Law

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The Austrian legal system is based on the separation of powers of legislation, jurisdiction and administration. Upon entry to the EU, Austria adopted the European legal framework. Here you can find an overview of the fields of law which concern exporters as well as information about the Austrian legal system.

Content:

Law of Contracts, Retention of title and Bill of exchange
Currency Control and Value Added Tax
Secondment
E-Commerce and Commercial Agent
Intellectual Property
Insolvency and Restructuring
Court System, Arbitration and Attorneys-at-law

Law of Contracts, Retention of title and Bill of exchange

This article gives an overview of the basic principles of Austrian contract law and the retention of title. You can also find information about the bill of exchange and cheque.

Primer on Austrian Contract Law

The legal framework on the law of contracts is set forth in the Austrian Civil Code and a newly enacted Uniform Commercial Code (UGB). The UGB governs all commercial transactions as of January 1, 2007.

Freedom of contract

Freedom of contract is the underlying principle of Austrian contract law. The contracting parties are thus free to choose any terms suitable for a transaction, unless a contractual provision or covenant would render the agreement unconscionable or otherwise unlawful. A contract is defined as consenting declarations of an offer and a corresponding acceptance and in general, neither offer nor acceptance requires a specific form under Austrian law. Also oral agreements and, under restricted circumstances, agreements implied through action (tacit agreement) are legally binding and enforceable.

Certain exceptions to this freedom of form apply with respect to securities and suretyship agreements, insurance contracts and certain agreements governed by consumer protection laws. These contracts must be made in writing to become effective. The even stricter form of a notarial deed is required to set up corporations and transfer shares held in a limited liability company.

Terms and Conditions

Business transactions are commonly subject to either of the contracting parties’ terms and conditions and Austrian law safeguards that such general terms pass a test of fairness and are not forced upon the other party.

Retention of title and other security instruments

As a general principal, Austrian Law does not recognize undisclosed collateral. Encumbrances attached to chattels or real estate must meet certain public disclosure requirements. For movable property (non real estate possessions) this requirement is satisfied by handing over the object to the creditor; with respect to real estate (immovable property) a registration of the security interest in the land register is necessary. Without adhering to disclosure requirements, a security instrument will not become effective

Retention of title (Eigentumsvorbehalt)

Retention of title is the exception to the rule that effectiveness of a security requires public disclosure. Retention of title means an (express or tacit) agreement that ownership in the delivered good will only be transferred from seller to buyer once full payment has been made. Should the buyer default on payment, the seller has the right to reposess goods sold to the purchaser. In the event of the purchaser’s bankruptcy, the seller has the right to recover the goods to which he retained title.

Retention of title-clauses in commercial transactions commonly provide that purchaser is enttitled to process and resell the goods even though he is not the legal owner (due to the retention of title by seller). To safeguard the security interests of the seller, the purchaser typically assigns his claims in connection with a resale to seller (so called extended retention of title; verlängerter Eigentumsvorbehalt ).

Other security instruments

Liens (mortgages), security assignment of goods ( Sicherungsübereignung ), security assignment of rights (Sicherungszession), sureties ( Bürgschaft ), guarantees (bank guarantees) and letters of comfort are some of the other more frequently used instruments for securing debtor’s obligations.

Bill of exchange and cheque

Bills of exchange (Wechsel) are widely and commonly used as a form of security that can also be used for financing by way of discounting. Bills of exchange are regulated in the Austrian Bills of Exchange Act (Wechselgesetz) which was drafted according to the model law of the 1930 Geneva Convention on bills of exchange. The Act distinguishes between drawn bills and promissory notes. With a drawn bill, the issuer directs the drawee to make payment to the payee or remitter. Austrian law also recognizes a blank bill of exchange (Blankowechsel) which is only signed by the debtor (as drawee). The blank bill is then filled out by the payee complying with the terms of the underlying security agreement.

A defence claiming that the bill of exchange was used contrary to the underlying security agreement cannot be raised against a bona fide third-party transferee. A bill of exchange establishes its own abstract claim. If assigned to third parties, a defence claiming a remedy attached to the originally secured transaction can only be raised to a very limited extent. This legal framework prompted widespread use of bills of exchange for financing and collateralization purposes.

Cheques, in turn, did not achieve the same importance as in Anglo-Saxon countries.

Next: Currency Control and Value Added Tax