of  capital,  must  be  satis- 
fied in  respect  of  such  claims  or  must  receive 
security  in  respect  thereof. 

3.  The  application  for  the  registration  of  the  reduction 

in  the  Mercantile  Eegister  shall  not  be  made  before 
the  expiration  of  one  year  from  the  date  upon 
which  the  request  was  made  for  the  third  time  to 
the  creditors  in  the  public  newspapers. 

4.  The  application  must  have  annexed  to  it  the  adver- 

tisement notifying  the  resolution';  at  the  same  time 
the  managers  must  give  an  assurance  that  the 
creditors  who  have  presented  themselves  and  have 
not  consented  to  the  reduction  have  received  satis- 
faction or  security. 

The  rule  stated  in  sect.  5,  para.  1,  as  to  the  minimum 
amount  of  the  capital  is  not  affected  hereby.  If  the  reduc- 
tion is  made  for  the  purpose  of  the  repayment  of  contri- 


APPENDIX  B.  257 

butions  or  of  giving  a  release  in  respect  of  amounts  pay- 
able upon  contributions,  then  the  amount  of  the  contribu- 
tions remaining  after  the  reduction  has  been  effected  must 
not  be  less  than  the  amount  specified  in  sect.  5,  paras.  1 
and  3. 

59.  The  provisions  of  sect.  57,  paras.  2  and  3,  head  No.  1, 
and  sect.  58,  para.  1,  head  No.  4,  do  not  apply  to  applica- 
tions to  be  made  to  the  Mercantile  Registry  controlled  by 
a  Court  in  the  district  of  which  a  company  possesses  a  branch 
establishment. 

PART  V. 

THE  DISSOLUTION  AND  ANNULMENT  OF  A  COMPANY. 

60.  A  private  limited  company  is  dissolved — 

1 .  By  expiration  of  the  period  specified  for  its  dura- 

tion in  the  memorandum  of  association. 

2 .  By  resolution  of  the  members ;  such  resolution  must, 

in  the  absence  of  anything  appearing  to  the  con- 
trary in  the  memorandum  of  association,  be  sup- 
ported by  a  majority  embracing  at  least  three- 
fourths  of  the  votes  given. 

3.  By  an  order  of  the  Court  or  by  the  decision  of  the 

administrative  Court  or  authority  in  the  cases 
specified  in  sects.  61  and  62. 

4.  By  an  adjudication  of  bankruptcy;  if  the  proceed- 

ings are  subsequently  annulled  by  the  accept- 
ance of  a  compulsory  composition,  or  revoked 
upon  the  application  of  the  bankrupt  company, 
a  resolution  may  be  passed  for  the  continuation 
of  the  company. 

Further  grounds  for  dissolution  may  be  specified  in  the 
memorandum  of  association. 

61.  The  company  may  be  dissolved  by  order  of  the  Court, 
if  the  object  for  which  it  was  formed  becomes  unattain- 

s.  s 


258  PRIVATE  LIMITED  COMPANIES  ACT. 

able,  or  in  the  presence  of  other  cogent  grounds  connected 
with  the  -affairs  of  the  company. 

The  action  demanding  dissolution  must  be  brought  against 
the  company.  It  can  only  be  brought  by  a  number  of 
members,  the  aggregate  amount  of  whose  shares  represent 
at  least  a  tenth  part  of  the  capital. 

Exclusive  jurisdiction  for  the  hearing  of  such  action  is 
vested  in  the  provincial  Court  of  the  district  in  which  the 
company's  principal  place  of  business  is  situated. 

62.  If  the  public  welfare  is  endangered  by  a  company, 
by  reason   of   its   members   passing  illegal  resolutions   or 
knowingly  allowing  illegal  transactions  to  be  entered  upon, 
such  company  may  be  dissolved  without  any  claim  for  com- 
pensation arising  out  of  such  dissolution. 

The  procedure  in  such  case  and  the  jurisdiction  of  the 
authorities  concerned  is  regulated  by  the  rules  in  force  in 
the  State  concerned  as  to  contentious  administrative  pro- 
ceedings. Where  under  the  law  of  such  State  no  adminis- 
trative procedure  exists,  dissolution  can  only  be  brought 
about  by  order  of  the  Court  upon  the  application  of  the 
higher  administrative  authority.  In  such  a  case  the  pro- 
vincial Court  of  the  district  in  which  the  principal  place 
of  business  of  the  company  is  situated  has  exclusive  juris- 
diction . 

63.  Bankruptcy  proceedings  may  be  commenced  against 
a  company  in  the  event  of  its  liabilities  exceeding  its  assets, 
as  well  as  in  the  event  of  its  insolvency. 

The  rules  as  to  bankruptcy  proceedings  against  a  share 
company  contained  in  sect.  207,  para.  2,  and  sect.  208 
of  the  Bankruptcy  Act,  apply  also  mutatis  mutandis  to 
the  case  of  a  private  limited  company. 

