Appendix I: Cases

Chapter 2

Case 1

REICHSGERICHT (SIXTH CIVIL SENATE) 8 APRIL 1929

RGZ 124, 81

Facts

On 24 March 1919, the parties entered a ‘precontract’ (Vorvertrag) before a notary, by Clause II of which the plaintiff, at any time on the defendant’s demand, undertook to enter a contract of sale with the defendant so as to vest in him ownership in house no 49 in P ‘with all contents.’ It was agreed and ordered that an entry should be made in the land register to secure this future claim. By Clause III ‘the precise terms and conditions of the sale are to be finalised on the drawing up of the sale contract, the price of house and contents not to exceed M40,000.’ By Clause IV the plaintiff’s undertaking was to last until 24 March 1920.

The relevant entry in the land register was made on the defendant’s behalf on 28 March 1919. On 12 March 1920 the defendant gave the plaintiff one week to perform his obligations but the plaintiff did nothing, in the belief that the contract was void because the parties’ agreement regarding the price was inaccurately recorded. He sought a declaration to that effect, and an injunction requiring the defendant to consent to the erasure of the entry in his favour in the land register. The defendant counter-claimed for an injunction that the plaintiff transfer house and contents for M40,000 and agree to a change of ownership in the land register. The lower court rejected the claim and gave judgment on the counter-claim. On the plaintiff’s appeal the counter-claimant cross-appealed for a judgment that the plaintiff sell him the property on the terms of the Landgericht’s judgment. Judgment in the Oberlandesgericht was in the defendant’s favour. The plaintiff’s appeal was allowed.

Reasons

On the substance of the matter, the appellant rightly insisted on a point which he raised below, namely that the ‘precontract’ of 24 March 1919 is invalid for want of content.

It is familiar law that a precontract must meet not only the formal requirements (which is here the case—para 313 para 1 [311b I] BGB), but the substantive requirements of the main contract. In particular, the duties undertaken by the parties in the precontract must be certain or at least ascertainable, so that a court can determine the content of the ultimate contract (RGZ 66, 121; 72, 385; see also RGZ 106, 177). No such certainty or ascertainability exists in the ‘precontract’ of 24 March 1919. A sale contract, and consequently a precontract to a sale, requires agreement of the parties not only on the thing or right which constitutes the object of the contract but also on the price (para 433 BGB). We need not ask whether the seller’s duty with regard to the

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contents was sufficiently certain or ascertainable under the contract of 24 March, since in any case the buyer’s counterpart, the price, is left uncertain; the only thing fixed about the price is its upper limit, viz M40,000. The plaintiff could not on the basis of such a precontract have insisted on going through with a sale contract, let alone at a price of M40,000; nor can the defendant, even if he offers the highest sum mentioned. On the price alone, the agreement of 24 March lacks the quality of a precontract; it is simply a draft or sketch, not binding on either party, and capable at the very most of use in the interpretation of a subsequent precontract or main contract, if one were to be made. But there is the further point that the parties specifically agreed to postpone making the detailed terms of sale until the time of the later contract (compare para 154 para 1 BGB). It therefore depended on the free decision of both parties what these detailed terms should be, and such a decision could not imaginably be replaced or amplified by a judicial decision. Neither the Landgericht nor the Oberlandesgericht made any such attempt: both simply took M40,000 as the purchase price without even adverting to the matter or revalorisation, which they should have raised proprio motu (RGZ 106, 422; 107, 19, 129, 150; 109, 69).

The plaintiff’s claim for a declaration that the contract of 24 March 1919 was void is therefore justified.

Case 2

OBERLANDESGERICHT HAMM 24 OCTOBER 1975

NJW 1976, 1212

Facts

By notarial contract the plaintiff sold the defendants a plot of land on which a single family house, designed for occupation by the plaintiff and his wife, had recently been erected. While the house was being built, and long before entering into the contract of sale, the plaintiff had purchased a large quantity of furniture and fittings, at a total price of about DM20,000, much of it being custom made, such as cupboards and kitchen cabinets. The furniture and fittings were installed in the house, but the plaintiff never occupied it, so he was eager to sell them with the property, as he had no real use for them. The defendants started using the furniture as soon as they moved into the house, and are still using it today. They gave the plaintiff a cheque for DM2000, but the plaintiff contends that a sale price of DM20,000 had been agreed, and now sues for DM18,000. The defendants deny that there was ever any contract about the furniture, as no agreement about the price ensued from the negotiations. The Landgericht gave judgment for the plaintiff, and the defendants’ appeal was mainly unsuccessful.

Reasons

I. The plaintiff has a claim for DM18,000 under para 433 BGB. A contract for the sale of these fitments did come about between the parties.

1. The evidence does not make it absolutely clear that the parties expressly agreed on a price of DM20,000.

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2. But under the special circumstances of this case the failure to agree on the price is not fatal to the formation of a contract of sale. It emerges from the whole evidence that the parties concluded a contract of sale with the peculiarity that it should be left for further negotiations to determine a fair price.

(a)It is true that in a case of doubt parties are held not to have made a contract until they have agreed on all the points which need agreement (para 154 BGB), and both parties here realised that there should be agreement on the price. But this principle applies only ‘in cases of doubt’ (para 154 BGB), ie it only gives rise to a presumption which is capable of being rebutted. It does not prevent the parties from entering into legal obligations although certain details of the transaction are still unregulated which one or both parties wish clarified (. . .). The principle of freedom of contract requires that people should be able to leave even essential points open, such as the purchase price in the present case (see BGH, NJW 1964, 1617), without impairing the contractual obligation which the parties wish to achieve.

(b)In the present case there was an agreement of this kind. It is common ground that the plaintiff wanted to sell the furniture along with the land, and as the defendants themselves say, they were in principle ready to take over the furniture, even if they had a somewhat different price in mind. It is not to be supposed that in such circumstances the plaintiff gave the defendants possession of the furniture, with all the risk of wear and tear, without there being any legal obligation between the parties at the time. Doubtless it would not have been easy for the plaintiff to sell the new furniture very favourably elsewhere, but he could hardly sell it at all once it was used. The plaintiffs letting the defendants possess and use the furniture before there was any agreement as to the price must, in good faith, be treated as an offer for sale at a price which remained to be determined, and the defendants accepted this offer by beginning to use the furniture. The circumstances were all well-known to them. They could not reasonably suppose that the plaintiff was selling them the house without any agreement about the furniture, or that he was letting them use it without any obligation to buy it at a price still to be fixed. It is worth noting that the price mentioned for these items was quite small in relation to the price of the house, only about 5 per cent.

Under these circumstances the defendants’ taking possession of the furniture and making use of it is conduct which ranks as an acceptance of the plaintiff’s offer (para 133 BGB). If this was not the defendants’ intention, it was for them to make this clear to the plaintiff, and they did not do so. Any secret reservation the defendants may have had about buying the furniture when they took possession of it can be disregarded (para 116 BGB).

The court has also considered whether the agreement may not be merely a precontract with an obligation to conclude the sale contract later, but such a construction overlooks the point that the plaintiff has already performed one of the seller’s essential obligations by putting the defendants in possession and giving them use of the chattels being sold.

The defendants can obtain no assistance from para 147 BGB, whereby an offer made to a person actually present must be accepted forthwith. The offeror may extend the period for acceptance at any time, and may do so implicitly (reference omitted). On a reasonable construction, the plaintiff’s offer to sell the furniture to the defendants before any price was fixed was to last at least until the defendants moved into the house which had the furniture in it; proper acceptance duly took place. The

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view that a contract of sale was formed is further strengthened by the fact that the defendants have paid DM2000. This may not show that any price was agreed, but it does show that the parties agreed that the defendants be bound to buy the furniture at a price yet to be hit on.

(c) It is actually in the interests of both parties that the defendants should keep the furniture and pay a price still to be fixed. The defendants have often said that they were ready to keep the furniture, and the plaintiff cannot put it to any economic use. If no sale contract exists, the defendants will not only have to give up the furniture, but after being credited with the DM2000 they have paid, pay the plaintiff the value of the use of the furniture, which in the case of new furniture is very high, until such time as they call on him to remove it; furthermore, they will need to buy new furniture although, as has been said, they are quite happy with what they have. Both parties are experienced people and it must have been clear to them that unreasonable consequences of this kind would ensue if the furniture were used without there being any contract about it. This confirms the conclusion that the possession was handed over definitively and pursuant to a contract of sale.

3. There having been proof of the price which the defendants are thus bound to pay, it must be filled in by apt contractual construction (para 157 BGB; . . .). The parties must, as reasonable people, have intended to agree on a fair price. There is nothing to suggest that either party was to have a right of determination under para 315 BGB. As the defendant unanswerably argued, the purchase price was to be agreed, not laid down, especially not laid down by the plaintiff (para 316 BGB). If the parties do not agree, and if neither party nor any third party has a right of determination, the determination of the fair purchase price which the defendants are bound to pay can only be made by the court.

Case 3

BUNDESGERICHTSHOF (ANTI-TRUST SENATE) 2 APRIL 1974 BGHZ 41, 271

Facts

The plaintiff, a farmer with a large dairy herd, was bound by law to sell his milk, if at all, to the defendant dairy, which was required by provincial ordinance to pay less, by at least 2 pf per kilo, for milk from a non-TT herd like the plaintiff’s. Suppliers were informed by circular that as from 1 May 1957 the differential would be 3 pf, subsequently raised to 5 pf and then to 10 pf. The plaintiff objected to these deductions but continued to supply milk, and now claims the sum of DM4040.91 as having been improperly deducted. The Landgericht rejected the plaintiff’s claim and his appeal to the Oberlandesgericht was dismissed. On further appeal the judgment below was vacated, and the matter remanded to the Anti-Trust Senate of the

Oberlandesgericht.

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Reasons

1.The Court of Appeal was wrong in law to hold that notwithstanding the plaintiff’s written protests his conduct evinced a declaration of consent to the defendant’s published deductions.

2.But this does not really help the plaintiff, since the Court of Appeal went on to say in relation to para 315 BGB, that there was no need for the plaintiff to declare his consent to the deductions. This conclusion, at any rate, is supported by the following reasons:

(a)The ‘dairy areas’ laid down in para 1 of the Milk and Animal Fat Act (Milch-und Fettgesetz—MFG) determine which suppliers must deliver their milk to which dairy if they wish to sell it commercially at all. The contractual freedom of milkproducers is thus limited (Kontrahierungsbeschränkung): if they choose to dispose of their milk commercially they must deliver it to the specified dairy. For dairies, on the other hand, there is a total ‘obligation to contract’ (Kontrahierungszwantg) (BGHZ 33, 259, 262): para 1 para 4 MFG not only removes their freedom to choose their suppliers, but imposes on them an obligation to accept any milk tendered by the specified producers. In other respects however the rights and duties of milk producer and dairy regarding deliveries of milk remain unaffected by the provisions of para 1 MFG. Their legal relations are of a private law nature, as the Court of Appeal correctly held. The dairy may be a co-operative or a so-called ‘private dairy’, but this is irrelevant so far as its legal relations with a non-member are concerned. The relations between members of a co-operative dairy and the dairy itself may be affected by the constituent document or by subsequent resolutions, but relations between it and a milk producer who is not a member depend on the general private law of contract just like the relations between a producer and a private dairy. The contracts between producer and dairy regarding milk deliveries are sale contracts in the sense of paras 433 ff BGB. It is irrelevant, and therefore unnecessary, to decide whether a separate sale contract is made for the milk delivered on each occasion, as the Court of Appeal supposed, or whether this is a case of ‘repeat obligations’ (Wiederkehrschuldverhältnisse, [reference omitted] or of a long-term supply contract as the appellant maintains.

(b)Before a sale contract can be formed the parties must agree on the purchase price or at any rate on a method of determining it. There is no legal obligation to deduct more than 2 pf per kilo here, so to this extent the price paid for milk was dependent on the free bargaining of the parties. Given that bargaining is free, there are three obvious ways in which a contract could validly be made: if the price is expressly agreed between dairy and producer; if the price is determined unilaterally by the dairy and accepted by producers through appropriate conduct; or finally if the dairy is permitted, by either the express agreement or the implicit consent of the producers, to determine the price under para 315 BGB. But a valid sale can also come about even if producer and dairy are at variance over the price or its determination by the dairy, and even if, as in the present case, the producer expressly contests the dairy’s determination of the price. Realism dictates, as indeed to the interests of the parties in this case, that people who are bound by law to enter into lasting relations as supplier and purchaser of goods, as the parties are here by para 1 MFG, should be treated as contractors, indeed as seller and buyer: otherwise they would be operating in a noncontractual framework, and the only rules to apply to their actions and obligations

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would be the provisions of paras 812 ff. BGB regarding the duty of restitution when there is no legal basis for an enrichment, rules which are not at all appropriate for such long-term relationships. Notwithstanding the failure of the present parties to agree on one point, namely an aspect of the purchase price related to the special factor of the source of the milk, it must be assumed, for it is in line with the will of the parties in other respects, that a contract came into existence, contrary to para 154 para II sentence 1 BGB, which is only a rule of construction. The lacuna in the contract must be filled in accordance with statutory provisions if the parties cannot agree among themselves [RGZ 60, 174, 178; other reference omitted]. In a case like ours the idea underlying para 315 BGB provides a method for filling the gap. Given the limitations on the freedom of contract imposed by para 1 MFG and expressly recognised by the Law against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen—

GWB) para 100 para 8, para 315 BGB offers the best method of doing justice: para 315 para 1 recognises the just interests of the defendant by giving it the right to determine the price, and para 315 para 3 is designed to protect the just interests of the producer (for the application of para 315 BGB in similar cases, see RGZ 111, 310, 313 (electricity supply contract), and BGHZ 38, 183, 186 (unfair terms in general conditions of business); see generally Lukes in NJW 1963, 1897 ff). Since the dairy has a monopoly position it must treat its customers equally [reference omitted] and cannot be expected to adapt itself to the particular wishes of every individual supplier and pay him what he wants for his milk: it must have the right to fix what the contract has left open, unilaterally and in a fair and just manner, as set out in para 315 para 1 BGB. If the milk producer finds the dairy’s unilateral determination unacceptable, he is sufficiently protected by para 315 para 3 BGB, for only if the dairy’s determination is fair is he bound by it; if it is not, the determination is to be made by the court. To this extent the unilateral determination of the dairy is subject to contrary determination by the court.

3. The next step, as the Court of Appeal realised, is to see whether the defendant’s ‘industrial milk deductions,’ as published in its circulars, were equitable in the sense of para 315 para 3 BGB, and then to check whether in adopting them the dairy had not abused its monopoly position under paras 1 and 2 MFG and so infringed the requirement of good morals and ethical behaviour in the sense of paras 138, 826 BGB [reference omitted]. In doing this however the court below applied too narrow a criterion, having inferred a general concept of abuse of monopolistic position from certain decisions of the Reichsgericht (RGZ 99, 107; 106, 386; 133, 388; 143, 24, 28), and furthermore, as the appellant rightly objects, it failed to consider whether the dairy had discriminated in breach of para 26 para 2 GWB.

(b) The producer may assert concurrently the rights which arise from para 315 para 3 BGB and from breach of para 26 para 2 GWB, as well as any other rights arising from paras 138, 826 BGB; independently of this, he can invite the anti-trust authorities to intervene under para 22 para 4 GWB in connection with para 3 [reference omitted].

Nor is there any essential difference regarding the burden of proof in cases arising under para 315 para 3 BGB and para 26 para 2 (second alternative) GWB, for in the former case the party fixing the performance must prove that he has done so in an equitable manner, and in the latter, the business which has discriminated is required to prove that it had objective justification for so doing [references omitted]. Thus there

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is no question, in a case like the present, of the court’s fixing a ‘just price’ proprio motu, but simply of checking, from the point of view of para 315 para 3 BGB and para 26 para 2 (second alternative) GWB whether the party fixing the terms has established or proved that the terms he fixed (or any other terms which are to take their place) fall within the limits set by para 315 para 3 BGB and para 26 para 2 GWB.

Finally, the two provisions may give rise to similar remedies. While it is true that when the terms fixed by one party are not equitable, the determination under para 315 para 3 BGB is made ‘by judgment,’ meaning a constitutive judgment, a claim for performance may also be brought, the performance claimed being the performance which would be due had the terms been fixed fairly [reference omitted]; likewise, a claim for performance may be brought for what would have been due had there been no discriminatory conduct under para 26 para 2 GWB, at least where it is a question of indemnity under para 35 para 1 GWB and para 249 para 1 BGB [references omitted].

Case 4

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 7 NOVEMBER 2001 NJW 2002, 363

Facts

The parties are in dispute about whether they concluded a valid contract for the sale of a car in July 1999 in an internet auction.The r. .de AG in H (from now on called r. .de) carried out online auctions on its website under the description ‘r. private auctions’, in which the only people who could participate as sellers or buyers were those who had registered beforehand with r. .de, and had thereby approved the ‘general conditions of contract for r. .de sale events’ (from now on called the AGB). The following are extracts from the AGB:

‘Preamble:

(3) § 156 of the BGB, § 34 b of the GewO (Trade Order) and the Regulations about Business Auctions do not apply to . . . private auctions.

§3 Description of the subject-matter of the purchase, offer of sale in private auctions

(1) R. .de enables participants to present to the public on offer pages objects in their ownership which are to be sold under the umbrella of private auctions.

(5) The participant who wants to sell is invited, as part of the process of the release of the offer page, to give the assurances and declarations mentioned in para 4 and § 5 para 4 to r. .de. R. .de acts in this connection as receiving agent for all other participants: § 164 (3) of the BGB. The release only takes place when the participant who wants to sell has given the required assurances and declarations.

§4 Contractual offer

(1) For objects offered under the umbrella of private auctions by . . . participants who want to sell, any participant (with the exception of the group of persons mentioned in para 2) can give a binding offer to purchase via the r. .de website during the offer period for the object in question (§ 6).

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(4) Offers of purchase which are below the reserve price asked by . . . the participant who wants to sell are invalid.

(7) In the case of offers which are given under the umbrella of private auctions, r. .de acts as receiving agent for the participant who wants to sell: § 164 (5) of the BGB.

§ 5 Acceptance of a contractual offer

(4) In the case of private auctions, the participant who wants to sell declares, by the release of his offer page in accordance with § 3 para 5, his acceptance of the highest offer of purchase effectively given, taking into consideration § 4 paras 4 and 5. The participant who is selling will be informed by r. .de immediately when the contract of sale comes into existence, but at the latest before midnight on the second working day after the end of the offer period (§ 6) by email at the email address given by the participant who is selling.’

The defendant, who deals in EU reimported vehicles as a sideline, set up an offer page under his user name for the sale of a new VW Passat with a description of the vehicle. He stipulated the starting price (10 DM), the spaces between the bids, and the length of the auction. He gave the prescribed declaration which said, amongst other things: ‘At this point in time I declare my acceptance of the highest offer of purchase effectively given.’ The defendant did not stipulate a reserve price. The offer page was released for five days on the website of r. .de.

The claimant made the last and highest bid of DM26,350 under his user name eight seconds before the end of the auction. R. .de told the claimant by email that his bid was successful, informed him of the identity of the seller, and invited him to get in touch with the seller in order to arrange dispatch and payment.

The defendant refused to deliver the car to the claimant’s order, on the ground that no contract had yet come into existence. He was however prepared to sell the vehicle at a price of ‘about 39,000 DM’. As a precaution, he denied, on the ground of a mistake in the submission of the starting price, that he had made any declaration of will.

The claimant claimed from the defendant transfer of the car simultaneously with the payment of DM26,350. The Landgericht rejected the claim (LG Münster JZ 2000, 730). On the claimant’s appeal, the Oberlandesgericht gave judgment against the defendant in accordance with the application (OLG Hamm JZ 2001, 764 = NJW 2001, 1142). By his appeal in law, which has been admitted by the appeal court, the defendant seeks the restoration of the judgment of the Landgericht.

Reasons

(. . .)

II. The appeal in law was unsuccessful. The parties have concluded a valid contract of sale in respect of the car offered by the defendant on the website of r. .de.

1.Contracts come into existence by declarations of will which correspond with one another and which envisage conclusion of a contract. As a rule they are an offer and an acceptance under §§ 145 ff BGB. In the case of auctions they are a bid and an acceptance (§ 156 BGB). These declarations of will can, as the appeal court has correctly stated, also be given and become effective by electronic communication of a file on the internet—online.

2.Conclusion of a contract under § 156 BGB is excluded in this case, because no acceptance has occurred of the claimant’s bid. (. . .)

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3. A contract has however come into existence under the general provisions of §§ 145

ffBGB.

(a)It is beyond doubt that the claimant’s highest offer, given online, represents an effective declaration of will envisaging the conclusion of a contract of sale with the defendant. Contrary to the view of the appeal in law, there is also a corresponding declaration of will on the part of the defendant. According to the deliberations of the appeal court, which are correct, this lies in the fact that the defendant released the offer page set up by him for the auction of his car with the (express) declaration that he would at that point in time accept the highest offer of purchase effectively given.

Whether the defendant’s declaration of will is, as the appeal court thought, legally to be classified as an offer of sale, and the subsequent highest bid of the claimant as its acceptance, or whether, as the wording of the declaration given by the defendant suggests (and this was accepted as a subsidiary point by the appeal court), the defendant’s declaration of will represents a—legally permissible—acceptance declared beforehand of the highest bid which was given by the claimant can remain undecided. It has no significance for the legal consequences.

The reciprocal declarations of the parties have, according to the findings of the appeal court which are not challenged, in each case reached r. .de as the receiving agent of the parties (§ 164 (3) BGB) and therefore become effective (§ 130 (1) sentence 1 of the BGB). A contract of sale has thereby come into existence between the parties under §§ 145 ff BGB.

(b)The appeal court correctly assumes that the declaration given by the defendant, combined with the release of his offer page which was effected simultaneously, represents a declaration of will envisaging sale of the car which was on offer, and was not merely a non-binding invitation to treat (invitatio ad offerendum).

(aa)A declaration of will is a statement which envisages the effectuation of a legal transaction (see BGH judgment of the 24th May 1993—II ZR 73/92, NJW 1993, 2100 under I 1). Whether a statement or a piece of conclusive behaviour is to be understood as a declaration of will needs interpretation.

The appeal court, in assessing the effect on the claimant of the defendant’s release of his offer page, was correct in not only taking account of the content of the offer page, which in online auctions appears on the screen. The court also considered the declaration which the defendant had to give on the release in order to effect the release (§§ 3 para 5, and 5 para 4 of the AGB), and which the defendant also actually gave by clicking on the appropriate preformulated declaration at the time of the release. This express declaration by the defendant, which admittedly did not itself appear on the offer page, but which reached r. .de as the claimant’s receiving agent, represented, combined with the content of the offer page to which it referred, the defendant’s declaration envisaging the conclusion of a contract of sale with the highest bidder.

The appeal in law objects that the appeal court had disregarded the unambiguous wording of the declaration given by the defendant on the release in an impermissible way. This only relates to the question—not significant for the decision—of whether the defendant’s declaration of will should be classified as an offer or as an anticipated acceptance. It does not however affect its character as a declaration of will leading to a legal transaction.

(bb)The defendant’s declaration of will was also, as the appeal court has correctly explained, sufficiently precise. Admittedly it was not directed at a person described in

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concrete terms (ad incertam personam). But it satisfied the requirement of precision, because the auction participant with whom the defendant wanted to contract could be identified without doubt, ie (only) the person who gave the highest offer within the offer period laid down [references omitted].

(cc)It is not necessary, as the appeal court thought, to refer to § 5 para 4 of the AGB in order to understand the defendant’s declaration given on the release. It is true that general conditions of contract for internet auction can be called on as a basis for interpretation if declarations by the auctions participants are not comprehensible in themselves. Gaps in understanding can then be closed by referring to the mutual expectations of the auction participants, based on approval of the general conditions of contract and their common understanding of the way online auctions operate. The defendant’s declaration given separately on the release (‘At this point in time I declare my acceptance of the highest offer of purchase effectively given’) however makes the defendant’s intention to be bound unmistakably plain from its own terms, without any need to refer to the corresponding provision—worded in the same way—in § 5 para 4 of the AGB for an understanding of this declaration.

(dd)It does not matter whether the defendant was aware of the binding nature of his declaration when he gave his declaration of will and released his offer page. Even if there is no consciousness of making a declaration (an intention to be legally bound or to enter into a transaction), a declaration of will is present if the declarant—like the defendant—could, on applying the care necessary in human affairs, have realised that, in accordance with the principle of good faith and business custom, his statement might be regarded as a declaration of will, and if he could have avoided this result (BGHZ 91, 324; BGHZ 109, 171, 177). Reservation of an intention not to be bound which the recipient could not recognise should be ignored (§ 116 BGB). All that remains for the declarant is the possibility of avoiding his declaration of will under

§§119 ff BGB within the limits set out there.

4. There are no grounds for saying that the defendant’s declaration of will (and therefore the contract of sale) is ineffective. In particular such grounds do not arise, as the appeal in law claims, from the AGBG (General Conditions of Contract Act) [§§ 305–310 BGB]. (. . .)

Case 5

REICHSGERICHT (THIRD CIVIL SENATE) 12 JULY 1922 RGZ 105, 256

Facts

The defendant, who lived on the F estate in Mecklenburg, owned a parcel of woodland measuring 58.875 hectares. On 17 August 1919 he wrote to the plaintiff offering to sell him the timber on it at a price of M950 per Morgen and giving him until 25 August to accept. On 25 August the plaintiff telegraphed the defendant ‘I accept 58.875 hectares at the price of M950 per Morgen’. That same day the telegram arrived in W, the telegraph office nearest to the F estate, but it was not delivered to the defendant until the next morning and then only by the normal postal delivery. Regarding the contract as having been duly formed on the basis—which the defendant denied—

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that his telegram of acceptance had been brought to the defendant’s knowledge by telephone on 25 August; the plaintiff sued for authority to remove the timber.

The Landgericht decided that the defendant must be put on his oath regarding the question whether or not the telegram was orally communicated to him, and made its decision dependent on what he swore to. The plaintiff’s appeal to the Oberlandesgericht was dismissed. He appealed again, and his appeal was allowed.

Reasons

It is common ground that the telegram which arrived in the W Post Office on 25 August 1919 was not delivered to the defendant until the postman brought it with the morning delivery the following day. Now the defendant had arranged for telegrams addressed to him to be communicated to him by telephone under para 27 V 1 of the General Regulations for Postal and Telegraphic Services. The plaintiff seeks to conclude from this that his telegram should be treated as having ‘reached’ the defendant as soon as it arrived in W. Both tribunals of fact found against this contention, and rightly so. The transmission of telegrams by telephone—the method chosen by the defendant and expressly permitted by law (see para 19 II of the Telegraph Ordinance of 16 June 1904 (RZBl. 229))—is a method which anyone who sends a telegram, especially to an address in the country, must reckon with, and which is exactly like delivery by special messenger. Whichever method of communication is chosen, a telegram only reaches the recipient in the sense of para 130 BGB when the telegraph office makes it possible for him to learn of it. This certainly happens when the content of the telegram is communicated by telephone to the recipient’s number and the message is taken by a member of the family of the household (RGZ 56, 262; 97, 336). The Oberlandesgericht did not find it proved that this had happened here, and consequently decided that the defendant must take a judicial oath regarding the oral communication of the telegram. But this is not a suitable case for such treatment. For even if the defendant’s evidence under oath were against the plaintiff, and it was found that the plaintiff’s declaration of acceptance came into the defendant’s hands too late, it would not necessarily be right to dismiss the claim as the Oberlandesgericht proposes. The plaintiff sent off his declaration of acceptance in good time so that it would have reached the defendant on 25 August if it had been properly transmitted, that is, if the officials in W had done their duty. Furthermore, the defendant saw, or would have seen if he had been paying proper attention to the telegram form, that it had arrived in W at 9.50am on 25 August, and that the delay in transmission must therefore be due to some irregularity in the service. The defendant therefore came under a duty to inform the plaintiff without delay that the telegram had arrived late (para 149 BGB). He did not do this. It is true that he wrote on 26 August that he regarded his offer as having lapsed, since K had not appeared in person, as agreed, to conclude the matter; but as the Oberlandesgericht has found that there was no such agreement, this was not a ground of invalidity. What the defendant wrote was no substitute for the notice of delay provided for in para 149 BGB. The duty to make such notification arises from respect for good faith (Treu und Glauben), which requires that a person who uses a proper mode of transmission and can expect his acceptance to arrive in good time should be informed without any culpable delay if his expectations in a particular case have been frustrated by some unforeseen irregularity. He must

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therefore be in a position to discover that this is the reason for which the contract has gone off (I Motive for the BGB, p 171). An offeror who unjustifiably states that his offer has lapsed by reason of some irrelevant circumstance which would not have affected the conclusion of the contract if the declaration of acceptance had arrived in time, does not satisfy his duty to notify, for the risk remains that the acceptor may make further commercial arrangements in the justified belief that his declaration of acceptance arrived on time and so formed the contract. The consequence of a culpable failure to notify of delay is that, in derogation from the principle of paras 146, 150 para 1 BGB, the offer is deemed not to have lapsed but to have been accepted in due time, no account being taken of the delay which actually occurred. It is true that the plaintiff did not expressly invoke para 149, but in the circumstances of the case the Court of Appeal should have checked whether it was applicable or not.

But even if the defendant had satisfied para 149 BGB, the judgment under appeal could not stand. The Oberlandesgericht had misconceived the evidentiary value of the incoming telegram and its role in the burden of proof. We can leave aside for the moment the evidentiary value of the message for the recipient, for to that extent the telegram constitutes a private document and is in law to be treated as a written communication of the sender’s will addressed directly to the recipient (see RGSt. 8, 92; 30, 238; 31, 42). But the incoming telegram also bears official statements regarding the place where it was handed in, the time when it arrived, and in the case of telegrams which are telephonically transmitted, the fact that it has been so communicated (para 27 para 10 V 6, General Regulations). Thus facts and events are indicated on it which are alien to the sender’s declaration of intention but of considerable significance, or possible significance, to him and the recipient. This is especially true of the certification of oral communication. It cannot be said that para 27 para 10 is a purely internal service provision, since the telegraph service physically relinquishes the telegram on handing it to the addressee, and the entry in its arrivals book is quite sufficient to permit control of the staff. The annotation on the telegram cannot be made for the purpose of proof for or against the telegraph authorities, for they give no guarantee that telegrams will be delivered properly or on time and decline all liability in damages for delay in transmission (para 21 no 1 Telegraph Ordinance). But if the official annotation that the telegram has been orally communicated is not designed, mainly or at all, to serve the internal functioning of the service, it must in the nature of things be designed essentially for the benefit of the recipient: in requiring the official who communicates or processes the telegram to certify the fact, the telegraph authorities must intend to provide a means of proof of the fact and time of oral communication which is worthy of public credence and valid for or against any interested party. This is also in tune with the needs of commerce, given the important role a telegram can play in the formation of a contract under para 127 BGB.

If the telegram delivered to the defendant were before the court and bore a mark to the effect that it had been orally communicated, this would constitute good evidence of that fact under para 418 Code of Civil Procedure (ZPO), and the defendant would then have to prove that the act of communication so evidenced did not take place. The aforementioned General Regulations for the Telegraph Service state in para 27 para 10 V 6 that ‘when telegrams have been orally communicated they are to be so marked and sent to the addressee by post in a closed envelope bearing the inscription . . .

“Orally Communicated Telegram.” ’ In the light of (a) this provision, (b) the note in

APPENDIX I: CASES 553

the arrivals book that the telegram had been orally communicated and (c) the failure to deliver it by special messenger (General Regulations for the Telegraph Service, para 27 para 12), one must conclude until it is shown otherwise, that the incoming telegram bore a mark of oral communication. The defendant should have realised that the telegraph service believed it to have been orally communicated, given the fact that the telegram which had arrived at W on Sunday morning was delivered to him only on Monday, and then only by normal postal delivery. Under these circumstances an averagely careful businessman who knew that the telegram had not in fact been orally communicated would immediately have got in touch with the telegraph service in order to clear up the matter. The defendant should have done this, and it would have been perfectly easy for him since he had a telephone. Having failed to do this forthwith, he should at any rate have done it when the plaintiff made it clear in his letter of 26 August that he regarded the contract as formed. Not only did the defendant omit to find out from the post office what had really happened, but he also failed to adduce the original telegram in evidence, and has not satisfactorily explained how he has come to lose it. Good faith (Treu und Glauben) made it his duty to preserve the telegram with care, for it was important for the legal relations of the parties. His breach of this duty must be accounted culpable.

The defendant’s culpable omissions have made it impossible for the plaintiff to use the incoming telegram as evidence, indeed as proof under para 418 ZPO, of the timeous arrival of the telegram, which it was for him to establish. In consequence, under general principles (see RGZ 60, 152), the plaintiff’s assertion that the telegram was communicated to the defendant on 25 August must be treated as true until the defendant proves otherwise. The Court of Appeal did not evaluate the matters of proof from this point of view: it will be necessary for it to do so if the plaintiff fails under para 149 BGB.

Case 6

REICHSGERICHT (FOURTH CIVIL SENATE) 3 MAY 1934 RGZ 144, 289

Facts

On 30 December 1931 the plaintiff tenant sent the defendant a notice of termination of the ten-year lease which they had entered into on 2 March 1926. The dispute was whether the notice reached the defendant in time, and if not whether she must be treated as if it had. The plaintiff claimed a declaration that the lease had been terminated by this notice.

The Landgericht dismissed the claim, but the Oberlandesgericht allowed the plaintiff’s appeal. On the defendant’s appeal, that decision was reversed and the case remanded to the trial court (judgment of 18 May 1933). The Oberlandesgericht made the final outcome dependent on the defendant’s judicial oath. The plaintiff appealed, and the declaration he sought was granted.

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Reasons

Regarding the defendant’s contention that the notice was ineffective because it did not reach her, the following facts emerged. On 30 December 1931 the plaintiff posted a letter to the defendant’s last known address in B. That was the defendant’s last fixed abode, but she had left forwarding instructions with the post office at B. They were to forward mail to L, post restante. Accordingly the plaintiff’s letter arrived at L on 31 December, where it was made available for collection. Meanwhile however on 12 December the plaintiff had given further forwarding instructions that mail arriving for her in L was to be forwarded to H, post restante, ‘until further notice’. The post office form on which the defendant gave these further instructions contained the following footnote arising from the General Regulations for the Post and Telegraph Service, para V(1): ‘1. Instructions for inland forwarding lapse after fourteen days . . .

and are, if necessary, to be renewed in advance.’ Fourteen days having elapsed since the second forwarding instructions were given, the notice of termination was not forwarded by the L post office to H, but remained in L at the post restante counter awaiting collection. Then, since it was still not collected two weeks later, it was returned to the sender.

Is the letter to be regarded as having reached the defendant under these circumstances? As can be seen from para 130 BGB, it is not necessary that the defendant should actually have had knowledge of it: it is enough that it arrived in her area of control so that she could forthwith have knowledge of it. In its earlier decision it was unnecessary for this court to determine whether the letter could be treated as having arrived when it was made available for collection in L, since on the facts then found it was no part of the defendant’s instructions that the letter should be kept in L at all. The disregard of her instructions may have been pursuant to Post Office Regulations, but this did not alter the fact that it was not her declared intention that the post office at L should act as her intermediary. On rehearing, the Court of Appeal held itself bound by this view of the law, but it was bound only so long as these findings of fact remained unaltered, and it failed to note that there had been a critical alteration in these findings of fact which underlay the Reichsgericht’s decision. Previously the only information available was from the Post Office at L, and the Oberlandesgericht in its first judgment therefore assumed, as did this court, that there was no intrinsic time limit contained in the plaintiff’s instructions for forwarding from L to H, and that it was only because of post office regulations, extrinsic to her forwarding declaration and unknown to the defendant, that her instructions for the letter in question were disregarded. In the renewed proceedings however it emerged that the two week limit was built in to the defendant’s own forwarding instructions. Her declaration ceased to have effect after the lapse of these two weeks, and the prior situation then resumed: pursuant to the instructions left by the defendant in B, the post office in L was to hold any incoming mail for collection by her at the post restante counter there. It was therefore contrary to the findings of fact in the judgment of the Court of Appeal on the first occasion, in accordance with the defendant’s declared intention that the L Post Office be once more the place to accept and hold incoming mail for her: it was in accordance with the declaration she herself had made that mail lay waiting for her in L. The defendant is bound by the terms in which she declared her intention, and cannot invoke her belief that by giving the second forwarding instructions in L she had cancelled for

APPENDIX I: CASES 555

good, and not just for two weeks, that post office’s power to accept and retain any mail which arrived for her.

We must now tackle the question left open by the Reichsgericht in its previous judgment, whether the letter is to be treated as having reached the defendant when it was put at the poste restante counter in the L post office. It is. The Reichsgericht has constantly held, in applying para 130 BGB, that a declaration of intention, especially one contained in a letter, is to be treated as having reached the distant addressee at the moment of time when the recipient could normally be expected to learn of it, given the general arrangements he has made for the receipt of such communications. In the application of this basic principle, the Reichsgericht has held that when people arrange to pick up their mail from a special locker in the post office, a declaration of intention is treated as having reached them on the day on which the letter containing it is placed in the locker, ie is made available for collection provided that it would normally be collected on that day [see RGZ 142, 402, 406; other references omitted]. The same must apply to poste restante arrangements where, as here, the addressee herself has instructed the post office to retain any mail addressed to her until she collects it.

The letter of termination of 30 December 1931 is accordingly to be seen as having reached the defendant on 31 December, or on 2 January 1932 at the latest. It is true that the defendant did not in fact learn of the declaration, though she could have, but this does not affect its efficacy, for as has already been said, it is the ‘arrival’ of the declaration of intention which is relevant under para 130 BGB, not the addressee’s actual knowledge of it. It is just as if the letter had been placed in the mailbox at the defendant’s home and then gone missing without her knowing anything about it.

