The case: Shareholder A acquires the shares of shareholder B and holds 100% of the target company as a result of the transaction

The case that led to the elimination of the misunderstanding is summarized again as follows:

A and B were equal shareholders in a GmbH as part of a joint venture. Following the decision to terminate the joint venture, A acquired all shares in the GmbH from B, with the result that A has held all shares alone since the transaction. The parties agreed a comprehensive exclusion of warranty in the purchase agreement. After the transaction was completed, it turned out that the GmbH was already insolvent at the time the contract was concluded and was therefore no longer able to operate in the market. A then demanded a refund of the purchase price paid from B on the grounds of frustration of contract because – in principle undisputed – both parties assumed that the GmbH was solvent and that the purchase price had been determined on the basis of a jointly agreed valuation. B objects that, due to the priority of liability for material defects, application of the rules on frustration of contract is excluded. Liability for a material defect was in turn excluded because a comprehensive exclusion of warranty had been agreed. A quality agreement had not been made.

The guiding principles of the BGH

The main principles of the BGH are as follows:

In the case of a purchase of membership rights in a GmbH, which as such is a legal purchase pursuant to Section 453 (1) Alt. 1 BGB, in the event of defects in the company operated by the GmbH, the warranty rights of Sections 434 et seq. BGB apply if the object of the purchase agreement is the acquisition of all or almost all of the shares in the company and the purchase of the shares therefore constitutes a purchase of the company itself and therefore a purchase in kind, both in the minds of the contracting parties and objectively from an economic perspective (continuation of BGH, judgments of February 27, 1970 – 1 ZR 103/68, WM 1970, 819 under II; of November 12, 1975 – VIII ZR 142/74, BGHZ 65, 246, 248 et seq, 251; of November 24, 1982 – VIII ZR 263/81, BGHZ 85, 367, 370; of March 25, 1998 – VIil ZR 185/96, BGHZ 138, 195, 204; of April 4, 2001 – VIII ZR 32/00, NJW 2001, 2163 under 111; in each case on §§ 459 et seq. BGB aF).

Such an acquisition of all or almost all shares in the company does not exist if a buyer who already holds 50% of the membership rights in a GmbH acquires a further 50% of the shares in this company.

The legal assessment of the BGH

The BGH gave the following reasons:

Priority of the warranty right when purchasing shares

In order for warranty law to take precedence over the rules on frustration of contract, the relevant circumstance – in this case, over-indebtedness – must be capable of triggering claims for defects: over-indebtedness – is at all suitable for triggering claims for defects.

According to the BGH’s analysis, this is not the case here. The “hook” of the BGH’s reasoning is the correct indication that in the case of the acquisition of – as here – 50 % of the shares in a GmbH, the object of purchase is not a company, but no more and no less a 50 % shareholding. In detail:

The Higher Regional Court was still correct in assuming that, until the reform of the law of obligations came into force, case law in the case of the purchase of GmbH shares, which is basically a purchase of rights, applied the rules on the purchase of goods in the event of defects in the company operated by the GmbH if

“the acquisition of this right was both according to the conception of the parties and objectively as a purchase of the company itself and thus, from an economic point of view, as a purchase in kind (…)”

Such a case was assumed in particular if the object of purchase was all or almost all shares (see BGH ruling of June 2, 1980, VIII ZR 64/79).

Furthermore, the OLG correctly assumed that even after the reform of the law of obligations came into force, the aforementioned principles for transferring the rules on the purchase of goods to the purchase of shares had not lost their justification. The BGH explained:

“However, liability for defects in the company itself is still appropriate and in the interests of the company if the “entire” company is basically sold, i.e. the share purchase in question is in fact a purchase of the “entire” company assets and thus, from an economic point of view, a purchase in kind (see Grunewald, loc. cit. p. 372 f.; BeckOK-BGB/ Faust, loc. cit.). Therefore, it remains – in continuation of the previous case law of the Federal Court of Justice described above – even after the entry into force of the Modernization of the Law of Obligations Act that in the case of a share purchase, which as such is a legal purchase pursuant to Section 453 (1) Alt. 1 BGB, in the event of defects in the company, the warranty rights of Sections 434 et seq. BGB (only) apply if the buyer acquires all or almost all of the shares in a company and the purchase of shares therefore constitutes a purchase of the company itself and therefore a purchase in kind, both in the minds of the contracting parties and objectively from an economic point of view (see Senate judgment of November 12, 1975 – VIII ZR 142/74, loc. cit. p. 248 f., 251 mwN [on §§ 459 ff. BGB aF] (…).”