64.  The   managers  must  apply  for  an  adjudication    of 
bankruptcy  as  soon  as  the  company  becomes  insolvent  or 
its  liabilities  are  shown  to  exceed  its  assets  by  the  annual 
or  by  an  interim  balance-sheet. 


APPENDIX  B.  259 

The  managers  are  liable  to  indemnify  the  company  in 
respect  of  all  payments  made  by  them  from  this  time  on. 
The  provisions  of  sect.  43,  paras.  3  and  4,  apply  mutatis 
mutandis  to  the  company's  claims  to  indemnity  arising  out 
of  such  liability. 

65.  The  dissolution  of  the  company  must,  unless  it  is 
occasioned  by  bankruptcy,  be  notified  for  entry  in  the  Mer- 
cantile  Register.     A  similar  rule  applies  to  the  renewed 
carrying-on  of  the  company  in  the  cases  specified  in  sect.  60, 
para.  1,  head  No.  4. 

Notice  of  the  dissolution  must  be  given  by  the  liquida- 
tors by  means  of  an  advertisement  inserted  on  three 
separate  occasions  in  the  public  newspapers  specified  in 
sect.  30,  para.  2,  requesting  the  company's  creditors  to  send 
in  their  claims. 

66.  Unless  the  dissolution  is  occasioned  by  bankruptcy, 
the  liquidation  is  carried  out  by  the  managers,  except  where 
entrusted  to  other  persons  by  the  memorandum  of  associa- 
tion or  by  resolution  of  the  members. 

Upon  the  application  of  a  number  of  members  whose 
aggregate  contributions  constitute  at  least  a  tenth  part  of 
the  capital,  the  appointment  of  the  liquidators  may  in  the 
presence  of  cogent  grounds  be  effected  by  the  Court 
(sect.  7,  para.  1). 

Liquidators  may  be  removed  by  the  Courts  under  the 
same  circumstances  as  those  under  which  they  may  be  ap- 
pointed. If  not  nominated  by  the  Court,  they  may  be 
removed  before  the  expiration  of  the  period  for  which  they 
were  appointed  by  resolution  of  the  members. 

67.  The  names  of  the  first  liquidators  must  be  notified 
by  the  managers  for  entry  in  the  Mercantile  Register;  any 
change  in  the  composition  of  their  number,  as  well  as  any 
alteration   in  their  powers  of  agency,  must  be  notified  by 
the  liquidators  themselves. 


260  PRIVATE  LIMITED  COMPANIES  ACT. 

Annexed  to  the  notification  must  be  a  copy  of  the  docu- 
ments dealing  with  the  appointment  of  the  liquidators  or 
the  change  in  the  composition  of  their  number;  this  rule 
does  not  apply  to  the  notification  to  be  made  to  the  Court 
in  charge  of  the  Mercantile  Register  in  which  a  branch 
establishment  is  registered. 

The  entry  of  the  judicial  appointment  or  removal  from 
office  of  liquidators  is  effected  by  the  Court  proprio  motu. 

The  liquidators  must  provide  the  Court  with  specimens  of 
their  signatures  for  its  retention. 

68.  The  liquidators  must  execute  declarations  and  sign 
on  behalf  of  the  company  in  the  form  specified  on   their 
appointment.     In  default  of  any  such  specified  form,  de- 
clarations of  signatures  must  be  effected  by  the  liquidators 
collectively . 

If  any  such  form  is  specified  it  must  be  notified,  together 
with  the  appointment  of  the  liquidators,  for  entry  in  Mer- 
cantile Register . 

The  signature  must  be  effected  in  some  manner  by  which 
the  liquidators'  own  names  are  appended  to  the  former  trade- 
name  of  the  company,  which  is  now  to  be  used  with  some 
indication  that  the  company  is  in  liquidation. 

69.  Until  the  termination  of  the  liquidation  the  legal 
position  of  the  company  and  its  members  is  regulated  irre- 
spective of  the  dissolution  of  the  company  by  the  rules  of 
Parts  II.  and  III.  of  this  Act,  where  not  rendered   inap- 
plicable by  the  provisions  of  the  present  part  (Part  V.), 
or  the  nature  of  liquidation  proceedings. 

The  compa/ny  is  to  retain  the  same  legal  domicile  as  it 
had  at  the  time  of  its  dissolution  until  the  distribution  of  its 
assets  has  been  completed. 

70.  The  liquidators    must  terminate    pending    transac- 
tio,ns,   perform  the  obligations   of  the  dissolved  company, 
call  in  debts  due  to  the  company,  and  convert  the  remain- 
ing property  of  the  company  into  cash;  they  must  act  on 
behalf   of  the  company   in  all  judicial  and  extra-judicial 


APPENDIX  B.  261 

transactions ;    in  order  to   terminate    pending    transactions 
they   may  enter  upon  fresh  transactions. 

71.  The  liquidators  are  to  have  the  rights  and  liabilities 
of  managers  arising  out  of  sects.  36,  37,  41  (para.  1),  43 
(paras.  1,  2  and  4),  49  (paras.  1  and  2),  and  64. 

They  must  prepare  a  balance-sheet  immediately  at  the 
commencement  of  the  liquidation,  and  thenceforth  annually . 