The present findings of fact enable us to hold that the notice of termination ‘reached’ the defendant timeously and in proper form, so the judgment under appeal must be reversed and final judgment entered for the plaintiff in accordance with his claim.

Case 7

BUNDESARBEITSGERICHT (SECOND SENATE) 15 NOVEMBER 1962 NJW 1963, 554

Reasons

A notice terminating the employment of a pregnant woman is ineffective if the employer knew of the pregnancy at the time of giving notice or was informed of it within one week after the notice of termination arrived (Law for the Protection of Maternity—Mutterschutzgesetz (MSG) para 9 para 1). On 14 August 1961 the defendant employer, who was unaware of the plaintiff’s pregnancy, sent her a notice of termination of employment. The fact of her pregnancy was communicated to him on 29 August. If this was more than one week after the notice of termination had arrived, it was too late for the statutory protection.

However, as the Landesarbeitsgericht correctly found, this was not the case. Information that a registered letter had been received for her and could be collected from the post office reached the plaintiff on 16 August, but the registered letter itself did not reach her then (compare Reichsarbeitsgericht in ARS 15, 354).

556 APPENDIX I: CASES

The appellant argues that since a person who is informed by the post office that a registered letter has been received for him can then put himself in possession of the letter, the arrival of such information is tantamount to the arrival of the registered letter itself. The court cannot accept this. The cases put forward an analogous, namely those in which the addressee has his mail placed in a special locker in the post office or where he asks for mail to be retained poste restante, are essentially different. It is true that in those cases also the addressee has to collect the mail from the post office, but it is located or dealt with there exactly as he has specified and chosen for the purpose. The locker in the post office and the poste restante counter are thus to be treated exactly like the letter box at his home. Items of mail which are placed in a special post office locker or kept at the post restante counter are already in the recipient’s area of control just as much as mail put in his letter box at home, and have therefore ‘arrived’ in the sense of para 130 BGB. But it is different in the case of a registered letter. According to postal regulations, as is well known, a registered letter may be handed only to the addressee himself or to a person authorised to receive it on his behalf: there is no question of its being put in a mail box or in a post office locker or slipped through the door of a dwelling. Thus when the addressee is away, the registered letter does not come into his area of control at all, but remains in the possession of the post office. The only thing that comes into the addressee’s area of control is the chit from the post office which tells him that a registered letter awaits him in the post office. This chit does not say who sent the registered letter, so the addressee has no means of knowing what it is about. The chit, therefore, cannot represent or stand in for the registered letter, and its arrival cannot represent or stand in for the arrival of the registered letter. Such arrival occurs only when the registered letter is fetched from the Post Office or is redelivered to some place within the recipient’s area of control.

There is thus some risk in using registered mail when delivery must be made within a fixed period, but even the common assumption that this postal service is a very safe way of communicating important documents [reference omitted] cannot justify treating the arrival of the chit as the arrival of the registered letter itself. Since the chit says nothing about the sender or contexts of the registered letter, this would be to treat the letter as having arrived when it has not, and the recipient would be disadvantaged, for this would be to the benefit of the sender and to the detriment of the addressee.

Of course, the missive will be treated as having arrived if the addressee abuses his rights and fails to collect or delays the delivery of the registered letter. This court need not decide at what time the letter is deemed to arrive in such a case, for according to the findings of the Landesarbeitsgericht the plaintiff asked a friend to collect the registered letter for her. There is nothing abusive about that: not everyone can be expected to know the details of the postal regulations concerning the collection of registered letters by third parties. Again, the address given by the plaintiff did not indicate that the attic where she lived was a separate dwelling, and she had put her name on the mail box of the S family; but the information she gave was quite enough to ensure the delivery of a letter in the normal course of events, even a registered letter from her employer. It would be too much to expect a normal citizen to do more.

APPENDIX I: CASES 557

Case 8

REICHSGERICHT (SEVENTH CIVIL SENATE) 25 JUNE 1929 RGZ 125, 68

Facts

The plaintiffs’ son, AZ Jr, who had taken out an insurance policy with the defendant company on 10 August 1925, had a fatal accident on his motor cycle on 6 October 1926. The plaintiffs claim RM10,000, the sum payable under the policy on the death of the insured. The defendant refused payment on the ground that at the time of the accident the insured was in default, having failed, notwithstanding proper notices of default, to pay the premiums due in February and August 1926. The plaintiffs deny that these notices of default reached their son. Both courts below held that they did, and dismissed the claim. The plaintiffs appealed; the judgments below were reversed and the case remanded.

Reasons

[Procedural]

II. [Adequacy of printed signature on notices of default?]

The Court of Appeal further held that the notice of 15 April 1926 ‘reached’ the insured. It was sent by registered mail and was addressed to ‘Mr AZ, Arendsee, Koloniestr.’ The household at that address comprised the present plaintiffs, Mr AZ and his wife, their daughter, Miss EZ, and the insured. The insured had given his name as ‘AZ Jr’ in the application form, and was described as ‘AZ Jr’ in the certificate of insurance. When the postman made his rounds, he handed the letter in question to Miss EZ, as the certificate of delivery shows, for the receipt was signed by ‘EZ’, and the postman noted that he gave the letter to ‘the daughter’. The Oberlandesgericht took the view that when the letter was delivered to the insured’s residence to a member of his family it thereby came into his area of disposition so that he could learn of its contents. The court did not overlook the point that in the household to which the letter was delivered there were two people with the name of AZ, but it discounted the postman’s belief that the letter was addressed to Miss EZ’s father rather than her brother, and held that when the letter was handed to Miss EZ it came directly into the area of control of both the Messrs AZ, father and son.

We cannot accept this in toto. It is certainly irrelevant who the postman believed to be the correct addressee of the letter, but so long as it was uncertain which of the two Messrs AZ, father and son, the letter was for, it did not ‘reach’ either of them. While it was in doubt which was intended, each could say that he was not the addressee and could allow the letter to be returned in order that the ambiguity in the direction be cleared up

But while it might not be apparent from the way the letter was addressed that it was for the son and not the father, other indications on the envelope might have made this clear. For example, the envelope might have borne the name of the defendant company and it might have been generally known in the family that only the son had dealings with it; or perhaps the letter might have been opened by a member of the family and seen to have been for the son AZ. In these cases there would be no doubt that the letter had ‘reached’ Mr AS Jr.: a member of his family would have it in his hands and

558 APPENDIX I: CASES

would know exactly to whom to give it. The address, originally ambiguous, would now have become unequivocal.

The defendant has led no evidence on the points just mentioned. The argument of the parties has essentially turned on the question whether the defendants’ letter actually reached the hands of Mr AZ Jr—which would of course constitute ‘arrival’—so the Oberlandesgericht, whose view of the law rendered it unnecessary, has not addressed itself to the relevant question.

Case 9

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 3 NOVEMBER 1976 BGHZ 67, 275

Facts

The suit concerns a piece of land in the city of M which is owned by the city itself, the third party. On 24 March 1972 the city leased two buildings on this land to the plaintiff HO who, like his co-plaintiff, is a waste paper merchant. The lease contained the following terms: ‘para 8(2) Subletting or otherwise licensing the property to third parties is forbidden save with the written consent of the lessor. Any consent may be withdrawn by the lessor at any time. (3) Should the property be sublet or licensed to a third party without consent, the lessor may require the lessee to remove the third party from the premises within one month. If the lessee fails to do so, the lessor may determine this lease without notice.’

The plaintiffs subleased the buildings to the defendant. On 12 June 1972 the plaintiff HO wrote to the third party to inform it of the sublease and request consent. The third party replied in writing on 15 June to the effect that although it had reservations about such subleases, it was prepared to grant consent, revocable at any time. On 27 June there was a meeting between the plaintiff HO and the appropriate officer in the third party’s property office. On 10 July the plaintiff HO wrote to the property office purporting to terminate the lease as from 31 October. The third party replied on 26 July saying that it could not accept this termination, that it revoked its consent to the sublease, and that the plaintiff must remove the sub-lessee from the premises by 31 August. The plaintiff HO wrote back on 3 August observing that his ‘offer of termination’ as from 31 October had lapsed because it had not been accepted by the lessor and that the lease consequently remained in force for the contractual period, but saying that he was ready to negotiate with the lessor on all points. On 10 August the third party replied to the plaintiff HO, terminating the lease ‘without notice’ as from 14 August, on the ground that the plaintiff HO was in breach of ‘para 8 (3) of the lease by his refusal to terminate the sub-lease as of 31 August; the letter also stated that the third party intended to conclude a head lease with the defendant as from 15 August. The property office arranged for this letter to be served on the plaintiff HO by the postal service. As the addressee was not to be found at home, a written communication was left at his address, just as an ordinary letter would have been, informing him that the letter itself awaited him at the M post office. The third party concluded a lease with the defendant with effect from 15 August.

The plaintiffs now claim the rent on the under-lease for the months of September and October 1972, and the defendant counter-claimed, on appeal, for the repaying of half the rent which it had paid the plaintiffs for August 1972. The Landgericht

APPENDIX I: CASES 559

dismissed the claim. The Oberlandesgericht dismissed the plaintiffs’ appeal, and, treating the counter-claim as a cross-appeal, found the plaintiffs liable. The plaintiffs’ further appeal was unsuccessful.

Reasons

1.In the Court of Appeal, the plaintiff’s claim for the payment of the rent on the under-lease for September and October 1972 was dismissed under para 323 BGB, and the counter-claim for repayment of the rent for the second half of August was upheld because that same paragraph disentitled the plaintiffs from claiming the rent for that period. The reason rent could not be claimed under the sub-lease was because the written notice of termination given by the third party on 10 August had determined the lease between the third party and the plaintiff HO, making it impossible for the plaintiffs thereafter to fulfil their obligation under the sublease to guarantee the use of the premises to the sub-lessee.

2.We agree with the appellant that the Court of Appeal was wrong in this case to apply the rules regarding subsequent impossibility in bilateral contracts, for we adhere to the view we expressed on 30 October 1974 (BGHZ 63, 132, 137) that to the extent that the special provisions of paras 537, 538, 541 BGB apply, the rules relating to subsequent impossibility are ousted.

(a)But these provisions of the law of leases, like para 323 BGB, are only applicable if the notice of termination of 10 August was validly declared and substantially justified. If the declaration of immediate termination was effective and justified, the lease between the third party and the plaintiff HO came to an end. The third party would then have a claim for restitution against the defendant (paras 556 para 3 and

985BGB), and this would constitute a ‘right’ in the sense of para 541 BGB. Furthermore, when the third party in its letter to the defendant [sic] of 10 August made it clear that it no longer accepted the defendant’s possession under the sub-lease but would allow him to continue in possession only if he became head-lessee, this constituted a ‘withdrawal of use’ in the sense of that text (see BGH| 63, 138). If the notice of termination was valid, therefore, the defendant was freed by paras 541, 547 BGB from the obligation to pay rent under the sublease.

(b)The notice of termination was validly declared.

(aa) Notice of termination is a declaration of intention which needs to be received. If a declaration is made in the absence of the addressee it becomes effective at the moment at which it ‘reaches’ him (para 130 BGB). A declaration of intention reaches the addressee as soon as it comes within his area of control such that in normal circumstances he could be expected to learn of it [references omitted]. The written notice of termination of 10 August did not reach the plaintiff HO in this sense, for it lay in the M post office. Certainly the postal form stating that the letter was waiting for him in the post office came into the plaintiff’s area of control, for the Court of Appeal was satisfied that the postman making the delivery left this form at the plaintiff’s house just as if it had been a normal letter. This finding does not, however, justify the Court of Appeal in concluding that the letter of termination itself also reached the plaintiff HO The letter remained in the post office, and the chit informing HO that it was there simply put him in a position where he could bring the letter within his area of control (see BAG NJW 1963, 554; BGH VersR 1971, 262).

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(bb)The declaration of termination must arrive: it is not enough that the addressee be informed that the letter containing it awaits him at the post office. (Rules of Bavarian administrative law permit bodies to effect service of documents by depositing them in the post office, but these are inapplicable to relations of private law; nor could the provisions of the BGB be ousted by the Postal Ordinance of 16 May 1963.)

(c)Para 132 BGB does not apply in this case. It is true that arrival may be deemed to have occurred under this paragraph, but only when a court official (Gerichtsvollzieher) is used to serve the document (para 132 para 1 sentence 1 BGB). It is only to such service that the reference made to the ZPO by para 132 para 1 sentence 2 BGB applies. Service by anyone other than a court official is not deemed to constitute ‘arrival’. This is generally agreed by courts and writers alike [references omitted] and we see no reason to depart from that view. Legal certainty requires a narrow construction of provisions regarding the service of documents. Nor can the unequivocal wording of para 132 BGB be expanded by reference to the intention of the legislator. The legislator’s intention was to provide a procedure whereby documents might be served by a judicial officer, an official commanding public trust and able to make an official certificate of service (I Motives to General Part paras 75, 76). The legislator accordingly intended that para 132 BGB, which deems arrival to have occurred, should never be applied unless a court official was involved in the process.

(dd)But in some cases para 242 BGB permits one to treat a declaration of intention as having arrived in due time although it did not reach the reception area of the person to whom it was directed (see BGH VersR 1971, 262; BGH NJW 1952, 1169— arrival precented or delayed). Here the reason the declaration did not reach the addressee was that, not having been at home when delivery was sought to be made, he failed to collect the envelope containing the declaration from the post office where it lay. It is true that in general there is no duty to take steps to obtain receipt of documents, and that a person who learns that a document has been deposited for him is not ipso facto bound forthwith to go and fetch it. But the legal relations between the sender and the addressee of the declaration may be so special that a situation arises where the addressee who fails to collect the deposited document may find himself treated as if it had actually reached his area of control. This is such a case.

The plaintiff HO had obtained from the lessor the consent which he needed under para 8(2) of the lease for the sublease which he had effected. Then when HO gave notice of termination, the lessor withdrew its consent and demanded the removal of the sub-lessee by 31 August. HO’s response to this was that the lease remained on foot for its term, and that he was ready to negotiate on all points. For him to take no action whatever eight days later when he learnt that the letter, containing the notice to quit, awaited collection is irreconcilable with this last statement, especially as, according to the Court of Appeal’s findings in another context, he implicitly refused in his letter of

3August to remove the sub-tenant from the premises within the stipulated period. Even if he was expecting mail from other correspondents, he should have realised that the deposited envelope might well contain a declaration from the lessor in relation to the business in hand, since they had been in communication for six weeks. It is accordingly contrary to good faith (Treu und Glauben) for the plaintiff to take the point that the notice of termination did not actually reach him. It can therefore be disregarded.

(c)The notice of termination is furthermore justified.

APPENDIX I: CASES 561

3. In conclusion, the obligation of the defendant to pay rent to the plaintiff under the sublease came to an end on 14 August 1972.

Case 10

REICHSGERICHT (FIRST CIVIL SENATE) 8 FEBRUARY 1902 RGZ 50, 191

Facts

The defendant, a ticket agent in Hamburg for the Lübeck State Lottery, had sold the plaintiff a one-eighth lottery ticket, no 33412. On 31 October 1900 that ticket was drawn, with winnings of M166; the plaintiff was accordingly entitled to the sum of M17.29. The next day the defendant posted to the plaintiff a printed form, completed with the relevant figures and dates, informing him of his winnings. The document also stated that ‘drawings in this main section’ were to continue until 22 November and that ‘the largest prize, perhaps of M500,000, as well as lots of large prizes and many thousands of smaller ones’ were still on the wheel of fortune. Enclosed as a secondary lottery ticket was a oneeighth ticket no 33451 in the final section of the lottery, priced at M17.25. The document continued: ‘If you propose to retain the enclosed lottery ticket, kindly send back your winning ticket in the enclosed stamped envelope immediately. I draw your attention to the fact that only if you send me your winning ticket immediately on receipt of this letter can I regard you as the rightful owner of the enclosed secondary ticket and recognise your right to any winnings it may make. Please use the enclosed form for your reply. I expect that you will want to retain the ticket I enclose, but if you do not, please send it back immediately so that I may have time to dispose of it elsewhere.’

The letter, in which the underlined words were printed with emphasis, was delivered to the plaintiff’s lodgings (Vogelhüttendeich 164, Wilhelmsburg, Hamburg) on the morning of 2 November. The plaintiff had already gone to work, so it was accepted by another lodger and placed in the kitchen. According to the plaintiff, at about nine o’clock that morning the defendant received a telegram from Lübeck with the news that lottery ticket no 33451 had won M100,000, the winnings appropriate to a oneeighth ticket amounting to M10,416.07. On learning this the defendant sent his employee B to the plaintiff’s lodgings where B persuaded the plaintiff’s landlady—by lies, according to the plaintiff—to give him the letter addressed to the plaintiff, which was still lying on the kitchen table and had not yet come into the plaintiff’s hands.

When the plaintiff returned home at noon, or possibly in the evening, he asked if there were any letters for him. He asserts, and is ready to swear, that he would have accepted the enclosed lottery ticket, and as evidence of this would prove that in previous cases when a ticket of his had been drawn, he had taken a further ticket in the same lottery and indeed in the same series. He also stresses that the defendant must have known, given the part of town where the plaintiff lodged, that he was dealing with a workman who would already have left for work before the first post was delivered.

The plaintiff claims M10,416.07, with interest at 4 per cent from the time of claim. The Landgericht dismissed the claim, and the Oberlandesgericht dismissed the plaintiff’s appeal. On the plaintiff’s further appeal, the decision of the Oberlandesgericht is

reversed and the case remanded for the following reasons.

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Reasons

Because the court of appeal was of the opinion that the plaintiff must fail in either case, it did not decide whether he was bringing a ‘contractual claim for the contractual sum or a tort claim for damages based on the defendant’s preventing the plaintiff from acquiring the ticket.’ The court held that if the plaintiff had accepted the lottery ticket which was sent to him, he would have been contracting for the chance of winning an uncertain amount; once the ticket was drawn, it represented the right to claim a specific amount, so it was an entirely different thing legally as well as economically; since the lottery ticket was drawn before it was accepted, the defendant was no longer bound by his offer.

This reasoning, which is essentially in line with that of the Landgericht, is unacceptable. It may in general be true that the offer of an undrawn lottery ticket lapses if it is drawn before the offer is accepted [references], but the first thing to consider must always be what the intention behind the offer of the ticket was in the individual case. According to the defendant’s letter of 1 November 1900, the draw had begun and was to continue until 22 November, and his statement that he would regard the plaintiff as the rightful owner of the enclosed ticket and respect his claim to any winnings only if he sent back the previous winning ticket immediately on receipt of the letter was a quite unequivocal way of saying that although the plaintiff was to become owner of the ticket and entitled to its winnings only on the stipulated condition, yet if that condition were fulfilled he was to be the owner unconditionally, ie even if the ticket attracted winnings in the meanwhile. If this was not the defendant’s intention, he was bound to make an express and appropriate qualification, and he did not do so.

The considerations which led the lower courts to decide against the plaintiff are thus not in point. But the respondent has argued that their decision can be justified on the following grounds. From the facts already established it emerges that the defendant repossessed himself of the letter he had sent before the plaintiff got to know of the contractual offer it contained; since, as the Reichsgericht (Fifth Civil Division) decided in its judgment of 26 October 1901 (see JW 1901, 866), an offer of a contract is held to ‘reach’ its addressee when it comes to that person’s knowledge, the defendant was not yet bound by his contractual offer when he repossessed himself of the letter containing it. This conclusion is erroneous, for the premise is wrong. If a person chooses to communicate a contractual offer by means of a sealed letter, the true view is that the offer ‘reaches’ its addressee in the sense of para 130 BGB as soon as normal procedures bring the letter within the area of factual control of the addressee himself or of a person who represents him for the receipt of letters, and he is consequently in a position to acquaint himself with it [references].

There is nothing inconsistent with this in the decision cited by the respondent. As the reasons in that decision make abundantly plain, that case did not involve a situation where para 130 BGB fell to be applied; it was therefore enough to say that the contractual offer had come to the notice of the person for whom it was intended. In the present case, as the letter addressed by the defendant to the plaintiff was delivered to the dwelling of the plaintiff’s landlady who, it can unhesitatingly be assumed, was qualified to accept letters, one must hold that the offer contained in the letter reached the plaintiff on the morning of 2 November and that the defendant became bound by his offer at that moment.

APPENDIX I: CASES 563

The plaintiff made no express acceptance of this offer meanwhile, and such acceptance as can be inferred from his bringing suit is clearly too late. But can the plaintiff not invoke para 823 BGB? The contractual offer which reached the plaintiff conferred on him a legal power to complete the lottery contract by accepting it and so to acquire the rights arising out of the contract. If the defendant intentionally or negligently caused the plaintiff to make no use of this legal power, he is guilty of an unlawful act in the sense of para 823 BGB. We need not ask whether one might not also invoke para 162 para 1 BGB, since no less is required for the application of that text here than for that of para 823.

It emerges from the plaintiff’s own evidence that he would not have accepted the defendant’s offer on 2 November before noon on that day, perhaps not before the evening, but it would be wrong to regard his claim as defeated by this consideration alone. Certainly the defendant had stipulated that only if the plaintiff sent back the ‘winning ticket immediately on receipt of this letter’ (and thereby communicated his acceptance of the offer) was he to be regarded as owner of the ticket which was sent to him and as the person entitled to any winnings. But this cannot have meant that the reply must be despatched by the very next post after the letter arrived. Such a construction is excluded: even in the normal case the defendant, in sending off his letter, could not expect the recipient to be able to make so speedy a response, but here the defendant must have known that he was dealing with a working man whose lifestyle would make it impossible for him to do what was required on the day of receipt before noon or even the evening.

The suit is not yet ripe for decision. Further elucidation of the facts is required before it can be said whether any tort has been committed under para 823 BGB.

Case 11

BUNDESGERICHTSHOF (ANTI-TRUST SENATE) 20 NOVEMBER 1975 NJW 1976, 801

Facts

Within Germany, the plainstiff is sole distributor of Rossignol skis. The defendant manages a leading specialist sports shop in Upper Bavaria. The parties had long-standing business connections. In the season 1972/73, the sale of Rossignol skis contributed DM100,000 to the defendant’s overall turnover (skis) of DM 3 million. On 4 October 1973, the defendant ordered from the plaintiff 478 pairs of Rossignol skis. The plaintiff refused to accept the offer and informed the defendant that it would not deliver skis even after the current regime of resale price maintenance had fallen away.

The Landgericht rejected the action for a declaratory judgment stating that the plaintiff was not bound to accept the offer of 4 October 1973 or future orders from the defendant. After a change in plea, the Oberlandesgericht held that the defendant has no claim resulting from the refusal of his order of 4 October 1973 and that the plaintiff is not bound to accept future orders from the defendant for the supply of skis. The further appeal is successful in its main points.

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Reasons

A. The claim for a declaratory judgment concerns the order of 4 October 1973. According to para 35 I 1 of the Cartel Act (GWB), the plaintiff must compensate the defendant for losses incurred, insofar as his refusal to supply the defendant according to his order of 4 October 1973 intentionally or negligently infringes legal provisions intended to protect the defendant. Para 26 II GWB prohibits an enterprise listed therein from unduly impeding another enterprise in business dealings normally open to similar enterprises or from treating that enterprise differently from like enterprises without sufficient reason. This provision intends to protect single enterprises ( BGHZ 36, 91, 100 = NJW 1962, 196—Gummistrümpfe). A culpable infringement of this provision gives rise to a claim for damages under para 35 I 1 GWB.

I.

1.Para 26 II 1 GWB subjects enterprises operating price maintenance policies to a prohibition of discrimination. (. . .)

2.The Second Amendment Act extended the prohibition of discrimination expressed in para 26 II 1 GWB to enterprises and associations of enterprises insofar as their suppliers or customers of certain kinds of goods or commercial services depend on them to such an extent that they have insufficient and unacceptable means of switching to other enterprises. In order for this provision to apply, it is decisive to interpret what exactly is meant by ‘insufficent and unacceptable means of switching to other enterprises’ and where actual dependency occurs as outlined above (. . .)

(b)An interpretation of the intentions pursued by para 26 II 2 GWB leads to the following result:

(aa)By extending the range of addressees who are prohibited from discriminating, over and above the circle of enterprises listed in para 26 II 1 GWB, restrictions of unhindered competition effected by other kinds of commercially strong enterprises were to be prevented, whenever such disruptions were caused by an abuse of economic power. Even where not in a market-dominating position, an enterprise can hold such a strong position in the market that it can disrupt the markets in a manner which para

26II GWB intended to prevent and to combat (BGHZ 49, 90, 96 = NJW 1968, 400— Jägermeister). In respect of enterprises operating price maintenance agreements, the legislator globally assumed such dangers to exist and therefore included them in the prohibition to discriminate. By the newly-added second sentence, additional enterprises are included which, although not market-dominating, hold such strong economic position in relation to other enteprises that their measures affect enterprises which depend on them in the same way as if they were operated by marketdominating enterprises. This additional group of enterprises is therefore subject to the same restrictions as regards contractual freedom. (. . .)

(cc)The dependency of one enterprise on another must be so strong that there are only insufficient or unacceptable other means of switching to third enterprises. Whether or not sufficent possibilities exist as envisaged by this provision is to be judged according to objective criteria, ie the possibilities provided by the relevant market for switching from the goods of the discriminating enterprise to those of other companies. Not every possible switch is ‘sufficent’ in the sense of section 26 II

2GWB. Where an enterprise as supplier or customer of certain goods has very few competitors or where, in comparison to competitors, it holds a much stronger

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market position, it is market-domineering (para 22 I No 1, 2 GWB) and thus already falls under the prohibtion to discriminate as set out in para 26 II 1 GWB. Thus, para 26 II 2 GWB comes into play only insofar as an enterprise is exposed to considerable competition and does not hold a market-dominating position. The existence of considerable competition between suppliers is not the same as having sufficent possibilities to switch from an enterprise which discriminates between customers to another enterprise. The number of enterprises dealing in similar goods is likewise not decisive, at least not on its own. The overall decisive factor is the commercial value and market prestige of the goods in question. This factor determines whether or not sufficient possibilites exist to switch to other enterprises. Apart from their price, the actual value of particular goods is thus determined by their quality and the producer’s advertising activities. These criteria significantly influence demand. In particular, it is advertising which can give branded goods a specific market position with the result that the customer feels unable to substitute the goods with other goods. (. . .)

Case 12

REICHSGERICHT (FIRST CIVIL SENATE) 5 APRIL 1922

RGZ 104, 265

Facts

In March 1920 the plaintiff sent the defendant a price-list of goods he had in stock. This was stated to involve no obligation (freibleibend). Crystallised tartaric acid, priced at M68.50, was included in the list. On 20 March the defendant sent the plaintiff a telegram: ‘Request best price for 100 kilos Gries lead-free tartaric acid.’ Two days later the plaintiff replied by telegram: ‘Lead-free tartaric acid M128. per 100 kilos cash on delivery here.’ Then the defendant telegraphed: ‘100 kilos lead-free Gries tartaric acid OK, confirmatory letter follows.’ When the letter arrived it transpired that both parties intended to sell the goods and thought the other wished to buy them. The defendant refused to accept or pay for the goods and the plaintiff sold them at public auction. The plaintiff now claims as damages the difference between the price he thought had been agreed and the sum received at auction.

The Landgericht allowed the plaintiff only two-thirds of the claim, but the Oberlandesgericht allowed it in full. The defendant appealed, and his appeal was allowed.

Reasons

It is manifest that it nowhere appeared from the telegrams between the parties which of them was to be the buyer and which the seller. According to the evidence, both of them intended to be the seller.

The court below was of the view that as the plaintiff had only shortly previously offered the defendant crystallised tartaric acid in a price-list containing certain conditions as to payment, the defendant should have realised from the fact that the plaintiff’s telegram contained the same conditions as to payment that the plaintiff

566 APPENDIX I: CASES

wished to sell the goods; since the defendant must accept this construction of the plaintiff’s telegram, a contract of sale arose.

The appellant objects that since both parties intended different things, there was no agreement. This fact could not be got round by saying, as the court below had done, that the defendant had committed a fault in misunderstanding the plaintiff’s telegram, for it remained the fact that neither party wanted to buy and that therefore a contract had not been formed. It was quite another matter whether the supposed negligence gave rise to other consequences.

We cannot agree with the appellant on this point, for what the court below said was quite true: if the plaintiff’s telegram was such that in all the circumstances it would be normal in the trade to give it a meaning going beyond the purely literal, the defendant must be held to such meaning; a contract would have been formed and the only possibility would be to seek to rescind it (anfechten). But we cannot agree with the court below that on its proper construction the plaintiff’s telegram meant that he wanted to sell [explanation omitted in the text] . . . There is therefore a true lack of agreement. Both parties used words which seemed to match, but meant them in a different sense in such a way that there was no agreement. No contract of sale was formed.

In fact both parties are to blame for the misunderstanding, each having expressed himself unclearly, doubtless to save words. The defendant’s telegram read: ‘Request best price for . . . tartaric acid.’ ‘Best’ implies a comparison, and can only be used where there is room for play, upwards in the case of a sale and downwards in the case of a purchase. What the defendant meant was that he wanted to know the lowest price for 100 kilos of tartaric acid. The same is true of the plaintiff. If instead of transmitting the words ‘Tartaric acid 128 M.’ he had said ‘offer tartaric acid . . . 128’, there would have been no doubt what he meant. As it was, neither party said clearly what he wanted. Both of them are at fault, but we agree with the Landgericht that the fault of the defendant was the greater: it was he who started the negotiations, and therefore should have taken particular care to express himself clearly.

Thus the plaintiff cannot demand performance. The question is whether on these facts there is room for a claim for damages. Some scholars say yes, others no. It is generally agreed that damages for culpa in contrahendo may be claimed if a contract comes about. When no contract eventuates, there are many cases where the Code allows a claim for the plaintiff’s negative interest, ie reliance damages: so under para 122 (rescinding a declaration of will on the ground of error), para 179 (agent acting without proper authorisation), para 307 (impossible performance knowingly or carelessly undertaken), para 309 (formation of an unlawful contract). Writers are not agreed whether these principles can be extended to other cases, but in fact extension to similar cases has already been made by both courts and scholars. If both parties are to blame for the fact that an offer which was time-limited did not lead to a contract because the acceptance did not reach the offeror in time, then according to RGZ 97, 339, the loss suffered by the acceptor is to be split between the parties. If a carrier who offers his services publicly fails to reply to a request for carriage, he can be made liable for reliance damages under para 663 BGB [reference]. The considerations which led the legislator to make the provisions mentioned above can be found in the Protokollen. . . . In discussing the rescission of a declaration of will not seriously intended, it was said that equity requires the person making the declaration to pay for the reliance loss sustained by the other party if reasonably unaware that the

APPENDIX I: CASES 567

declaration was not serious, the reason being that it was the declarer who caused the transaction to take place. Then it was said that this liability is imposed in the interests of security of transactions. Like reasons—equity and security of transactions—justify us in applying the same principles to the present case, one of so-called unapparent absence of agreement. Where one party has expressed himself so carelessly as to cause the other party to misunderstand him, equity and the security of transactions certainly require that he be saddled with the loss. Whether the same would apply in a case where there was no carelessness is a matter we need not now decide. As has already been stated, the plaintiff here was at fault as well as the defendant, so one must ask whether the plaintiff’s claim is not barred by his own carelessness. The answer is that it is not. The plaintiff’s claim would fail if he was at fault in mistaking the other party’s declaration (as under paras 122, 179, 307, 309), but that is not the present situation. Here the plaintiff could well believe that the defendant wanted to buy acid. The fault of the plaintiff was rather that he also expressed himself badly and caused the defendant to misunderstand him. In a case like this the personal fault of the victim does not destroy his claim, because it cannot be said, in the words of the Code, that he ‘should have known’ the defendant’s true meaning; it only has the effect that the loss is to be borne by both parties in proportion to their carelessness, since the fault of both of them contributed to the harm. But the harm which is to be so divided between them is not the value of performance, but only the so-called negative interest. Equity does not require that the plaintiff recover the profit he would have made if the contract had come into existence, but only that he be compensated—either wholly or, as in this case, partially only—for the harm he suffered from being of the good faith belief, due to the defendant’s faulty mode of self-expression, that the defendant wanted to effect a purchase. No other solution accords with the statutory provisions mentioned above, in the case of rescinding for error and so on. If the plaintiff proves his assertions, his negative contractual interest consists of the difference between the auction price and the market price or other possible price on the day that the plaintiff learnt that the defendant wanted to sell rather than to buy, that being the day on which the plaintiff could sell off the goods.

Case 13

BUNDESGERICHTSHOF (THIRD CIVIL SENATE) 8 APRIL 1957 NJW 1957, 1105

Facts

The plaintiff and his father, who had been a customer of the defendant’s for some time, had bought six one-eighth tickets in the Twelfth North-West German Class Lottery. The draw in the sixth class began on 1 July, and one of these tickets won DM24. The defendant so informed the plaintiff on a printed form, crediting him with his winnings and charging him the price of the follow-up ticket which was enclosed. It requested the recipient to return the attached acceptance form by the first post or, in the unexpected event he did not wish to take it, to send the follow-up ticket back on the same day. The plaintiff and his father did nothing. On 19 July the follow-up ticket won DM40,300, and the defendant wrote to the plaintiff asking him to return it

568 APPENDIX I: CASES

forthwith since he had not accepted it on 2 July when it was sent to him. On 20 July the father of the plaintiff sent the defendant a letter which he said he had written four days earlier and in which he accepted the follow-up ticket.

The plaintiff now claims his winnings. The two lower courts dismissed the claim. On the plaintiff’s appeal those judgments were vacated and the case remanded.

Reasons

I. The court of Appeal was right to hold that no contract could be formed by the plaintiff’s declaration of acceptance in his letter of 20 July. It is to acquire a chance of winning that one buys a lottery ticket, but once the ticket has been drawn this chance has gone, and with it the object of the contract. We need not dwell on this point, since even the appellant accepts the Court of Appeal’s judgment on it.

II. Nor, according to the Court of Appeal, was there any contract between the parties before the follow-up ticket was drawn: there was no possibility of acceptance under para 151 BGB, and in the circumstances of the case no implicit declaration of acceptance for the purposes of para 148 BGB could be inferred from ‘the silent retention of the follow-up ticket.’ Here the essential question is: when a lottery agent makes such an offer to a customer with whom he has already had dealings, does para 157 BGB, with its reference to the good faith observed by businessmen, make it right to treat the customer as agreeing to the contract so proposed, although he does nothing whatever? The answer is ‘no’.

The interests of the parties speak against treating the customer’s silence as agreement. If the customer wants to continue playing, all he need do is send in the printed form of acceptance; this at least he can be expected to do in order to clarify the rights of the parties. The interests of the ticket agent point to the same conclusion. If the customer’s inactivity were to be treated as a declaration of acceptance, the agent who received no reply ‘by return of post’ would immediately find himself bound by a contract which prevented him from disposing of the follow-up ticket elsewhere. This would be intolerable, since the agent whose customer has failed to respond to his proposal or request must in all equity be allowed to make his legal position clear and safe. Of course the agent will often act on the assumption that the customer does agree to his offer, and either retain the ticket for him or, if time presses, play it on his account; but in cases where the agent’s reliance is justified, he can be protected without holding that a contract has been formed (negotiorum gestio, negligence of the customer in fresh dealings in an existing relationship).

Most importantly, there is no general business practice (Verkehrssitte) inconsistent with the conclusion we have reached. A general business practice in the sense of para 157 BGB includes a professional opinion held by all those involved in the business in question (see RGZ 114, 9; 135, 340), but the Court of Appeal has found that there is no unanimity on the effect of a customer’s silence when he is invoiced for the price of a follow-up ticket enclosed with a statement of his recent winnings. Nor did the parties to the present litigation believe that there was any such unanimity.

2. Regarding the possible formation of a contract under para 151 BGB, the Court of Appeal did not consider whether before the follow-up ticket was drawn, any intention to accept was evinced by the plaintiff or his father, the statutory representative with whose consent he played. This was because it believed that no contract could come

APPENDIX I: CASES 569

about by an uncommunicated acceptance under para 151, given that the defendant had not dispensed with the need for communication and that it was not normal practice to regard a declaration of acceptance as superfluous.

So far as the substantive law is concerned, the Court of Appeal was right to hold that the way the defendant conducted his business might imply a waiver (Verzicht) of the need to communicate acceptance, such as para 151 BGB refers to. Since the form letter, as the Court of Appeal correctly held, does not make it absolutely clear that the customer would not be entitled to take further part in the lottery with the follow-up ticket unless he returned the acceptance form, it is necessary to construe it in the light of paras 133, 157 BGB, and to take into account not only what the defendant wrote, but what he did.

The essential question here is whether the plaintiff could honestly and realistically conclude from the way the defendant had behaved when customers, including his father, had done nothing, that the defendant was content with an uncommunicated acceptance of its offer under para 151 BGB. When it was considering the two instances put forward by the plaintiff, the Court of Appeal did not ask itself this question, and so went wrong in law.

In a letter which the defendant wrote to the plaintiff’s father on 20 March 1953 the defendant had said ‘I now realise that you did not receive the follow-up ticket which I sent you and accordingly [emphasis added] I hold your winnings at your disposal.’ From this the plaintiff argues that the defendant had treated his offer as accepted despite the absence of any declaration of acceptance, and had charged him the price by setting it off against the winnings he held; indeed, that would have been the end of the matter had the customer not established that he never received the substitute ticket. It is not enough to ask, as the Court of Appeal did, whether there really was a contract under para 151 in this case. The critical question is whether by his conduct the defendant could have induced the other party to believe that he would hold a contract formed on the failure to return the follow-up ticket.

