1. German law in theory

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In contemporary law, claiming the purchase price is not understood to be based on a remedy that is distinct from the substantive right, but instead follows from the contract or promise directly.804 Although the original divide between the substantive right and the action was also present in 19th century European law, Windscheid started to distinguish the substantive right and the procedural right.805 This approach has had a lasting impact on German law and underlies the German Civil Code. Amidst the material for the preparation of the German Civil Code is the following statement:

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An exception to the general rule of the enforceability of performance in natura is the “Naturalobligation”. Under this kind of obligation, the debtor is obliged to perform, but a court of law will neither help the creditor with 169 enforcement of such obligation nor the debtor to reclaim his or her executed performance later.807 An example can be found in section 762 of the German Civil Code, according to which gambling does not create legally enforceable payment obligations.808

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German jurists therefore find it self-explanatory that there is no need for a breach of contract to enable the seller to claim the purchase price.809 Although some scholars have argued that the claim for performance was rendered a mere “remedy” by the reform in 2002,810 these authors are concerned merely with the wording of section 275 of the German Civil Code and the dogmatic concept, while they do not argue that a breach of contract was a prerequisite for the remedy. Furthermore, this interpretation is not widely accepted in Germany, where most scholars and courts still speak of a “primary” obligation of performance in natura.811

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In accordance with the general position in England and the USA, the duty to mitigate under section 254 of the German Civil Code does not apply to claims for performance of the contract in natura.812 Nevertheless, the German Civil Code contains several provisions that effectively bar a claim for performance while the underlying idea oftentimes mirrors considerations of a duty to mitigate.813 These provisions can, however, not be found in the area of sales law. In this area of the law, the duty to mitigate the damage arises only when the creditor abandons the claim for performance and pursues a claim for damages.814 A cover transaction is not expected before the creditor turns to a claim for damages. To cover earlier may be even risky for the seller: The buyer may reconsider his or her refusal to perform and ask the seller to deliver the goods. If the seller has already disposed of the owed goods, he or she may be found to have breached the contract.815

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On the other hand, the party that is under an obligation to pay the price can generally not evade this obligation by refusing to pay and referring the creditor to claim damages.816 In practice, this empowers sellers, who can decide 170 when to pursue a damages claim, while beforehand they bear no risk of a falling market price.

2. Practice of the courts

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The rationale behind this position is that due to the contract, sellers have every right to insist on performance, which is why the duty to mitigate the damage cannot oblige them to abandon their claim for performance and sell the goods elsewhere. The German Supreme Court decided a case explicitly in this fashion in 1913.817

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This commonly accepted stance was, however, seriously called into question by a decision of the German Supreme Court to which thus far little importance has been attached.818 The facts relevant for the present purpose are as follows: a parcel of land was sold, but the buyer’s plan for financing the project collapsed. Consequently, the latter signaled that the deal was off, and that the seller should look for an alternative buyer. Notwithstanding, the seller insisted on payment by the buyer and ignored two opportunities for a cover sale. One year later, the seller rescinded the contract due to the delay in payment, sold the parcel for less than the contract price and sued the buyer for damages (for the difference in price and for delay). The German Supreme Court accepted the argument of the appeal that the claim for damages should be reduced due to the failure of the seller to execute a cover transaction as soon as the buyer’s inability to perform became clear. The legal basis for the argument is the duty to mitigate the damages under section 254 of the German Civil Code.819 The court stated in this regard:

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This is accepted as good law in German literature.821 Yet, at the same time it is pointed out that this duty does not apply to claims for performance in natura.822

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Weller attempts to legitimize this decision by arguing that if the buyer refuses further performance of the contract, the seller would not be required to set an additional period for performance under section 281(2) of the German Civil Code.823 Therefore, the claim for damages already arises with the buyer’s refusal to perform (as a verhaltener Anspruch), which is why the duty to mitigate under section 254(2) of the German Civil Code would already be applicable.824

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Accepting this position would lead to strange results: If sellers miss the first sensible opportunity to execute a cover transaction, they would be limited in their claims for damages but not in their (still existent) claims for performance. Even if at some later point they could effect a cover sale, which might also be in the interest of the buyer, they will be effectively deterred from proceeding with the cover transaction, since it bears negative conse 172 quences for them: The claim for performance is lost and sellers are left with a reduced damages claim.

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Either one adheres strictly to the principle that a seller can insist on performance, which should in consequence also mean that later damages claims are not reduced even if the seller does not mitigate the loss by covering before abandoning the claim for performance. Or one limits the claim for performance and can consequently argue that the damages claim is limited, too. Limiting only one of the two claims merely serves to penalize an ill-advised seller that abandons the claim for performance, even in an attempt to finally meet the wishes of the buyer.

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As one possible solution to limit the claim for performance, section 242 of the German Civil Code has been proposed.825 Under this provision, the relevant threshold would not be reasonableness, but rather whether insistence on performance amounted to an abuse of rights in the respective case.826

3. Consumer laws

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Beyond all discussions of pacta sunt servanda and similar doctrines in Germany, the rules applicable to consumers are often overlooked. If the buyer is a consumer as defined by the German Civil Code and has bought the goods on the internet or at home within a specific time period, he or she is allowed to rescind the contract without providing any reasons.827 Even if the goods conform perfectly to the requirements under the contract and the law, the buyer can generally unilaterally rescind the contract. The result is even more buyer-friendly than the results in common law jurisdictions, since the seller immediately (and even retrospectively) bears the risk that the price in the marketplace drops. Hence, for consumer sales the observations on German law do not apply with equal force. Since this section on comparative law aims to provide the necessary background to understand the claim for the price under the CISG and the relevance of the property, the very different results produced by consumer laws are only mentioned here and will not be analyzed in more depth.

4. Summary

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Central to the civil law understanding of the claim for the purchase price is the promise that leads to an obligation and is binding – a concept which is 173 often referred to as pacta sunt servanda. As long as creditors rely on this promise and obligation, Civil lawyers consider them as acting within their rights. Yet, recent German case law could be interpreted to be at odds with this principle.