72.  The  property  of  the  company  is  to  be  distributed 
among  the  members  in  a  ratio  proportionate  to  the  amount 
of    their  shares,  in    the    absence    of    any  provision    of   the 
memorandum   of  association  substituting  some  other  ratio 
therefor . 

73.  The  distribution  may  not  be  commenced  before  all 
the  company's  debts  have  been  paid  off,  or  before  security 
has  been  given  therefor,  and  in  any  case  not  before   the 
expiration  of  one  year  from  the  date  upon  which  the  request 
to  the  creditors  specified  in  sect.  65,  para.  2,  has  been  in- 
serted for  the  third  time  in  the  public  newspapers. 

If  no  claim  is  sent  in  by  a  creditor  known  to  be  such 
by  the  liquidators,  the  amou.nt  owing  to  him  must  be  de- 
posited with  a  public  authority  for  the  benefit  of  such 
creditor  if  there  is  a  right  to  make  such  a  deposit.  If  a 
liability  on  the  part  of  the  company  cannot  be  immedi- 
ately performed,  or  is  disputed,  the  assets  may  not  be  dis- 
tributed until  security  has  been  given  to  the  creditor  in 
respect  of  such  liability. 

Liquidators  violating  the  rules  of  this  section  are  liable 
to  pay  compensation  in  respect  of  the  amounts  paid  out 
in  the  course  of  the  wrongful  distribution .  The  provisions 
of  sect.  43,  paras.  3  and  4,  apply  mutatis  mutandis  to 
claims  for  such  compensation. 

74.  At  the  close  of  the  liquidation  the  books  and  papers 
of  the  company  are  to  be  given  to  one  of  the  members  or 
to  some  other  person  for  retention  during  a  period  of  ten 


262  PRIVATE  LIMITED  COMPANIES  ACT. 

years.  Such  member  or  other  person  will,  unless  other- 
wise provided  by  the  memorandum  of  association  or  a  reso- 
lution of  the  members,  be  nominated  by  the  Court  (sect.  7, 
para.  1). 

The  members  and  their  successors  in  title  have  a  right 
to  inspect  the  books  and  papers.  The  company's  creditors 
may  be  authorised  to  inspect  them  by  the  Court  (sect.  7, 
para.  1). 

75.  If  the  memorandum  of  association  does  not  contain 
the  provisions  rendered  essential  by  sect.  3,  para.  1,  or  if 
one  of  these  provisions  is  null  and  void,  every  member, 
every  manager,  and,  if  there  is  a  board  of  supervision,  every 
member  thereof  may,  by  taking  out  a  writ,  apply  to  have 
the  company  declared  to  be  annulled. 

The  rules  of  sects.  272  and  273  of  the  Commercial  Code 
apply  mutatis  mutandis. 

76.  Any   defect  in  the  provisions  of  the  memorandum 
of  association  as  to  the  trade-name  or  place  of  business  of 
the  company,  or  the  object  of  the  undertaking  may  be  reme- 
died by  a  unanimous  vote  of  the  members. 

77.  If   the  annulment  of  a  company  has  been  entered 
in  the  Mercantile  Register,  the  winding -up  of  its  affairs  is 
regulated  mutatis  mutandis  by  the  provisions  applying  upon 
dissolution . 

The  validity  of  transactions  entered  upon  with  third  par- 
ties in  the  name  of  the  company  is  not  affected  by  the 
annulment  of  the  company. 

Members  must  make  any  payments  which  they  have 
undertaken  to  make,  in  so  far  as  may  be  necessary  in  order 
to  enable  the  company  to  perform  the  obligations  it  has 
entered  into . 


APPENDIX  B.  263 

PART  VI. 

FINAL  RULES. 

78.  The  applications  directed  by  this  Act  to  be  made  to 
the  Court  in  charge  of  the  Mercantile  Register  must    be 
effected  by  the  managers  or  liquidators;  those  provided  for 
in   sect.  7,  para.   1,  sect.   12,  para.   1,  sect.  57,  para.    1, 
sect.  58,  para.  1,  head  No.  3,  and  sect.  80,  para.  5,  must 
be  effected  by  the  managers  collectively. 

79.  The  penalties  provided  for  by  sect.  14  of  the  Com- 
mercial Code  are  not  to  be  inflicted  for  failure  to  comply 
with  the  regulations  as  to  notifications  to  be  made  to  the 
Court   in  charge  of  the  Mercantile  Register  contained  in 
sects.   7,  54,  57   (para.  1),  58   (para.   1,  head  No.  3),  80 
(para.    5),  when  the  Court  concerned  is  that  of  the    dis- 
trict in  which  the  company's  principal  place  of  business  is 
situated . 

80.  If  a  share  company  is  dissolved  for  the  purpose   of 
conversion   into  a  private    limited    company,   the  liquida- 
tion thereof  may  be  dispensed  with,  if  the  following  rules 
with  reference  to  the  formation  of  the  new  company  are 
complied  with. 