Then in a letter of 19 March 1954, the defendant stated in terms that since the plaintiff’s father had not sent back the follow-up ticket, the defendant had had to assume that he was ready to accept it and play. Whether the defendant ‘stuck’ to this position—which is all that occupied the Court of Appeal—is irrelevant. Here, too, the question is whether, in view of the terms of the 1954 letter and his understanding of the letter of the previous year, the plaintiff not having made any express declaration of acceptance, could suppose that the defendant, given his particular attitude, might treat his failure to send back the follow-up ticket as implicit acceptance of his offer.

It cannot be said to be futile to evaluate the defendant’s conduct from this point of view. If the Court of Appeal concludes, after reviewing the evidence, that the two instances mentioned are simply ‘isolated cases, not amounting to any declaration of waiver in the sense of para 151 BGB, it still has to check the plaintiff’s assertion that the defendant had adopted the general position that a contract could be formed under para 151 BGB; for if that were the defendant’s practice and it was generally recognised, his statements to the plaintiff’s father would cease to stand on their own, and could be seen as expressing an intention which was to apply in all similar cases.

Whether this is in fact the case is another matter. One must concede to the appellant that the fact that the plaintiff’s father sent off the form of acceptance on 20 July does not show that he and the plaintiff had dismissed the possibility of a contract having come

570 APPENDIX I: CASES

about under para 151 BGB (para 286 ZPO). It is not true that the intentions for forming a contract under para 148 or under para 151 BGB are mutually exclusive: both possibilities concur, and a person who believes that it is not in law necessary that his declaration of acceptance reach the offeror may nevertheless send such a declaration with the aim of giving formal expression to a contract which in his view is already concluded.

Case 14

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 16 DECEMBER 1964 NJW 1965, 387

Reasons

B.

I. The Court of Appeal held that, from 1 August 1959 when the defendant’s buses started to use the bus station, a contract for the use of the bus station against payment, a contract of private law, had existed between the parties. The defendant knew from the time it had previously used the bus station in the summer of 1956 (admittedly for another route, but that was immaterial), that the plaintiff exacted a fee for its use. Its renewed use of the bus station since 1 August 1959 was therefore in the full knowledge and consciousness of the legal implications of its conduct. By using the bus station it accepted the plaintiff’s offer of a contract; the plaintiff having in the circumstances waived the need for the declaration of acceptance to reach it. Furthermore, a contract was also formed under the principles of the factual contractual relationship (faktische Vertragsverhältnis) for which it was not necessary that the defendant should have refused to make any payment for using the bus station.

The Court of Appeal proceeded to say that it was quite lawful to make a private law charge for the use of the bus station, for the use in question was not just a public use, but a special use, given the facilities which had been provided near the station and the circumstances in which the use was taking place. The judges viewed the area and confirmed that the use being made by the defendant went beyond public use. The bus station was entirely different from the normal bus stops and simple stopping bays which are in public use, for it was equipped with all the advantages of platforms, bus lanes, the timetable board, the waiting room with its refreshments and the toilets.

II. The appellant has not successfully impugned these views.

1.In principle no one need pay for making use of public property (BVerwGe 4, 342, 345—NJW 1957, 962). But if the owner of a public thing wishes, consistently with it being used by the public, to afford a kind of user which goes beyond public use, a socalled special use, he can in the absence of statutory regulation make such use conditional on the user’s contracting to pay a fee for it. This is in line with our previous holdings (BGHZ 19, 85, 92; BGHZ 21, 319, 330).

2.The appellant accepts that it was making a special use of the bus station and its facilities, but maintains that it did not contract for this special use. It wanted to make use of it like the general public; it never asked for special use; the special use was forced on it against its will by the plaintiff; and it is a principle of the private law of obligations that no contract can arise unless the recipient of an offer is willing to accept it. We disagree.

APPENDIX I: CASES 571

(a) The Court of Appeal held, as a subsidiary argument, that when the essentials of life are being provided on a large scale, a contract arises from the mere acceptance of such a service, just because it is typically social behaviour. On this view it would be irrelevant whether or not the defendant intended to accept the special usage afforded to it by the plaintiff. Supporters of this doctrine do not regard the factual public offer of a service and the factual acceptance of this service as constituting declarations of intention which trigger given legal consequences, but as congruent conduct whose typical social significance produces the same rights and duties as a transaction at law. The basis of the obligations lies in the opinio juris that a person who acts in this socially typical manner, by knowingly and willingly accepting or using a service, thereby becomes bound in law regardless of whether he entertained or expressed any intention to be so bound (Larenz, NJW 1956, 1897). We need not adopt any position regarding this concept of a ‘contract arising through socially typical conduct’ nor consider the appellant’s objection to it that it is inapplicable on the facts of the case before us, for even the adherents of the traditional view that no contract can come about unless there are matching declarations of will concede that the normative force of general practice can attribute to ‘typically social’ conduct the import of a true declaration of will. In particular, when one accepts an essential service it is not the will of the individual that is the significant feature, but the standard implications of his conduct: there is no room for the individual will here, so it recedes into the background. In construing the declaration of will which the acceptance of such a service entails, the intention of the particular individual no longer counts. If a person so conducts himself that in accordance with good faith and general practice he can only be understood as expressing a certain intention, his verbal disclaimer of such a meaning of his conduct can be ignored. His words are contradicted by his acts (protestatio facto contraria); through his own conduct he has forfeited any other construction [references omitted].

On either of the views stated, it follows from the facts, as conclusively found by the Court of Appeal, that the defendant knew that the plaintiff insisted on payment for the use of the bus station, that the defendant used the bus station in this knowledge, and that such use is, in accordance with normal practice, treated as an expression of agreement, and that it is irrelevant that the defendant did not wish to enter into any contract with the plaintiff regarding the use of the bus station, or even that he expressly objected to doing so.

Nor did the defendant’s notice of termination free him, as the appellant maintains, from any contract which arose. In a case like this, a declaration of termination is futile. The defendant did not want to stop using the bus station, but to carry on using it, as in fact it did. A notice of termination by the defendant would, like its declaration that it was unwilling to contract, be contradicted by its actual behaviour.

Case 15

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 27 JANUARY 1965 NJW 1965, 965

Facts

In early March 1961, R, the proprietor of the defendant firm, went to the plaintiff’s place of business with M, the engineer who managed the defendant’s branch at D.

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There they had negotiations with H, the plaintiff’s partner and general agent, concerning the purchase of a tractor and trailer from the plaintiff. On 28 March M and H inspected the trailer and then went to H’s home where H drafted a contract of sale on one of the plaintiff’s invoices, which both H and M signed. The document was addressed to ‘The Firm of R, pipe construction, via the factory at D,’ and ran as follows: ‘Purchased, after agreement and inspection, one caterpillar tractor with Deutz 175-PS motor, and one trailer, as is, at a lump sum price of DM20,000. Collection against payment in cash to be made between 25 and 30 April 1961 . . .’

R was away at a spa at the time, and when he returned at the end of April 1961 he took delivery of the tractor but not the trailer, and paid the plaintiff DM7200.

The plaintiff sued for DM13,000 with interest against delivery of the trailer, claiming that at the time of the original negotiations between the parties in early March 1961 R had empowered M to continue negotiations with the plaintiff after verifying certain details about the trailer and to enter an agreement for the purchase of both vehicles. The defendant contended that M’s signature to the document of 28 March was subject to R’s approval.

Both lower courts rejected the claim; on the plaintiff’s further appeal their judgment is vacated and the case remanded.

Reasons

The appellant maintained that his claim may be based on a matter which the court of appeal did not consider, namely the acceptance without protest of a commercial letter of confirmation. He was right. Since it emerges from several of the documents submitted by the plaintiff that the defendant did not protest the sale contract of 28 March until 30 August, this should have been considered, notwithstanding that the plaintiff did not expressly invoke the rules of law on commercial letters of confirmation.

1. A commercial letter of confirmation is a document addressed by one contractor to the other in which he communicates his version of the conclusion and content of a contract which has been formed orally, telephonically or telegraphically. It is the normal method used by businessmen to establish evidence of the content of a transaction so formed [reference omitted]. In order to serve as a letter of confirmation the document must be designed ex facie to reflect the dealings or at least their gist (BGH, 5 December 1960, BB 61, 271).

Since the document of 28 March satisfies these basic requirements, it is a commercial letter of confirmation. Not only was it obviously apt to establish the terms agreed between M and H on 28 March, but it was also clearly designed to put the defendant in the picture as to the terms to which its representative had agreed, with resulting obligations for the defendant. That this was the plaintiff’s purpose is evident from the fact that the document was addressed to the defendant. Furthermore, its content satisfies the requirements of a commercial letter of confirmation, notwithstanding that it does not contain the expression ‘confirmation’ or ‘confirm’; for usual though it may be for the draughtsman of such a document to ‘confirm’ the formation of the contract in so many words, this is not an essential feature of a confirmatory letter. Nor does the fact that the document is signed by M as the representative of the defendant addressee count against its being given the effect of a letter of confirmation. Indeed, M’s signature gives the document a higher evidentiary value than a document signed by

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the sender alone, as is usual. There are therefore no objections to regarding this letter in law as a letter of confirmation.

2.The recipient of a letter of confirmation is required by good faith (Treu und Glauben) and commercial practice to make an immediate protest if he does not wish to be bound by its contents. If he makes no protest, the contract is treated as formed with the content as confirmed. The Reichsgericht and the Bundesgerichtshof have constantly held that this is the result in law even if no firm contract ensued from the transactions preceding the letter of confirmation. It is therefore irrelevant whether the negotiator, here the employee M, had the power to conclude a contract or not (see RGZ 103, 401, 405; RG JW 38, 1902; BGHZ 7, 187, 189; BGH NJW 64, 1951). What produces the contract in such a case is not the conduct of the representative, which may be unauthorised, but the silence following on the confirmatory letter (BGH NJW 64, 1951).

3.But the addressee’s duty to protest arises only when he learns of the letter of confirmation or at the earliest when it ‘reaches’ him in the sense of para 130 BGB. This is for the person who sends the letter of confirmation to prove. The document is taken to have arrived as soon as ‘normal procedures bring the letter within the area of factual control of the addressee himself or of a person who represents him for the receipt of letters, and he is consequently in a position to acquaint himself with it’ (RGZ 50, 191, 194).

The plaintiff has not yet asserted in terms that the document of sale dated 28 March came to the attention of R immediately or after his return from the spa. Indeed, M gave evidence that he left the document which the plaintiff handed him in the D branch office which he managed for the defendant and that he later destroyed it when he thought the matter was closed. We must therefore see whether M had power to accept the document of sale so as to affect the defendant.

It is possible that M was qualified to receive the document qua manager of the D branch of the defendant’s business. The decisive question here is whether businessmen would regard the branch office as a proper place to which to deliver written communications directed to the defendant’s head office. The question cannot be conclusively answered on the facts as found by the Court of Appeal. One must start from the fact that a branch of a business is not ipso facto to be regarded as a ‘proper place of acceptance’ for written communications directed to the head office. The important thing is what impression the branch office gives to the outside world. If a branch has a degree of independence, especially in matters of commerce, it may be right to treat it as empowered to accept documents, and it may be relevant whether the communication relates to matters with which that branch regularly deals. If it emerges that the D branch was in general occupied only with construction work or other technical matters, this would militate against its being a proper place for the acceptance of documents addressed to the defendant.

Quite apart from this, one must see whether M had power under the special agency granted to him by the defendant in connection with the purchase of both vehicles to accept the document of 28 March so that it must be treated as having reached the defendant. Here one must consider not only whether M was granted a power of receipt in the sense of para 164 para 3 BGB, but whether the defendant told him to act as a messenger. In either case the document would have ‘reached’ the defendant. If M had a power of receipt, the document ‘arrived’ as soon as it was handed to him

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(para 164 para 3 BGB). If he was simply a messenger the document arrived at the moment at which in the normal course of events it could be expected to reached the defendant’s head office or come to R’s attention. The answer to these questions depends largely on the content and scope of the mandate pursuant to which M negotiated with the plaintiff on 28 March. Here also more findings of fact are required. It is true that the Court of Appeal has found that the mandate was only ‘to clear up a few preliminary questions relating to the machines being purchased’, but in view of the plaintiff’s assertion that M was empowered to conclude the contract, all this may mean is that while it was common ground that the mandate went that far, it was not proved that it went any further. However, the Court of Appeal was reading the conflicting evidence only in the light of the question whether M was empowered to conclude the contract; if it had examined the scope of the mandate from the point of view of M’s power to accept documents, it might well have reached a different conclusion, especially as in his evidence M did not accept that it was beyond his powers to conclude the contract subject to R’s approval. Nor has the defendant expressly stated that M acted beyond his mandate in negotiating with the plaintiff for the purchase of both vehicles in the name of the defendant, in concluding the contract in the name of the defendant subject to its approval, and in co-operating in the written confirmation of the agreed terms. On the other hand, it may be necessary, by way of construction, if need be, to examine whether the mandate to negotiate was wide enough to entail a power to accept a document of confirmation regarding the conclusion of a contract on behalf of the defendant.

4. The rules on acceptance of a commercial letter of confirmation without protest are designed to protect proper commercial conduct (RGZ 129, 347, 349). They therefore do not apply unless the person uttering the document is in good faith. In a case where the contract has been concluded through an intermediary and the draughtsman knew that the intermediary had no authority to represent the principal, he can draw no comfort from the recipient’s failure to protest the letter of confirmation (compare BGH NJW 64, 1951). This must be taken into consideration when the case is finally decided.

Case 16

OBERLANDESGERICHT COLOGNE 19 MARCH 1980

RBRK 1980, 270

Reasons

This being a claim for damages for non-performance, the appropriate venue under paras 17, 29 ZPO, 270 para 1 BGB, would normally be the court at K. The Landgericht at A, where the claim was brought, can therefore only be the correct venue if the parties have validly agreed on its competence. The plaintiff’s general conditions of business do provide for such a venue, but . . . there will be no agreement to that effect unless those conditions are incorporated into the contract between the parties. The Landgericht held that they were not, and we agree.

I. The rules relating to letters of confirmation do not apply when the recipient of an order ‘confirms’ his acceptance of it with variations of the contractual offer it contains

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[reference omitted]. A proper commercial letter of confirmation reflects the content of a contract formed orally or by telephone or telegraph and is written in order to avoid misunderstandings, uncertainties or differences. Despite its description as ‘confirmation of order,’ the plaintiff’s letter of 6 January does not satisfy these requirements. It did not rehearse the terms of a contract resulting from prior negotiations; on the contrary, its function was to conclude a contract, none having yet been formed (on this see GBHZ 61, 285).

II. The conduct of the defendant after receiving the plaintiff’s letter of 6 January does not make for a contractual adoption of the plaintiff’s general conditions of business. It is true that by reason of para 24 no 1 AGBG (Law on General Conditions of Business—Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen— AGBG) the constricting provisions of para 2 do not apply in the present case, but it still remains necessary for general conditions of business to be incorporated in a contract between merchants. It is true that even as between merchants the validity of jurisdictional clause has been questioned on various grounds [references omitted], but we need not examine this view, which we would be unlikely to endorse, as there are other reasons for denying the efficacy of the plaintiff’s general conditions of business in this case. By making its written order of 28 December 1976 refer to its general conditions of business and including a copy of them with it, the defendant made it unmistakably clear that it was not going to be forced into dealing on anyone else’s terms. For one thing, it made any alteration in its terms ineffective without a specific written agreement; for another, it expressly adverted to the fact that the ordering of goods was an explicit acknowledgement of the exclusive applicability of its own conditions of delivery and payment, and of the inapplicability of any other terms. It is quite true that the defendant’s conditions of delivery and payment were ill-adapted to the transaction in question: for example, they referred to the ‘purchasing conditions of the buyer’ as if it were the other party, when he himself was to be the buyer—but this does not affect the conclusion that the defendant gave unequivocal and unmistakable expression to its intention to bar any other general conditions of business. The plaintiff did likewise on 6 January in its confirmation of the plaintiff’s order; it referred to its own general conditions of business, and sought to make them bind the defendant. The defendant did not respond to this demand of the plaintiff’s that his general terms of business control the transaction, but this silence could not by itself in any way amount to an implicit declaration of acceptance, for silence rates as refusal rather than acceptance, given the inapplicability of the rules of commercial letters of confirmation [reference omitted]. The only conduct of the defendant which could possibly be construed as a declaration of acceptance in the instant case is its acceptance of part of the goods in question. This court does not, however, view such acceptance of the goods as amounting to a declaration by the defendant that he was ready to submit to the plaintiff’s general conditions of business.

1. When two sets of general conditions of business conflict, as they frequently do, the tendency is, so far as possible, to prevent the abortion of the contract. The courts originally started from para 150 para 2 BGB, whereby an acceptance in terms differing from those proposed, whether broader or narrower, was treated as a rejection, coupled with a fresh offer. The last contracting party to refer to his own conditions of business could therefore insist on them if the other party proceeded to perform the contract without dissent. Under this theory of the last word, as it was called, it all

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depended on which contracting party had made the last reference to his conditions (see eg, BGHZ 18, 212). In practical terms, the result was that if you accepted goods without dissent, you were treated as accepting the other party’s general conditions of business.

In its recent decisions the Bundesgerichtshof has restricted this approach, without casting much doubt or light on the underlying principle. It takes the view that the mere absence of dissent does not entitle the last person to refer to his conditions of business to assume automatically that the other party agrees to such alterations. This is to maintain the principle that among merchants silence is not tantamount to agreement (thus already in BGHZ 1, 355). On the contrary, there will normally be no agreement when the customer has made it clear that he is only going to take goods on his own general conditions of business and not on the supplier’s terms [BGHZ 61, 282; further references omitted]. All we learn from the decisions of the BGH is that when a purchaser accepts goods without dissent, one may in a particular case find that he has implicitly accepted the supplier’s general conditions of business, reference to which makes it a new offer under para 150 para 2 BGB (NJW 1973, 2106). In BGB BB 1974, 1136, where the customer had included a qualified clause of refusal to deal on the other party’s terms, it was accepted that it was for the supplier to get an unequivocal declaration in writing from the customer. While the Bundesgerichtshof has not yet explained how to deal with an unqualified acceptance of goods when the parties’ general conditions of business are in conflict [reference omitted], there is no mistaking its concern for legal security and clarity in commercial transactions. Thus in one recent case (WM 1977, 451, 452) where a person had modified the terms of the order in confirming it, he was held disentitled to treat the other party’s acceptance without demur as an expression agreement with the contract as modified. This viewpoint alone ‘meets the need for legal security and clarity in those typical cases where each negotiating party refers to his own contracting terms, and tries to make them part of the contract; often there is no discussion, let alone any agreement, whose terms are to apply, a matter on which their reciprocal rights frequently depend, should anything go wrong with performance. This should not unduly hamper commercial dealings. Modern communications are so good that even when time is short and the distance long, the parties can easily and quickly resolve the question whose terms of business are to apply. Anyone who fails to do this or starts performing before reaching agreement acts at his own peril.’

The Bundesgerichtshof went on to hold that the customer had not implicitly accepted the altered offer by accepting part of the goods. It agreed that when an order is modified on confirmation, this new offer (para 150 para 2 BGB) can be accepted implicitly, for example, by the acceptance of performance without demur, but said that this was the case only when in all circumstances it would be proper business practice to regard such conduct as clearly evincing consent. The Bundesgerichtshof further pointed out that paras 146, 147 BGB are applicable to a fresh offer under para 150 para 2 BGB, with the result that it can only be accepted within the period during which the offeror could normally expect a reply. If no goods are accepted within this period, then it is doubtful, to say the least, whether the subsequent acceptance of performance by the customer can be treated by the supplier as an implicit endorsement of his conditions of sale and payment, and, on the other side, whether the customer should have such meaning attributed to his action.

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This decision of the Bundesgerichtshof may not lay down any precise tests, but at least we think it shows the right way to proceed. We must now pay much more attention to the way that businessmen actually do business. It is common experience that parties negotiating a contract are very reluctant to let the deal go off because of a conflict between the conditions of business [references omitted]. This is why the conflict of terms is often deliberately left unresolved. It is only when problems arise in the course of performance that the parties resort to the point in order to reinforce their own legal position at that time. Then, for tactical purposes, the matter is treated as clear although up until that time it had intentionally been left unclear. Indeed, one of the reasons why parties include in their general terms a clause whereby they refuse, absolutely or conditionally, to deal on any other terms, is to provide ammunition in such cases. Thus when there is a conflict between general terms of business one should only find agreement on them when one party has unequivocally submitted himself to the other party’s demand for the exclusive application of the latter’s terms [reference omitted]. It is for the person confirming the order ‘to ensure, by making his position absolutely clear, that the alterations he is proposing in the terms become part of the contract’ (BGHZ 61, 286). In our case an express clause stated that silence would be taken as agreement. Such a clause cannot however satisfy the requirement of clarity which is essential in legal transactions for the avoidance of disputes. That requirement would be flouted if acceptance of goods without protest were treated as a conclusive declaration of assent. It would therefore be quite wrong for a court to treat some subsequent conduct as an implicit declaration of intention simply in order to resolve the uncertainty about the validity of conflicting terms which had been left unresolved by the parties themselves. Thus some cases have held that the unconditional acceptance of goods did not constitute acceptance of a qualified ‘our terms only’ clause which the other party had introduced in confirming the offer (OLG Karlsruhe, BB 1973, 816; LG Hagen, BB 1976, 723; perhaps also OLG Frankfurt, BB 1975, 1606).

If silence in the face of an ‘our terms only’ clause does not amount to submission, then it must be immaterial whether the clause is more or less rigorously formulated. We see no reason to make the validity of contracts depend on the drafting skill of one party or his draftsman [references omitted]: the form of such a clause cannot be crucial. Even the most drastic clause is typical of general conditions of business, just as typical as a less drastic clause, and it is their common typicality which is important, not the different degrees of rigour in their formulation. Were it otherwise, prophylactic draftsmanship would take the place of law.

Nor can it be relevant whether a specific objection has been made to the conditions of business proposed by the partner. To say that an objection to the application of the other party’s conditions of business amounts to a new offer under para 150 para 2 BGB if it is made separately by letter, but not if one just refers to one’s own conditions of business, would simply add a new twist to the old problem. The foreseeable response would be to make all future protests in an ‘individualised form,’ just as appropriate clauses were drafted when the courts started treating the acceptance of goods without protest as an implicit declaration of consent (for example, ‘Acceptance of the goods is not to be taken as consent to other terms,’ and so on). The real problem ought not to be masked by finding an implied declaration of consent, and the real problem is that the parties never reached any clear and unequivocal agreement, and generally—for fear of endangering the deal —never really meant to. But if the parties conduct themselves in

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this manner, why should we invest juristic constructions and make hair-splitting distinctions in order to absolve them from the legal consequences, especially if the result is to subject one of them entirely to the other’s terms? In any case it does not square with the habits of tradesmen to treat the acceptance of goods as implicit submission to the other party’s terms. Such behaviour really betokens an intention to ignore the conflict of terms, lest the contract be aborted, rather than any intention to accept the terms of the other party. Businessmen are more concerned with receiving goods and payment than with problems which may well not manifest themselves during the performance of the contract. The legal principle to apply in such a situation is as follows: a person who delivers goods before it has been determined which of the conflicting terms are to apply, waives his right to any such determination and cannot treat the acceptance of the goods as an indication of consent, ie of submission to his terms.

Flume has criticised the Bundesgerichtshof for not adopting a clear position and for not forthrightly abandoning the doctrine that the acceptance of goods may amount to a declaration of acceptance of an offer (Das Rechtsgeschäft (ed. 3, 1979, 675). We agree with him that it is time to stop making these difficult and confusing distinctions in individual cases and to start from the principle that if both parties refer to their own terms of business, the terms which conflict are invalid. Each contractor has it in his power to require the other to take a clear position. If he does not do so, usually for fear of losing the deal, then it is that. Flume’s description of the economic and legal situation (at p 676) is apt: ‘The essential feature of cases where both contractors refer to their own general conditions of business is that the question whose conditions are to apply is not brought out into the open. Neither party is prepared to let the contract abort on this point. Neither insists that the other recognise the exclusive validity of his terms. Since the contracting parties have not resolved the question, one should not use para 150 para 2 BGB to deem agreement to have been reached when it has not. When both parties have referred to their terms of business, each can raise the question whose conditions are to apply when the contract is being concluded. If this question is not raised, and if neither manages to get the validity of his own terms of business accepted, the inconsistent terms are not incorporated.’

Finally, there is a certain element of inconsistency and shuffling, almost of bad faith, in a person who is now trying to profit from the confusion surrounding the terms of the contract which he could easily have resolved but consciously permitted to subsist.

The whole contract is not, of course, rendered invalid by failure to resolve the confusion and reach agreement on which terms are to apply: the parties do not intend that the contract should fail just because there is no agreement on that point (reference omitted). Those parts of the general terms which are not in conflict take precedence over dispositive law, which replaces only those clauses which are invalidated by the unresolved conflict (reference omitted). The same result would be achieved by analogical application of para 6 para 2 AGBG, which on this point contains a general principle of law (reference omitted).

2. In applying these principles to the case in hand, we conclude that the venue clause in the plaintiff’s general terms of business, which is prejudicial to the defendant, is not binding on him. The defendant did not accept it. What happened was that there was an exchange of mutually conflicting stereotyped declaration with no further negotiations about them. In such a case one needs a clear written agreement by the defendant,

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and there is none here [reference omitted]. This conclusion is all the more necessary because in this case the plaintiff had appreciated the defendant’s unwillingness to trade on the plaintiff’s terms, and had indeed raised the problem in his letter of 6 January 1977. In such a conflict it was not enough for the plaintiff to refer to his own conditions of business and say that he would treat the defendant as accepting them if he did not protest: it was not in the plaintiff’s power to bypass the rule that in commercial dealings silence counts as rejection. The subsequent negotiations about the price of the goods contain nothing approaching a declaration by the defendant that he submitted to the plaintiff’s terms of business. On the contrary, the more or less intentional failure to go into the question despite the evident need for clarification shows that basically neither party wanted to put the formation of the contract at risk by insisting on an answer. Nothing could have been easier for the plaintiff than to state in one of its letters that the defendant had not yet accepted in writing the validity of his terms of business, but there is no sign of any such attempt at clarification in the plaintiff’s correspondence.

As a subsidiary argument, the court notes that as the acceptance of the goods by the defendant took place after a substantial interval and not within the period within which the plaintiff was entitled to expect a reply from the defendant to his letter of 6 January under para 147 para 2 BGB, it could not have any positive value as a declaration of consent [reference omitted].

Case 17

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 9 JULY 1970 BGHZ 54, 236

Reasons

The defendant supplied the plaintiff with a contraflow heat-exchanger for installation in a customer’s brewery. It had to be removed shortly after it was installed, allegedly because it did not work properly or have the guaranteed attributes. The original negotiations between the parties effectively started on 19 November 1954, when the defendant sent a telegram to the plaintiff offering to supply the heat-exchanger. This was followed by telephone conversations for a week. Then on 26 November the plaintiff wrote the defendant a letter whose terms differed from those of the defendant’s original telegram. Four days later the defendant replied with a brief ‘Confirmation of Order’, which contained, for the first time, the clause ‘Conditions of Delivery: VDMA.’ Those were the conditions of the German Machine Builders Association, which included a clause limiting the supplier’s liability.

The plaintiff claimed damages of DM25,558.28. The Landgericht ordered the defendant to refund the price, viz DM7921.30 with interest. The Oberlandesgericht dismissed the plaintiff’s appeal, and his further appeal was equally unsuccessful.

2. The appellant contests the Court of Appeal’s view that the VDMA conditions were incorporated into the contract. His objections are unfounded.

(a) It must certainly be granted that the Court of Appeal misunderstood the plaintiff’s evidence about the parties’ telephone communications between 19 and 26 November. The plaintiff did not assert that the contract was formed during those

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telephone communications but that the defendant then made a new offer, varying his offer of 19 November so as to meet the wishes of the plaintiff, and that the plaintiff, after consulting his customer, wrote its letter of 26 November in acceptance of this telephonic offer of the defendant’s.

(b) But even if one accepts the plaintiff’s evidence as accurate, one must agree with the Court of Appeal’s conclusion that the VDMA conditions became incorporated in the contract.

This is not, as the Court of Appeal thought, because the defendant’s letter of 30 November constituted a fresh offer and the plaintiff’s subsequent conduct an acceptance of it. The VDMA conditions became part of the contract because the defendant’s letter of 30 November is in law a proper ‘commercial letter of confirmation’ to which the plaintiff took no exception, and this is true although it was described as a ‘confirmation of order’ and did not expressly refer to prior oral or telephonic negotiations [on commercial letters of confirmation, see BGHZ 7, 187; 11, 1; 18, 212; 40, 42; BGH NJW 1965, 965; BGH NJW 1966, 1070; other references omitted].

(aa) The fact that the defendant called its letter of 30 November a ‘Confirmation of Order’ rather than a ‘Letter of Confirmation’ does not prevent its being regarded in law as a ‘commercial letter of confirmation.’ The name the parties give to the document is not critical. Nor is it absolutely necessary that the letter should expressly mention or refer to prior oral or telephonic agreement. What is important is that the document should be substantially designed to avouch the result of prior contractual negotiations in a binding manner [references omitted]. Here the plaintiff could have been in no doubt that this was the purpose of the defendant’s letter of 30 November. So far, it is only in cases where the negotiations have been oral, telephonic, telegraphic or by telex that the court have found a ‘commercial letter of confirmation’ and held that its content became part of the contract in the absence of protest by the addressee [reference omitted]. The Bundesgerichtshof has never decided whether a commercial letter of confirmation might not exist in other cases: the question was expressly left open in our judgment of 25 May 1970.

The question falls for decision now, for, treating the plaintiff’s assertions as correct for the purposes of the appeal, we have here a contract where the defendant’s offer was made by telephone (between 19 and 26 November) and the plaintiff’s acceptance was made in writing (letter of 26 November).

The plaintiff’s letter of 26 November cannot itself be a commercial letter of confirmation, for on his own view the contract was not yet formed, there having been no acceptance prior to that letter. Thus of the two declarations of will which formed the contract, one of them (the defendant’s) was telephonic, and the other (the plaintiff’s) was in writing. In such a case it is right to apply the rules concerning ‘commercial letters of confirmation’ and the addressee’s failure to object. This is implicit in the scope and purpose of the judge-made rules on the matter, which are rooted in the practice of tradesmen. Tradesmen have an interest in clarifying their contractual relations and in avoiding disputes over the content of contracts; in pursuit of this interest they habitually draw up a document in writing to confirm and fix the content of agreements which have been reached otherwise than in writing. If such a confirmatory document is unacceptable to the other party, he must, within the limits that good faith requires, make an immediate protest. If he fails to do so, the terms of the letter of confirmation take effect as the terms of the contract.

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The clarification provided by a letter of confirmation is just as necessary in cases like the one here assumed, where the contract is concluded by a telephonic declaration on one side (the defendant’s) and by a declaration in writing on the other (the plaintiff’s). At least this is true for the party, here the defendant, whose contractual declaration has so far been only oral or telephonic. In such cases the single written declaration of will is insufficient to fix the terms of the contract so as to avoid disputes in the future, since the nature and terms of the other party’s telephonic declaration remain uncertain.

The present case is a striking example of such uncertainty. The parties are in dispute over the range and substance of their telephone conversations between 19 and 26 November, and cannot agree whether the defendant made an offer on terms like those of the plaintiff’s letter of 26 November. This uncertainty greatly affects the effect of the plaintiff’s letter of 26 November, for depending on whether the plaintiff’s assertion is true or false, that letter is either the acceptance of an offer or a new offer in itself, linked with a rejection of the offer in the defendant’s original telegram. In the midst of such uncertainty the defendant, on receiving the plaintiff’s letter of 26 November, had every reason to finalise and clarify the terms of the contract, and it must have been evident to the plaintiff that this was the purpose of the defendant’s letter of 30 November.

(cc)The relative brevity of the letter of 30 November does not prevent its being treated as a ‘commercial letter of confirmation.’ The defendant in it referred to the plaintiff’s letter of 26 November, and could thus dispense with an iteration of the details without forfeiting the necessary specificity.

(dd)The letter of 30 November also makes it sufficiently clear that the defendant was not prepared to contract except on VDMA terms.

(ee)It is not at all unusual for a machine shop such as the defendant’s to import VDMA conditions into a contract. As a dealer in such machinery the plaintiff should have expected this, and cannot therefore now maintain that he had no need to protest because he had no reason to expect any such term in the defendant’s letter of confirmation.

Case 18

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 20 MARCH 1974 NJW 1974, 991

Facts

The plaintiff manufactures French fried potatoes which he sells to wholesalers such as the defendant. On 19 August 1970 the defendant telephoned the plaintiff to ask him for his prices. The rest of the telephone conversation is in dispute. After the telephone call the plaintiff sent the defendant a ‘confirmation of order’ for a specific quantity of French fries. The defendant did not reply to this document, but obtained French fries from another firm and accepted none from the plaintiff.

The plaintiff claims damages for non-acceptance in a partial amount of DM10,000 plus interest. The Landgericht dismissed the claim, but the Court of Appeal allowed it. The defendant’s appeal was unsuccessful.

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Reasons

I. The Court of Appeal found that no contract of sale was concluded on the telephone on 19 August, but that because the ‘confirmation of order’ was accepted without protest, the plaintiff’s contractual claim was nevertheless well grounded. This document was in law a commercial letter of confirmation, and the defendant had failed to prove, the burden being on his, that its terms differed substantially from those of the telephone conversation or that the plaintiff had deliberately ‘confirmed’ something he knew to be incorrect.

II. The appellant’s objections to the finding that the confirmation of order of 19 August was a commercial letter of confirmation are without merit. This court has only a limited power to review the construction of such an individual and atypical declaration as this document; we can only ask whether the Court of Appeal infringed any principles of logic, rules of construction or canons of procedure, or whether it misconceived the nature of a commercial letter of confirmation. This is not the case.

1.The fact that a document is described as a confirmation of order is no obstacle to its being treated as a commercial letter of confirmation. It is established law that the description which a party gives to his document is not conclusive. Frequently tradesmen pay little attention to this matter [reference omitted]. It is also immaterial that the document neither mentions nor refers to a previous telephonic agreement (BGHZ 54, 236, 249), but since there had only been one telephone conversation between the parties, on the very day on which the letter was sent, it is clear that this letter could only refer to the telephone conversation of 19 August. The external appearance of the document was also consistent with its being intended to reflect the essentials of the telephone conversation.

2.A further requirement for a commercial letter of confirmation is that it be preceded by contractual negotiations [BGH NJW 1963, 1922, 1925; other reference omitted].

(a)It is essential to the concept of a commercial letter of confirmation that it reflects the real or supposed outcome of prior contractual negotiations. This is what distinguishes it from a confirmation of order which, instead of communicating the result of previous contractual negotiations, constitutes the acceptance of an offer in the form of a confirmation, or sometimes even an offer in itself (BGHZ 18, 212, 214). Since on general principles of proof the plaintiff must establish the salient elements of a commercial letter of confirmation, it is for him to prove that contractual negotiations preceded the ‘confirmation of order.’

(b)We do not agree with the appellant that the Court of Appeal was wrong in law to find this proved. The Court left it an open question whether the parties actually came to an agreement on the telephone about the purchase of French fries, or whether the defendant simply wanted a quotation and made it clear that he did not want to buy, but it did find that there was no disagreement over the details of the quantity to be supplied, the price or the method of payment, and that at the end of the conversation there was talk of a confirmation of order. Given these facts, the Court of Appeal was entitled to conclude that contractual dealings had taken place, for the plaintiff had made a precise offer and the defendant had concerned himself with its terms. It is immaterial whether or not a contract was actually formed on the telephone, because a document may be a commercial letter of confirmation even though no contract was formed in the prior contractual negotiations [reference omitted].

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III. If the ‘confirmation of order’ of 19 August is a commercial letter of confirmation, the defendant was bound to object to it if he objected to being bound by it.

1.The reason is that one tradesman who sends a letter of confirmation to another so as to fix and record the result of antecedent contractual negotiations assumes that the recipient will forthwith check the document to see whether it correctly reflects his view of the content of the negotiated agreement. If he makes no protest, the sender is in principle entitled to rely on the transaction proceeding in the form in which he confirmed it (BGH NJW 1972, 45).

2.But this does not apply when the terms of the confirmatory document deviate so widely from the terms of the discussions that the person sending it could not reasonably count on the recipient’s agreeing to it or when the person sending it knew that it was inaccurate and so infringed the principles of good faith (BGHZ 40, 42, 44–5).

IV. The Court of Appeal was right in holding that the burden of proof of these matters is on the recipient of the letter of confirmation.

1.On general principles of proof the person who sends a ‘confirmation of order’ must prove all that is necessary for the application of the rule which justifies his claim. This means that he must prove that his letter is a commercial letter of confirmation and that it reached the other party. If the recipient asserts that no obligation resulted on him because the document deviated seriously from the content of the prior negotiations or intentionally misrecorded them, it is for him to prove all that is necessary for this defence to apply. Since as a general rule a failure to object to a commercial letter of confirmation has binding results, a person who claims that exceptionally this binding result did not ensue must prove why the rule does not apply [reference omitted].

2.It must be added that it is mercantile practice to expect the recipient of a commercial letter of confirmation which does not reflect the prior dealings or what was agreed to make an immediate protest [reference omitted]; thus if a commercial letter of confirmation does not agree with the prior negotiations, the recipient who fails to protest has not behaved in the manner required of businessmen. He must therefore demonstrate that he was not required to behave in the normal and indicated manner, and that no protest against the letter of confirmation was called for because it deliberately or seriously misrepresented the prior negotiations.

