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Full text of "The German commercial code"

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, 
173206.) 

(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. 7072. 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, 705740. See Schuster, pp. 303309. 



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. 243249. 



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 14, 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 leaving 1 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 263267 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. 2942. 



( 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. 348350 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. 932935, 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. 459475. 



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 aw r are 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, 204216. 

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. 



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