The  amount  of  the  capital  of  the  new  company  may  not 
be  less  than  that  of  the  old  company. 

An  opportunity  must  be  given  to  the  shareholders  of  the 
old  company  by  public  announcement,  or  in  some  other 
appropriate  manner,  of  acquiring  a  share  in  the  new  com- 
pany in  exchange  for  such  part  of  the  assets  of  the  old 
company  as  they  are  entitled  to  by  reason  of  their  shares. 
The  aggregate  amount  of  the  shares  in  the  dissolved  com- 
pany held  by  persons  thus  acquiring  a  share  in  the  new 
company  must  represent  at  least  three-fourths  of  the 
capital  of  the  dissolved  company. 

The  part  of  the  assets  of  the  dissolved  company  to 
which  shareholders  are  entitled  by  reason  of  each  of  their 


264  PRIVATE  LIMITED  COMPANIES  ACT. 

shares  must  be  calculated  on  the  basis  of  a  balance-sir  H 
to  be  placed  before  a  general  meeting  for  its  approval.  The 
resolution  granting  such  approval  requires  a  majority  em- 
bracing at  least  three-fourths  of  the  capital  represented  ;it 
such  general  meeting. 

Application  for  the  entry  of  the  new  company  in  the 
Mercantile  Register  must  be  made  not  later  than  within 
one  month  of  the  dissolution  of  the  share  company.  The 
entry  may  only  be  made  upon  proof  that  the  above-stated 
rules  have  been  complied  with. 

81.  In  the  case  specified  in  sect.  80,  upon  the  entry  of 
the  new  company  in  the  Mercantile  Register  the  property 
in  the  assets  of  the  dissolved  company  passes  by  operation 
of  law  to  the  new  company. 

Every  shareholder  who  has  not  acquired  a  share  in  the 
new  company  may  demand  from  the  new  company  the  pay- 
ment of  a  sum  corresponding  to  the  value  of  the  portion 
of  the  assets  of  the  dissolved  company  to  which  he  was  en- 
titled. 

Immediately  after  the  entry  of  the  new  company  in  the 
Mercantile  Register,  notice  in  accordance  with  the  pro- 
visions of  sect.  297  of  the  Commercial  Code  must  be  sent 
by  the  managers  of  the  new  company  to  the  creditors  of 
the  dissolved  company,  requesting  such  creditors  to  apply 
to  them.  The  claims  of  creditors  who  do  so  apply,  and 
who  do  not  consent  to  the  conversion,  must  be  satisfied  or 
security  must  be  given  therefor.  The  managers  arc 
severally  and  jointly  responsible  to  the  creditors  of  the  dis- 
solved company  for  the  due  observance  of  the  above  rules. 

82.  The  following  persons  are  punishable  by  imprison- 
ment  for  a  period  not  exceeding  one  year,  and  simulta- 
neously  by  fines  of  an  amount  not  exceeding  M.  5,000: 

1 .  Managers  and  members  of  a  private  company  who, 
in  connection  with  the  entry  of  the  company  in 
the  Mercantile  Register,  and  managers  who,  in 


APPENDIX  B.  265 

connection  with  the  entry  of  an  increase  in  capital, 
knowingly  give  false  information  to  the  Court 
(sect.  7,  para.  1)  as  to  the  payment  of  the  con- 
tributions. 

2.  Managers  of  a  private  limited  company  who,  in  order 

to  effect  the  registration  of  a  reduction  of 
capital,  knowingly  give  to  the  Court  (sect.  7, 
para.  1)  a  false  assurance  as  to  the  satisfaction 
of  the  company's  creditors  or  the  security  given 
to  them. 

3 .  Managers,  liquidators,  or  members  of  a  board  of  super- 

vision or  similar  body  in  a  private  limited  com- 
pany who,  in  a  public  communication,  knowingly 
misrepresent  or  conceal  the  state  of  the  company's 
affairs . 

Sentence  of  loss  of  honorary  civic  functions  may  be  passed 
on  such  persons  simultaneously. 

In  the  presence  of  extenuating  circumstances  only  a  fine 
may  be  imposed. 

83.  The  penal    regulations    of  sects.  239 — 241    of    the 
Bankruptcy  Act  apply  to  the  managers  of  a  private  com- 
pany which  has  suspended  payment  or  which  has  been  ad- 
judicated bankrupt,  if  they  have  dealt  in  the  manner  there 
penalised . 

84.  The  managers  or  liquidators  of  a  private  company 
are  punishable  by  imprisonment  for  a  period  of  not   less 
than   three  months,    and    simultaneously    by  a  fine  of   an 
amount  not  exceeding  M.  1,000,  if,  contrary  to  the  rules  of 
sect.   64  and  sect.   71,  para.   1,  no  application  for  an  ad- 
judication  of  bankruptcy  is   made. 

In  the  presence  of  extenuating  circumstances  only  a  fine 
may  be  imposed. 

No  punishment  may  be  inflicted  upon  any  person  who 
can  prove  that  he  was  not  responsible  for  the  omission  to 
apply  for  an  adjudication  of  bankruptcy. 