3.Even under the Reichsgericht, therefore, the recipient of a letter of confirmation had the burden of proving that the person who sent it had infringed the principles of good faith by intentionally making it reflect something other than had been expressed in the prior negotiations.

4.It might possibly be different where the person sending the letter of confirmation had the intention of trapping the recipient or of taking him unaware, but the facts of the present case to not raise that question in any way.

Case 19

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 20 MARCH 1985 NJW 1985, 1838

Facts

On 27 October 1980, the debtor in bankruptcy ordered from the claimant clocks operating as time switches which were to be fitted into electrical stoves; the contract

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was subject to the general conditions of trade printed on the back of the claimant’s order forms. Under no 14 the order form states that changes in the order must normally be in writing and that the purchasing conditions of the debtor in bankruptcy applied. No 16 of these conditions states: ‘Differing conditions of trade. By accepting our order, the supplier agrees to our purchasing conditions. Where our order is confirmed by the supplier using conditions deviating therefrom, our conditions of purchase will continue exclusively to apply, even if we do not expressedly raise any objections. Deviations will thus only apply where they have been expressedly agreed by us in writing. If the supplier objects to this practice, he must immediately and specifically state his objections in a separate letter. In such cases we retain the right to cancel the order and no claims against us will result from such action. Our conditions will also apply for future transactions, even where they are not specifically referred to, as long as they have reached the customer in the course of an order confirmed by us.’

On 11 February 1982, the debtor in bankruptcy placed with the claimant a followup order for the supply of further thermostats. The claimant confirmed the order referring to his General Conditions of Supply and Payment according to which his written confirmation of the order in conjunction with these Conditions were to apply exclusively. Any amendments or additions to the contractual clauses were only valid in written form; no 7 of these general conditions contains an extended and expanded retention of proprietary rights for goods delivered. The claimant supplied the time switches and thermostats of a total value of DM454 245.58. On 21 May 1982, the debtor in bankruptcy requested that conciliation proceedings be started. At that time, out of the above-mentioned and still unpaid deliveries, he still had in stock switches not yet installed of a total value of DM47 789.05 had already been installed in finished stoves which were still at the debtor’s premises. During July/August 1982, the debtor in bankruptcy paid the equivalent price for the pieces which were not yet installed. On 29 October 1982, ‘follow up’ bankruptcy proceedings were started in respect of the debtor’s assets and the defendant appointed as receiver in bankruptcy. The claimant demanded from the defendant payment of the value of the appliances which, on 21 May 1982, had already been installed in stoves which were still with the bankrupt debtor. He also requested information as to what claims the bankrupt had on 21 May 1982 stemming from sales of stoves containing the switches and energy regulators supplied by him. The Landgericht rejected the claim. The claimant’s appeal and further appeal were also unsuccessful.

Reasons

I. The solution to the legal problem of the litigation depends on whether No 7 of the General Conditions of Trade (AGB) had become part of the contract. If this is the case, the claimant’s claim for payment can be justified on the basis of para 46 of the Bankruptcy Order (Konkursordnung/KO) or on paras 989 et seq BGB, para 59 1 No 1 KO or para 812 et seq BGB, para 591 No 4 KO (see Senate, NJW 1982, 1749 = WM 1982, 486). As a result of the assignment of future claims, the claimant would also be entitled to any outstanding claims which the debtor in bankruptcy has against his customers and which were subject to such an assignment, so that the request for information would also be justified (para 402 BGB). But if No 7 of the claimant’s General Conditions of Trade has not become part of the contract, the demand for payment

APPENDIX I: CASES 585

and for information are unfounded. It is possible that the claimant transferred ownership in the switches only under the suspensory condition of full payment of the purchase price. The debtor in bankruptcy had to assume such retention of title given his knowledge of the claimant’s general conditions of trade when the contract was concluded (see Senate, NJW 1982, 1749 = WM 1982, 486). But in this case this fact does not lead to a successful further appeal since the claimant, even before he made a request for a settlement during composition proceedings, had lost the ownership of the switches at the latest point when they were fitted into the stoves (para 947 11 BGB). He thus only had an ordinary claim in bankruptcy which could not be made outside of bankruptcy proceedings. Since claims from the sales of these stoves had not in advance been assigned to the claimant, he likewise had no right to demand information as to the sales.

II.

1.Following the decision of the Landgericht, the court of appeal assumed that the claimant’s General Conditions of Sale and Payment, and thus condition No 7, had not become part of the contract. They had not been agreed on by separate contract. A tacit inclusion into the contract is barred by the debtor’s conditions of purchase known to the claimant. The defensive clauses contained in No 16 of these conditions are not invalid according to para 9 of the Act on General Conditions of Trade (AGBGesetz). By this clause, the debtor in bankruptcy intended to secure for all of his transactions as uniform contractual conditions as possible and especially to preclude suppliers’ retention of title. This aim cannot be objected to, since any retention of title impedes at least any transfer of ownership by way of security which is normally linked to business arrangements for bank loans.

2.These arguments can withstand legal scrutiny, at least as far as their result is concerned.

(a)In commercial business transactions, the inclusion of general conditions of trade in single contracts requires that the contractual partners tacitly or specifically agree on their application [Senate, WM 1979, 19 (20) and NJW 1978, 978 with further references].

Without any legal error, the Court of Appeal has rejected the existence of an explicit agreement on the applicability of the claimant’s general conditions of trade for this particular contract. The further appeal does not refute this argument. The Court of Appeal furthermore correctly assumed that the debtor in bankruptcy had not tacitly agreed to a total inclusion of the claimant’s general conditions of trade. The assumption that the debtor in bankruptcy tacitly agreed to the claimant’s conditions of sale is countermanded by the unequivocal statement contained in his conditions of purchase that he intended exclusively to conclude contracts according to his conditions and that differing conditions contained in a confirmation of orders will only apply once they have been agreed by him in writing. In this context it is irrelevant, whether or not the defensive clause has itself become part of the contract, a clause which was intended to make it clear during contractual discussions, ie before the contract was signed, that the purchaser will not be bound by any clauses contained in the seller’s trading conditions except for those enumerated in the defensive clause itself. What matters is solely the debtor’s intentions as expressed in the defensive clause after the claimant had confirmed the order, though with reference to his own general conditions and such change is not discernible from the facts of the case. As the

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appeal court assumes and the further appeal obviously does not dispute, in view of the—advance—objection to the application of the claimant’s general conditions as explicitly stated in the debtor’s defensive clause, and in the absence of other circumstances, such a change of intention cannot be thought to have taken place, especially not from the fact that the debtor failed once more to reject the claimant’s conditions of sale and accepted the goods without reservation (see Senate, WM 1977, 451 (452)). Without a contractual agreement between the partners concerning the claimant’s conditions of sale, these have not altogether become part of the contract. The further appeal acknowledges this point.

(b) However, the further appeal submits that the debtor in bankruptcy’s defensive clause which bars a wholesale inclusion of the claimant’s conditions of sale in the contract, does not preclude the fact that certain clauses of these conditions of sale have nonetheless become part of the contract. The defensive clause only excludes the claimant’s conditions of sale insofar as these deviate from the debtor’s purchasing conditions; it does not also exclude additional conditions to which the debtor had not expressedly objected, such as No 7 of the Sales Conditions containing rules on an extended retention of ownership with a clause on processing and advance assignment of rights, all the more where such additional conditions are customary for this particular line of business. The court cannot uphold this reasoning.

(aa)Where a contract, as here, has been concluded without agreement on the application of the general conditions of trade of one party, this does not mean that the corresponding optional legal rules automatically apply (see Bunte ZIP 1982, 449 (450) with overview over the various legal opinions; Wolf in: Wolf-Horn-Lindacher AGBGesetz para 2, note 77; Ulmer, in: Ulmer-Brandner-Hensen AGB-Kommentar, 4. ed., para 2, note 101; Erman-Hefermehl BGB, 7. ed., para 2 AGB-Gesetz, note 48) in such a case and instead of the rules contained in the general conditions. From the intentions of the parties it can rather be deduced that such rules deviating from or supplementing optional legal rules will apply which have been set out in the general conditions of either party and where these conditions are of identical content and where their application has thus been intended by both parties.

(bb)Such apparent consensus is however missing, where one party’s general conditions of trade contain ‘additional’ rules which have no equivalent in the other party’s conditions, such as, the use of clauses on the retention of ownership The question as to whether in such a case a tacit consent can be assumed of one party to the unilaterally fixed additional conditions of the other contractual partner, even where both parties’ general conditions do not result in a consensus of intentions, can only be answered according to the intention of the party opposing the clause, insofar as this can be discerned from all other circumstances of the case (see Ulmer, para 2, note 104; Löwe-Graf von Westphalen-Trinkner, AGB-Gesetz, para 2, note 47). In this case, no intention of the debtor in bankruptcy can be ascertained to indicate that his defensive clause was merely meant to exclude the claimant’s sales conditions insofar as they run counter to his own conditions of purchase but not also other additional rules. By his defensive clause, the debtor clearly and unequivocally expressed his intention that for any orders placed only his own purchase conditions applied and that, without his expressed written acknowledgement, any other conditions would not become part of the contract even where he fails formally to object to them. The debtor in bankruptcy thereby unequivocally expressed his intention that his own conditions of purchase

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only leave room for the claimant’s conditions of sale where and insofar as their contents are either identical with his own or where they have been agreed by him in writing (for a similar case see: Senate NJW 1979, 2199 = WM 1979, 805). There was therefore no need for the debtor to raise a specific objection against the retention of ownership clause contained in the claimant’s conditions of sale in order to prevent the clause from becoming part of the contract.

No other result can be reached in respect of this clause on the retention of ownership just because it possibly is part of customary law applicable for this line of business as the further appeal alleges (. . .)

Case 20

BUNDESGERICHTSHOF (NINTH CIVIL SENATE) 29 FEBRUARY 1996 BGHZ 132, 119 = NJW 1996, 1467

Facts

The first defendant (from now on called the defendant) and two other persons were members and directors of the A-Autovermietung (car hire) GmbH with its registered office in Frankfurt a M. They negotiated a current account credit with the claimant at the beginning of January 1992, which was to be for the benefit of the Dresden branch of A. The claimant made the credit dependent on every director entering into a guarantee, and gave to its representatives conducting the negotiations a blank form of guarantee for the defendant without limit on time or amount. The defendant signed the document. Later his name and address were noted in the place provided for the description of the guarantor in the form. Besides this, the place and date of the declaration were entered. The stamp of A-Autovermietung appears next to the defendant’s signature. The defendant claims that he put it there himself in order to show that it was the company, and not himself personally, who was entering into the guarantee for the branch in Dresden. The document was returned to the claimant. The claimant completed the form with the missing details of the creditor and the principal debtor. In 1993 bankruptcy proceedings were commenced against the company. The claimant claimed against the defendant, as joint debtor with the other directors, for the amount of the credit balances of DM42, 271.77 plus interest.

The Landgericht rejected the claim but the appeal court gave judgment against the defendant in accordance with the application. The defendant by his appeal in law sought restoration of the decision at first instance. The appeal in law was successful.

Reasons

I. The appeal court, after assessing all the circumstances alleged by the parties, and on the basis of the evidence obtained, came to the conclusion that the defendant’s declaration was, from the point of view of the recipient, a personal guarantee, in spite of the company stamp appearing on it. This interpretation, which in principle is the responsibility of the judge of fact, is a possible one and does not reveal any legal error (. . .) II. The guarantee must be in the form set out in § 766 sentence 1 BGB (. . .). The appeal court considers that the guarantee satisfies the requirement of written form if the guarantor signs it, and the document is completed immediately afterwards in

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accordance with his intentions by a third party orally empowered to do so inserting the details necessary under § 766 sentence 1 of the BGB. This view corresponds with the consistent case law of the highest courts [references omitted]. Accordingly the guarantee is regarded as being given in accordance with the formal requirements as soon as the creditor is in possession of a document which contains all the details necessary under the statute. This view cannot however be followed. A document signed in blank does not become a formally effective guarantee under § 766 sentence 1 of the BGB by completion of the document on the basis of an oral authority.

1.The provisions of § 766 BGB are exclusively to protect the guarantor. They are supposed to encourage him to exercise greater care, and protect him from making declarations which he has not sufficiently considered [references omitted]. Because the provisions are to warn the guarantor about the liability associated with his declaration, the requirement for written form is only satisfied if the document contains, besides the intention to guarantee the debt of another, a description of the creditor, the principal debtor and the demand which is being guaranteed [references omitted]. The warning function is accordingly not satisfied simply by the guarantor signing a piece of paper which shows his intention of providing a guarantee. The document should also delimit the risk which he undertakes, and thereby bring it to his attention when he makes his declaration [references omitted].

2.If the statute prescribes written form for a declaration, § 126 sentence 1 of the BGB merely requires that the document is signed personally by the person who issues it. Accordingly, the text does not need to be completed when the signature is made. The declarant can sign the paper in blank, and written form is in this case maintained by completion of the document [references omitted]. The case law so far is based on this idea. It cannot however convince, because it does not sufficiently take into account the sense and purpose of the strict requirements as to form in guarantee law.

(a)Admittedly it cannot be deduced from the provisions of § 766 BGB that the guarantee must be provided by the guarantor himself with those details of the identity of the creditor and the principal debtor and the content of the obligation which are compulsorily required. Even when statute prescribes written form for a declaration of will, the party can use an agent (§ 167 (2) BGB) or make the signature in blank and empower someone else to complete the document to the necessary extent [references omitted]. There is no basis in statute for saying that this possibility must be generally excluded in the case of guarantees. The case law until now (and the unanimous opinion in the academic literature) that the guarantor may use an agent to give his declaration [references omitted] or can empower the creditor in accordance with § 181 of the BGB to complete the parts of the declaration which are still missing [references omitted] should therefore basically be followed [references omitted].

(b)§ 766 BGB places special requirements on the written form by saying that the features of the contractual content mentioned above at 1 should be made known ‘in black and white’ to the guarantor before he makes his signature. These requirements are only to protect the guarantor from undertaking liability too hastily. If a form is signed the contents of which unambiguously indicate that it is a guarantee, but which does not mention the creditor, the principal debtor or the liability which is to be secured, the subject matter and scope of the risk are not usually identified to the extent which statute considers to be necessary for the person who incurs liability by signing.

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(c)§ 167 (2) BGB, which says the declaration does not need to be in the form laid down for the legal transaction to which the authority refers, is interpreted restrictively by the case law for transactions which need authentication under § 313 BGB. According to the consistent case law of the highest courts, a corresponding authority must be notarially authenticated, in spite of the provisions of § 167 (2) BGB, if the legal power given is to be irrevocable [references omitted]. But if the authority can be revoked, it is in fact binding in accordance with the principal’s intention, because the legal transaction serves the agent’s interests exclusively. It allows him to exploit immediately the authority given to him, even though the case law of the highest courts affirms the need for form [references omitted].

§ 313 sentence 1 [§ 311b sentence 1] BGB which guarantees protection from illconsidered dealings, guarantees the buyer expert advice from the person providing authentication, and is meant to bring about clarity and security in legal transactions generally. In contrast to this, § 766 sentence 1 BGB only protects the guarantor, whose liability as a rule only benefits others: the creditor and the principal debtor. Between the guarantor and the agent, there therefore usually exists a division of interests, which in the area of land transactions needing authentication under § 313 [§ 311b sentence 1] BGB, requires an authority complying with formal requirements. In the case of guarantees needing special form, it is therefore generally justified to require written form for the authority for giving the appropriate declaration of will, or the power to complete the blank form. The purpose of the protective provisions of § 766 BGB, ie to bring clearly to the guarantor’s attention the content and scope of his liability, would be eroded if the guarantor could put his signature on a piece of paper which does not contain all the necessary components of the declaration, and orally empower a third party—in particular the principal debtor, or the creditor—to fill in the missing details, and this was allowed to suffice. If such a regime is permitted, the statutory formal provisions cannot fulfil their purpose of warning the guarantor. (. . .) This is especially the case where the guarantor empowers another person—in particular the creditor, at the same time releasing him from the provisions of § 181 BGB—to complete the document.

(d)If the signature in blank combined with an oral authority is allowed to suffice, the decision about the effectiveness of the guarantee is virtually exclusively dependent on facts which are not evident from the document. The protection intended by § 766 BGB is thus almost destroyed. This is demonstrated particularly clearly if the parties are also in dispute about who completed the document and made the addition to the signature indicating the liability of another person. Besides this, the view propounded so far by the case law of the highest courts exposes the guarantor to a considerable extent to the danger of misuse of a blank form. If the signature is genuine, the presumption applies under

§440 (2) ZPO (Civil Procedure Code) that the text above it corresponds with the intention of the person issuing the document. He therefore has to prove that completion of it was not as agreed [references omitted]. The requirements which § 766 sentence 1 of the BGB places on the form of a guarantor’s declaration are to avoid such risks. (. . .)

III. As the guarantee does not satisfy the formal requirements of § 766 sentence 1 BGB, the contract is void (§ 125 sentence 1 BGB).

1. The defendant is not violating the principle of good faith (§ 242 BGB) by relying on formal ineffectiveness.

(a)The absence of form in respect of a legal transaction can only in quite exceptional cases be ignored on the basis that it amounts to impermissible exercise of a

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right. Otherwise, the formal provisions of civil law would be eroded [references omitted]. Admittedly the conduct of a party can be contrary to good faith if he has drawn benefits from an important contract over a lengthy period, and now wants to withdraw from his obligations by appealing to the lack of form. In relation to a guarantor, this needs in particular to be considered when he has drawn indirect benefits as a shareholder in the principal debtor from the granting of credit over a period of years, and has by his actions caused the creditor to place justified trust in the effectiveness of the contract, and the creditor has performed his obligations with this in mind [references omitted].

(b)Such prerequisites are lacking in this case. (. . .)

2.The alteration made by this judgment to case law of the highest courts which has existed for decades not only has implications for the future. It likewise affects legal relationships which have been entered into but not yet concluded. There are no constitutional grounds which militate against this.

(a)Judgments of the highest courts are not to be equated with statutes and do not achieve comparable binding legal effect. By deviating from a previously held legal opinion, the judge is not in principle violating Article 20, para 3 of the Basic Law. In particular, he does not need proof that factual relationships or general views have changed in a certain respect [references omitted]. A court decision which concerns the effectiveness of a legal transaction is a finding evaluating an act, and has effect, simply by its nature, on a set of facts existing in the past and not yet concluded. This so-called false retrospective effect is, in the same way as for statutory provisions, in principle unobjectionable from a legal point of view [references omitted]. The rules developed in the constitutional court case law about limiting retrospective alteration of statutes [references omitted] cannot simply be carried over to the case law of the highest courts. This is because the courts are not as a rule bound to an established case law which in the light of better knowledge is shown to be no longer tenable [references omitted]. It follows from this that limitations of false retrospective effect are more seldom required for judicial decisions than for statutes.

(b)The Federal Constitutional Court has not so far established any generally valid rules in this respect [references omitted] and has contented itself with decisions in individual cases. Accordingly, limits on retrospective effect can arise from the constitutional state principle of legal certainty. For the citizen this means primarily protection of trust. (. . .) In the balancing exercise which must accordingly be carried out, it should in particular be borne in mind that substantive justice embodies a component of the constitutional state principle which is at least equal in importance to the principle of legal certainty [references omitted].

(c)Besides this, in private law the general clause of § 242 BGB guarantees that the judge can never limit himself to looking at the matter in a formal way, if this is inconsistent with the principle of good faith. In this connection, a party’s trust in the continued existence of a right must be given appropriate consideration if it is worthy of protection. The case law of the highest courts has worked out a string of legal concepts for this purpose (eg, impermissible exercise of a right, absence or disappearance of the basis of a transaction, forfeiture) which in general facilitate sufficient consideration of the justified interests of both parties. (. . .)

False retrospective effect as a result of a change in the case law of the highest courts has therefore for good reason been so far limited in the realm of private law only in

APPENDIX I: CASES 591

cases of the continued existence of a long-term obligation relationship, frequently of a care or maintenance nature, and the retrospective effect had consequences for the persons affected by it which possibly threatened their existence (. . .).

(d) Protection of trust of a kind comparable with those cases should not be granted to the claimant in this case. At the point in time of the legal transaction, the decisions of the highest courts which were significant for a correct understanding of § 766 sentence 1 BGB and of §§ 126 and 167 BGB had been issued a long time before [references omitted]. The case law had merely delayed in expressing the legal consequences suggesting themselves here in the case of guarantees in blank. (. . .) The effect is limited in this case to one of three guarantees given for the same loan contract. The decision has no ‘knock-on effect’ for the claimant, because it has itself stated that in its business there is in principle no signing in blank.

Case 21

REICHSGERICHT (FIFTH CIVIL DIVISION) 21 MAY 1927 RGZ 117, 121

Facts

In February 1920 the plaintiff was engaged as a manager by the defendant company, the managing director of which was the second defendant. In June 1922 the plaintiff left the service of the first defendant as a result of a disagreement.

By a contract of employment dated 13 August 1920, which was to run for three years, the plaintiff was allotted the house, 6 K. Street in O. as his official residence rent-free. The defendant company had bought it shortly before for M120,000. When a new contract of employment was drawn up on 20 February 1922, to run until 30 September 1924, the second defendant signed a document on behalf of the first defendant, the company, whereby the plaintiff was granted a right of pre-emption in respect of the official residence at the price of M120,000.

The plaintiff sued both defendants demanding that the house be conveyed to him; alternatively he claimed damages resulting from the failure to convey the house.

The defendants pleaded that the promises had not been made notarial form or before a court as required by para 313 [311b I] BGB and were not binding. Alternatively they denied that any such promises had been made.

The Court of Appeal found that in 1920 the second defendant had congratulated the plaintiff on his performance and had stated that the house was to be his in lieu of Christmas bonuses in cash in 1920 and 1921. Shortly afterwards the second defendant had repeated the statement, adding that the plaintiff had requested the second defendant to convey the house to him, but the second defendant had assured him on his word as a nobleman that the notarial conveyance could take place at any time, but was unnecessary between the parties. The Court of Appeal also found that no fraudulent intention of the defendants existed not to perform the contract and to rely on its formal invalidity. Instead the defendants originally had the intention to fulfil their obligations and had only changed their minds subsequently. The second defendant, in giving the assurances set out above, had caused the agreement not to be made in official form; it was contrary to good faith if the defendants now refused to convey the house.

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The District court and the Court of Appeal of Dusseldorf gave judgment for the plaintiff. The judgment was quashed for the following reasons.

Reasons

The courts below . . . held that the defendants in their negotiations had the serious intention to perform the contract which was invalid in form and that they only decided subsequently not to do so. The courts below held as a matter of law that it is contrary to good faith and against the sentiments of decency entertained by all fair and just people if the defendants now refuse to execute the conveyance contrary to their previous promises ‘made in such a solemn form.’

In view of the statutory requirement of form laid down by para 313 section 1 [311b I] BGB neither the plea that a present violation of good faith (of present malice [references] had been shown nor any other violation of bonus mores can be said to have been made out.

As regards the first plea, the practice of the Reichsgericht [references] requires that a party who opposes a plea of lack of form must have been mistaken concerning the legal requirement of form and that this mistake was caused wilfully or negligently (para 276 BGB) by the other party to the transaction. The facts as found do not disclose the existence of these two prerequisites. Instead, the pleadings show that both parties were aware of the need to observe the formalities; no deception or even an attempt to this effect has occurred. Nor can the defendants be said to have acted culpably at the time when the disputed promises were made, seeing that the Court of Appeal has found that the defendants had the serious intention at that time to honour their promises and made the promises with this intention in mind. If it is correct that both parties knew of the need to observe the formalities, it is also due to the consent of the plaintiff that the formal recording of their agreement was postponed, and he must bear the consequences of this postponement without being able to shift the burden on the other party. The mistake concerning the legal need to observe the formalities which is necessary to support the plaintiff’s complaint cannot be replaced by a factual mistake as to whether in the circumstances the promise, even though informal, would be kept. The complaint raised here, as developed by the practice of the Reichsgericht and as featuring in the broader context of blameworthiness at the conclusion of the contract (culpa in contrahendo) does not support the claim . . .

[references].

A violation of good morals has not occurred either which might bind the defendant in virtue of para 826 BGB in conjunction with para 249 BGB to execute a conveyance (reference). If the promises ‘upon the word of a nobleman’ were inspired by the honest intention to perform them when they were made, the ‘solemn declaration’ alone cannot by itself be regarded as a violation of good morals; it can only be said to exist if the fact of these promises were denied in the course of the proceedings and their performance was refused. Since however the defence of lack of form in accordance with para 313 section 1 [311b I] BGB constitutes, in principle, an admissible plea of an existing legal remedy a violation of good morals which obliges the defendant to pay damages held to have occurred in the special circumstances of the case, can only be found in the present situation, if the previous attitude can be said to have created a legal obligation. This must be denied in the present case, having regard to the basic

APPENDIX I: CASES 593

facts found by the Court of Appeal. It is the essence of a legal provision requiring form that if the form is not observed, a declaration of an intention to conclude a legal transaction is not binding. It does not bind, even if the intention is manifested by especially emphatic words in solemn form. The statutory requirement of form cannot be replaced by some other solemn expression chosen by the parties. The form required by the statute cannot be rendered superfluous by these means, and it is not possible by way of awarding damages to accord legal effects to an informal declaration, if the statute denies it any effect.

Accordingly the claim for the performance raised by this action, which cannot be supported on the ground of blameworthiness at the conclusion of the contract (culpa in contrahendo) cannot be justified either on the ground that good morals have been violated. The claim must therefore be rejected.

Case 22

BUNDESGERICHTSHOF (FIFTH CIVIL DIVISION) 27 OCTOBER 1967 BGHZ 48, 396

Facts

The defendant sold to the plaintiff a parcel of land by a contract in writing, but not before a notary or court, as required by para 313 [311b I] BGB. The plaintiff’s claim that the defendant be condemned to convey the premises was allowed by the Landgericht Bielefeld and the Oberlandesgericht Hamm. A second appeal by the defendant was rejected for the following reasons.

Reasons

The plaintiff contends, first of all, that since both parties were aware of the need for the written contract of 20 June 1958 to be in proper form, and therefore had both knowingly failed to observe the statutory provisions on form, neither of them could assert that it was contrary to good faith to claim that the contract was void for lack of form. With this argument the plaintiff relies on the practice of the Reichsgericht, affirmed by this Division, that no party may raise the defence of malice, if the facts show only that knowingly or unknowingly the parties acted contrary to para 313 [311b I] BGB [references]. As the Court of Appeal has found, these prerequisites are not present in this case. It is true that the plaintiff, too, knew that the contract had to be in proper form, because he suggested that it should be drawn up by a notary. On the other hand, the defendant did not act knowingly in contravention of para 313 [311b I] BGB.

He attempted, and attempted successfully, to persuade the plaintiff not to insist on notarial form for inasmuch as by referring to his signature and thereby to his commercial reputation he declared that the written contract was equivalent to a notarial contract. In these circumstances and also because the managing partner of the defendant who had been his chief in the past, was in his eyes endowed with special authority, it was practically impossible for the plaintiff to insist on compliance with the statutory formalities.

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The defendant contends further, as regards the substantive law, that the arguments set out in the decision if the court below do not rule out the possibility that the Court of Appeal was not aware of the difference between a harsh and an unbearable result, as developed by the practice of this Division. Since the Court of Appeal mainly supports its opinion that the defendant may not rely on the absence of form by a general reference to the practice of this court, the defendant’s criticism provides the occasion for setting out this practice in brief. Faced with the question as to whether in certain circumstances the seller of land is bound according to good faith by a contract of sale which is void for lack of form, the practice is that this is only the case if not to recognise the contract as valid would lead to a result which would be unbearable for the purchaser and would not only affect him harshly [references]. These conditions were regarded as fulfilled by this Division, if one contracting party has given up his own way of life in reliance on the promise by the other party or has assumed a new way of life, which he would have to give up, if the existence of contractual ties were to be denied. Such is the case if a special fiduciary relationship or duty of protection exist (eg, in connection with a contract for a homestead) or if the seller who has spent the purchase price is no longer able to repay with the result that the purchaser cannot recover his money [references]. Moreover, the practice of the Reichsgericht already admitted the plea of bad faith, if the party which opposes the invalidity of the contract for lack of form was mistaken regarding the legal need to comply with formalities and if this mistake was caused culpably, or at least negligently, by the other party to the transaction [references], if the party who relies on the violation of the provisions on form has adopted an attitude which is incompatible according to good faith with his previous behaviour [reference] or if a party, albeit unintentionally, has induced the other party to disregard the need for the necessary conclusion of a contract which is formally invalid, with the result that the latter assumed that informal agreements were sufficient [references].

In the present case the principle expressed by the Reichsgericht [reference] must lead to the conclusion that according to good faith the defendant is bound by the written contract of 20 June 1958. As the Court of Appeal has found, the managing partner of the defendant, with whom the plaintiff had served his commercial apprenticeship, had brushed aside the doubts of the plaintiff at the time when the contract was concluded as to the need to call in a notary by pointing out with a certain pride that the contract bore his signature. When the plaintiff reminded him that every person is mortal, the representative of the defendant stated in addition that he had also signed the contract in the name of the defendant firm and that therefore the contract was equivalent to a notarial contract. Similarly the defendant stated also in its subsequent letter of 15 February 1963 addressed to the plaintiff that it was his custom to honour his obligations no matter whether made orally, in writing, or in notarial form. Thus the defendant has announced in such an emphatic manner his intention to perform the contract, which was invalid in form, by pledging his status and reputation and by referring to his business practice that he cannot resile free from contract without offending against good faith. Reliance subsequently on the formal invalidity of the contract, constitutes an admissible exercise of his right, irrespective of the fact that the plaintiff was not in error as to the formal requirements.

APPENDIX I: CASES 595

Case 23

BUNDESGERICHTSHOF (FIFTH CIVIL DIVISION) 21 APRIL 1972 NJW 1972, 1189

Facts

On 21 October 1963, the plaintiff and the defendant, a co-operative charitable housing corporation, concluded a written contract on (1) an option to buy a doubleoccupancy house, to be erected by the defendant on real property owned by the corporation, and (2) the purchase of two shares in the co-operative. The plaintiff paid in cash the purchase price of DM1000 for the shares in the co-operative and DM77, 000 as part of the final price for the house, preliminarily estimated at DM78,500; he also made personal contributions which he values at DM2000, but which the defendant values at DM885.50. The plaintiff refuses to pay the remaining DM7047.58 which the defendant demands in respect of the final house price (DM83,900), until the defendant has removed defects in the building.

The plaintiff has lived in the house since August 1965.

The Landgericht and Oberlandesgericht have ordered the defendant to convey the title in the property and to allow the plaintiff to be registered in the land register. With this further appeal the defendant pursues his claim to have the plaintiff’s claim rejected.

Reasons

I. As the Oberlandesgericht correctly stated, under para 313 [311b I] BGB the contract needed to be recorded by a notary and is null and void for formal defects (para 125 BGB). But this result is altogether unacceptable for the plaintiff. The general rule that un-notarised contracts on the transfer of real property are null and void must here exceptionally give way to the principle of good faith (para 242 BGB):

According to the established case law of this Division, such deviation from the general principle can only be tolerated in quite exceptional circumstances. The buyer of a private house who fails to have his purchase contract notarised can normally only claim monetary compensation, even where he has paid the full purchase price and has lived in the house for quite some time (judgment of this Division of 29 January 1965— V ZR 53/64, NJW 64, 812, 1014 = WM 65,315; see also judgment of this Division of 29 October 1965—V ZR 96/563, ZMR 66, 202 = WM 66, 89 and of 21 March 1969— V ZR 87/67, LM No 37 to para 313 BGB = WM 69, 692 = NJW 69, 1167). However, the court held this result to be intolerable where a party’s very existence was at risk (see the references in the judgment of 21 March 1969 and of 27 October 1967—V ZR 153/65, BGHZ 48, 396 = NJW 68, 39). The Court of Appeal correctly held this case to be exceptional:

(. . .)

Indeed, this case shows exceptional features: The prospective buyer of the owneroccupied house, already elderly when concluding the contract and occupying the house, purchased it as home for his old age. He spent his entire savings, for him a quite considerable amount (ie, DM77,000 in cash, DM100 for shares in the co-operative and at least DM885 as own contributions = in total almost DM80,000) to acquire the

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house and had paid in cash the overwhelming part of the purchase price. In view of apparent defects in the building, the parties are in dispute over the remaining part of the purchase price of about DM7000. Contractual partner of the plaintiff, an ordinary craftsman and member of a co-operative, was the housing co-operative to which he belonged, a recognised charitable institution which he, given its organisational structure, trusted with the choice of a correct and legally sound form for their contract. This trust was furthermore underpinned by the following ‘additonal’ typewritten agreement inserted into the printed contract form:

‘As a cost-saving exercise, both parties will forego having this contract notarised, but acknowledge that it is valid.’

This clause expressly declares the contract to be legally binding, which is different from the clause which the court considered in the above-cited judgment of 21 March 1969.

Under these circumstances, the fact that a prospective buyer is forced to relinquish his home and to look for another old-age residence very nearly equals losing the entire basis of his existence. Thus, in view of para 242 BGB, the Oberlandesgericht rightly held such a result to be insufferable.

The counterclaims brought by the further appeal will not succeed:

(a)–(d) . . .)

(e) The unacceptable consequences arising from the contractual nullity for lack of formal requirements are not removed by the fact that, according to the defendant, the plaintiff still owes part of the purchase price, amounting to some thousand Deutschmark, even if, in this context, this fact must be presumed to be correct (but see II and III).

II. In so far as the appeal court affirmed that under para 242 BGB the parties were bound by the provisional purchase contract despite its non-compliance with formal requirements, this court upholds this decision in respect of the extent to which the parties are bound. However, some reservations still remain.

From the binding nature of the contract the Oberlandesgericht concludesd that, as a matter of course, the plaintiff now had a claim against the defendant for the transfer of ownership The non-payment of the residual purchase price was held as no impediment, since the plaintiff had a right of retention because of various detected building defects (para 273 I BGB).

However, it must first be examined whether or not the contract, deemed to be valid, gives the plaintiff a right to conveyance. The result depends on an interpretation of the contract. Since a standard contract was obviously used which is or was in general use throughout the Land North-Rhine Westphalia and thus beyond the territorial jurisdiction of just one Oberlandesgericht, the Court of Further Appeal has jurisdiction for its own interpretation of that contract. The Court holds:

A contract for the purchase of an option to buy a house is intended as a mutually binding preliminary purchase contract. According to its wording, both parties are bound ‘at a given time’ to conclude a (notarised) purchase contract using a specific standard form (Part 2 of the preliminary contract); the plaintiff was only entitled to claim ‘registration of transfer of ownership’ ‘once the envisaged final purchase contract was concluded and he had fulfilled all his obligations towards the building corporation as set out in the contract’ (Part 3.3). In an earlier case, this Court interpreted a comparable preliminary contract to the effect that the applicant’s claim

APPENDIX I: CASES 597

for transfer of ownership did not already arise from the preliminary contract but rather only from the main contract which was still to be concluded (judgment of 30 June 1967—V ZR 104/64, BB 67, 1394). Where for instance a duty to transfer ownership existed by law as a result of a previously concluded agency contract (para 667 BGB), the Court interpreted clauses in preliminary contracts, using the same terminology, to mean that the due date of the claim for transfer of ownership was postponed until the main contract was concluded and all obligations from the purchase contract had been fulfilled. In respect of cases which, on the basis of para 242 BGB were acknowledged to be exceptional, the Court deemed the postponement of the due date to be irrelevant and acknowledged that the claim for transfer of ownership was thus due (judgment of 26 April 1968—V ZR 74/67, WM 68,1014 = BBauBl. 68, 571, and the contemporaneous judgments V ZR 75/67 and V ZR 76/67). As a result, this Division now holds that even in cases such as this one, where an obligation to transfer ownership does not arise until the preliminary contract has been concluded, an obligation nonetheless exists. The result is based on a sensible interpretation of the preliminary contract and the interests of the parties (paras 133, 157 BGB). The Court’s previous considerations, originally only needed to be made in respect of the maturity of the claim, can now also be used strongly to advocate an interpretation of the preliminary contract to the effect that it gives rise to a claim for transfer of ownership

The Court must weigh up the basic interests of publicly-funded building corporations in a safe recovery of expenditures from prospective buyers and the danger of losses arising from a transfer of ownership against the interests, likewise to be protected, of applicants in becoming full owners of the real property as soon as the building work is completed, since their own funds have normally been invested prior to completion of the building and these funds often represent the entire family savings, accumulated over many years. The buyer thereby intends to save additional administrative costs and like expenditures and to be protected from heavy losses should the building corporation run into financial diffiiculties. The building corporation’s need for security is safeguarded by the contractual clause on the transfer of ownership whereby such transfer is postponed until a final contract has been concluded under the law of obligations, in which the final price and other outstanding payments are fixed.

Case 24

BUNDESGERICHTSHOF (FIRST CIVIL SENATE) 22 JUNE 1956 BGHZ 21, 102

Facts

The K Speditionsgesellschaft mbH (transport company) (KSG), a sister company of the defendant, commissioned the claimant (who carries on a haulage business) as haulier by arrangement with the Association of Road Traffic Hauliers (loading area distribution point) for the dispatch of certain goods to H. When the claimant’s lorry and trailer were already laden, the claimant’s husband, who was driving the vehicle, suffered a fatal accident while coupling the lorry and the trailer. The head of the Association, the haulier Q, acting on the claimant’s behalf turned to an employee F of

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KSG for the provision of a driver. F then contacted the defendant’s employee S. The driver H employed by the defendant was thereon made available to the claimant and carried out the transportation with the claimant’s vehicle. On the journey back, the vehicle broke down as a result of engine damage and had to be towed away.

