The man had initially paid €7,186 (£6,211) to take his wife and their two children on the package holiday to Kos, an island in Greece.
In his arguments to court, he said his tour operator had failed to enforce the resort’s ban on towel reservations.
He said loungers were unavailable even at 6am, and his children were forced to lie on the floor.
Though the tour operator had initially given him a refund of €350 (£302), judges in Hanover ruled the family was entitled to a refund of €986.70 (£852.89).
The judges acknowledged the travel company did not run the hotel and could not ensure every customer could access a sunbed at any given time.
But they said the operator did have an obligation to ensure there was an organisational structure to guarantee a “reasonable” ratio of sunbeds to guests.
The man, who the Daily Mail identified as David Eggert, a 48-year-old father of two and pilot from Dusseldorf, said in an interview on Sunday: “It was a big hotel, very fancy, with about 400 loungers.
“And all 400 loungers had towels on them.
“The people were not actually using the loungers, and the guests went into town or went back to bed and slept.”
He said he believes it is a “very, very important ruling”.
“When the holiday season starts in June and July and people face the same problem, they will say: ‘Look, somebody sued a tour operator over this. I’ll do the same’,” he said.
“If thousands of holidaymakers start suing travel companies, the costs will run into the millions,” he added.
Since the ruling went public earlier this week, other holidaymakers have told the BBC they have encountered similar issues.