INDEX. 


ABATEMENT,  186. 

ACCOUNT,  CURRENT,  170  et  seq. 

ACKNOWLEDGMENT 

of  obligation,  169. 

ADJUSTMENT  or  PROPERTY 

on  dissolution  of  partnership,  54,  57,  64. 

of  dormant  partnership,  165. 

AGENCY, 

power  of,  50  (note). 
mercantile,  power  of,  22 — 24. 

AGENTS, 

mercantile,  35 — 37. 
definition,  35. 
length  of  notice  to,  37. 

AGREEMENTS 

in  restraint  of  trade,  74. 

AGRICULTURE,  2. 
AMALGAMATION,  143. 
AMORTISATION,  100. 

ANIMALS,  LIVING, 
carriage  of,  221. 

APPLICATION 

for  registration  in  Mercantile  Register,  documents  to  be 

annexed  to,  80 — 82. 
for  shares,  76,  131. 

APPRENTICESHIP,  31 — 34. 

probationary  period  of,  32. 


INDEX. 

ASSOCIATION,  MERCANTILE,  42  (note). 
ATTACHMENT  AND  ASSIGNMENT,  172  (note). 

AUDITORS,  79,  121,  122,  156,  158. 
investigation  by,  79. 
claim  to  remuneration,  80. 

BALANCE  SHEET,  17,  18,  47,  48. 
during  liquidation,  63,  140. 
in  case  of  limited  partnership,  66 — 68. 

share  company,  101,  106,  118. 

en  commandite,  156,  161. 
dormant  partnership,  164. 
publication  of,  121. 

BANKER, 

business  of,  1,  176. 

BANKRUPTCY,  14,  59  (notes). 

as  affecting  unlimited  mercantile  partnership,  53.  55,  59. 
limited  partnership,  68. 
right  of  lien,  179. 

of  company  as  affecting  liability  of  shareholders,  95. 
of  share  company,  106,  137,  145. 

en  commandite,  156. 
proceedings,  when  to  be  initiated  by  directors,  106. 

BENEFICIUM  EXCUSSIONIS,  169  (note). 
BILLS  OF  LADING,  174,  178. 

BOARD  OF  SUPERVISION 

of  share  company,  76  et  seq.,  108  et  seq.,  125 — 127,  145. 

composition  of,  108. 

remuneration  of,  109. 

duties  of,  109  et  seq. 

liability  of,  111. 

penal  rules  affecting,  147  et  seq. 
of  share  company  en  commandite,  157. 

BOOKS,  MERCANTILE, 

of  account,  17  et  seq. 

production  of,  during  litigation,  19,  20. 
retention  of,  19,  64. 


INDEX.  269 

BROKER,  MERCANTILE,  37 — 41. 
definition,  37. 
liabilities  of,  38  et  seq. 
sale  through,  181,  184. 
journal  of,  40. 

BUSINESS, 

conduct  of,  in  unlimited  partnership,  45 — 47,  55,  62. 

limited  partnership,  66. 
by  directorate  in  share  company,  103,  106. 
hours,  172. 
year,  17. 
letters,  copies  of,  17. 

CARRIER,  2,  204—216. 

railway  acting  as,  216. 

CARRIER'S  EECEIPT,  174,  192,  198,  213  et  seq. 
definition  of,  213. 

CASH, 

payment  for  shares  made  otherwise  than  in,  74,  130,  154. 

Civic  FUNCTIONS, 

honorary,  264  (note). 

COMMERCIAL  INTERESTS, 

authority  representing,  79. 

COMMISSION, 

right  to,  of  employee,  26. 

mercantile  agent,  170,  192. 
commission-merchant,  192,  195. 
forwarding  agent,  197,  198. 

COMMISSION-BUSINESS,  187. 

COMMISSION-MERCHANT, 
definition  of,  187. 
right  of  pledge  of,  176,  177. 
rights  and  liabilities,  187  et  seq. 
constituting  himself  principal,  193. 

COMPANY.     See  SHARE  COMPANY. 

COMPANY,  PRIVATE  LIMITED.     See  APPENDIX  B. 


270  INDEX. 

COMPANY  JOURNALS,  96. 

COMPENSATION, 

limit  of,  222,  224. 

COMPETITION,  RESTRAINT  ON, 

as  affecting  employees  and  apprentices,  30. 
partners,  44. 

directors  of  share  company,  105. 
general  member  of  share  company  en  com- 
mandite,  156. 

COMPOSITION, 

compulsory,  59  (note). 

COMPROMISE,  89,  125. 

CONSIGNEE,  204,  207,  208. 

rights  of,  208,  209,  211,  213,  214,  218,  219,  223. 

CONTINUATION  SCHOOL,  32. 
CONTRACT  NOTE,  38. 
CURRENCY,  IMPERIAL,  18. 
CURRENT  ACCOUNT,  170. 

CUSTOM, 

local,  24,  38,  39,  40,  192,  206. 
mercantile,  37,  168,  172,  186,  191. 