The claimant seeks reimbursement of repair costs and loss of profit from the defendant. She considers that the defendant is liable for H as its assistant in performance (Erfüllungsgehilfe), but at least for the fact that it had provided an unreliable driver in breach of its duty.

(. . .)

The Landgericht ordered the defendant to pay part of the sum. The Oberlandesgericht rejected the claim. The claimant’s appeal in law led to reference of the case back to the appeal court.

Reasons

I. (. . .)

II. On the other hand there are severe legal difficulties about the appeal court’s assumption that the assignment of the driver H did not produce any legal obligation on the part of the defendant. (. . .)

The very concept of a favour assumes that the service in question will not be paid for. But the mere fact that the service will not be paid for does not permit the conclusion that it does not have the character of a legal transaction. The statutory regime about grace and favour transactions (eg, §§ 516, 598, 662 and 690 BGB) shows this. On the other hand, the giving of advice or a recommendation on a pure grace and favour basis produces no legal effect (§ 676 [§ 675 (2)] BGB). The unselfishness of the person acting does not in itself suffice to refute the assumption that legal relationships may possibly arise from the circumstances. Legal obligations for the person performing the service can arise from favours he promises or provides, although this is not inevitable.

If the person providing the service is obliged to provide it (§ 241 BGB) the effectuation of the service is bound to take place in the realm of legal transactions (in particular that of § 242). However, the absence of such an obligation does not in any way exclude the possibility of a favour exhibiting the character of a legal transaction [references omitted]. The defendant, in rejecting liability on the basis that it was not obliged to make the driver available, fails to recognise this.

A favour shown to someone will only have the character of a legal transaction when the person providing the service intends that his actions should be legally recognised [references omitted] and if he thus intends to create a legal commitment [references omitted] and the recipient has received the service in this sense. If this is not—whether because no intention to be bound can be assumed due to the type of favour involved or the circumstances under which it was given, or because such an intention was expressly or tacitly excluded—the matter cannot be assessed from the angle of a legal transaction. The question of whether there is an intention to be legally bound should not be decided according to some inward intention of the person giving the service which has not been made apparent. It should be determined by whether the recipient of the service should have concluded from the actions of the person providing the service that there was such an intention in the given circumstances according to the principle of good faith and having regard to business custom. It is therefore a question of

APPENDIX I: CASES 599

how the actions of the person providing the service appear to the objective observer [references omitted].

The type of favour, its basis and purpose, its significance in a business and a legal sense (in particular for the recipient), the circumstances in which it is provided, and the state of the interests of the parties at the time can raise the favour above the level of pure factual events. These factors are therefore relevant when assessing the issue of an intention to be bound and the nature of any possible legal transaction. Favours in everyday life are as a rule outside the scope of legal transactions. The same applies to favours which are rooted in purely social relationships [references omitted]. The value of a item which has been entrusted to someone, the business significance of a matter, the recognisable interest of the recipient of the favour and the danger he might run— which he cannot recognise but the person providing the service can—if the service is performed defectively, can lead all to the conclusion that there was an intention to be legally bound [references omitted]. Information given within the framework of a business relationship must therefore be on the basis of a legal obligation of conscientiousness [references omitted]. If the person providing the service has himself a legal or business interest in the assistance given to the person receiving the favour, this will as a rule argue in favour of him being legally bound [references omitted]. As with contractual negotiations, liability is usually based in cases of this kind on the violation of a duty of care (Sorgfaltspflicht) which has arisen through establishment of legal relationships or a relationship of trust similar to a contract [references omitted].

If these legal principles are applied to the case to be decided, the result is as follows. The defendant was not obliged to provide a driver, and KSG, which had given the transportation order to the claimant, did not have such a duty. But when the defendant made a driver available at the request of the claimant or of the Association for Road Traffic Hauliers (which, according to the finding of the appeal court, was acting in her name) it had a legal duty to send a reliable driver. The favour requested by the claimant was something which concerned the economic and business activities of both parties. The appeal court judgment in its subsidiary reasoning speaks of an event in legal relationships between the road traffic business undertakings concerned. The claimant was in a predicament as a result of the death of her husband. If she found no driver, she not only lost profit from the freight business; she also possibly had to bear the costs—small though they were—of reloading the goods. It was obvious, and S could also recognise, that sensibly the claimant was not prepared to carry out the freight business whatever the circumstances, and even accepting the risk associated with the employment of an unreliable driver. For the claimant, the vehicle represented not only an object of quite substantial value, but also a significant source of income. The claimant could and was allowed to place confidence in the defendant allocating a reliable driver to her, and the defendant was not permitted to disappoint this reliance. If it had no appropriate driver available, it should have refused the claimant’s request. If it did not want to do that, then it should at least have drawn the claimant’s attention to the doubts which existed about the intended use of driver H, in order to escape legal consequences. (. . .)

The defendant is therefore responsible for the choice of a reliable driver. III.

These considerations not only provide the basis for the defendant being legally bound, but they also answer, in substance, the question of the degree of fault-based liability.

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(. . .) The view is put forward in the academic literature [references omitted] that liability for favours is limited, as a rule, to intention and gross negligence. Whether such a principle can be established can be left undecided. The statutory regime for fault-based liability in the case of gratuitous contracts is formulated in differing ways (§§ 521, 599 BGB: liability for gross negligence; § 690 BGB: liability for the care one takes in one’s own affairs; § 662 of the BGB (with § 276 of the BGB), giving of information in the context of an existing binding relationship: liability for slight negligence). In the case of statutory liability for grace and favour journeys, the case law has expressly rejected the establishment of such a principle [references omitted]. The question of the scope of the liability in grace and favour relationships which are of legal significance must be decided according to the circumstances and the form which the individual case takes. Where the grace and favour activity springs from a relationship of trust, and the subject-matter concerned is of economic and business importance, as a rule, in correspondence with the statutory regime for liability in the case of a mandate (Auftrag), observance of the care necessary in human affairs is expected of the person providing the service. This is especially so if there is a particular business commitment on the part of the parties. The individual circumstances mentioned above, and the fact that the claimant’s request was transmitted by the Association for Road Traffic Hauliers as the technically competent authority for both parties, justify the analogous application to the present case of the provisions about mandates applying for gratuitous contracts to procure services.

There is also no cause for limiting the liability under the statutory provisions by assuming a more or less fictional agreement to limit liability, as the claimant has stated through her expert representative Q that she asked for a reliable driver and in the circumstances was permitted to assume that the defendant would comply with this request. (. . .)

IV.

(. . .) Accordingly it can be assumed that the defendant, on the basis of an obligation arising from a legal transaction, could have only have sent H without violating the care necessary in human affairs if it had pointed out to the claimant the substantial doubts existing about his responsible control of the vehicle on a long-distance journey.

Case 25

RECIHSGERICHT (SIXTH CIVIL SENATE) 7 DECEMBER 1911 RGZ 78, 239

Reasons

According to the findings of the appeal court, the claimant, after she made various purchases in the defendant’s department store, proceeded to the linoleum store in order to buy some linoleum flooring. She explained this to the assistant W, who was serving there, and selected from the samples which he produced the one which she wanted for the flooring. When he was obtaining the roll indicated by the claimant, W put two other rolls to one side. The rolls fell over, striking the claimant and her child, who had both come nearer, and dragging them both to the ground. The purchase of

APPENDIX I: CASES 601

the flooring did not take place, because the fall put the claimant, as she said, in too much of a state.

The appeal court assumed, without any error in law, that there was fault on the part of W in relation to the claimant’s accident because he had put the rolls on one side without securing them, instead of giving them lateral support, or leaving them against the wall. Because the area of their base was proportionately small, they were insufficiently stable. W could have foreseen that the claimant, as the purchasing public usually do, would come closer to the place where the goods she had asked him to produce to her were stored.

(. . .)

The appeal court’s view that the defendant was liable under § 278 BGB for W’s fault is, despite challenge by the appeal in law, not legally open to objection, and is in harmony with the case law of this senate. W entered into sale negotiations with the claimant on the defendant’s behalf (§ 164 BGB and § 54 HGB (Commercial Code)). The claimant had asked for linoleum flooring, which she wanted to inspect and buy, to be produced to her. W complied with the request, in order to make a sale. Requesting production of the flooring and acceptance of the request were for the purpose of effecting a sale which is a legal transaction. This was no mere factual event, as a pure act of favour might be, but a legal relationship, similar in character to a contract, in preparation for the sale arose between the parties. It has produced legal obligations, in so far as a duty arose for both the seller and the would-be purchaser to observe the care required for the health and property of the other party in the production and inspection of the goods.

(. . .) in the case law of the Reichgericht it is recognised in numerous decisions that duties of care for the life and property of the other party can arise from a contractual or obligation relationship These have nothing to do with the legal nature of the relationship in the narrower sense, but necessarily follow from its factual form [references omitted].

The defendant used W to fulfil the obligation described, for the benefit of the wouldbe purchaser. It is therefore responsible for his fault. The legal concept in § 278 BGB is entirely appropriate here, (. . .). It would conflict with general feelings about the law if, in cases in which the employee of a business causes harm to the would-be purchaser through carelessness in producing goods for inspection, for testing, or to carry out an experiment or something similar, the proprietor of the business—with whom the would-be purchaser intended to conclude the purchase—was only liable under § 831 BGB and not unconditionally. The injured party would then, if exculpatory proof succeeded, be referred to the employee who in most cases has no money. (. . .)

Case 26

BUNDESGERICHTSHOF (EIGHTH CIVIL DIVISION) 28 JANUARY 1976 BGHZ 66, 51 = NJW 1976, 712 = JZ 1976, 776

Facts

The plaintiff, who at the time of the accident was fourteen years of age, went with her mother to a branch of the defendant’s, a small self-service store. Whilst her mother,

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after selecting her goods, stood at the till, the plaintiff went round to the packing counter to help her mother pack the goods. In doing so she fell to the floor and suffered an injury which necessitated lengthy treatment. Alleging that she had slipped on a vegetable leaf, she sued the defendant for breach of his duty to provide safe access. The Court of Appeal having dismissed as time-barred the claim for damages for pain and suffering, the parties are now in dispute only on the question whether the defendant is obliged to compensate the plaintiff for her economic loss as well as prospective damage.

The Landgericht rejected the claim as time-barred. The Court of Appeal granted it—after deducting one-fourth for contributory fault. The defendant’s further appeal was unsuccessful for these reasons.

Reasons

I. The Court of Appeal found as proved that the plaintiff slipped on a vegetable leaf lying on the floor near the packing counter and suffered injuries which necessitated the expenditure in question and may possibly lead to future loss. These findings disclose no legal error, they are in fact undisputed on appeal.

II. According to the Court of Appeal’s opinion the defendant had not furnished the proof incumbent on him that he had taken all necessary care for the safety of movement in his store and that the accident could only be attributed to the fact that another customer had shortly before let a vegetable leaf fall to the floor. These findings also cannot be faulted legally. They conform to the settled case law of the BGH (NJW 1962, 31; cf also RGZ 78, 239) both on the duty of a shopkeeper to ensure safety of movement and on the reversal of the burden of proof required by para 282 [280 I 2] BGB in cases of claims for damages based on culpa in contrahendo. This point also is not contested on appeal.

III. The defendant therefore is liable—so continued the Court of Appeal—after taking the contributory fault of the plaintiff into account, for three-quarters of the existing and prospective loss, and that not only in delict, but also for fault in concluding contract, since in opening the self-service store he infringed the contractual duty of protection and care which he had undertaken to the plaintiff. Moreover, the plaintiff also has a claim for damages under a contract with protective effects towards a third party because her mother was during the accident preparing to contract with the defendant and the plaintiff was being included as an assistant within the scope of that contract-like obligation. For claims however arising from fault in concluding a contract the limitation period is thirty years, so that the claim was brought in good time. IV. These explanations stand up to examination—at least in result. Admittedly the main line of the Court of Appeal’s reasoning, that the defendant is directly liable to the plaintiff for fault in concluding the contract, irrespective of whether a contract with protective effects towards a third party needs to be brought into the picture, gives rise to doubts. Liability for culpa in contrahendo, which in cases like the present one is more favourable to a plaintiff than the general liability in delict for breach of the duty to provide safe access—because of the increased liability for employees (para 278 BGB in contrast to para 831 BGB), the longer limitation period (para 195 BGB in contrast to para 852 [repealed] BGB), and the reversal of the burden of proof (para 282 [280 I 2] BGB)—rests on a legal obligation created by way of supplement to the

APPENDIX I: CASES 603

written law. It arises from the process of bargaining for a contract and is largely independent of the actual conclusion or efficacy of a contract (BGHZ 6. 330, 333). The liability for a breach of the duties of protection and care arising from this obligation finds, in cases of the present kind, its justification in the fact that the injured party entered the other party’s sphere of influence for the purpose of negotiating for a contract and can therefore rely on enhanced carefulness in the other party to the negotiation (cf also BGH NJW 1960, 720). This is borne out exactly by the present case in which the mother entered the sales department of the defendant for the purpose of making a purchase and in doing so had to subject herself to a risk involved in the increased congestion, especially near the till, in a self-service store. It is however always a presupposition of liability for culpa in contrahendo in this type of contract of sale that the injured party enters the sales department with the purpose of contracting or of entering into ‘business contracts’—and therefore at least as a possible customer, though perhaps without a fixed intention to purchase (cf BGH NJW 1962, 31). It need not be decided whether it is enough, in view of the peculiarities of sale in a self-service store, for a customer (when entering the sales department) to have intended at first only to have a look at the objects offered and be possibly stimulated to buy or only to make a preliminary comparison of prices with those in competing enterprises. In any case there is insufficient justification for a contractual liability for culpa in contrahendo stretching beyond liability for delict when the person entering the store never intended to buy, perhaps because—leaving aside the shop-lifter mentioned by the court of Appeal—he is sheltering from a shower or using the store as a way through to another street or even only to meet other persons. The line may be difficult to draw in particular cases, above all because it depends on the difficult proof of unexpressed intention. In the present case however it is beyond dispute that the plaintiff from the start did not intend to make a contract herself but only to accompany her mother and help her in buying. A direct application of liability for fault in concluding a contract with the defendant is therefore excluded.

V. Nevertheless the appellate judgment is proved right in result, because it is supported by supplementary considerations.

1.If the plaintiff’s mother had been injured in the same way as her daughter, there would have been no objection to making the defendant liable for culpa in contra- hendo—as is also clearly stated in the appeal. In that case nothing need be said about the question, disputed in academic circles, whether in a self-service store the display of the goods constitutes an offer and the contract of sale is concluded by the buyer’s accepting it in presenting the selected goods at the till—thus reserving a final decision until that moment—or whether the display of the goods constitutes only an invitation to make offers, which the customer for his part makes by showing them to the cashier and the latter accepts by registering it on behalf of the self-service store. In any case the general run of the reasons for the judgment, even though it contained no express statement by the Court of Appeal, makes it obvious that at the moment of the accident the goods intended for the purchase had already been finally chosen and a legal obligation already existed between the defendant and the plaintiff’s mother justifying liability for culpa in contrahendo.

2.It is on the legal obligation that the plaintiff can rely to justify her contractual claim for damages. It accords with the long-standing case law of this Senate in particular that in special circumstances even bystanders who do not themselves

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participate in a contract are included in the protection afforded by it, with the consequence that although they have no claim to have the primary contractual duty performed, they are entitled to the protection and care offered by the contract and can make good in their own name claims for damages arising from the breach of those subsidiary duties . . . It is not necessary to consider here the theoretical question whether such a contract with protective effects towards third parties, on which the courts have proceeded hitherto, is derived from the supplementary interpretation of a contract incomplete to that extent (paras 133, 157 BGB), or whether, as is increasingly accepted in the literature, direct quasi-contractual claims arise on grounds independent of the hypothetical intention of the parties, perhaps from customary law, or on the basis of legal developments by the courts. In any case, according to both views it is essential that the contract, according to its sense of purpose and the requirements of good faith, demands an inclusion of third parties in its sphere of protection; and that one party to the contract can in honesty—and in a manner discernible by the other party—expect that the cares and protection owed to it will be equally extended to a third person. There is no good reason to exclude sales in general from this legally possible configuration as this is shown in particular by sales in shops to which buyers, in certain circumstances, must enter the sphere of influence of the seller. And that is also the view of the Sixth Senate in BGHZ 51, 91, 96.

3.Admittedly the inclusion of third persons in the sphere of protection of a con- tract—if the contract between contractual and delictual liability established by the legislator is not to be destroyed or blurred—needs to be confined to narrowly defined cases. Whether the mere fact that the customer makes use of a third person in initiating and concluding a purchase in a self-service store is enough for the protected effect to be accepted as possible may be left undecided; for in the present case it must be added that the plaintiff’s mother was responsible for her daughter ‘for better or worse’ (BGHZ 51, 91, 96) and therefore—and this should be known to the defendant also—for that reason alone it could reasonably be inferred that the daughter accompanying her should enjoy the same protection as herself. In such a close family relationship the courts have always seen themselves justified in extending contractual protection.

4.That in the present case the sale was not concluded at the moment of the accident is, in the result, unimportant. If one looks on the duty of protection and care as the determining element of the legal obligation based on negotiating for a contract, and if one considers that the other party owes this duty of care both before and after the conclusion of the contract, the inclusion of third persons (who are equally worthy of protection) in the obligation follows. Moreover, there would be no rational ground for making the contractual liability depend on the chance of whether the negotiations had already led to a contract when the damage occurred; that is impressively shown by the present case, where the ‘sale negotiations’ had, in essence, been completed and the conclusion of the contract—possibly subject to a delay on the mother’s part in completing it at the till, and for which the plaintiff’s mother was not responsible—was in any case imminent. The appellant’s contention that a cumulation of liability for culpa in contrahendo and inclusion of a third party in the protective effect of a contract would lead to an unforeseeable widening of the risk on a seller, is directed in principle against justification of both institutions in general. The danger of a flood of litigation, which cannot be dismissed out of hand, has, as has already been explained, long

APPENDIX I: CASES 605

been taken into account by the courts, which have imposed strict requirements on the inclusion of third parties in the protective sphere of a contract. As regards to merely precontractual relations some reservation may be indicated. But in any case with so narrow a limitation there is no objection to an extension of protection if—as here— the person causing the damage could not reasonably have opposed any desire expressed by the mother, when negotiating for a contract, to have from the start the same protection expressly given to the child who was subsequently injured herself. Finally, in so far as the appellant contends that the long limitation period—combined with the reversal of the burden of proof—would intolerably worsen the evidentiary position of anyone sued for damages in such situations, the remedy must be found in laches (Verwirkung) of the existence of which there is no indication in this case.

Case 27

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 12 NOVEMBER 1986 BGHZ 99, 101 = NJW 1987, 639

Facts

In 1981, the claimant intended, together with his business partner at that time as shareholder of a company M which had not been entered in the trade register, to develop a chain of various types of fast food restaurant, and have it run under a franchise system. On 25 June 1981, M (as seller) and the defendants (a married couple) concluded a contract of sale in which the seller agreed to set up a restaurant ‘Sch’ completely ready for business in the shopping centre B-T which was under construction at that time, and the defendants agreed to pay a total price which was expected to be between DM200,000 and DM250,000 plus VAT. The defendants were to provide DM60,000 plus VAT, and the rest of the purchase price was to be financed. (. . .)

Reasons

I. (. . .)

II. (. . .)

1. It is necessary to proceed on the basis of the appeal court’s (. . .) opinion that:

(1)The franchise contract is void as a whole (§ 138 (1) BGB). This is because of a number of provisions which benefit the franchiser unilaterally, and excessively limit the defendants’ economic freedom of action, and for which they have not even been given only approximately reasonable compensation.

(2)The purchase contract is also included in this invalidity (§ 139 BGB).

This assessment which the appeal in law adopts, and which is not called in question by the reply to the appeal in law, does not reveal any legal error.

2.It follows from the invalidity of these contracts that the claimant has obtained the sum of DM87,800 paid to him by the defendants without legal grounds. He is obliged, in so far as he has been enriched, to hand over what he has received (§ 812 (1) sentence

1BGB). (. . .)

3.The appeal court has correctly examined whether the defendants have benefited from anything which diminishes their claim to repayment—whether by way of

606 APPENDIX I: CASES

restitution for the enrichment or because of a counterclaim which could be set off by the claimant against their claim. (. . .)

(b)The claimant however did not have a restitutionary claim, as the appeal court recognised, if he was obliged because of fault committed in the contractual negotiations, to release the second defendant from his liability to pay the purchase price.

(aa)The appeal court’s starting proposition was that it was possible for a person who concludes with his partner a contract drafted and used by him, but which is ineffective, to be liable for fault in conclusion of the contract. The reply to the appeal in law is wrong to challenge this. The case law has always taken the line on certain factual situations that, when a contract is ineffective, the party who is responsible for the ground of invalidity can be obliged to pay compensation because of fault in contractual negotiations [references omitted]. This can arise for instance in case of a failure to give an explanation about the absence of a valid authority under the law relating to communes (BGHZ 6, 330, 333), about the need for permission for a transaction in foreign exchange law (BGHZ 18, 248, 252 f), about the absence of statutory or contractual form for a contract (BGH judgment of 29 January 1965—V ZR 53/64 = NJW 1965, 812, 814; judgment of the senate of 19 April 1967—VII ZR 8/65 = WM 1967, 798), and about the invalidity of a transaction because of illegality (OLG Düsseldorf BB 1975, 201); or in a case where so-called ‘hidden disagreement’ is culpably induced (RGZ 104, 265, 267 f). (. . .) It cannot be otherwise in the case of the culpable use of a contract which is contrary to good morals under § 138 (1) BGB because of disadvantage to the other party [references omitted]. The objection made by the reply to the appeal in law that the liability of the user of a contract which benefits him unilaterally (and is therefore contrary to good morals under § 138 (1) BGB) should be limited to the definition in § 826 BGB cannot be followed. The basis of liability consists of the violation of the pre-contractual duty to show consideration to the other contracting party (BGH judgment of 28 May 1984 ), in whom trust in the existence of a contractual relationship is induced. Fault is admittedly required here, as in comparable cases of liability for pre-contractual conduct, but not intention to inflict harm in a manner contrary to good morals.

(bb)Likewise the objection in the reply to the appeal in law that the appeal court had not established fault by the claimant is unsuccessful in the end result. The deliberations of the appeal court to the effect that the claimant was responsible for the invalidity of the contract independently of whether he was conscious of the legal effects of the formulation of the contract are open to objection when expressed with this degree of generality. But the appeal court did not have to express itself more exactly in the present case, because the claimant had never said in any of his submissions that he did not realise and had no reason to realise the one-sided nature of the formulation of the contract in violation of good morals, and why he claimed this was so. The claimant had a duty of explanation here. In the area of liability for fault in contractual negotiations, the case law has admittedly not proposed any general reversal of the burden of proof of the kind contained in § 282 [§ 280 (1) sentence 2] BGB. But in relation to individual pre-contractual legal relationships, in particular in the case of the violation of duties of protection and explanation, it has divided the burden of explanation and proof according to areas of organisation or risk [references omitted]. The position is the same here. When deciding whether the claimant could regard the franchise contract as effective in spite of the numerous provisions which burdened

APPENDIX I: CASES 607

the defendants unilaterally, the only potentially important matters (eg, possible legal advice to the claimant, or use of a pre-formulated contract recommended by a respected association) are ones on which the defendants cannot be expected to make factual statements, but on which the claimant must be in a position to give information. In the absence of explanations of this kind, the appeal court could assume that the claimant was responsible for the pre-contractual violation of duty.

(. . .)

Case 28

BUNDESGERICHTSHOF (FIFTH CIVIL SENATE) 20 JUNE 1952 BGHZ 6, 330

Facts

In 1946 the claimant, a scrap metal company, contacted the defendant, a borough council, in order to lease an industrial site. By letter of 28 June 1946, the chief executive of the borough council told the claimant that the site, measuring about 10,00 square metres, was ‘awarded’ to the claimant at an annual leasehold rent of RM0.25 per square metre, subject to the town council’s approval. The defendant drafted a leasing contract which was unanimously accepted at the planning committee’s meeting of 5 July 1946 and sent to the claimant on 9 July. On 22 July 1946, the claimant sent his own draft contract, on which the defendant, by letter of 30 July 1946, sent the claimant a lease contract ‘in its final form’ with the remark that the town council refused any amendments to it; the claimant was asked to sign the contract and to send it back to the chief executive of the town; on approval by the town council, the claimant was to be informed and to receive back the official copy of the contract. Thereon the claimant signed the submitted lease contract. On 23 August 1946, the town council approved the lease contract with the restriction that ‘ no right of preemption was to be granted, the duration of the lease—previously fixed for 20 years— was to be reduced and the defendant’s liability for damages created from a drop in the canals’ water level was to be excluded.’

With the defendant’s approval, the claimant started to use the site to deposit scrap The parties then discussed repairs to the connecting rail siding and the installation of necessary points. With the defendant’s approval, the claimant obtained the points; the defendant helped in providing the federal railway with wood in exchange for the necessary sleepers.

By letter of 18 November 1947 the claimant sent the defendant confirmation that the defendant’s building supervisor had given his permission to start with the depositing of scrap. At the beginning of April 1948, the claimant was informed by the defendant’s town planning officer K that a large company was interested in the site. By letter of 5 April 1948 the claimant pointed out that he had taken the site on a lease and asked ‘pro forma’ to sign the lease contract. The defendant rejected the view that specific agreements had actually been reached and then told the claimant that it had not leased any site to the claimant nor given permission for its use; thereafter, in its council meeting of 21 May 1948, the defendant finally refused to lease the site to the claimant and ordered him to vacate the site.

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The claimant demands damages from the defendant for culpa in contrahendo.

The Landgericht has rejected the claim; the Oberlandesgericht held the claim for damages to be justified in principle. The defendant’s further appeal is unsuccessful.

Reasons

I. The Court of Appeal held that:

A valid lease contract was not concluded, since the formal requirements set out in para 37 II of the DGemO (German Borough Council Order) (in its version valid for the British Zone, Amtsbl. der MilReg. No 7, p 127 et seq) had not been met and any reference to the principles of good faith cannot lead to a different result. However, statutory bodies are not exempt from liability for culpa in contrahendo. The town council had approved the lease contract between the parties and the town’s building inspector S had informed the claimant, based on a corresponding authorisation from the town council, that the contract was to be deemed to have been concluded if the claimant were to renounce any right of pre-emption and agreed to a reduction of the period of lease. Once the claimant’s owner had signed a corresponding lease contract, S. declared that the claimant could now start using the site. The defendant’s constitutionally appointed representative bodies had thus been bound to issue a contract complying with all formal requirements. The defendant culpably failed to inform the claimant that the contract had not been finally concluded. Instead, and with the obvious intention of not being legally bound, in order if possible to offer the site to a more suitable party, it had delayed giving the contract its final form. By the defendant’s statements that the matter was in order and the lease contract was deemed to be concluded, the defendant had created the claimant’s trust in the fact that the lease contract had indeed become legally binding and that the written form was of no further legal significance. According to the defendant’s statements and behaviour, the claimant relied, and should have been able to rely, on the fact that the lease contract was to be concluded. By the fact that the defendant had unrestrictedly permitted the claimant to start with the depositing of scrap and left him with the difficult task of constructing the sidings leading to the leased site, the claimant must have got the impression that this was done as part of the execution of the lease contract which required these operations to be carried out.

The claimant has at least suffered damages from the unnecessary expenditures on levelling the site. Only during a final procedural assessment of damages can it be established whether this also applies to the transport of the scrap

II.

1. The further appeal erroneously disputes that statutory bodies are at all liable for culpa in contrahendo. The further appeal is correct in so far as it holds that legal provisions imposing special requirements for acts of statutory bodies are more than formal requirements, and are rather intended to protect these statutory bodies from rash and dangerous acts of persons acting for these bodies by restricting the authority of these persons [references]. (. . .) On the other hand, there is insufficient reason for safeguarding statutory bodies from any kind of liability for culpa in contrahendo. (. . .) Liability for culpa in contrahendo is a form of liability which is based on a statutory obligation created in addition to those listed in the legislation and which has its origin

APPENDIX I: CASES 609

in the start of contractual discussions which require that both parties observe the usual care in their dealings with each other. (. . .)

3. The statement made by the witness S that the lease contract should be deemed to have been concluded, and that the claimant could start to use the site once he had agreed to the amendments to the lease contract, was in line with the authorisation which the town council had given to the witness. But in fact the contract had not become valid because of failure to conform to the formal requirements of para 37 II DGO, a fact which both the witness and the town council should have known. Instigating such an error constitutes fault as far as the town council and the witness S are concerned; and the defendant is vicariously liable under paras 31, 89, 278 BGB, while any possible obligation which the town bodies may have to execute the town council’s resolution by concluding a contract complying with all formal requirements is not an obligation towards the claimant and is thus irrelevant for the question of fault. The claimant has thus a claim for damages against the defendant, although the claimant cannot demand, as set out above, to be put in a position which would have existed if the contract had in fact been concluded. The claimant makes no such demand. The claimant can however request to be compensated for the damage suffered from relying on the validity of the contract.

Case 29

BUNDESGERICHTSHOF (TENTH CIVIL DIVISION) 12 JUNE 1975 NJW 1975, 1774

Facts

The plaintiff claimed damages on the ground that the defendant had failed to conclude a licensing agreement with the plaintiff, although a director of the defendant had made a promise to this effect.

The District Court rejected the claim, but the Court of Appeal of Hamm allowed it in principle. A second appeal by the defendant was unsuccessful for the following reasons.

Reasons

I.

2.(a) The Court of Appeal has allowed, in principle, a claim by the plaintiff for damages on the ground of blameworthy conduct in concluding a contract. It held that by the manner of his negotiations the defendant’s director had caused justified expectations that a licensing would be concluded with the plaintiff. The reliance of the plaintiff on this expectation deserved protection.

(b)The appellant has objected . . . that the Court of Appeal had applied too low a standard in gauging the expectations in reliance on the negotiations for a contract resulting in liability to compensate the damage suffered in reliance on the conclusion of a contract, the negotiations for which had been broken off.

3.The basis of liability for blameworthy conduct in negotiating a contract is to be found in disappointed expectations [reference]. Looked at from this angle, if negotiations for a

610 APPENDIX I: CASES

contract are broken off without good reasons, the party breaking off the negotiations may be liable in damages, if by his conduct he has previously raised or maintained the expectation that a contract was certain to be concluded [references]. This obligation is the consequence of the liability for the effects of a situation of confidence towards another who has been induced to believe that the proposed contract will become a reality [reference]. In so far as the proposed contract was to be concluded with a company still to be formed, it must depend on the circumstances whether, in the light of the negotiations, a company formed subsequently could expect that the proposed contract would be concluded with it. It is true that in such a situation the other party may have an interest to reserve its full power decision until he has obtained more detailed information about the character and composition of the company to be formed. On the other hand, if a new company is to be formed by the contracting party, the other party may allow his co-contractor a certain freedom of action and curtail his own liability of decision, if he can be sure that the contract will be concluded. The Court of Appeal has held that the latter is the case. This finding of fact . . . binds the present court. It justifies the conclusion . . . that the plaintiff has claims based on the blameworthy conduct in the conclusion of the contract, having regard to the situation of confidence established towards him.

Case 30

BUNDESGERICHTSHOF (FIFTH) CIVIL SENATE) 29 MARCH 1996 NJW 1996, 1884 = JZ 1997, 467

Facts

The claimant had rented rooms on the ground floor and in the cellar of a house in B Street in L for a printing business. In the summer of 1989, the defendant acquired the land. To achieve a more economic use, he planned to alter the building to increase the size of an extension, and to divide it into shared ownership. In this connection negotiations between the parties took place in early 1991 about the sale of the rooms used by the claimant and further rooms at the price of DM750,000. This gave rise to the claimant carrying alterations from the end of April 1991 to February 1992. In October and December 1991, conversations took place between the parties about a date for authenticating the sale. The sale fell through in the end, because the defendant was only prepared to proceed at the price of DM1,000,000. After the defendant terminated the letting, the claimant vacated the property in the summer of 1992. Against the defendant’s rent demand for the period from April 1992, the claimant set a claim for reimbursement of the costs of his building measures, the costs for moving and repair of machines because of the defendant’s building measures and, with these in mind, overpaid rent in the sum of 20,150 DM—after reduction. By his claim he demanded payment of the balance of DM154,716.34 from the defendant. He claimed that the parties were of one mind about the sale. Its authentication was not to take place until late in 1991, but only because the defendant wished to avoid tax disadvantages. The claimant’s building measures had taken place with the defendant’s consent. The defendant was liable for the reimbursement of the costs which had arisen from this on the ground of unjustified enrichment, and fault in the contractual negotiations. The defendant denied the existence of agreement about the sale and his consent to the

APPENDIX I: CASES 611

claimant’s works, and counterclaimed for the remainder of the rent, compensation for use, and reimbursement of costs for the removal of part of the alterations.

The Landgericht allowed the claim by a partial judgment about the principles. The defendant’s appeal was unsuccessful. By his appeal in law he seeks rejection of the claim. The claimant applies for rejection of the defendant’s appeal in law. The defendant’s appeal in law has not been accepted by the senate in so far as it is directed against the claimant’s entitlement, which has been established in principle, to reduction of the agreed rent in a total sum of DM20,150. In other respects the appeal in law led to quashing and reference back.

Reasons

I. (. . .) II.

1. (a) Because of contractual freedom, every contractual partner has the right until conclusion of the contract to walk away from the contract under consideration. Expenditure which is made in the expectation of conclusion of the contract is therefore in principle incurred at one’s own risk [references omitted]. Only if the conclusion of the contract can, in the light of the negotiations between the parties, be assumed to be certain, and expenditure for the implementation of the contract is made before its conclusion in reliance on this, is it possible for this expenditure to be reimbursable by the partner in the negotiations on the ground of fault in contractual negotiations, if he later declines to conclude the contract without any valid ground [references omitted]. A duty founded in this way to compensate for loss incurred through reliance amounts however to an indirect compulsion to conclude the contract. This compulsion runs counter to the purpose of the formal provisions of § 313 sentence 1 [§ 311b (1)] BGB, according to which a commitment without the observation of form is to be prevented because of the objective peculiarity of the subject-matter of the contract [references omitted]. In the area of legal transactions which must be authenticated under § 313 sentence 1 BGB, breaking off contractual negotiations, the consequence of which could be assumed to be certain, by a partner to the negotiations therefore does not trigger claims to compensation for loss, even if there is no valid ground for breaking off [references omitted].

(b) The invalidity which results from a violation of the formal provisions of § 313 sentence 1 [§ 311b (1)] BGB is however displaced, if it simply cannot, in all the circumstances, be reconciled with the principle of good faith, for example because it endangers the existence of the other party to the contract [references omitted] or because claiming invalidity represents a particularly serious violation of the duty of good faith [references omitted].

It is also necessary to proceed on the basis of these principles when deciding whether a partner to negotiations is obliged to reimburse the expenditure of the other party on the grounds of culpa in contrahendo when contractual negotiations are broken off. (. . .) In so far as this follows from the defendant’s conduct being a particularly serious breach of good faith, only an intentional violation of the duty of good faith can as a rule be considered as a basis for a claim to compensation for harm under culpa in contrahendo, as it amounts to a person pretending to be ready to conclude a contract when he is not [references omitted].

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That has so far not been established. (. . .) The quashing of the disputed judgment gives the parties in this respect an opportunity to make further submissions.

(c) A person pretending to be prepared to conclude a contract on certain conditions, in particular at a certain price, when he is not is, on the principle of good faith, comparable with the case where a partner to negotiations was at first so prepared, and said so, but in the course of negotiations changed his mind without revealing it [references omitted]. This is especially so if the potential seller had said he was in agreement with the extension and alteration works proposed by the person interested in buying. In all such cases, the statement of final preparedness to contract on certain conditions communicates the impression of a special negotiation position to the partner to the negotiations. This exposes him to the increased danger of disadvantageous disposition of his wealth. This special position of danger creates a relationship of increased reliance, which obliges the person conducting the negotiations to have greater regard to his partner’s interests. This also gives rise to an obligation to protect the partner from making a mistake about the (continued) existence of a stated final preparedness to conclude the contract on certain conditions, if this does not exist (any longer).

The defendant may have violated such a duty of explanation here. He has claimed in another connection that in late 1991 it had become evident that the cost calculated for his alteration and extension proposals of DM1,500,000 was insufficient, and it would in fact amount to about DM3,000,000. Therefore he could not keep to his original calculation. But he alleges that, from this point in time onwards, the basis of the claimant’s assumption that the contract would come into existence between the parties had disappeared. This was the latest date at which the defendant’s preparedness to enter into the contract (assumed as certain by the claimant following the negotiations) was present. The uncertainty which had now arisen remained concealed from the claimant, but the defendant knew about it. His prior conduct and his knowledge of the claimant’s current works therefore obliged him to inform the claimant without delay of the change in his ideas about price, in order to give the claimant the opportunity to refrain from further investment in the alteration and extension of the rooms made over to him. In this respect also there has been no submission which enables an exact chronological determination and classification of the expenditure.

2. Contrary to the view of the appeal in law, the claimant’s claim to compensation for loss should not be reduced on the basis of contributory fault, in so far as it is based on expenditure which the claimant made before he learnt of the change in the defendant’s asking price. The claimant’s expenditure in reliance on the contract coming into existence is only to be reimbursed if the defendant has represented conclusion of the contract as certain in spite of his reservations, and has therefore acted deceitfully. Contributory fault on the claimant’s part (which would in any case be assessed as negligent) would be overridden by the defendant’s intentional behaviour [references omitted].