However, it is not a “whole” company – according to the error in the considerations of the OLG – if 50% of the shares in a company are transferred. The only correct thing about the OLG’s view was that it was not important whether 100% of the shares really formed the object of the purchase. It is also sufficient for the application of the rules on the purchase of goods if

“the purchaser does not acquire all the shares in the company, but the shares remaining with the seller or a third party are so insignificant that they do not significantly impair the purchaser’s power of disposal over the company, provided that only the intention of the contracting parties is to purchase the company as a whole (…).”

However, such a case does not exist – as here – if

“the purchaser – such as the plaintiff in this case – only has a claim to the transfer of half of the shares. Under such circumstances, according to the conception of the parties and the public opinion, there is no objective of the contract – which is decisive for the corresponding application of liability for material defects in accordance with the principles described above – aimed at the acquisition of the company as a whole (…).”

According to the BGH, the Court of Appeal had “lost sight of the fact that the only relevant connecting factor for the warranty for defects under Sections 434 et seq. BGB (…) is the respective object of purchase .”

The view held – in various forms – in the literature since the Modernization of the Law of Obligations Act came into force that Sections 434 et seq. BGB would also apply to items and other objects to which a right relates was rejected by the BGH:

“However, these views, which are primarily based on considerations of economic fairness, ignore the fact that the object of purchase determined by the parties in agreement and within the scope of their contractual freedom is not a thing, but a right (see also Huber, AcP 202 [2002], 179, 213 f.). However, even after the entry into force of the Law of Obligations Modernization Act (and the abolition of the provision of § 437 para. 1 BGB aF), the seller of a right is, according to general opinion (see Staudinger/Beckmann, loc. cit. para. 7 f.; BeckOK-BGB/Faust, loc. cit. para. 16 ff.; in each case with further references), still only liable for the existence of the right (verity), but not for the collectability of the claim (creditworthiness) and accordingly also not for the quality of the object to which the right relates. Rather, such a liability for creditworthiness only exists if it is specifically assumed by contract (Huber, loc. cit. p. 214, 229 et seq.; BeckOK BGB/Faust, loc. cit. para. 20 et seq.; MünchKommBGB/Westermann, loc. cit. para. 11; in each case with further references).”

With regard to the provision of Section 453 (1) Alt. 1 BGB, which was erroneously interpreted in the literature as meaning that the rules on the purchase of goods would now also apply in the case of the purchase of rights, the BGH has also clearly rejected this view. A legal purchase is still different from a purchase in kind. The BGH stated:

“However, neither the wording of the law nor the legislative materials of the Modernization of the Law of Obligations Act even hint that the legislator intended the provision of § 453 BGB to abolish the difference between the purchase of a right and the purchase of an object to which this right relates. of an object to which this right relates.”

In this context, the BGH pointed out a circumstance that is often overlooked, which results from § Section 453 (3) BGB follows. This provision reads:

§ Section 453 (3) BGB:
If a right has been sold that entitles the buyer to possession of an item, the seller is obliged to hand over the item to the buyer free of material defects and defects of title.

The BGH rightly concludes from this legal provision that the resulting liability for material defects and defects of title should only apply to a right that entitles the holder to “possession of a thing”. The provision would be superfluous if this liability applied generally to the purchase of rights.

After all, there was no case in the present case that could be resolved according to the rules of the law on warranties for material defects.

No practical need for an extension of the warranty when purchasing shares

The BGH also correctly pointed out that there was no compelling need for an extension of the (material defect) warranty right to the purchase of shares.

In addition to the possibility of entering into corresponding contractual agreements (e.g. guarantees), the rules of culpa in contrahendo and frustration of contract would be available to resolve share purchase cases.

Finally, the exclusion of statutory warranty claims does not fundamentally preclude the application of Section 313 BGB (frustration of contract)!

With regard to the claims I am pursuing in the present proceedings from the point of view of interference with the basis of the transaction, the BGH ultimately correctly and very welcome pointed out that the mere fact that the parties have agreed a (comprehensive) exclusion of warranty does not preclude the application of Section 313 BGB. This applies – as in this case – in any case if the share purchase agreement in question does not contain any statements on the economic situation of the company and thus on the question of who should bear the risks in this regard.