DAMAGE  TO  GOODS, 

in  hands  of  commission-merchant,  189. 
forwarding  agent,  199. 
carrier,  210. 
railway,  218. 

DAMAGE  OF  SHARES,  101. 

DAMAGES, 

for  unauthorised  use  of  trade-name,  16. 

as  between  employer  and  employee,  25,  28,  30. 

master  and  apprentice,  33. 
for  defaults  of  mercantile  broker,  40. 
for  failure  to  give  notice  of  public  sale,  181. 
for  breach  of  or  late  fulfilment  of  contract  of  sale,  183, 
184. 


INDEX.  271 

DAMAGES — continued. 

for  defaults  of  commission-merchant,  187,  189. 

forwarding  agent,  197,  199. 

warehouseman,  200,  203. 

in  respect  of  carriage  of  goods,  205,  206,  209,  210,  213. 
partner's  liability  for,  44,  45. 
railway's  liability  for,  217. 

DEATH, 

effect  of,  on  powers  of  procuration,  22. 
apprenticeship,  32. 

unlimited  mercantile  partnership,  53,  55,  59. 
dormant  partnership,  164. 

DEFECT  IN  GOODS, 

failure  to  give  notice  of,  implies  acceptance,  1 84. 
intentional  concealment  of,  185. 

DEL  CREDERE  COMMISSION,  191. 

DEPOSIT 

of  shares,  122. 

of  merchandise,  181,  209. 

DIRECTORATE,  101 — 107. 

DISBURSEMENTS 

of  mercantile  agents,  37. 
of  partner,  43. 
interest  on,  170. 
of  forwarding  agent,  198. 
of  warehouseman,  202. 
of  carrier,  211. 

DISSOLUTION 

of  unlimited  mercantile  partnership,  53  et  seq. 
of  limited  mercantile  partnership,  7 1 . 
of  share  company,  137  et  seq. 

en  commandite,  159,  161. 

DIVIDEND  WARRANT,  101  (note),  102,  177. 
DORMANT  PARTNERSHIP,  162. 

DUPLICATE 

of  letter  of  advice,  218. 

of  application  for  shares,  76,  81,  131. 


272  INDEX. 

EMPIRE, 

federal  state  or  communal  authority,  business  conducted 
by,  16,  18. 

EMPLOYER,  MERCANTILE,  24 — 34. 


FALSE  STATEMENTS,  148,  149. 

documents  representing  shares  or  certificates,  1  ;3 1 . 

FORFEITURE  OF  SHARES,  96,  97. 

FORM  PUBLICLY  AUTHENTICATED,   5  (note). 

FORM  OF  MEMORANDUM  OF  ASSOCIATION 
of  share  company,  73. 

en  commandite,  154. 
of  proxy,  112. 

of  application  (for  shares),  189. 
of  indorsement,  175. 

FORMATION 

of  company,  necessary  dimensions  of  majority  of  share- 
holders voting  for,  83. 

of  unlimited  mercantile  partnership,  42,  43. 
of  share  company,  73  et  seq. 

en  commandite,  153  et  seq. 

FORWARDING  AGENT, 
definition  of,  197. 
rights  and  obligations  of,  177,  197  el  seq. 

FREIGHT  OR  CARRIAGE,  197,  198,  204,  210,  211,  213,  224. 
FUNGIBLE  THINGS,  186  (note),  196,  201. 

GENERAL  MEETING  OF  SHAREHOLDERS  OF  SHARE  COMPANY,  73, 

78,  82,  90,  106,  108,  111,  128  et  seq.,  137. 
when  must  be  summoned,  113. 
of  share  company  en  commandite,  157,  158,  160. 

GERMAN  EMPIRE, 

head  establishment  situated  outside,  6. 
share  company  situated  outside,  87. 

GESELLSCHAFT  MIT  BESCHRANKTER  HAFTUNG.   See  APPENDIX  B. 


INDEX.  273 

GOODS  DEFINED  GENERICALLY, 

sale  of,  172. 
GUARANTEE,  162. 

HANDICRAFT,  2,  3. 

HEIR  (ERBE),  55  (note),  12,  56,  60,  100. 

IMPRISONMENT 

as  ground  of  dismissal,  29. 

INDORSEMENT,  98,  173  et  seq. 

instruments  passing  by,  173  et  seq. 

IN  MORA  (IN  VERZUG),  183  (note). 

INTEREST, 

payable  in  mercantile  transactions,  169. 

when  payable  as  between  partners  and  partnership,  44. 

INTERPRETATION  OF  CONTRACTS,  172,  173. 
INVENTORY,  17,  18. 

ISSUE 

of  fresh  share  certificates,  101. 

instruments  to  bearer,  176. 

JOINT  OWNERS  OF  SHARES,  100. 

JUDGMENT  (provisionally  enforceable),  54  (note). 

LANGUAGE,  LIVING, 

mercantile  books  must  be  kept  in,  19. 

LEAKAGE,  219,  220. 

LETTER  OF  ADVICE,  204,  207,  208,  209,  218. 