On the other hand, the defendant is not responsible for the expenses which the claimant has incurred after he could no longer be certain that the proposed contract about the shared ownership would be concluded. Investment which he made after the defendant had revealed the increase in his asking price should therefore not be reimbursed. It was not based on reliance on the contract coming into existence, but on mere speculation. In this respect also the necessary categorisation of the expenditure asserted by the claimant is lacking. (. . .)

APPENDIX I: CASES 613

Case 31

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 5 APRIL 1971 BGHZ 56, 81

Facts

The married couple, St, had a six-storey business and residential complex erected in H, but before it was completed they ran into financial difficulties. After calling a meeting of creditors, they commissioned the defendant, a financial and real estate agent, to look after further financial issues in relation to the building, as well as the sale of the business units and the residential accommodation. They gave him comprehensive powers. Among other things, it was agreed that further building works were only to be carried out with his agreement. But in the ensuing period the client and his architect made further efforts to allocate these works. After several tradesmen had stopped their activities, they obtained an offer from the claimant for the continuation of the metal building work. The defendant learnt about this and let the intended written contract be signed by the client. The claimant carried out the work he had taken over, but did not receive any payments.

The claimant now claims compensation from the defendant for the loss (which it calculates as totalling 19,007.58 DM) which it alleges it has suffered because, in view of the consent given by the defendant, it relied on being able to take on the work to be carried out without any guarantee of payment for it.

The Landgericht rejected the claim. The Oberlandesgericht allowed it. The defendant’s appeal in law was unsuccessful.

Reasons

I. (. . .) II.

1. The initial position taken in law by the appeal court is in harmony with the consistent case law of the Bundesgerichtshof. According to this, the duties from the statutory obligation relationship based on the initiation of contractual negotiations by an agent apply in principle to the person the agent represents. But under special circumstances the agent himself must also be responsible for the violation of these duties, in particular such as a duty of explanation. This occurs if special reliance was placed on him personally by the other contracting party, or if he had an economic interest of his own in the conclusion of the transaction. (. . .)

3. The decisive issue is therefore whether the principles developed by the case law and doctrine about an agent’s own liability from the angle of fault in contractual negotiations may be applied to the defendant because he has claimed personal trust from the claimant to a special extent, and has thereby influenced the contractual negotiations.

(a) In these cases letting an agent be liable for his own fault on conclusion of a contract appears to be justified when he has gone beyond the normal trust in negotiations which always exists in the initiation of business relationships—or at least ought to exist. This is because he has thereby offered the partner in the negotiations an additional guarantee by himself personally (and possibly even the only such guarantee) for the existence and fulfilment of the prospective legal transaction; and this guarantee

614 APPENDIX I: CASES

was a significant factor in the other party’s decision. Such special reliance placed in the agent can, for instance, be based on his special technical knowledge of the subject matter of the contract. But it can also be based on his personal reliability, or the power which he has to influence the implementation of the contract. This is particularly at issue when serious doubts exist about the financial capacity of the principal (see eg, BGH LM no 4 at § 276 (Fa) BGB). Above all, this special case of reliance must be applied to a person who appears as a sort of financial adviser who seeks to bring the most diverse interests into harmony with one another.

This kind of claim to personal trust by the agent does not however in any way assume that the agent conducts the negotiations himself. He can also act through a sub-agent, who is then to be regarded as his assistant in performance (Erfüllungsgehilfe) in the sense of § 278 BGB for possible pre-contractual duties applying to him. The senate has already decided this in a case in which an architects’ association had engaged a project manager who negotiated with the tradesmen for the removal of defects (LM no 37 on § 278 BGB). It is thus decisive that the special situation of trust has been created by the agent himself, or is in some way attributable to him, and that it has decisively influenced the conduct of the other negotiating partner.

(b) But then it is impossible to see why, according to the principles mentioned, liability should only attach to the person who claims the special trust of the negotiating partner as required in the case law by appearing as agent of a party in the negotiations. There are no effective objections to applying these principles also to the adviser of a contracting party who keeps himself in the background during the negotiations, and only establishes his own relationships with the other negotiating party indirectly via the negotiating partner who is his client. This occurs when he consents to the intended conclusion of the contract, his declaration to this effect is brought to the knowledge of the other party, and it is the determinative factor inducing him to conclude the contract.

This is because from the viewpoint of the other party to the contract, it makes no difference whether he was induced to conclude the contract by special reliance on an agent of the other party to the negotiations who met him face to face, or whether he relied on the agreement to the intended transaction, produced by his direct contracting partner, of an adviser appointed by him. In both cases the co-operation of a third party who has a particular claim to personal trust has decisively influenced the decision of the other party.

But from the viewpoint of the third party the position appears to be the same. Whether he conducts the negotiations himself, or he leaves them to his client with his own express agreement to the intended conclusion of the contract, he always—if he is in the position of trust required by the case law—has to take into account the possibility that the other party to the negotiations will orientate himself to his, the third party’s, attitude. This is especially true if it appears to be the only determinative one in all the circumstances.

A third party may be involved in the conclusion of a contract and he may know (or should know) that particular reliance is placed in him by the negotiating partners. They may both make their actions depend on his agreement. It would not be reconcilable with the principle of good faith if he could simply withdraw from his consequential responsibility by not appearing as his client’s agent, but letting the client conclude the contract himself with the third party’s express consent.

APPENDIX I: CASES 615

In such cases, the interests are the same so the legal assessments must be the same. Therefore the duties from the obligation relationship based on the initiation of contractual negotiations apply to an adviser of a contracting party who has a particular claim to the trust of the other party, and on whose decision in the given circumstances the conclusion of the intended legal transaction finally depends. It does not matter whether he appeared as agent of one party in the contractual negotiations or whether he merely gave his agreement to the conclusion of the contract and this was communicated to the other party to the negotiations.

4.The appeal court assumes that the defendant, after the further financial supervision of the extensive and ailing building project had been transferred to him, acquired a special position of trust not only as against the client, but in the relationship with the building tradesmen and the client’s creditors. There is no objection to this on legal grounds. In this connection the persons involved were entitled to assume that the defendant would cope with his task of overcoming the financing difficulties which had arisen so far and effecting completion of the building work with all the care to be expected, but also in such cases required, from a financial expert, which he is.

Full approval should therefore be given to the appeal court’s view that all the persons involved were entitled to rely on the defendant agreeing to further building works only if he had previously scrupulously examined them, found them to be necessary and regarded them as financially achievable in the ordinary course of events. For the building tradesmen and the claimant who were to co-operate in the completion of the building, the defendant was therefore much more important than the client and his architect. (. . .)

5.The appeal court was therefore correct to assume that the duty to explain all the circumstances which were of substantial importance for the claimant’s decision to take on the works, which would otherwise only have applied to the direct contracting partner (the client in this case), applied also to the defendant himself as a result of the spe-

cial trust which the claimant showed towards him personally. According to the recognised case law [references omitted], the facts which should be revealed under the principle of good faith include the probability of hindrances to fulfilment of the prospective contract, or its fulfilment within a time limit. (. . .)

Case 32

BUNDESGERICHTSHOF (SECOND CIVIL SENATE) 17 JUNE 1991 NJW-RR 1991, 1241

Facts

The claimant was the owner of the motor yacht ‘G VI’ which had been bought at a price of DM40,000. In September 1985, he placed an ‘application for total watersports insurance’ with the defendant insurance company with which he maintained a number of other insurances. A comprehensive insurance policy for an insured sum of DM400,000 made out ‘by authority of the companies involved’ by P, a specialist broker for yacht insurance, was forwarded to him. The claimant paid the premiums due to the firm P After carrying out comprehensive alteration works, the claimant asked the defendant in July 1987 for an employee to visit him. He told this employee that he

616 APPENDIX I: CASES

wanted to change the fully comprehensive insurance to partially comprehensive, and to increase the insured sum to DM 1 million. The defendant’s employee S then inserted ‘HP’ at the start of a form provided by the defendant headed ‘Notice of Amendment,’ noted the claimant’s wishes for amendment, inserted ‘immediately’ for the date of commencement of the insurance, and had this form signed by the claimant. In August 1987, S telephoned the claimant twice to tell him that the firm P needed a valuation or shipyard opinion about the value-enhancing works. The claimant applied for this, but before it was obtained, the yacht was burnt out. The claimant received DM400,000 for the fire damage from the firm P which, in the name of the insurer which it represented, refused further payments. In the current action, the claimant has demanded payment of DM600,000 from the defendant on the ground that, even it if was not under a duty to him as contracting partner to enter into a contract, it should be responsible as negotiator for the fact that he had no temporary cover, as no proper explanation had been given.

The Landgericht rejected the claim but the Oberlandesgericht allowed it. The defendant’s appeal in law led to restoration of the judgment of the Landgericht.

Reasons

1.The Landgericht and the Oberlandesgericht have denied the existence of a comprehensive insurance contract between the parties. (. . .)

2.The appeal court was wrong to find that the defendant had a liability of its own as negotiator of the comprehensive insurance, which is the only kind of liability that accordingly falls to be considered.

(a)According to the consistent case law of the Bundesgerichtshof, the duties arising from the statutory obligation relationship based on initiation of contractual negotiations by an agent apply in principle to the person the agent represents, and only exceptionally and in special circumstances to the agent as well [references omitted]. Even if a contract for a comprehensive ship insurance already existed in the present case, and it was therefore not a question of initiating a contract for the first time, these principles must nevertheless be applied. This was because the actions of the defendant, instigated by the claimant, had the objective of concluding another insurance contract—which among other things would be a partial instead of a fully comprehensive insurance, and for which the insured sum would be raised from DM400,000 to DM 1 million.

The exceptional cases in which the agent’s own liability can arise are usually so described as to require that the agent has a special economic interest in the conclusion of the contract, or that he has laid claim to personal trust to a special extent [references omitted]. Such exceptional cases have been found to be present on many occasions in the case law in respect of prospectus liability [references omitted] and used car dealers [references omitted]. Otherwise the case law of the highest courts is in general restrained, which takes account of the exceptional character of the liability [references omitted].

(b)The defendant had no special economic interest in the conclusion of the contract between the claimant and the insurance pool represented by the firm P.

The appeal court’s starting point, that not every economic interest—and in particular not one which is merely indirect—suffices for personal liability, is admittedly correct. Therefore it has repeatedly been stated that, for example, the interest

APPENDIX I: CASES 617

which the person acting has in obtaining a commission cannot fulfil these prerequisites [references omitted]. What is necessary is a relationship to the subject-matter of the contract which is so close that the person negotiating is, so to speak, acting in his own affair: that he is to be regarded as the economic master in the transaction [references omitted].

That cannot be assumed from the findings of the appeal court in the present case. A possible interest by the defendant in obtaining a commission—on which the claimant has partly relied at second instance—is not sufficient for this. In this connection, it has not even been established whether the defendant has received a commission from the comprehensive insurance pool at all. (. . .)

(c) The appeal court’s view that the defendant laid claim to special personal trust should also not be followed. In this respect the appeal court’s requirements are insufficient. It does not suffice for the personal liability arising on this basis that the contracting partner places special trust in the person negotiating. The case law of the highest courts requires that trust be claimed by the person negotiating [references omitted]. The agent must therefore by his conduct influence the other person’s decision. A general allusion to the specialist knowledge which he had does not suffice here [references omitted]. The agent must provide, over and above the general trust which arises in negotiations, an additional guarantee coming from him personally for the seriousness of the transaction and its fulfilment [references omitted]. These special prerequisites are not present as a rule in respect of employees [references omitted] and insurance agents [references omitted].

In the present case, the defendant did no more than respond to the claimant’s intimation that he wanted to change an insurance, which he did not describe in any more detail, by sending an employee to his office to obtain his wishes about amendment and to forward the ‘Notice of Amendment’ to the broker acting for the insurance pool. Even if the claimant had turned to the defendant in relation to all his insurance affairs, this would not give rise to a claim to special trust in the sense of the case law mentioned above. (. . .)

Case 33

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 5 OCTOBER 1961 BGHZ 36, 30

Facts

In 1958 the plaintiff building contractors did the gross construction work for a dwelling on land belonging to the defendant. They now sue for DM6134.60, the price of the work done.

The dispute is whether there was any contract between the parties for this work. In the written ‘building contract’ to which the defendant was a signatory, his con-

tractor was described as ‘Idealheim, Hans W, Architect.’ Idealheim was entered as a limited company in the commercial register after the contract was formed.

The contract recited, inter alia, that the defendant commissioned Idealheim to build to build a two-family house at a ready-to-move-in price, guaranteed by Idealheim, of DM32,000.

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According to the defendant, this contract showed that his only legal relations were with Idealheim; it was Idealheim that had commissioned the plaintiffs to build the house, acting in their own name through architect W. The plaintiffs should accordingly have claimed payment from Idealheim.

The plaintiffs counter by saying that they negotiated the building contract with W, acting as the defendant’s architect and representative, and that the defendant had empowered him to do so.

The Landgericht dismissed the claim, but the Oberlandesgericht allowed it in major part. The defendant appeals, and the case is remanded.

Reasons

I.

1.According to the Court of Appeal, the plaintiffs have no contract claim; they did however have a claim for unjustified enrichment.

According to the Court of Appeal, no contractual rights accrued to the plaintiffs from their negotiations with the architect W, either against the defendant or against Idealheim (or indeed against W personally). This is because the plaintiffs believed they were dealing with the defendant through W. As there was no evidence that W had intended to act as the defendant’s representative, there was a misunderstanding which prevented the formation of any contract. Since there was no contract, the enrichment conferred on the defendant by the building work executed by the plaintiffs was without legal ground.

2.These reasons are insufficient for holding the defendants liable to the plaintiffs in unjust enrichment.

(a)The Court of Appeal accepts that the defendant had a valid contract with Idealheim, whereby the latter was to build a dwelling for him ready for occupation and he was to pay Idealheim the stipulated sum.

Now for an enrichment claim under para 812 BGB there must be a direct transfer of value between the plaintiff and defendant. One the stated hypothesis, that is lacking in this case. It is true that the defendant’s land is enhanced in value by the plaintiff’s work, but he is not enriched at their expense, because for him the enhancement is not the result of the plaintiffs’ activity but of Idealheim’s performance of its contract with him, under which he became Idealheim’s debtor for the price.

If the defendant had a valid contract with Idealheim which obliged him to pay Idealheim, it is irrelevant to him whether or not there is a valid contract between Idealheim and the plaintiffs, whom Idealheim commissioned to do the work. Even if the contract between the plaintiffs and Idealheim is invalid, Idealheim is still the only person the plaintiffs can sue; the suit would have to be an enrichment claim, Idealheim’s enrichment consisting of its being freed from its contractual obligation to the defendant to the extent that the building was completed [references omitted].

(b)The only way the plaintiffs would have an enrichment claim against the defendant would be if nullity affected both the relations between the plaintiffs and Idealheim and the relations between Idealheim and the defendant; this is so whenever a benefit is conferred through an intermediary [RG JW 1945, 2459; other references omitted]. No such double nullity has been established by the Court of Appeal.

APPENDIX I: CASES 619

For this purpose it is unnecessary to decide whether misunderstanding did in fact prevent the formation of a contract between the plaintiff’s and Idealheim, although, as is shown below under II. 1, the Court of Appeal was wrong in law to hold that it did.

But certainly the findings of the judgment in question afford no basis for holding that the contract between Idealheim and the defendant was void or avoided, so as to relieve the defendant of his obligation to pay Idealheim.

II. But the plaintiffs’ claim is not necessarily unfounded just because no enrichment claim lies.

1.The Court of Appeal’s reasons for holding that no contractual claim arose because of the misunderstanding are also affected by error.

The Court of Appeal finds that the plaintiffs believed they were contracting with thee defendant through W as his representative. Further details in the judgment indicate that the plaintiffs could conclude that W was acting for the defendant from the way he behaved and the role he played. W’s declarations must therefore be construed as the declarations of a representative. Now whether a person is acting as a representative or in his own name depends, as always when it is a matter of construing declarations of intention in legal transactions, on the objective meaning of his declarations, ie what in all good faith they meant to the recipient. The Court of Appeal made everything turn on whether W was minded to act as representative or in his own name. That is wrong. His internal intention is not conclusive. It is true that there is some support in the literature for the Court of Appeal’s view that a person must have intended to act as agent before a contract can be formed through him [reference omitted], but this conflicts with the general principle that what counts in legal transactions is the will as declared (reference omitted). There is no reason why the general principle should not apply in the law or agency, too. Evidence that it does is provided by the terms of para 164 para 2 BGB. By that text the effects of representation ensue if the intention to act in the name of another is apparent; if it is not, the declarer must treat the transaction as having been concluded in his own name and cannot rely on the fact that he had no intention of so contracting. In the contrary case, where the declarer is apparently acting in someone else’s name but means to act for himself, there can be no reason for treating his inner intention, at odds with appearance, as crucial.

The error of law just pointed out must materially have influenced the conclusion of the Court of Appeal that the plaintiffs’ agreement with W was invalid by reason of this misunderstanding. It must therefore reinvestigate the contract which emerged from the plaintiff’s negotiations with W, and see whether the plaintiffs’ declarations and those of W coincide, be it on a contract with the defendant, represented by W, or a contract with W in his own name or in that of Idealheim.

2.If it then emerges that the plaintiffs contracted with Idealheim, they have no claim against the defendant, not even a claim for enrichment [reference omitted].

3.(a) But if the Court of Appeal finds that the plaintiffs contracted with W as the defendant’s representative, it does not necessarily follow that the defendant is liable. It would also have to be shown that the defendant was bound by W’s declarations as those of his representative.

The Court of Appeal held—and there was no legal error in so holding—that W was not specifically authorised by the defendant to contract with the plaintiffs on his

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behalf. But it has not asked . . . whether the defendant may not be estopped from disowning the conduct of W on the ground of ostensible or apparent authority (Duldungsvollmacht, Anscheinsvollmacht), doctrines invoked by the plaintiffs. Further investigation of the facts is needed before this question can be decided.

(b) It is possible that W acted in the name of the defendant without having any power to bind him, whether arising from actual, ostensible or apparent agency. W would then be liable to the plaintiffs under para 179 BGB, since the defendant has not ratified the contract, but the plaintiffs would have no claim against the defendant, not even a claim for enrichment. No doubt one may have a claim against the party represented as well as a claim against the unauthorised representative under para 179 BGB; this was laid down by the Reichsgericht [reference omitted], has met with general approval [references omitted] and is in principle unobjectionable. But it remains true that no enrichment claim lies against the party represented if (1) he himself has concluded a contract with the person who appeared as his representative, though unauthorised, and (2) he had, arising from this contract, a right as against the unauthorised agent to the performance rendered by the third party, and (3) he is obliged to pay the unauthorised agent. In such a case he would not be enriched at the expense of the third party (see above I. 2 (a)), whose legal relations with his contractor are quite immaterial to him. Thus even if the facts which trigger para 179 BGB are given, there can be no claim for enrichment, provided, as the Court of Appeal held, that there was a valid contract between Idealheim and the defendant which obliged the latter to pay the former.

Case 34

BUNDESGERICHTSHOF (FIRST CIVIL SENATE) 12 FEBRUARY 1952 BGHZ 5, 111

Facts

On 17 and 18 April 1949, at two days on which football was being played. the claimant filled in three football pool coupons from Sport-Toto GmbH, the defendant, and handed them over with the corresponding stake money of DM15 to the owner of the restaurant Sch in K. Mrs Sch had not been appointed by the defendant as a betting office, but had been commissioned by W, the defendant’s betting office in W near K, to accept bets. She accepted the coupons, affixed the respective stake stickers unto them and marked them with the defendant’s stamp She handed over to the claimant the A sections of the coons for the participant to keep Sections B and C of the coupons for two entries, intended for the defendant were forwarded by her, but those for the third remained at her place and were found there after Sport-Toto’s final accounting for the event. This third entry had won a total of DM22,500. By registered letter of 22 April 1949, the claimant sent the defendant the A sections of the coupons for this entry in his possession and demanded payment of his share in the winnings. The defendant refused payment, since the coupon parts B and C had not been received in time by the central office in Koblenz and not gone through the proper checks as set out in the agreed betting terms. The then applicable betting terms as printed in excerpts on the reverse of the coupons stated:

APPENDIX I: CASES 621

‘Art 5 As long as in special cases no other provisions have been agreed, the stake and the coon must be in the possession of Sport-Toto GmbH no later than Friday, 6 pm. All coupons received thereafter are invalid.

Art 8 The risk and hazard inherent in correct receipt of the coupons by Sport-Toto GmbH is borne by the participant.

Art 9 Without any right of defence, coupons will not participate in the event which

(a). . .

(b). . .

(c)have not yet been received by Sport-Toto GmbH by the close of the counting of all participants in each event. . . .

(d). . .

Art 13 All appeals against the determination of winners must have been received by the Central Office within 10 days after the day of the event. . . .’

These conditions were later amended.

The claimant brought an action for payment of his partial amount totalling DM6,100. The defendant refers to the fact that receipt of the coupon sections by the central office is a precondition for any claim for a win and that the risk and hazard involved in such receipt taking place lies with the participant. A receipt by the betting office alone does not suffice. Furthermore, Mrs Sch had no authority to accept bets. Both lower courts have rejected the claim. The further appeal results in a quashing of the judgments; the case is referred back for further deliberations.

Reasons

The appeal court bases its decision on the assumption that a valid betting contract was concluded by the parties. It leaves undecided whether the restaurant Sch had been a betting office recognised by the defendant, or the defendant had generally prohibited the setting-up of sub-offices or had known of Mrs Sch.’s activities. It merely states that the defendant had in any case accepted and treated as valid coupons to which Mrs Sch had affixed with the stake stickers and which she had subsequently stamped. From this fact the court deduces that the defendant must therefore accept the consequences arising from the appearance that an authority legally existed. The appeal court also presumes a timely receipt of the claimant’s coupon in the sense of Art 5 of the betting conditions, but it holds that the claimant’s right to his win has lapsed since the pre-requisites of Art 9 c are not fulfilled as the particular part of the coupon had not reached the defendant’s central office in time. In view of Art 8, the appeal court rejects the award of damages for vicarious liability. The participant had accepted all risks and hazards for a timely arrival of the betting coupons at the defendant’s office. The defendant had thus excluded any vicarious liability in respect of the coupons’ transmission.

Presuming initially, as the appeal court does, that it appeared as if Mrs Sch, the landlady of the restaurant, had been legally authorised, and that a legally valid betting contract had been concluded, the interpretation of the respective betting conditions on which the appeal court bases its decision can however not be followed. These conditions are typical terms of contract on which the defendant without exception based all its betting contracts. They were printed on the contract forms. The court of further appeal has the unrestricted right to interpret such terms of contract.

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If the landlady Sch must be regarded as one of the defendant’s betting offices with full powers of agency, then in the absence of any expressed limitation, her apparent authority covered receipt of all declarations to be made to the defendant and also the performance of all actions which were necessary in order to claim a win. A restriction of such authority can especially not be deduced from the fact that the defendant, in Arts 5, 8 and 9 of the betting conditions, sometimes refers to the Sport-Toto betting offices and sometimes to Sport-Toto GmbH as recipients for the betting coupons. There is no apparent intention to differentiate between these two kinds of recipients. According to Art. 5 in particular, the betting offices are empowered to accept the entire coupons with all their sections, as the appeal court rightly presumed. It is only in Art13 that the period of time, during which any objections may be raised, is clearly linked to the receipt of the coupons by the central office.

A sufficiently clear distinction can also not be derived from the fact that the provisions of Arts 5, 8 and 9 would partially overlap if one were to assume that the Toto betting offices and Toto GmbH are on an equal footing. General conditions of contract like these are not always the result of a full and correct legal study of the situation and thus do not per se justify the application of strictly logical principles of interpretation, as is necessary in the case of legal provisions. They are directed at a wide audience of contractual partners most of whom are unfamiliar with the law, for which reason they must be precise and clear without recourse to logical deductions. Furthermore, there is still scope for the application of Art 9 c in addition to Art 5, even if one equates the Toto betting offices with Toto GmbH, ie in those cases, which are exempt from the general rules of Art 5; and Art 8 remains applicable for cases in which the participant does not use the betting offices for the transmission of the coupons. In any case, the wording of Art 8 does not make it absolutely clear that the defendant, by this provision, intended to exclude liability for his own fault and those of his agents in respect of the transmission of coupons, a task which he had taken on himself and over which the participant had no influence whatsoever. If the defendant intended that these provisions meant something else, he has not made this sufficiently clear. The defendant carries the risks for any possible doubt in respect of the wording, since he could have phrased the provisions more precisely (see RGRKomm, note 3 to para 157, 9. ed, p 343; RGZ 120,18 [20]; RGZ 145, 21 [26]). Given the present wording of the betting conditions, the participant could assume that he had fulfilled all preconditions for claiming a win once he had handed in the betting coupon at the betting office in time.

Nonetheless, the claim is not yet ready for a decision along the line of the court of further appeal’s reasoning. The appeal court’s findings insufficiently prove the landlady Sch’s authority as a result solely of the appearance of such a right. Against the principal, the contractual partner can plead such apparent authority in cases, where he could assume in good faith that the principal knew and tolerated the behaviour of the agent who acted for him. The appeal court held without error in law that this was so in respect of the claimant, who not only received the betting coupons from the landlady Sch, but also recognised that she held the defendant’s stake stickers as well as the stamp to cancel them. But the court fails to realise, that a further pre-requisite must be present on the part of the principal, ie that he, if using all necessary care, should have realised what the agent was doing and could have prevented it (see RG HRR 1931, 529; Düringer-Hachenburg HGB Part I, 479; Staudinger, 10 ed, note 9 to para 167).

APPENDIX I: CASES 623

Case 35

BUNDESGERICHTSHOF (ELEVENTH CIVIL SENATE) 29 JUNE 1999 NJW 1999, 2883

Facts

The claimant demands from the defendant the remainder of a savings account credit balance, which the defendant paid out to a person authorised by the claimant. The claimant, who was at that time aged 70, had a savings account at the S savings bank which, in early 1992, showed a credit balance of about DM150,000. In April 1992, she opened a savings account with the defendant, for which she gave a full power of attorney to her doctor, Dr D. According to her evidence, he had offered to the claimant that he would invest her savings at a higher rate of interest with a bank in Luxembourg, and claimed that a minimum sum of DM200,000 was necessary for this. The credit balance invested in the S savings bank was transferred in May 1992 to the new savings account with the defendant. Besides this, the claimant took out a loan in the sum of DM50,000 from the S savings bank. The claimant gave the amount of the loan to Dr D, who paid it into the claimant’s savings account with the defendant. The savings account therefore showed a credit balance of a total of DM203,041.90. A few days after the transfer of the credit balance, Dr D’s wife terminated the savings account. She arranged for DM3040.90 to be paid to her in cash. She paid DM200,000 immediately to the defendant to discharge loans owed to it by her husband. Dr D, who had intended to use the money in this way in breach of the agreement from the start, was amongt other things given a total sentence of three and a half years for deceit in respect of it. In an action between the claimant and Dr D, Dr D made a commitment in a settlement to pay a part sum of DM80,000, and this payment was made. The claimant demands from the defendant reimbursement of the remainder of her loss in the sum of DM121,040.90. The claimant is of the view that the defendant should not have made the payments to Mrs D, so her (the claimant’s) claims to repayment of the credit balance continued to exist. The defendant claims that the payment out of the credit balance had effected a release, because the claimant had granted Dr D a comprehensive power of attorney in respect of the newly opened savings account.

The Landgericht rejected the claim. The appeal court amended the judgment of the Landgericht, ordered the defendant to pay DM50,260.22 and rejected the claimant’s appeal in other respects. The claimant is pursuing her case further in the appeal in law. The defendant by its cross appeal seeks the complete rejection of the claim. The claimant’s appeal in law was well founded. The defendant’s cross appeal was unsuccessful.

Reasons

I.

1.(. . .)

2.These deliberations do not stand up to legal examination. The claimant, as creditor in respect of the credit balance, has a claim to the payment out of her credit balance (§ 607 BGB). The appeal court did not take into consideration the fact that the claimant was not obliged to let the withdrawal by Dr D’s wife, on the instructions of

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Dr D as the person authorised to operate the account, take effect against her, the claimant, as he misused his authority.

(a)According to the consistent case law of the Bundesgerichtshof, the principal must in principle bear the risk of misuse of an authority. The contracting partner does not have a duty to examine whether and to what extent the agent is bound in the internal relationship (with the principal) only to make limited use of his agency power— which is unlimited as against third parties. The principal is however protected in his relationship with the contracting partner against a recognisable misuse of the agency power, if the agent has made use of his agency power in an obviously dubious manner, so that the contracting partner must have well-founded suspicions of a violation of good faith by the agent against the principal. A substantial incriminating circumstance is necessary here, presupposing objective evidence of misuse [references omitted]. The objective evidence will in particular be present when, in the given circumstances, the need for the other party to the transaction to query this with the principal is simply unavoidable [see Schramm in Bankrechts-Hdb § 32 marginal no 24 with further references].

(b)These prerequisites are present here. It is true that establishing them is a matter for assessment by the judge of fact, and can only be examined to a limited extent in appeal in law proceedings. But, in any case, the issues of whether the concept of objective evidence was misunderstood, and whether significant circumstances were left out of account in the assessment, are subject to examination. If that is the case, the court determining the appeal in law can undertake the assessment itself, if the findings of the appeal court give—as here—a completed picture of the facts (see, on this, Senate NJW 1992, 316 [317] = LM H 6/1992 Art 16 WG no 5).

The defendant knew that the credit balance invested by the claimant with it had been increased by DM50,000 to DM200,000 by the take-up of a loan to the claimant. The claimant gave to her doctor (and not, for instance, to a member of her family) a comprehensive power of attorney. This was used only a short time after the opening of the account (and only a few days after the crediting of the main sum of 150,000 DM) to terminate the savings account in order to discharge personal loan obligations by the attorney to the defendant. As the appeal court correctly emphasises, if the claimant had wanted to discharge the personal debts of her doctor with the credit balance, there would have been simpler ways of doing it. This is not a question of a normal everyday event in banking business. The event is so striking that suspicion of a misuse of authority should have forced itself on the defendant as the claimant’s contractual partner. The use of an authority for one’s own purposes as a rule gives cause for paying attention. In the circumstances present here, there were strongly suspicious elements which indicated a diversion of the sums of money withdrawn, and suggested that the agent wanted to siphon these away from the principal in abuse of his authority. The defendant should have in particular been distrustful because it was a savings account which had built up a substantial credit which the person entitled usually intends to use for his own investment purposes, and not to discharge the debts of the person with power to operate his account. These doubts necessitated the raising of questions with the claimant. The defendant should, in view of this, have set aside its own financial interest in the discharge of the loan granted to the attorney.

(c)As this is a case of misuse of authority, the defendant does not deserve protection for its reliance on the existence of the agency powers. The claimant as principal

APPENDIX I: CASES 625

does not have to permit the agent’s legal transactions to take effect against her (consistent case law—see senate [references omitted]). The claimant’s claim to have the contents of the account paid out to her was not extinguished by the withdrawal by the attorney, and still exists.

(d) There is a single case in which the view was put forward that, on misuse of an authority, the disadvantageous results of the agency were to be split in accordance with the fault existing on both sides, applying the legal concept in § 254 of BGB [references omitted]. There is no need to decide whether this view should be followed. The claimant’s grant of a power of attorney cannot by itself be rated as a culpable co-operation in the misuse of the authority. (. . .)

3. (. . .) The whole of the claim should be allowed. (. . .)

Chapter 3

Case 36

REICHSGERICHT (EIGHTH CIVIL SENATE) 2 FEBRUARY 1931 RGZ 131, 274

Facts

The defendant owned two adjoining houses in Hamburg, K St. nos 66 and 67. In no 66 the plaintiff had been running a jewellery shop since 1921, when he had taken it over at a premium from a stamp dealer. At the end of 1929 the defendant rented a shop in no 67, two shops away from the plaintiff’s, to L, another jeweller, who has been selling jewellery there since then. The plaintiff now seeks an injunction against the defendant, forbidding him to allow any jeweller but the plaintiff to do business on his premises, and ordering him to make L quit, on pain of a judicial penalty.

The Landgericht dismissed the claim, but on the plaintiff’s appeal, the Oberlandesgericht allowed it, though with no judicial penalty. On the defendant’s appeal, the decision below was reversed and the case remanded.

Reasons

The Court of Appeal was right to hold that the plaintiff was the defendant’s tenant, even though the tenancy agreement was never put in writing as was envisaged when the plaintiff moved in. The rent of M6000 per month, which was to have been put in the written contract, was agreed between the parties, and all other statutory requirements were met. The court therefore held that the question whether the defendant was free to allow competitors of the plaintiff on his premises depended on para 536 BGB. In applying this text, one must take account of normal commercial practice and the special circumstances of the case; but the court added that it was the ‘correct’ legal view that mattered, not the law and practice as it was at the time of the lease.

This approach, as the appellant argues, misconceives the role played in the construction of contracts by the normal commercial practice referred to in para 157 BGB, and overlooks the fact that in the law of obligations, terms implied by statute

626 APPENDIX I: CASES

can normally be ousted by the actual agreement which the parties, in agreement with normal commercial practice, have formed. Likewise, it was in breach of paras 133, 157 BGB, as well as para 286 ZFO, that the Court of Appeal ignored evidence pertaining directly to the position of the parties on the matter of competition when they were concluding the contract: the defendant asserted that at the time the plaintiff moved in, he had drawn his attention to the fact that Th had a jewellery shop in the same building, and that the plaintiff had replied that that was beneficial rather than the reverse, for there were already quite a few jewellery shops in K St, and the customers this brought to the street always went wherever the best bargain was to be had. In saying that this evidence only showed that the plaintiff could not complain of the shop being run by Th, the court ignored its most vital part, namely the plaintiff’s answer.

Furthermore we must agree with the appellant that the Court of Appeal pitched the statutory obligations of the landlord too high. The Reichsgericht has never said that the landlord’s obligations to provide a thing fit for contractual use (paras 535, 537 BGB) necessarily include the duty to protect the commercial tenant from real competition, not just on the rented premises but on all premises under the landlord’s control. In RGZ 119,353, the tenant had taken a 25-year lease of premises in a building under construction; he was to use it as a cigar shop, and at the time of the contract the landlord had expressly undertaken that there would be no other cigar shop in the building. The landlord’s successor then built a kiosk for the sale of cigars and other commodities directly in front of the shop rented to the plaintiff, and blocking the public view of it. Although in that case the competition was taking place on land outside the rented premises, the landlord’s successor was held to be in breach of his duties under para 242 BGB in encouraging competition in this manner. This decision does not however justify the generalisation made by the Court of Appeal below.

In the case of a contractual licence it is quite clear that, provided it remains possible for the commercial tenant to use the premises for the permitted purposes, the landlord is not bound to promote or protect the advantage which the tenant expects from them (HGZ 91, 54; 91, 31O; 94, 267). With particular reference to competition, the judgment in LZ 1914, 1028 states that the tenant is not normally entitled to have competitors kept out of the leased premises. Only if the contract is a special one, as evidenced by its express terms, the arrangement of the premises (as in the case of a public house) or some other consideration [reference omitted] will the landlord come under any such duty under paras 157, 242 BGB, and indeed, if the circumstances are very special, as they were in RGZ 119, 353, he may be in breach of contract (in the sense of para 242 BGB) if he permits competition, outside the leased premises. But a landlord who owns several pieces of property does not normally, in letting one of them, promise not to permit competition in any other: to hold otherwise would make for difficulties in view of the fact that on the sale of any property, the landlord’s duty devolves separately to its purchaser under para 571 BGB.

The Court of Appeal was therefore in error; the statutory duty to afford the tenant the use of the leased property does not of itself embrace an obligation to protect him from competition, although in a special case such an obligation may arise under para 242 BGB, as well as paras 133, 157 BGB. But in applying paras 157 and 242 BGB, one must take into account all the relevant circumstances and not, as the Court of Appeal did, just the needs of the contractual licensee; it would be a severe restriction on the

APPENDIX I: CASES 627

rights of the owner of property in a street devoted to one kind of business if he could not let his property to the practitioners of that very business.

In this case we cannot establish and define the defendant’s duty without a fresh evaluation of the interests of both parties, and an examination of the way the contract between them came into being. If it appears that the defendant should have taken some account of the plaintiff’s interests when he was letting no 67, then one must look into his contract with L in order to see whether he can really be expected to terminate it, and perhaps pay L an indemnity. While the appellant is wrong to say that such a remedy lies only for faulty breach of contract and not in specific performance, it would nevertheless be an unacceptable extension of the landlord’s duty to protect his tenant from competition to hold that although the defendant was not guilty of any faulty breach of contract, he was nevertheless bound, as against the plaintiff, to terminate his contract with L, no matter what the cost. On the question of breach of contract, the appellant is right to point out that the letters of the parties in September 1929 must be taken in to account. The case must be decided afresh in the light of these observations.

Case 37

BUNDESGERICHTSHOF (FIRST CIVIL DIVISION) 15 JUNE 1956 BGHZ 21, 66

Facts

Both parties were engaged in selling books through book clubs. They advertised by using abbreviations of their firm name. The plaintiff called itself ‘German Home Library,’ the defendant chose the name of ‘Stuttgart Home Library.’

A book club bearing the name of ‘German Home Library’ existed from 1916 until 1945. Since its owner at that time had been the official publisher of the National Socialist Party, the business was taken over by the Allied Control Commission and was continued subsequently in reduced form under the name of ‘Hamburg Book Circle.’ In 1949 the business of the ‘German Home Library,’ including all its assets and liabilities, was transferred to a German trade union, which founded a new firm which began operations on 2 July 1950 and advertised under the name of ‘German Home Library.’

The defendant was established on 4 June 1949 and took on the firm name of ‘Stuttgart Home Library’ on 24 August 1949.