LIABILITY 

of  directorate,  89,  106,  162. 

of  persons  issuing  non-effective  shares,  92. 

of  commission-merchant,  187. 

of  forwarding  agent,  197. 

of  carrier,  206. 

of  railways,  456  et  seq. 

of  sender,  205. 

S.  T 


274  INDEX. 

LIEN  (ZURUCKBEHALTUNGSRECHT),  178  (note). 

LIMITATION 

of  claims  against  former  owner  of  business,  1 1 . 
employees,  25. 

partner  in  unlimited  mercantile  partner- 
ship, 45,  64. 
of  share  company  against  promoters,  90. 

Board  of  Supervision, 

111. 
against   general   members   of  share    company 

en  commandite,  157. 
forwarding  agent,  199. 
warehouseman,  203. 
carrier,  211. 
railway,  226. 

interruption  of  period  of,  65,  226. 
of  liability  of  railways,  221  et  seq. 
of  powers  of  procuration,  21. 
of  authority  of  partners,  51. 

liquidators,  62. 
directorate,  104. 

LIMITED  COMPANY,  PRIVATK.     See  APPENDIX  B. 

LIMITED  PARTNER, 

increase  of  contribution  of,  69,  70. 
rights  of,  67. 

LIMITED  PARTNERSHIP,  65 — 71. 
definition  of,  65. 
application  for  registration,  66. 
ensuing  as  result  of  death  of  partner,  56. 

LIQUIDATION 

of  unlimited  partnership,  60 — 64. 
of  share  company,  137  et  seq. 

en  commandite,  160. 
LOANS, 

holder  of  a  mercantile  power  of  agency  not  empowered 
to  raise,  22. 

MAJORITY, 

bare,  definition  of,  112. 


INDEX.  275 

MARKET  PRICE,  118,  193. 

MEMBER, 

general,  of  share  company  en  commandite,  153. 
limited,  of  share  company  en  commandite,  153. 

MEMORANDUM  OF  ASSOCIATION,  73  et  seq.,  93,  100,  106,  109, 

274  et  seq. 
changes  in,  128  et  seq. 

MERCANTILE  TRADER, 
definition  of,  1,  2. 
right  of  lien  of,  178. 

to  interest,  of,  170. 

MERCANTILE  TRANSACTIONS,  167  et  seq. 

MINOR, 

agreement  with,  30  (note). 

MINORITY  OF  SHAREHOLDERS,  120,  123,  125. 

MINUTES 

of  resolutions  passed  at  general  meetings,  116,  158. 

MORA  ACCIPIENDI,  181. 

MORA,  IN,  183  (note). 

MOVEABLE  THINGS,  1,  175,  178,  186,  196. 

NEGLIGENCE,  GROSS,  54,  168,  206,  210,  219,  223,  224. 

NEGOTIABLE  INSTRUMENTS,  1,  38,  118,  174,  178,  186,  187,  206, 

222. 

duties  of   mercantile  traders  with   regard   to  the   safe- 
keeping of.     See  APPENDIX  A. 

NEW  CAPITAL, 

right  of  holders  of  existing  shares  to  allotment  of  shares 
in,  132. 

NOTICE 

terminating  service,  27. 

apprenticeship,  32. 
agency,  37. 
partnership,  53,  54. 
dormant  partnership,  164. 

T2 


27tl  INDEX. 

NOTICE — continued. 

terminating  account  current,  171. 

warehousing  contract,  203. 

grounds  for  dispensing  with,  on  termination  of  employ- 
ment, 28,  29. 
public,  of  registration,  necessary  contents  of,  85. 

NOTIFICATION 

as  to  sale  by  auction,  182. 

ORDER  ENFORCEABLE,  7  (note). 

OWN  SHARES 

may  not  be  taken  in  pledge  or  purchased  by  company, 
100,  107. 

PARTNERS, 

powers  of,  46  et  seq. 

mutual  rights  and  liabilities  of,  43  et  seq. 

in  relation  to  third  parties, 

49  et  seq. 

power  of  agency  of,  50  et  seq. 
expulsion  of,  from  partnership,  57  et  seq. 
exclusion  of,  from  right  to  conduct  business,  46. 

powers  of  agency,  50,  51. 
full,  9  (note), 
general,  of  limited  company,  65. 

PARTNERSHIP, 

dissolution  of,  53. 
liquidation  of,  145. 
.    notice  required  to  terminate,  53. 
contract,  48,  56. 
dormant,  162  et  seq. 

PASSENGERS'  LUGGAGE,  224. 

PAYMENTS  UPON  SHARES, 
how  to  be  made,  82. 

PENAL  EULES 

in  connection  with  share  companies,  148  et  seq. 

PENALTY, 

German  law  as  to,  31  (note). 


INDEX.  277 

PLACE 

of  performance  of  contract,  173,  184. 

PLEDGE, 

right  of,  176  (note). 

of  commission-merchant,  192  et  seq. 

of  forwarding  agent,  197  et  seq. 

of  warehouseman,  202. 

of  carrier,  211. 
rights  of  priority,  where  several,  213. 

PRIVATE  CREDITORS  OF  PARTNERS,  54,  58. 