The plaintiff contended that he was the successor of the business established in 1916, that the term ‘Home Library’ had acquired the reputation of a slogan identifying it with the plaintiff and had been accepted as such by the book trade and by the reading public. He alleged that 12 BGB (name and para 16 of the Law of Unfair Competition and para 25 of the Trademark Law) had been violated.

The defendant denied that the plaintiff was the successor of the original business carrying the name ‘German Home Library.’ He also claimed that the plaintiff could not claim the name ‘Home Library’ as his own, but, at best, only that of ‘German Home Library.’ However, no danger of confusion existed between that name and the name of the defendant. In any event, due to laches the plaintiff had lost any right to

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complain about a possible confusion, seeing that, as a result of several years of advertising the defendant had acquired a valuable position which was protected in law.

The District Court of Hamburg gave judgment for the plaintiff. The Court of Appeal of Hamburg rejected the claim. On a second appeal by the plaintiff the case was referred back for the following reasons.

Reasons

. . . Among the points to be considered by the Court of Appeal in respect of the remaining question of laches (Verkwirkung) . . . the following must be noted:

I. As this Court had stated several times, following a constant practice of the Reichsgericht [references] the doctrine of laches starts from the notion that the person committing the injurious act was entitled to assume in the particular circumstances of the case that the injured party was prepared to tolerate the permanent use of the description in issue with the result that a belated claim based on tradeM, get-up or other rights of identification of the injured party was contrary to good faith. Contrary to earlier practice the Reichsgericht in its later discussions required no longer for a defence of laches to be successful that the party committing the injury must have obtained common acceptance of his use of the description; instead it is regarded as sufficient if the party committing the injury is in a state of possession which deserves protection [references]. This practice has been attacked by a number of writers especially in the post-war period [references]. This Division has not taken a final position on this question. In so far as the present facts should give rise to the Court of Appeal to consider this question the following general observations should be noted.

This Division does not regard it as necessary in every case that the description in issue must have obtained at least a geographically limited public acceptance [references]. Also the protagonists of the opposite view must admit that the acquisition of a public reputation cannot, as such, justify the defence of laches. Thus Reimer [references], among others, requires that the injured party must have tolerated the injurious act in the knowledge, or in the culpable ignorance, of the public recognition does not matter by itself; it matters, in addition, whether or not a balancing of interests in the particular case, having regard to all the circumstances governed by the principles of good faith in accordance with para 242 BGB, justifies the rejection of the defence of laches. It becomes clear that satisfactory results can only be achieved by this method if a situation is envisaged in which the injured party behaved unquestionably in a manner which entitled the injuring party to believe that his acts were being tolerated; in this case he cannot be blamed under any circumstances for having built up a valuable possession [references]. Simply to deny the injuring party the defence of laches in such a case on the ground that public recognition had not yet been acquired would not be in accordance with equity. This is so, in particular, if having regard to the size of his business and the extent of his advertising campaign determined thereby, the injured party could not even acquire public recognition of the disputed description if only in a limited area, or could only do so after a comparatively long time. In order to allow the defence of laches it is therefore unnecessary as a rule that the injuring party should enjoy a full right; instead it is sufficient, following the more recent practices of the Reichsgericht, that a more continuous, honest and undisturbed use of a description has created a situation which is of important value for the customers, which should be

APPENDIX I: CASES 629

retained by him according to good faith and which even the injured party cannot context, if he had facilitated it by his conduct [references]. The observation [references] to the effect that it is unjust if the registered owner of a mark may have to give way, even if the injuring party cannot even assert his right against a third party, does not suffice to support the opposite view. The notion of laches applies not only in the law of trade M and of Unfair Competition, but constitutes an aspect of the admissible exercise of rights, which is valid in all branches of law. The decision must not rely on absolute standards, in the present case on the acquisition of an exclusive right towards third parties. Instead it may accord entirely with equity if the injuring party is not restricted in his defence against a careless holder of a right, even if the injured party is unable to proceed against third parties on the strength of an exclusive right of his own. It is evident that in considering the prerequisites outlined here for admitting the defence of laches judicial discretion may be exercised broadly and that the parties feel a certain element of uncertainty as to the outcome of the dispute. In this respect matters are not different in all other branches of law where the notion of good faith is in issue, that is to say when the facts in their manifold variety do not lend themselves to be judged by a system of rules which are fixed once and for all. Consequently there is no reason why the defence of laches should be judged by different standards and made to depend on different conditions, in the law of TradeM and Names, which may lead to grave injuries in individual cases. On the other hand, it would be wrong to assume that the continuation of the more recent practice of the Reichsgericht may be intended to facilitate a successful plea of the defence of laches. No such effect is either intended or to be feared if the courts weigh and examine all these circumstances which are required according to the principles developed by the practice of the courts, before the defence of laches can operate.

Case 38

BUNDESGERICHTSHOF (FIFTH CIVIL DIVISION) 25 MARCH 1965 BGHZ 43, 289

Facts

The Area Court (Amstgericht) in Liebenburg, acting as special court in agricultural matters (Landwirtschaftsgericht) by an order of 29 June 1948 gave its consent, as required by the Procedure Regulations in Agricultural Matters of 1 January 1948 (LVO) to a contract whereby the owner of a farm agreed to transfer it to her two brothers in order to be divided into two separate farms. The conveyance never took place. Instead, pending an exchange of parcels, the brothers took a tenancy of the farm.

The Court’s consent was communicated informally to the two District Agricultural Offices (Kreislandwirtschaftsamt) in whose area the farm was situated and to the notary acting for the parties. In the course of a dispute in which the validity of the local court’s consent had been challenged the local court served, on 11 April 1963, the order embodying its consent on the Agricultural Chamber (Landwirtschaftskammer) which was the superior authority in agricultural matters, competent to receive the notice in question. The latter appealed in time to the competent court, the Court of

630 APPENDIX I: CASES

Appeal in Braunschweig, which dismissed the appeal on the ground that it was an abuse of legal process. On a second appeal in point of law the order to the Court of Appeal was quashed and the case was referred back for the following reasons.

Reasons

. . . The decision depends on whether the lodging of the appeal constitutes an abuse of legal process. Contrary to the opinion of the Court of Appeal this is not the case.

It is recognised in practice and in the literature that the principle of good faith which permeates substantive law (para 242 BGB) applies also in the law of procedure, not only in litigious proceedings, but in non-contentious litigation (Freiwillige Gerichtsbarkeit) and therefore also in proceedings involving agricultural holdings [references]. There are cases in which appeals not limited in time cannot be lodged after a disproportionately long interval. The late lodging of an appeal may offend against good faith which justifies the treatment of the appeal as inadmissible. In such cases it is also said that the right of appeal has been lost through laches (Verwirkung), which constitutes a special case of abuse of right. The passage of time must be accompanied by other circumstances, if a late entry of an appeal is to be regarded as final the situation created by the decision appealed against in the absences of an appeal, and were justified in so thinking [references].

The appeal in proceedings concerning agricultural holdings must be lodged within two weeks, beginning with the day when the order was served [references]. An . . .

appeal which is lodged after the time limit has passed is inadmissible.

According to the practice of the courts the loss of a right to appeal due to laches is not restricted to appeals which are unlimited in time but has also been allowed where the appeal was subjected to a time limit [references]. The question of laches may arise, for instance, if the service of the order was invalid owing to some omission and if therefore the time for lodging an appeal had not started to run, with the result that the appellant knew of the decision and delayed lodging an appeal for such a long time that in the particular situation it is contrary to good faith to lodge it now. Here also the mere fact that a long period of time has passed is insufficient to constitute laches. No general principle is embodied in the legislation to the effect that a decision can no longer be appealed against after a certain time has passed irrespective of whether the decision has been served nor not. Instead a time limit for appealing against judicial decision must be provided for expressly, as it was done for certain situations [references] which issue need not be considered here [references]. The fact that the parties to the agreement assumed at all times that the contract had been approved with legal effect is of no decisive importance, if only for the reason that the planned division of the farm has not taken place hitherto and that after the conclusion of the contract it has been run by the two brothers of the owner together. The fact is decisive that the Agricultural Chamber only came to know of the approval of the contract when the decision was served on it as late as 11 April 1963. For this reason alone the appeal which has been lodged in time cannot be regarded as an inadmissible exercise of legal process, even if many years have passed since the decision was pronounced . . . It is also not possible to agree with the Court of Appeal that the Agricultural Chamber must be deemed to have cognisance of the decision of the area court for along time. The question is irrelevant as to whether the Agricultural Chamber could have

APPENDIX I: CASES 631

obtained cognisance without difficulties of the decision which should have been served on it. The Agricultural Chamber was under no obligation to make any such enquiries. The Court of Appeal fails to consider that it is the duty of the court to serve judicial decisions. The Agricultural Chamber [references] could assume that decisions which had not yet been served on it [reference] would be served on it subsequently.

Case 39

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 22 FEBRUARY 1984 BGHZ 90, 198

Facts

The claimant is the German marketing company of an Italian manufacturer of construction cranes. It sold to the defendant, which carries on a building enterprise, a revolving tower crane of Type E 231 produced by these manufacturers for stationary deployment. In discharge of the purchase price of DM84,399.70, the defendant paid DM25,000 as a down payment and by agreement traded in its used crane, the value of which the parties have accepted as DM45,200. The defendant refuses to pay the remainder of the purchase price of DM14,199.70, which the claimant claims in the present action along with other demands. It relies on (. . .) the absence of a type approval for the crane delivered on 5 July 1979. (. . .)

Reasons

II.

1.The appeal court considers the defendant’s claim to rescission to be justified, because the crane as delivered was defective (§ 459 (1) [§ 434] BGB). (. . .)

2.These deliberations of the appeal court do not stand up to legal examination in every respect.

(a)A mistake in the sense of § 459 (1) [§ 434] BGB occurs when the factual condition of the sold object deviates from what was agreed in the sale contract, and this deviation destroys or lessens the value of the object, or its fitness for its usual use or its use assumed under the contract. What was contractually assumed here was the delivery of a crane which had already undergone a type examination on the part of the manufacturer in the sense of § 25 (2) of the UVV (‘cranes’), and was therefore immediately ready for use. The appeal court assumed, as did the defendant, that there was a duty of this kind. That is not challenged by the appeal in law, because the claimant itself has not at any time denied such a duty. On the contrary it made an attempt—admittedly doomed to failure—to fulfil its contractual duty in this respect at the time when the crane was delivered by handing over a type examination approval of 2 August 1977.

(aa)The appeal court has correctly assumed that the claimant could not fulfil its duty by handing over this document. (. . .)

(bb)Nevertheless it has not been established that the crane was also defective (. . .) at the point in time of delivery. (. . .)

(b)If on the other hand the appeal court’s view that there was a defect in the thing were to be accepted, the defendant would acquire a right of rescission (. . .). It could

632 APPENDIX I: CASES

not however rely on this after the supply by the claimant during the course of the first stage of the legal proceedings of a valid type approval of 22 January 1980 for the model of crane delivered.

It is admittedly disputed (as, in the nature of things, a case of this kind seldom arises) whether the right of rescission comes to an end if a defect which is present when the risk passes has disappeared by the time rescission is effected [references omitted]. This question has not been decided by the Bundesgerichtshof, and does not need a conclusive discussion here either. This is because the defendant’s insistence on the right of rescission appears to be an impermissible exercise of a right in violation of the principles of good faith (§ 242 BGB).

(aa)According to the findings of the appeal court the defendant took the crane into service following on its delivery on 5 July 1979, and used it until the beginning of December 1979. The fact mentioned in its reply of 22 October 1979 that the permission number of the ‘TUEV’ (Technical Surveillance Association) (. . .) was not impressed on the crane has not deterred the defendant from further use of the crane nor caused it to make an immediate declaration of rescission to the claimant. It made up for failing to do the latter only by its written statement of 30 January 1980. This was however at a time when the original uncertainty about the validity of the type approval of 2 August 1977 was objectively removed by the supplementary certificate given to the manufacturer on 22 January 1980, and there were no longer any obstacles to the further use of the crane. In such a case, further pursuit of a possible right of rescission amounts to an impermissible use of a right under § 242 BGB.

(bb)It is not possible to draw any different conclusion from the fact that the defendant, when it made its rescission declaration, possibly still had no knowledge of the supplementary certificate of 22 January 1980. (. . .) This is because in a case like this in which the defect did not consist of an impairment of the substance of the thing, and has been removed without any risk of untoward consequences by the supplementary certificate, it is only a question of the objective circumstances. The purchaser is not accused of consciously dishonest conduct. Exercise of the right is only impermissible because it would no longer correspond to a proper protection of the interests involved. That applies even if claims against the claimant to compensation for delay (§ 286 BGB) or for positive breach of contract might have accrued to the defendant because of delayed supply of the supplementary certificate. In these proceedings this admittedly is not to be proved because the defendant has not raised such claims. But possible claims to compensation could exist independently of the right of rescission. Their existence would therefore not be linked with denial of the defendant’s access to the right of rescission by the principle of good faith. (. . .

Case 40

REICHSGERICHT (SEVENTH CIVIL DIVISION) 3 DECEMBER 1920 RGZ 101, 47

Facts

The plaintiff ussed the defendant for transactions with end-of-month settlement. Arising from this business relationship, in February 1916 the plaintiff owed the

APPENDIX I: CASES 633

defendant RM34,111.50. By notarised certificate of indebtedness of 26 February 1916, he acknowledged this debt and undertook to repay it by an agreed schedule of instalments (details on dates of instalments due). As collateral security he pledged some securities, among them 25 shares of the Petersburg Internationale Handelsbank, abbreviated to Peter Inter. He agreed to an immediate execution of the title should this become necessary. On 12 December 1917, the plaintiff ordered the defendant to sell the Peter Inter in his possession since, as a result of the troubles which had started in Russia, a sharp slump in the share price was to be expected. He also ordered the purchase of shares in Phönix (RM 5,000) and Norddeutsche Lloyd (RM 5,000) as replacement, likewise to act as collateral security. The defendant refused to carry out the instruction. The plaintiff submits that the defendant’s behaviour was in breach of good faith and led to considerable losses. The plaintiff was not able to redeem the Peter Inter shares before 12 August 1918, when he could sell them at a price of only RM112, whereas on 12 December 1917 a price of RM149 1/2 could have been obtained. Furthermore, if the Phönix shares had been bought on 12 December 1917 a 40 per cent profit could have been made, since in May 1918 the plaintiff had sold other Phönix shares he held at a price which was 40 per cent higher than the December 1917 price. After deduction of an undisputed claim which the defendant has against him, the plaintiff demands payment of RM4581.50 plus interest. In addition, he requests a declaratory judgment to the effect that the defendant has no further claims from their business contacts and that he is therefore not entitled to execute the document of 26 February 1916.

Both lower courts have found according to the plaintiff’s claim. The defendant’s further appeal was rejected for the following reasons.

Reasons

The legal findings of the Kammergericht are to be upheld which state that the defendant needed to comply with the plaintiff’s request, ie to exchange 25 shares of Peter Inter, which the defendant held as security, for RM5000 worth of shares in Phönix and Norddeutscher Lloyd, each worth RM5000.

It is an established fact that in December 1917, as a result of a price slump, a considerable reduction in the value of Peter Inter shares could have been expected. Based on para 1218 BGB, the plaintiff as pledger of the share certificates could demand to have these shares returned in exchange for other securities. If at that time the plaintiff had offered the defendant RM5000 worth of Phönix shares and RM5000 of Norddeutsche Lloyd shares against the return of the Peter Inter, the defendant could not have refused the exchange since, as the Court of Appeal ascertained, these exchange documents represented at least the same amount of security as the Peter Inter. No slump in prices was to be expected in respect of the substitute shares. The defendant had no claim to greater security than the one represented by the Peter Inter shares in December 1917. In particular, he had no claim to have these exchanged for gilt-edged securities. In commercial terms the same result would have been achieved if the defendant had himself carried out the substitution which the plaintiff had requested, ie if he had sold the Peter Inter on the stock exchange and bought the replacement shares with the proceeds and then kept these as collateral security. The defendant alleges that he was under no obligation to accept the instruction since a

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banker is not committed to accept orders for share dealings. However, this is not the point here. Whether or not and to what degree, in view of commercial usage, a banker is permitted to refuse share-dealing orders can be left unanswered. In this context the only question that needs to be answered is whether the holder of a collateral security, whether a banker or not, must co-operate when a risky security is to be exchanged for a safer one of equal value, and, as here, in the manner as instructed by the plaintiff. The plaintiff’s order was addressed to the banker not only in his professional capacity but also in his capacity as contractual partner and plaintiff’s pledgee. It was this contractual relationship with the plaintiff which gave rise to special obligations. By his unreasonable refusal to accept the plaintiff’s commission, the defendant has culpably infringed his contractual obligations.

There is no need for further reasoning that a contract of pledge gives rise to obligations for the pledger as well as the pledgee. Similarly, the principle of good faith (para 242 BGB) applies to the way in which the pledgee meets his contractual obligations. Para 1218 sets out the pledgee’s obligation to return the pledged documents in return for other securities where a considerable reduction in the value of the pledged documents is to be expected. This provision is in itself a practical application of para 242 (RGZ 74, 151). Although para 1218 does not explicitly state that the pledgee needs to co-operate in the legal transactions required for a substitution of the pledged documents, in the light of the principle of good faith, circumstances such as these can demand a duty to co-operate.

The principle of good faith is mainly a question of weighing up both parties’ interests. Where the defendant’s co-operation in the exchange of the pledged documents was required because of the plaintiff’s urgent needs and where this could be achieved without any risk to the pledgee, it was a breach of good faith for the defendant to refuse to co-operate. The plaintiff’s urgent interest in the sale of the Peter Inter shares was evident as these were threatened by a further reduction in value as a result of the troubles in Russia. On the other hand, not only were the defendant’s interests unaffected by the substitution of the Peter Inter by sound German securities of at least equal value, likewise held by him as pledge; but such an exchange also served his own interests. Moreover, compliance with the order did not encumber the pledgee with unreasonable effort. The sale and purchase of securities was part of his usual commercial activities. The banker could charge the usual fee for carrying out the instruction. It is true that the banker had a greater interest in merely selling the Peter Inter and to offset the proceeds against his claim for which the plaintiff had given the pledge. But no such right existed under the parties’ contract and the defendant had no right to refuse the instruction in order to force the plaintiff to agree to the sale of the Peter Inter shares merely as a means of settling the debt from the proceeds. In breach of the contract, the defendant would thereby have obtained an unmerited advantage.

The further appeal submits that the defendant had not been under any obligation to assist in the plaintiff’s speculative transactions in respect of the pledged securities and that the possibility could not have been ruled out that the share prices may have fluctuated in a different way. In theory, both points are valid. But what the plaintiff intended was not a speculative share dealing. He had no interest in making a profit from the exchange of the shares but rather intended to avert the threat of considerable losses. The defendant did not refuse to carry out the commission because the substi-

APPENDIX I: CASES 635

tute shares were likely to fall in price or to become worthless. The appeal court rightly assumed that in view of the political and economic situation in Germany at that time as far as the substitute share were concerned, such a considerable drop in share prices as forecast in respect of Russian securities could not have been foreseen. In the proceedings before the lower court, the defendant submitted no facts to justify doubts he may have had at that time.

It can also be left undecided whether the defendant could have rejected the plaintiff’s instruction if the latter had been able otherwise to obtain substitute securities, since the appeal court had in fact ascertained that the plaintiff had no ready cash with which to acquire substitute shares. The further appeal’s submission must be rejected.

The defendant also cannot submit that he had been prohibited from accepting instructions other than for cash transactions. The case only concerns cash dealings. The Phönix shares and the Norddeutscher Lloyd shares, each worth RM5000, were to be purchased with the cash proceeds from the sale of the Peter Inter shares. The plaintiff needed no credit. The defendant has not been able to show that the cash proceeds from the shares to be sold would not have been sufficient to meet the purchase price for the substitute shares.

Finally, the further appeal alleges that even if the defendant needed to carry out the order to sell the Peter Inter shares, he would not have been under an obligation to acquire the substitute shares and that he was therefore not responsible for the loss which the plaintiff sustained from the missed increase in value of the Phönix shares. This submission is wrong. The plaintiff’s instruction was made in respect of one single indivisible transaction intended, under para 1218 BGB to substitute the threatened Peter Inter shares by other shares, equally given as pledge. The commission could only be carried out as intended, ie in its entirety. As a result, the defendant must compensate the plaintiff for the entire loss arising from the defendant’s breach of contract through failure to carry out the instruction as a whole. The lost profit from the RM5000 worth of Phönix shares and the loss in price of the Peter Inter shares are adequately connected with the defendant’s culpable breach of contract.

Case 41

REICHSGERICHT (SECOND CIVIL DIVISION) 4 MAY 1932 RGZ 108, 1

Facts

The plaintiff, owner of a chemical factory and oil refinery, who also produced and sold machinery and articles for the maintenance of machinery such as lubricants, was the proprietor of six tradeM in pictorial form, registered between 1915 and 1924 with the competent German authorities. All of these show a laughing face in opposition to a crying face. The faces are located in the surrounds of axle bearings and at shaft ends.

The defendant, who also dealt in lubricants for machinery, made use of a prospectus in order to advertise its own products. This showed a complete human figure, the laughing head of which forms the end of a bearing and supports it; above it appeared the words ‘Keystone-Hanks’, below it the words ‘Permanent Lubricant’. The figure kicks away in disgust an oil can which displays a crying face.

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The plaintiff claimed that the defendant has consciously imitated the motif of the laughing and the crying face in advertising its own competing goods so as to cause confusion, because it had become known in the trade as indicating the plaintiff’s products. He alleged a violation of para 1 of the Law against Unfair Competition (Un1WG) in conjunction with para 826 of the Civil Code and asked that the defendant be condemned, (a) to desist from using the motif of a crying and a laughing face in opposition to each other in any advertisements or communications; (b) to lay accounts of all sales of lubricants before and after the use of the motif employed in the plaintiff’s trademark and (c) damages caused by the use of the plaintiff’s motif in his trademark.

The Landgericht Dortmund and the Oberlandesgericht Hamm dismissed the claim. On the plaintiff’s further appeal, the decision of the Oberlandesgericht reversed for the following reasons.

Reasons

In order to determine the three claims it is essential to ascertain whether the general impression of the respective pictorial designs is likely to confuse the average purchaser of the goods in question which are undoubtedly the same or similar so as to attract the operation of para 20 of the Trade Mark Act. In order to solve this question which, contrary to the courts below must be answered in the affirmative, it is decisive that the trademark registered in the plaintiff’s name are marks bearing particular strong characteristics, seeing that they embody a highly individual motif. The satisfaction with the quality of the lubricant produced and distributed by the plaintiff is expressed by the laughing face figuring at the point of the machinery where the lubricant operation, while dissatisfaction with the lubricants of lower quality, produced and distributed by others, is contrasted by the crying face. The better or worse quality of machinery is thereby indicated simply and effectively . . .’

This special motif bearing particularly strong characteristics . . . has been treated in commerce as an essential characteristic of the trademark, as the Court of Appeal has found on grounds which cannot be faulted. It has therefore imprinted itself generally on the memory of the average purchaser.

A trademark consisting of an image, is characterised both by its external form and the execution of the picture as well as by the substantive content, the meaning and significance of the pictorial display. If, therefore, the motif, the meaning of the picture, fulfils the function of pointing to a particular industrial or commercial undertaking, it follows that any mark which embodies the same motif pictorially may result in confusion, even if the pictorial display differs in form, provided that the motif appears in its pure form [references]. This is the case here . . . The pictorial display in the prospectus of the defendant is based on the same motif. The centrepiece of the display is made up of the laughing face at the place of the machinery where the lubricant of the defendant is applied. Moreover, the defendant has taken over the contrast between satisfaction with the good and dissatisfaction with the bad merchandise. He uses the same idea as that expressed by the plaintiff in his trademark in order to draw attention to the difference between his own lubricants, alleged to be better and others which are less effective . . . The Court of Appeal failed to appreciate that in protecting the motif it does not matter . . . whether the imitation includes every detail of the display, and that it must suffice, instead if the principal features of the motif are taken

APPENDIX I: CASES 637

over and reproduced by the imitation. Therefore, even if the respective pictorial displays may differ in form, nevertheless the defendant’s display retains the characteristic motif, no new motif has been created by the addition of other conceptual elements of equal value.

The danger of confusion exists therefore notwithstanding the fact that the pictorial displays differ in their execution, that the words ‘Keystone-Hanks’ have been added, which refer to the firm of the defendant . . . The plaintiff’s claim for an injunction is thus justified within the limits set by paragraph 12 of the Trademarks Act . . .

To this extent this court can determine that issue on the merits by quashing the judgment under appeal.

In addition the plaintiff asks that the defendant be condemned to lay accounts as to which sales of lubricants were concluded before and after the use of the abovementioned motif and to pay compensation for the loss still to be ascertained, caused to the plaintiff through the use of the motif. The plaintiff bases his claim on the intentional imitation of his trademark by referring to the correspondence between the parties before the action was brought, whereby the plaintiff asked the defendant to desist from imitating the plaintiff’s trademark by supplying the defendant with the numbers of their registration. The right to compensation is derived from paras 12, 14 and 20 of the Trademarks Act in conjunction with para 826 of the Civil Code and para 1 of the Law against Unfair Competition. This claim . . . must clearly be treated as one for a declaration, in case the plaintiff should not succeed in obtaining an order to lay accounts . . . Since the Court of Appeal did not examine at all the question as to whether the defendant is liable to having intentionally imitated the plaintiff’s mark, ie for the intentional violation of a trademark, the judgment had to be quashed also to this extent and the case remanded to the Court of Appeal.

The same applies to the claim for an account . . . the appellant alleges a violation of para 687 of the Civil Code. The Court of Appeal held that this provision does not apply [references] on the ground that a person who intentionally and without a legal right employs a trademark belonging to another in order to identify his own goods admittedly interferes with a legal right of another unlawfully, but that he acts on his own account and not on behalf of another. However, according to the constant practice of this court [references], where a patent, design or copyright has been violated, a claim for an account, in addition to a claim for the payment over of all gains made by the imitator has been allowed according to the principles governing the conduct of business for another (negotiorum gestio). The reason is that any object which has been created in contravention of a patent, design or intellectual property right represents the protected idea of an innovation or of a protected creative form and that therefore the commercial trade in such objects without a legal right is to be treated at the same time as the exploitation of one’s own account of a business concerning another in the meaning of para 682 (2) of the Civil Code. It is true that in the decisions of this Division [references] the analogous application of these provisions to the law of designs and get-up was rejected on the ground that the use of a design or of a get-up without a legal right in the course of selling goods of one’s own was not a transaction which involved a right of the owner of the mark, and because the right of the injured party for compensation according to paragraphs 14 and 15 of the Trademarks Act, while constituting compensation for the complete, the actual damage and the loss of gains, did not create a direct obligation to hand over the illegal profits. On reconsideration of this question this

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Division cannot maintain the opinion expressed in the decisions [references] but now holds that a claimant under paras 14 and 15 of the Trademarks Act is entitled not only to damages but also to an account according to paragraph 260 of the Civil Code—thus following in the result the opinion of the First Division formulated for violations of Patents, Designs and Artistic Property rights . . . Of course the application of the rules of the Civil Code concerning unjustifiable enrichment are excluded as a matter of principle, seeing that the Trademarks Act (paras 14 and 15), as distinct from the Copyrights Acts, regulates the duty to pay compensation to the exclusion of all other claims and limits it to intentional or reckless violations of marks [references]. Equally it is correct that the duty to pay compensation under paras 14 and 15 of the Trademarks Act—con- trary to that arising from violations of patents under para 35 of the Patents Act [references] and of the duty to pay compensation for violations of rights in designs under para 9 of the Act of 1 June 1891 [references]—is not directed towards the return of the profits obtained by the defendant as a result of the use of the protected invention or of the protected design, if the injured party himself was not able to make profits to the same extent [references]. Thus the application of para 687 (2) of the Civil Code, according to which anybody who knowing that he is not entitled to treat as his own another person’s business is liable to hand over any profits he may have made (paras 687 (2), 681 (2), 667 of the Civil Code) is also excluded where a design or get-up has been violated. However, as early as 24 June 1904 [reference] this Division has held that in cases such as the present it is difficult for the plaintiff to specify and for the court to determine the amount of damages, unless the defendant is obliged to lay an account. Paragraph 287 of the Code of Civil Procedure . . . does not offer a sufficient means for obtaining full compensation. Paragraph 687 (2) of the Civil Code . . . is not, however, the only device for applying para 260 of the Civil Code. In those cases in which a right to information by the debtor greatly facilitates the prosecution of rights and often is the only means of making the latter possible, the principle of good faith—leaving aside any conduct of business on behalf of another without authority—requires that a claimant who is excusably unaware of the existence and extent of his rights be given that information from the debtor who has easy access to it.

Such is the case here [references]. The obligation to provide information is sometimes more extensive and sometimes more restricted. The most extensive duty is that of having to lay accounts. According to para 259 (1) of the Civil Code it is discharged by providing accounts, if an administration is involved which has an income and expenses. This is not the case here. However, according to para 260 of the Civil Code the duty to give information may be limited to the presentation of an inventory of a plurality of assets (objects, rights of claims) which the plaintiff, who claims rights on the comprehensive ground that the defendant has intentionally or recklessly violated a mark, cannot specify in detail . . .

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Case 42

BUNDESARBEITSGERICHT (SECOND SENATE) 23 JUNE 1994 NZA 1994, 1080

Facts

The defendant employed the claimant on 1 February 1991 as an outdoor worker for dressings and cotton wool. A period of six months’ probation was agreed in the employment contract during which the employment relationship could be ended by both sides on one month’s notice terminating at the end of the month. The defendant ended the employment relationship on 30 April 1991 by a letter of 21 March 1991 and released the claimant from work. The claimant made claims against the defendant for compensation because of premature termination of the employment relationship by a lawyer’s letter of 4 April 1991. (. . .) After no agreement was reached about the claims, the claimant sued for a declaration that the termination was ineffective. The claimant asserts that the termination had only been made because of his homosexual tendencies.

The Arbeitsgericht rejected the claim. The claimant’s appeal was unsuccessful. The claimant’s appeal in law succeeded.

Reasons

The appeal in law leads to quashing of the appeal court judgment and reference back, in which connection the senate has made use of the option in § 565 (1) sent 2 of the Civil Procedure Code (ZPO).

The reasons of the Landesarbeitsgericht for its decision were in substance as follows: (. . .) Even if it were assumed that termination had only been effected because of the claimant’s homosexuality, it was effective. It was not invalid under § 134 BGB, because the exercise of the claimant’s general right of personality was not violated by the termination. The termination was merely realisation of a risk to which every employee was exposed in the first six months of his employment. (. . .)

II. The appeal in law is well founded.

1.(. . .)

2.The judgment of the Landesarbeitsgericht cannot however be maintained on the basis of the facts which it hypothetically assumed, ie that the termination had only been made because the claimant’s homosexuality and of the reasoning given by it. The Landesarbeitsgericht did not examine whether, on the facts assumed by it, the termination violated the general principle of good faith (§ 242 BGB). In this connection, according to the view of the senate, there is no need—and this is something which the Landesarbeitsgericht takes into account as a matter of priority—to discuss whether the termination is even to be regarded in these circumstances as contrary to good morals (§ 138 BGB) (see on the strict prerequisites of § 138 BGB: BAGE 16, 21 (25) = NJW 1964, 1542 = AP no 5 on § 242 of the BGB Termination (I)). Likewise it is necessary to go into the question of the direct application of basic rights claimed by the claimant (Art 1 para 1, Art 2 para 1, Art 3 para 3 and Art 12 of the Basic Law) (derived from Kühling, AuR 1994, 126 (127) with further references).

(a)The provisions of § 242 BGB are only applicable to a limited extent alongside those of § 1 of the Protection against Termination Act (KSchG). The KSchG has

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concretised and conclusively regulated the prerequisites and effects of the principle of good faith so far as protecting the existence of the employee’s place of work is concerned, and his interest in its maintenance. Circumstances which must be assessed within the framework of § 1 of the KSchG, and which could cause termination to appear to be socially unjustified, do not fall to be considered as violations of good faith. A termination violates § 242 BGB, and is invalid if it contravenes the principles of good faith for reasons which are not covered by § 1 of the KSchG. The same applies for terminations to which the KSchG does not apply as the six months waiting period under § 1 (1) of the KSchG is not fulfilled because, for these cases, the protection against termination excluded by statute would still be preserved via § 242 BGB [references omitted]. Typical situations of termination contrary to good faith are, in particular, inconsistent behaviour on the part of the employer, expression of termination in an offensive form or at an inappropriate time (BAGE 28, 176 (184) = NJW 1977, 1311 = AP no 1 at § 1 of the KSchG 1969 Waiting Period (at II 2); BAG NZA 1986, 97 = NJW 1987, 94 L = AP no 88 at § 626 of the BGB (at II 4)).

(b)The principle of good faith (§ 242 of the BGB) forms a constraint on content which is immanent in all rights, legal situations and legal norms. The exercise of a right violating § 242 BGB or the exploitation of a legal situation by going beyond the right is regarded as impermissible according to the above case law. The requirements which arise from the principle of good faith can only be decided here in the light of the circumstances of the individual case. On this legal basis the Bundesarbeitsgericht has applied § 242 BGB in those cases, among others, where termination notices were given within the probation period and where the KSchG therefore did not apply. (. . .) On the other hand, the Bundesarbeitsgericht (BAGE 44, 201) ruled that a notice given within the probation period was ineffective under § 242 BGB as well as § 102 (1) of the BetrVG (Constitution of Businesses Act) because the employer had dismissed the claimant on the basis of unconfirmed hearsay evidence by a witness, without giving him a prior opportunity to comment, on suspicion of consumption of hashish. This termination was expressly stated to be ineffective because of violation of § 242 BGB. In BAGE 61, 151, in the case of an employee who had made a suicide attempt after an infection with HIV and was therefore incapable of work (with associated costs of continued wage payments) for several months, § 242 BGB was examined, and its application in the actual case only denied because it involved termination grounds which were typically to be assessed within the framework of § 1 of the KSchG. On the basis of the employer’s economic considerations, which were held to be defensible, it was accepted that termination was not contrary to good faith. Finally, reference must also be made to the decision of the senate of 12 July 1990 (BAG NZA 1991, 63) in which termination is likewise discussed from the point of view of a violation of good faith, and with regard to the point in time when the termination arrived. Breach of good faith was not derived from this alone as—so the Senate argues—an infringement of justified interests of the recipient of the termination had to be present as well, in particular of regard for his personality. The seventh Senate (BAG NZA 1986, 97) had already decided to the same effect in a case in which a termination was assessed which was delivered on Christmas Eve without the justified interests of the recipient of the declaration, in particular for respect for his personality, being thereby established as violated.

(c)In continuation of this case law [references omitted], from which only extracts have been reproduced, the senate considers even a termination given during the

APPENDIX I: CASES 641

probation period to be contrary to good faith if it is given when (according to the claimant’s convincing submissions, assumed by the Landesarbeitsgericht to be correct) the employee’s performance has been confirmed to be good, and only because of the employee’s homosexuality.

(aa)It has already been referred to in the introduction (at II 2a) that the principle of good faith forms an immanent limitation to the content of all rights, legal situations and legal norms. That also applies for the power of formulation exercised by means of termination, which—and this is inherent in the law about termination as a whole—is subject to judicial control [references omitted]. In the concretisation of such a general clause as the principle of good faith, regard must be had, according to the consistent case law of the Federal Constitutional Court (BVerfGE 7, 198 (204f); BVerfGE 42, 143 (148); BVerfGE 89, 214), to the basic right guarantee of private autonomy, the right to regard for human dignity and the general right of personality (BAGE 89, 214 is also similar to this). Since § 242 BGB refers quite generally to custom (Verkehrsitte) as well as good faith, a concretisation is required from the courts which measures up to conceptions of value which are primarily determined by the decisions of principle in the Constitution. In the interpretation and application of this provision regard is to be had to the basic rights as ‘guidelines’ (BVerfGE 7, 198 (206)).

(bb)It follows from this first of all that it is not inconsistent with custom (Verkehrsitte) and good faith if the defendant, as the person entitled to receive the services which the claimant is obliged to render, makes use within the probation period of the right of termination granted to it by the principle of private autonomy. The formulation of legal relationships by the individual in accordance with his own will is a part of the general freedom of action. Art 2 para 1 of the Basic Law guarantees private autonomy as ‘self-determination of the individual in legal life’ (BVerfGE 89, 214

=NJW 1994, 36). Private autonomy is however necessarily limited. Rights of equally ranking holders of basic rights are ranged against its exercise. The claimant has for his part a right to the free development of his personality (Art 2 para 1 of the Basic Law). This basic right also incorporates the freedom to formulate one’s private sphere in the area of sex life according to one’s own decision (BVerfGE 60, 123 (146) with further references). It is true that the termination does not directly affect the claimant’s right to choose a partner of the same sex and to live with this person in a relationship similar to marriage. But the termination takes away his economic base for this reason only, in conditions unequal to those applying to a heterosexual orientated employee, whose employment the defendant would not have terminated in the probation period where he worked successfully alongside others. It therefore restricts the possibility of conducting his life as he chooses because he has homosexual tendencies. As the Landesarbeitsgericht assumes the facts to be correct, namely that the claimant’s employment was only terminated because of his homosexuality, and the claimant amplifies this to the same effect, even though he had fulfilled the work-related expectations placed in him, this amounts to disciplining of his sexual conduct. (. . .) In this situation, possibly justified needs on the part of the defendant—for instance because of the effects of the claimant’s way of life on work with fellow employees, the peace of the business, customer relationships—cannot be accepted. The defendant has also not relied so far on anything of this kind. The duties of an employee against his employer end in principle at the point where his private sphere begins.