PROCURATION, 

power  of,  20  et  seq.,  45,  50,  103,  140. 
limitation  of,  21. 
revocation  of,  46. 

PROFIT  AND  Loss, 

apportionment  of,  in  unlimited  mercantile   partnership, 

47,  48. 

limited  partnership,  67. 
share  company,  93,    94,    117,    119, 

140. 

share  company  en  commandite,  159. 
dormant  partnership,  163. 
PROFITS, 

right  of  partners  to,  48,  49. 

PROMOTERS, 

liability  of,  202. 

PROMOTION, 

circumstances  of,  to  be  investigated,  78,  79. 
expenses  of,  must  be  stated  in  memorandum  of  associa- 
tion, 75. 

PROVISIONAL  CERTIFICATES, 
definition  of,  72. 

PUBLICATION 

of  entries  in  the  Mercantile  Register,  5,  85. 

PUBLISHING 

a  mercantile  trade,  2. 


278  INDEX. 

RAILWAY, 

light,  227. 
tariff,  222. 
Traffic  Regulations,  217  (note). 

RAILWAYS,  216 — 227. 

REGISTER,  MERCANTILE,  4 — 7. 

necessary  contents  of  entry  of  a  company  in,  85. 

REJECTED  GOODS, 

purchaser's  duty  to  provide  for  safe-keeping  of,  185. 

REJECTION  OF  GOODS,  184,  185,  190. 

RELEASE 

in   respect    of    money   due    on    partners'    contributions, 
69,  165. 

REPRESENTATIVES  OF  DIRECTORS,  107. 
RESERVE  FUND,  119. 

RESOLUTIONS, 

impugnment  of,  125. 
by  partners,  47,  53. 

RETIREMENT 

of  partner,  10,  55,  58,  59,  64. 

of  limited  partner,  66. 

of  general  member  of  share  company  en  commandite,  160. 

RISK  INVOLVED  BY  DELAY,  182,  185,  209. 

SAFE-KEEPING 

of  negotiable  instruments  deposited.     Sec  APPENDIX  A. 

SALE, 

mercantile,  181 — 186. 

SAMPLES, 

retention  of,  39. 

SET-OFF,  RIGHT  OF, 

where  shareholder  has  not,  as  against  the  company,  98. 
against  forwarding  agent,  199. 
railway,  226. 


INDEX.  279 

SETTLEMENT 

of  a  company's  claims,  where  permissible,  89. 

SHARES, 

indivisibility  of,  71. 

minimum  permissible  face-value  of,  72. 

signature  of,  73. 

separate  classes  of,  73,  74. 

subscription  for,  76. 

when  invalid,  92. 

deposit  of,  115. 

damage  or  defacement  of,  101. 

made  out  to  bearer,  71,  74,  176. 

SHARE  COMPANY, 

generally,  71 — 92. 

trade  name  of,  8. 

rights  and  liabilities  of,  as  against  shareholders,  92 — 102. 

administration  of,  102 — -127. 

dissolution  of,  137 — 147. 
penal  rules  in  connection  with,  147 — 152. 
increase  of  capital  of,  129  et  seg.,  143. 

SHARE  COMPANY  EN  COMMANOITE,  153 — 162. 

SHAREHOLDERS, 

obligations  of,  other  than  in  respect  of  payments  due 
upon  shares,  93. 

SILENCE, 

held  to  be  acceptance  of  offer,  173. 

SPECIFICATION,  182. 

STATUTORY  AGENT, 

infant's,  32,  note  (g}. 

TALON,  102  (note). 
TARE- WEIGHT,  186. 

TIME, 

as  essence  of  contract,  183. 

TITLE, 

proof  of,  98,  175. 


\ 
280  INDEX. 

TRADE,  MERCANTILE, 
definition  of,  123. 

TRADER,  MERCANTILE, 
definition  of,  1. 

TRADE-NAME, 

rules  as  to,  8 — 17. 
unauthorised  use  of,  16. 

TRANSACTIONS,  MERCANTILE,  167  et  seq, 
TRANSFER  BY  INDORSEMENT,  173  et  seq. 
TRAVELLERS,  COMMERCIAL,  23,  36. 
TRUSTEE  IN  BANKRUPTCY,  58,  60,  68,  165. 

USUFRUCT,  10  (note). 

VALUABLES,  206,  222. 
VIOLENCE,  PHYSICAL,  28,  29. 
Vis  MAJOR,  218. 
VOIDABLE  TRANSACTIONS,  52  (note). 

VOTE, 

right  to,  112. 

WAREHOUSE  EECEIPT,  174,  178,  198,  203. 
WAREHOUSING  CHARGES,  170,  202. 

WAREHOUSEMAN,  1,  200 — 203. 

right  of  pledge  of,  176,  177,  202. 

WAREHOUSE,  PUBLIC,  23  (note). 

WEIGHT,  173,  186. 
loss  of,  221. 


PRINTED  BY  C.  F.  EOWOETH,  88,  FBTTER  LANE,  LONDON,  B.C. 


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