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The formulation of the area of private life is outside the employer’s sphere of influence, and is only limited by duties under the employment contract in so far as private behaviour has an effect on the business realm and leads to disruption there [references omitted]. If conduct outside employment does not affect the sphere of duties under the employment contract, the employer is not entitled to express his disapproval about matters which have become known to him from the employee’s private sphere by effecting termination of the contract. This is all the more so when these matters can be classified as part of the employee’s intimate sphere. The employer is not called by the employment contract to be keeper of the morals of the employees who are active in his business (LAG Düsseldorf DB 1969, 667 (668)). In the present case it must be further assumed in the claimant’s favour—in the absence of elucidation of the facts by the Arbeitsgericht and the Landesarbeitsgericht—that the defendant has ‘sounded out’ the claimant by means of a fellow employee and, using the information obtained in this way, relied on the freedom to terminate. This represents a disregard of the claimant’s personality—the fellow employee concerned is said to have described himself as ‘used’—and therefore contains an exploitation of a legal position which is contrary to good faith (as in BAGE 10, 207) or—in the words of the Federal Constitutional Court—an implementation of the ‘right of the stronger party.’ This use of private autonomy represents an impermissible exercise of a right: § 242 of the BGB. (. . .)

Case 43

BUNDESGERICHTSHOF (NINTH CIVIL SENATE) 7 JUNE 1984 BGHZ 91, 324 = NJW 1984, 2279

Facts

The claimant, which manufacured steel buildings, had demanded from its customer the firm SVG GmbH (‘SVG’) bank securities to guarantee obligations arising from supplies. The director of SVG also agreed to this. He accepted a bill of exchange made out by the claimant on 4 September 1981 and drawn on SVG for DM259,046.83 for this firm. On 8 September 1981, the defendant savings bank sent the following letter to the claimant:

‘Our security for the sum of DM150,000 in favour of SVG GmbH Ladies and gentlemen

For the benefit of SVG GmbH, we have taken up directly enforceable security in the sum of DM150,000 to your firm in favour of SVG GmbH.

We would be very obliged to you for a brief indication of the extent of the obligations of SVG GmbH to you at the moment. . . .’

The claimant replied on 17 September 1981:

‘ Thank you for your letter of the 8th September 1981. We are pleased to note that you have taken up in respect of SVG GmbH . . . directly enforceable security to our firm in the sum of DM150,000.

Our claims against the firm mentioned above amount to 1,652,717.83 Austrian schillings at today’s date which is equivalent to DM236,102.54. . . .’

On 24 September 1981, the defendant wrote to the claimant:

APPENDIX I: CASES 643

‘In reply to your letter of the 17th September 1981, we are informing you that we have not taken up directly enforceable security in the sum of DM150,000 in your favour as against the above mentioned firm (SVG GmbH). The details quoted in your letter are not therefore correct. . . .’

After the claimant had referred on 28 September 1981 to the contradiction with the letter of 8 September 1981, the defendant replied on 6 October 1981:

‘. . . In the letter of the 8th September 1981, our branch office proceeded on the basis that a security exists as against Sch Hallen Bau GmbH. This assumption was based on a mistake. In December 1980 the taking up of a security as against the firm Sch was under discussion. This security never came into existence . . .’

By a letter of 17 November 1981, the defendant avoided ‘as a precaution, once again on the grounds of mistake, a security declaration it had possibly given.’

On 8 December 1981 the bill of exchange for DM259,046.83 was protested because it had not been paid by the drawee.

The Landgericht awarded the claimant DM150,000, together with procedural interest, by a reservation judgment of 12 August 1982. It declared this judgment to be without reservation on 11 November 1982. The Oberlandesgericht rejected the appeals, which were combined for joint proceedings and decision. The appeal in law by the defendant was unsuccessful.

Reasons

I. The following has been established on the basis of the assessment (reserved for the judge of fact) of the undisputed circumstances. The claimant was permitted to interpret the letter of 8 September 1981 to the effect that, by this letter, the defendant wanted as against the claimant to enter into a directly enforceable security of up to DM150,000 for the obligations of SVG arising from the deliveries of steel buildings. The debt arising from the bill of exchange of 4 September 1981, which was accepted by this company and not honoured, also belongs to these obligations. The claimant also understood the letter in this way, and accepted the contractual offer recognised in it. In this respect the appeal in law raises no objections.

1. As it correctly states, however, it is necessary, according to the assumption of the judge of fact, to proceed for the purposes of the appeal in law on the basis that the defendant’s representatives only intended by their letter of 8h September 1981 to make a factual communication; and thus, by signing and sending it, they did not have the intention or even the consciousness of making a binding declaration in relation to a legal transaction. But then, as the appeal in law claims, the prerequisites for a declaration of will were absent. Its nullification by avoidance under § 119 para 1 BGB was therefore not needed. In any event harm arising from reliance (which had not been demonstrated) was compensatable by analogy with § 122 BGB if the defendant could have recognised the possible interpretation of its conduct as a declaration of will by application of the care which it had a duty to show.

The challenge is unfounded.

(a) The view that consciousness of making a declaration was a constitutive requirement for a declaration of will, and that therefore its absence would result in invalidity without the need for avoidance (and in any event, by analogy with § 122 BGB or under

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culpa in contrahendo, liability of the declarant for compensation for harm arising from reliance fell to be considered) is held in particular by [references omitted]. The view that a declaration given without that consciousness, which its recipient might understand as relating to a legal transaction, was at first effective, but could be avoided as a declaration mistake in accordance with §§ 119 paras 1, 120, 121 BGB is principally held by [references omitted].

The Bundesgerichtshof has not so far decided the question conclusively. It has expressly left it open in the judgments of 20 October 1952 [reference omitted] and 11 July 1968 [reference omitted]. It cannot be unambiguously deduced from the decision of 10 May 1968 [reference omitted] that the Bundesgerichtshof considered the consciousness of making a declaration to be constitutive. It is stated there that the belief in a legal transition taking effect by virtue of statute law could not replace the intention to enter into a legal transaction and its declaration. On the other hand, the judgment concerning a grace and favour transaction [reference omitted] and the decisions of the Federal Labour Court in [references omitted] accept that it does not depend on the internal intention of the declarant, which remains hidden, but on how the recipient of the declaration could understand the statement in accordance with good faith and considering all the accompanying circumstances. In its judgment of 14 March 1963 [reference omitted], the Bundesgerichtshof apparently regards the consciousness of making a declaration as a prerequisite for a declaration of will, but also states that a person who creates the impression by decisive conduct that he had and expressed an intention to enter into a legal transaction, without actually having it, must under § 242 BGB let himself be treated as if he had such an intention. According to the judgment of the Bundesgerichtshof of 23 February 1976 [reference omitted], the signing of a trade register notification by a member of a firm for the remaining members is as a rule to be understood as meaning that he approved for the internal relationship what he had there declared. In this connection, the question of whether there is an intention to be legally bound is not to be assessed according to the internal intention of the member making the declaration, which remained hidden, but according to whether his conduct appears in the eyes of his fellow members, according to the principle of good faith and having regard to business custom, to be the expression of a certain intention. In this judgment, avoidance under § 119 para 1 BGB is also regarded as possible. The principles developed there, though, have not until now, so far as is evident, been carried over to declarations which are not appropriate to alter company law relationships externally and internally.

(b) This senate, proceeding from the deliberations of the second civil senate, is of the view that the effectiveness of the security obligation does not depend on whether the defendant’s agents had the intention or even the mere consciousness, in the signing and sending of their letter of 8 September 1981, of giving a declaration in relation to a legal transaction. The following reasons are decisive for this, following [references omitted]. In §§ 116 ff BGB the concept of the declaration of will is not defined. In particular nothing can be derived from the wording of § 119 BGB against the view held here. It is not only the person who thought the content was a different legal transaction who has no intention to give ‘a declaration with this content.’ The same applies to the person who did not intend to give any declaration in relation to a legal transaction at all. It should not be concluded from § 118 BGB that lack of consciousness of making a declaration (or lack of intention to enter into a transaction) would always

APPENDIX I: CASES 645

lead to invalidity without the need for avoidance. If the declarant, as is presupposed in § 118 BGB, consciously intends not to be bound, in the expectation that this will also be recognised, invalidity is what he intends. He does not need to be given the choice of making what has been declared apply both against him and in his favour, or avoiding it under § 119 BGB. There is no comparison between this and a declaration made without the consciousness that it will be understood to be in relation to a legal transaction. The latter is much closer to the declaration which is intended to be legally effective, but which is mistaken. A person who makes a declaration that he will buy, but who is thinking of a sale, finds himself in a quite similar situation to the person who gives the usual indications for a purchase, but is not thinking of a purchase. In both cases it appears appropriate to leave the choice to the declarant of whether he wants to avoid under § 119 para 1 BGB and then have to compensate in respect of the reliance interest under § 122 BGB, or whether he wants to stand by his declaration and receive a possible counter-performance which could put him in a better position than his unilateral obligation to compensate for harm resulting from reliance.

This possibility of choice also excludes the objection that, without the consciousness of making a declaration, there is no personal autonomous formulation by way of self-determination, and this cannot be replaced by personal responsibility alone. The law about declarations of will is not only based on the right of self-determination of the holder of the right. In §§ 119, 157 BGB, it protects the trust of the recipient of the declaration, and certainty in the affairs of life, in that it also binds the declarant to legal consequences which were not imagined and (which is to be considered as equivalent) not consciously brought into effect. The power of the declarant, who in both cases did not intend the legal consequences actually expressed in his declaration, to annul these consequences by retrospective avoidance (§ 142 para 1 BGB), or leave them to apply, takes sufficient account of the concept of self determination [reference omitted].

A declaration of will when consciousness of making a declaration is lacking is only present, though, if it can be attributed as such to the declarant. That assumes that, on the application of the care necessary in the affairs of life, he could have recognised that his declaration or his conduct might have been interpreted, in accordance with the principle of good faith and having regard to business custom, as a declaration of will and avoided this consequence [references omitted].

2. The appeal in law further objects from this legal standpoint that the appeal court made no findings from which it would follow that the defendant’s representatives could, exercising the care that they were under a duty to show, have recognised the interpretation of their conduct as a declaration of will. This objection does not succeed. In the light of the wording of the letter of 8 September 1981 composed by the defendant’s representatives, by which it first made contact with the claimant, no grounds were needed by the judge of fact for saying that the defendant’s representatives would have been compelled to recognise that the recipient would understand their letter as a binding offer for the conclusion of a contract for giving security. This is because in the declaration, which satisfies the formal requirements of § 766 BGB, the creditor and debtor are described, the commitments which are to be guaranteed are sufficiently determined and the intention to guarantee is expressed objectively. In any case, a savings bank or bank which allows such a declaration to reach a creditor of its customer must, on applying the care necessary in the credit business, take into

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account that the recipient will interpret the declaration, according to its content, as a security obligation. The fact that the defendant, as the appeal in law has claimed in this connection, in accordance with business custom, uses a form on the taking up of a security, is not inconsistent with this. This is because it must be known, even to the managers of a branch of the defendant savings bank who are authorised to represent it, that declarations of will do not have to be given on forms to be binding, and in particular a businessman (§ 1 para 2 no 4 of the Commercial Code) can take up a security without a form (§ 350 of the Commercial Code).

II. The appeal court’s decision that the defendant had not effectively avoided its declaration of 8 September 1981 does not, contrary to the challenges of the appeal in law, reveal any mistake of law.

1.The defendant’s letter of 24 September 1981 does not fulfil the prerequisites of a declaration of avoidance in the sense of § 143 para 1 BGB. A declaration of avoidance is any declaration of will which lets it be known unambiguously that the legal transaction is to be retrospectively set aside. In this connection, the express use of the word ‘avoid’ is not necessary. According to the circumstances, it can completely suffice if an obligation, taken up according to the objective declaratory value of the expression of intention, is disputed, or not acknowledged, or if it is contradicted. But in each case it is necessary that the intention is unambiguously revealed that the transaction is not intended to be left in existence simply because of the absence of intention [references omitted].

Starting from this point, the appeal court correctly emphasises that the letter of

24September 1981 does not satisfy these requirements because it contains no sort of reference to an absence of intention. The judge of fact correctly understood absence of intention as including the lack of consciousness of making a declaration. The appeal in law considers, on the other hand, that in the special case of avoiding an act undertaken without the consciousness of making a declaration, the letter of 24 September 1981 was sufficient as a declaration of avoidance. But that is not so. Even if a person who is the subject of a claim based on a statement has acted without consciousness of making a declaration, a lack of intention, however described, must be recognisable in the avoidance, as in other cases of avoidance for mistake. This is because the honest recipient of the declaration has an interest worthy of protection in discovering without delay whether the other party wants to set aside his declaration retrospectively because of an absence of intention [reference omitted]. The appeal in law does not claim that the defendant’s letter of 24 September 1981 had done more than merely deny the taking up of a security.

2.The appeal court assumes that the defendant, by its letter of 6 October 1981, had avoided belatedly, ie not without culpable delay (§ 122 para 1 BGB). This only happened 15 days after knowledge of the ground for avoidance. Admittedly the mistaken party had as a rule to be allowed a reasonable period for consideration. It facilitated sensible consideration of the question of whether the mistaken party really wanted to avoid or to be content with the declaration given in spite of the mistake. But as the defendant did not in any case want to adhere to the security obligation, it did not need a longer period to consider whether it wanted to avoid or not. Therefore the defendant had delayed. This delay had been at least negligent. The defendant had neither explained nor proved a defence. Its answering letter of 24 September 1981 showed that its considerations had been concluded at this point in time.

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Against this, the appeal in law objects that the defendant should have been given a longer period for consideration than was allowed by the appeal court, because it had not been conscious of having entered into a security obligation in favour of the claimant. It was therefore necessary for it to examine the factual and legal situation thoroughly. The avoidance in the letter of 6 October 1981 was accordingly in time.

The objection is unfounded. The defendant has itself stated in the grounds of appeal that it recognised the ground for avoidance from the claimant’s letter of 17 September 1981, which arrived on 21 September 1981. The appeal in law accordingly proceeds on the basis that the defendant obtained knowledge by this letter of the ground for avoidance, that is to say that it discovered that, contrary to its impression, the claimant had interpreted the letter of 8 September 1981 as a security declaration and was also permitted to interpret it in this way. There is therefore no evident reason why the defendant, which had concluded its considerations by the compositon of the answer of 24 September 1981 at the latest, should have waited until 6 October 1981 for the sending of the avoidance declaration. Under these circumstances, the accusation of the judge of fact that the defendant had negligently delayed cannot be objected to. He has not exaggerated the requirements for an avoidance without delay.

Case 44

REICHSGERICHT (SECOND CIVIL SENATE) 8 JUNE 1920 RGZ 99, 147

Facts

On 18 November 1916 the defendant sold to the claimant around 214 barrels of Haakjöringsköd by the steamer Jessica, unloaded at M4.30 per kilo c.i.f. Hamburg for net cash against the bill of lading and policy. (. . .) On arrival in Hamburg the goods were confiscated by the Zentral-Einkaufsgesellschaft mbH (central purchasing company) in Berlin who took delivery of them shortly afterwards. The claimant claims that the goods had been sold to him as whale meat when they were shark meat. As whale meat, they would not have been subject to confiscation. The defendant, who had delivered goods which were not in accordance with the contract, therefore had to reimburse him for the difference between the purchase price and the confiscation price paid by the Zentral-Einkaufsgesellschaft which was substantially lower. He claimed payment of M47,515.90. The Landgericht declared the claim to be justified in principle. It established that both parties had assumed on conclusion of the contract that Haakjöringsköd was whale meat and deduced from this that the claimant could demand a refund of the price paid less the confiscation price received from the Zentral-Einkaufsgesellschaft just because the defendant had delivered shark meat. (. . .) The appeal in law was unsuccessful.

Reasons

(. . .) As the Oberlandesgericht has established in a manner free from doubt, both parties mistakenly assumed on the conclusion of the contract of 18 November 1916 that the goods forming the subject-matter of the contract and defined in it—214 barrels of

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Haakjöringsköd loaded on the steamer Jessica—were whale meat. The goods were in reality shark meat and as such were correctly described by the Norwegian word Haakjöringsköd, the meaning of which the parties did not know. This finding does not however justify the view that what was sold, ie Haakjöringsköd had also been delivered and that the claimant, after the goods had been transferred to him by the delivery of the bills of lading, could have avoided the purchase contract for mistake about characteristics of the type of product which are important in human affairs, in accordance with § 119 (2) BGB. Instead, it follows from this finding that both parties wanted to conclude a contract about whale meat, but that in declaring their contractual intention, they mistakenly used the description Haakjöringsköd which does not correspond to this intention. The legal relationship which exists between them should be assessed just as if they had used the description whale meat which did correspond with their intention [reference omitted]. Accordingly whale meat should have been delivered in accordance with the contract, and the claimant should be directed to the legal remedies provided for in §§ 459 ff [§ 437] BGB after shark meat had been delivered to him [reference omitted]. This was because the goods delivered lacked the characteristic of being whale meat, (. . .) which was so substantial that its absence represented a defect in the thing in the sense of § 459 (1) [§ 434]. The claimant is therefore entitled to rescind, and as a consequence he can demand a sum of money from the defendant—the amount of which is yet to be established—which is equal to the price paid by him to the defendant less the confiscation price granted to him by ZentralEinkaufsgesellschaft (. . .)

Case 45

BUNDESGERICHTSHOF (FIFTH CIVIL SENATE) 1 OCTOBER 1999 NJW 1999, 3704

Reasons

(. . .)

II. The appeal court propounds the view that the defendants had refused to approve the sale contract of 3 March 1995 by a document of 24 March 1995; and this made the contract appear in the end to be invalid. The approval declared on 13 April 1995 therefore had no effect. No confirmation or novation of the purchase contract by further notarised declarations of 24 March 1995 and 10 April 1995 had occurred. (. . .)

III. This does not stand up to legal examination.

1.The appeal court is admittedly not mistaken in law in assuming that the legal transaction, which had up to that point been potentially (schwebend) ineffective, became finally invalid with the refusal of approval to the notarised purchase contract of the

3/ 6 March 1995 on the part of the defendants by their declarations on the morning of 24 March 1995. (. . .)

2.The appeal court’s view that the claimant and the first defendant had not by the notarially authenticated declarations of 24 March 1995 and 10 April 1995 confirmed the legal transaction which finally became invalid should not be followed. The appeal court’s interpretation is defective.

APPENDIX I: CASES 649

(a) The interpretation of rules for individual contracts by the appeal court can be examined by the court dealing with the appeal in law in so far as statutory rules of interpretation, recognised principles of interpretation, conceptual rules, empirical principles or procedural provisions have been violated [references omitted]. A recognised principle of interpretation is regard for the situation of the contractual partner’s interests (BGH, BGHR BGB § 157 interpretation rule 1). The appeal court has violated this. Its interpretation amounts to saying that the declarations mentioned appear to be pointless. This is because approval of the contract of 3 / 6 March 1995 was no longer possible due to expiry of the relevant period. But according to general experience of life it must be assumed that it is the parties’ intention that a contractual provision should have a legally significant content. Therefore if there are several possible interpretations, preference must be given to the one which gives real significance to the contractual norm, if it would otherwise appear to be (partially) pointless (BGH WM 1998, 1535). One possible interpretation here is that the claimant and the first defendant intended to confirm the sale contract of the 3 / 6 March 1995 in the sense of § 141 (1) BGB. This provision admittedly does not apply directly, because the sale contract was not void but ineffective in the end due to refusal of approval. But there are no difficulties about application of § 141 (1) BGB by analogy to such ineffective legal transactions. The sense and purpose of the statutory regime do not dictate that confirmation of a void legal transaction should be permitted but not confirmation of a legal transaction which was ineffective in the end. The parties can have an interest in the implementation of such a transaction if the grounds which led to ineffectiveness have disappeared.

(. . .)

Case 46

REICHSGERICHT (SECOND CIVIL DIVISION) 31 MAY 1927 RGZ 117, 176

Facts

The plaintiff and L were partners in a business for the manufacture of ambulances under the firm name of L. By a contract dated 24 January/26 March 1923 they sold the business to the D.O.W. company which continued the business under the original name of L. Clause 1 of the contract dealt with the sale of the machinery and the raw materials. Clause 2 provided that in view of the assignment of the patents and similar rights together with all non-pecuniary assets, such as business connections, sales opportunities etc., the plaintiff and L were to receive for ten years a share in half the sales volume of ambulances produced after the sale of the business, which share was to amount to 7 per cent in the first year and to 5 per cent thereafter. Clause 3 provided that the plaintiff was to be taken over by the new firm and was to be employed in a leading position. The business was transferred on 1 March 1923, and the plaintiff was engaged as commercial manager by a contract dated 14 April 1923. He left the defendant’s employment on 31 December 1923 and received 6 months’ salary as compensation.

The plaintiff alleged that the accounts supplied to him of sales completed had been defective and that since 1 May he had not received the payments stipulated by clause

650 APPENDIX I: CASES

2 of the contract. He claimed, first, M4352.66 plus interest and an account of the sales of ambulances concluded since 1 January 1924 and, secondly, payment of 2— per cent of the sales value of the ambulances as evidenced by the accounts to be delivered.

The defendant contended the plaintiff had started again to manufacture ambulances in competition with the defendant after he had left the defendant’s employment. This activity was in violation of clause 2 of the contract while, in breach of the contract, the plaintiff could not claim his share in the turnover; instead he was liable in damages. The plaintiff replied that clause 2 did not prohibit him from competing. Moreover, after he had been given notice by the plaintiff he had no choice but to resume work in an area in which he was an expert.

The District Court of Berlin gave judgment for the plaintiff, and the judgment was affirmed by the Kammergericht. On a second appeal by the defendant the judgment of the court below was quashed and the case referred back for the following reasons.

Reasons

‘. . . The contracts of 24 January/26 March 1923, apart from dealing with the sale of the business, also contains the provision that the plaintiff is to be taken on a leading capacity by the firm which was to be set up, subject to conditions still to be fixed. He was so employed by the contract of 14 April 1923. It does not contain a provision in restraint of trade in respect of the time after the plaintiff has left the defendant’s employment. The defendant does not rely on an agreement in restraint of trade concluded between a merchant and his commercial assistant, to be governed by para 74 ff, HGB [Commercial Code]. Instead he contends that the competition by the plaintiff constituted a violation of clause 2 of the contract of sale, since by engaging in competing activities he acted contrary to his obligation to assign to the defendant all the non-pecuniary assets of the business.

The Kammergericht proceeds correctly from the principle that a restraint of trade imposed on the vendor as part of a sale of a business may also be agreed on tacitly

. . . the interpretation of clause 2 of the contract by the District Court and by the Kammergericht is open to criticism, since it adheres excessively to the literal meaning of this contractual clause and overlooks its importance according to good faith.

Clause 2 provides that the plaintiff and L must assign to the defendant all nonpecuniary assets of the firm, in particular patents and similar rights, business connections and sales opportunities in consideration of a percentage share of the plaintiff and L for a period of ten years in the sales value of all ambulances sold during this time. The defendant has stated . . . that [certain governmental authorities] were and are the principal customers, and that it is in the business with these that the plaintiff has competed with the defendant since May 1924 by producing and delivering the same type of car. If this should be true, the plaintiff has complied with his contractual duty to transfer the sales opportunities to the defendant to the extent that he has introduced the defendant to [the governmental authorities] as a supplier. The question is, however, whether this exhausts his contractual obligation or whether after he had left the defendant’s employment—even if no prohibition to compete had been imposed on him in his capacity as a commercial assistant—he was under a duty not to compete at all with the defendant, as long as he was to have and to retain a share in the profits

. . .

APPENDIX I: CASES 651

A merchant who promises as a consideration to the opposite party in a contract for the transfer of a business and its customers . . . a share in the profits for the duration of ten years assumes that during this period in which the vendor is to participate in the results of the business, he will obtain the benefit of the custom of those clients which the vendor would have obtained, if he had retained the business. The vendor cannot reasonably expect that the buyer will permit him to recover by starting a competing business, the customers whose transfer to the buyer was to lead to the profit to be shared, while claiming nevertheless his share of the profits in the business which had been sold. The opposite view would demand of the defendant that he must supply a competitor continuously with money, thus enabling the latter to undercut him and possibly to drive him out of business. Such a result would not accord with the presumed intention of reasonable and honest merchants. Consequently, according to good faith, clause 2 of the contract . . . can only be interpreted to mean that the plaintiff’s share of the profits for the duration of ten years is balanced by his contractual duty, limited to the same period and independent of his remaining in the employment of the defendant firm, not to deprive the defendant of the non-pecuniary assets assigned to the latter, in particular of the customers, or to reduce them in their value. To act otherwise would frustrate the purpose of the contract, which was to transfer to the defendant the profit from the business to the same extent as it had been enjoyed by the plaintiff and L.

Case 47

REICHSGERICHT (FIFTH CIVIL DIVISION) 5 OCTOBER 1939 RGZ 161, 330

Facts

The heirs of Z owned a big area of land ready for building development at the foot of a wooded mountain situated in an angle formed by the A and the L street. The defendant bought a strip

running along L street in order to develop it. His plan, which included the area retained by the heirs of Z, provided for seven building plots on part of the land between the A and L streets, the foot of the mountain and another street to be laid out subsequently. Five plots bordered on the L street, while the remaining two were situated further back immediately at the foot of the mountains behind the two plots along the L street which were furthest to the right and to the left. The area behind the intervening three plots in the middle was to remain open. The contract of sale was approved by the local administration on the basis of the building scheme as a whole.

On 30 June 1936 the plaintiff bought from the defendant the central plot situated along the L street and built a dwelling house on it. The plaintiff contended that he had acquired this particular plot because he was anxious to have a clear view of the wooded mountain slopes and because the defendant had assured him by reference to the building scheme that no buildings would be erected between the three plots in the middle and that the central plot enjoyed the best view. The written contract did not contain any such assurance and the defendant denied having given it. The contract excluded any liability for physical defects.

652 APPENDIX I: CASES

On 5 January 1937, the defendant acquired from the heirs of L in addition the land up to the foot of the mountain behind the strip along the L street acquired previously, to be developed with access by a new road leading to the L street. The defendant applied for and obtained the necessary administrative approval for the alteration of the original scheme. The defendant built the road and one house together with a separate garage on one of the plots behind the plaintiff’s land.

The plaintiff contended that the new building obscured his view of the mountain and that the value of his property had been reduced. He demanded that the defendant be condemned to desist from erecting another structure on the remaining plot and to pay damages of at least 6100 Reichmark. The Landgericht Bonn and the Court of Appeal of Cologne rejected the claim. On the plaintiff’s further appeal the decision of the Court of Appeal has reversed for the following reasons.

Reasons

I. The Court of Appeal holds . . . that it is not a defect of the land purchased by the plaintiff (para 459 section 1 BGB) if the area at the rear of it can be built on. It is unable to deduce from the pleadings that the defendant had warranted, in the meaning of the second section of the above mentioned provision, that the land sold by him was bordered by an area which could not be built on. The Court of Appeal also holds that fraud has not been proved and that therefore the defendant can also not be held liable on the legal ground that he has fraudulently asserted a quality of the object (para 463 BGB as interpreted by the Reichsgericht in a constant practice). Furthermore, the Court of Appeal denied that the plaintiff’s claims could be justified on the facts, if the principles concerning the failure of the basis of the transaction (clausula rebus sic stantibus) (para 242 BGB) were to be applied. The Court of Appeal also could not find that a tort had been committed . . .

II. The appeal . . . is directed against the rejection of the claim based on warranties and conditions under the contract of sale and for damages in tort.

As regards the claims based on warranties and conditions the appellant contends that, contrary to the opinion of the Court of Appeal, it is a defect of the land purchased, if the area at its rear can be built on, resulting in a reduction of the value and suitability of the purchased land for normal use or at least for the use envisaged by the contract. He contends that this defect existed at the time when the risk passed . . . since the defendant was already able at that time to develop the area by providing the access road. The appellant contends that the defect so defined suffices to justify his claims. In addition he contends also that the defendant has warranted as a feature of the land sold that the area at the rear could not be developed . . .

1. Features of an object sold include, first of all, everything which pertains to its natural corporal nature. Thus it is a feature of land destined for development that the soil permits building. In addition, relations exist with the environment of the object which are of a factual, economic and also of a legal nature and which may constitute features of the object. This is the case if relations of this kind are based on the nature of the object itself, emanate from it and affect its value or suitability for use according to their substance or duration, having regard to the opinion of ordinary people. Thus the actual situation of the land, the relationship of one plot to others, is a feature because this relationship is relevant for its value and possible uses . . .

APPENDIX I: CASES 653

In the result the appeal is justified. The circumstance that the strip between the purchased land and the wooded slope of the mountain was not to be built on was only the means of retaining for the purchased land the advantage of its beautiful situation without restriction. This situation constitutes the essential feature. According to the pleadings both parties assumed at the time of the conclusion of the contract that the situation created the relationship between the purchased land and its environment. Having regard to the assumption that the strip in question would remain open land owing to lack of access and the building scheme approved by the authorities, this relationship between the purchased land and its environment was of such duration in the contemplation of the parties as to constitute according to the opinion of ordinary people one of the factors determining the value and suitability for use of the purchased plot. Accordingly it was a feature of the purchased land that it should provide an unimpeded view of the wooded slopes of the neighbouring mountain and that this view could not be curtailed by the erection of buildings on the intermediate strip

2.A purchased object is defective, if it lacks a quality essential for normal use, or for a different use, stipulated by the contract. The seller is liable for such a defect, if the usefulness or value of the object is thereby extinguished or not insignificantly reduced (para 459, section 1: paras 462, 463, section 2, 480 BGB).

According to the appellant the fact alone that the strip behind his land can be developed has reduced significantly the value or the suitability of the purchased land for normal use. This is not so . . .

Different considerations apply if, so the appellant contends, the parties provided in the contract that the strip behind (the appellant’s land) was to remain permanently free of structures which obstruct the view. According to the recent practice of the Reichsgericht [references] . . . a defect exists only if the object is unsuitable for its contractual purpose, and if the contract assumes a certain use, it is this use which determines the features of the object which the buyer can demand.

An object is therefore defective if it lacks a feature or even an advantage which the parties assumed to exist when they concluded the contract . . .

Contrary to the opinion of the courts below the fact that the strip behind the appellant’s land can be developed, may well constitute a defect of the purchased land . . . the possibility that it might be developed, as it was subsequently, existed already at the time when the risk passed.

However, the claims cannot be founded on the sole ground that the purchased land was defective. This would only lead to a claim for rescission or for a reduction of the price (paras 462, 472 BGB), and no such claim has been made.

3.A claim for damages, as raised by the plaintiff, could only be based on the seller’s duty of warranty, if the seller had fraudulently concealed the defect or if he had given an assurance or had fraudulently asserted falsely that the area behind (the plaintiff’s land) could not be developed (para 463 BGB). Fraud need not be considered . . .

As regards the question of an assurance . . . the Court of Appeal states correctly that the plaintiff has not explained satisfactorily why the written contract is silent about the assurance, alleged to be almost fundamental, that no development would take place and why this assurance should only have been given in the preliminary negotiations, but, as is undisputed, was not raised when the contract was concluded before the notary. It is true that tacit assurances are legally possible, but in fact they

654 APPENDIX I: CASES

are only rarely presumed to exist; in any case, features which are assumed by the contracting parties to exist are not deemed to have been assured, seeing that the law distinguishes between them [references] . . .

III. If the liability of the defendant, asserted the plaintiff, falls within the area of liability of a seller for defects of the object sold, it cannot be examined whether the claim could be supported totally or in part on the ground that the basis of the contract had disappeared (para 242 BGB) or that the defendant had been at fault in the course of the conclusion of the contract [references]. However, if—as is the case here—no claim to the same effect exists according to para 463 BGB, a claim for a positive breach of contract may lie (para 276 BGB) [references] and, irrespective of any contractual liability for defects, a claim in tort (para 826 BGB) . . .

1. A positive breach of contract exists when, in consequence of a culpable violation of his duty to perform, the debtor causes damage to the creditor which exceeds the amount equal to the value of the performance or if he endangers the performance of the contract to such an extent that the creditor cannot be required to continue with the contract [references]. The second case is excluded here since it is principally concerned with continuing contractual relations, but in both cases the debtor has violated his obligation; liability arises under the contract. However, normally at least, a contractual obligation terminates with the performance of the contract; in the present case the defendant’s acts, which the plaintiff regards as a positive violation of the contract, occurred at a time after the contract had been completely performed. For when the defendant acquired the area in the rear, opened it up for development by building an access road and obtained administrative consent, the purchased land had been paid for, handed over and conveyed. Thus no contractual obligation existed any longer which the defendant could still violate. However, even if a contract has been brought to an end by complete performance, certain after-effects may remain, just as at the initiation of negotiations for a contract may have pre-contractual effects. The requirement that a contract must be performed according to good faith and in accordance with common practice (para 242 BGB) may impose on the debtor the duty to carry out, or to desist from carrying out, certain acts . . . Thus . . . a lessor who has let a flat to a medical practitioner must permit a notice of change of address during an adequate period after the tenancy has come to end [references]. Where the transaction involves a single, quickly executed exchange of goods, the continuation of a duty on the part of the debtor to act constantly in agreement with the contractual purpose of the other party cannot normally be assumed without further reasons and for an indefinite period . . . Matters are different however when land is sold and conveyed. There the special circumstances of the individual case must be determined. In the present case the plaintiff . . . has bought his plot precisely on the assumption, shared by the defendant, that the land at the rear would not be developed. Consequently, the defendant is not necessarily relieved of the charge that he has acted positively in contravention of duties as a debtor according to good faith in as much as he proceeded to develop the area at the rear as early as one year after the plaintiff, relying on the assumption that this area would not be developed, had built a dwelling house on the purchased land. According to para 276 BGB even a clause in the contract of sale exempting him from any liability under the warranty would not, according to para 276 section 2 BGB relieve the defendant from liability for an intentional contravention.

APPENDIX I: CASES 655

It might be objected against the legal conclusions advanced here that the defendant (who did not act fraudulently or gave an express warranty) is at most liable to reduce the purchase price, on the ground that the possibility of development and not the subsequent building operation constitutes a defect of the object sold but that he is not liable to pay damages for having failed to perform his obligation or even to pay more

. . . Such an approach would however underestimate the effects of the contract concluded between the parties and would equate to a great extent the factual consequences that the area can be developed with those that it has been developed. It is true that if, in agreeing on the sale, the parties proceeded from the assumption that the area in the rear could not be developed, the absence of the feature assumed by the contract to exist constituted a defect of the plot sold and if a third party without the assistance of the defendant had developed this area and placed a building on it, the plaintiff would not have been able to sue either the defendant or the third party for compensation of the damage not made good by the reduction of the price—leaving aside the remedies available under para 226, 826 BGB. However, in relation to the plaintiff, the defendant was not in the position as any third party. Between the two the contract created a legal relationship, the binding obligation of which based on the general conviction, rooted in morals, that a word, once given, must be kept. As long as the area in the rear remained in fact undeveloped, the plaintiff could only be said to suffer damage exceeding the reduction due to defect, due to the danger that the area might be developed one day. As long as the defendant continued to adhere to the contract, this danger . . . was not to be treated seriously. Only because the defendant acted contrary to the spirit of the contract, a mere danger became . . . actual damage. It would be contrary to the natural sense of justice if a contracting party were not to be held liable for the damaging effects of such a conduct which is contrary to the contract and cannot be excused on legally relevant grounds. Of the provisions on tort only para 826 could be applicable. This states that a person who intentionally causes damage to another contra bonos mores is liable to pay compensation. The Court of Appeal has accepted that the plaintiff has suffered damage. The pleadings, which the Court of Appeal found not to be untrue, show that the damage was caused intentionally. The duty of the defendant to pay damages depends therefore on the answer to the question whether his conduct at the time of the conclusion of the contract or the fact that he subsequently built on the area at the rear is contrary to bonos mores. As to the former, the defendant is absolved, since the Court of Appeal did not find any fraud. As to the latter, any act contra bonos mores could only be founded on any previous activities of the defendant at the time when the contract was concluded. For the pleadings do not show conclusively that the defendant, in developing the land proceeded with the considered intention of damaging the plaintiff, and the findings of the Court of Appeal refute it. The violation of a contractual duty, considered by itself, does not however constitute an act contra bonos mores [references] . . . In these circumstances the justified interests of the plaintiff are satisfied by referring him to his remedy based on a positive breach of the contract.

656 APPENDIX I: CASES

Case 48

BUNDESGERICHTSHOF (SECOND CIVIL DIVISION) 7 FEBRUARY 1957 BGHZ 23, 282

Facts

The plaintiff, born in 1904, was appointed a co-director of the defendant savings bank. By a contract of 25 August 1936 he was appointed sole director until the end of July 1946. The contract provided that in certain circumstances (death, incapacity) he was to be entitled to a retirement pension without having served for any qualifying period. In 1945 he was dismissed on the ground that his national-socialist past excluded him from further employment.

The plaintiff claimed a pension on the basis of the contract of 1936.

The Court of Appeal of Hamburg denied that the plaintiff was entitled to a pension under the contract but held that he could not be denied all rights to a pension and awarded him one half of what he would have received as a pension had he become incapacitated. The Court of Appeal reached its decision by means of supplementing the contractual terms with the help of an interpretation which took account of good faith. It argued that plaintiff’s past service merited an adequate provision. No facts had emerged which had shown any disgraceful behaviour. The defendant was without doubt able to pay an adequate, permanent pension. The defendant’s plea that, by granting him a pension, the plaintiff would be in a better position than employees relying on collective agreements was rejected on the ground that the claim was based on an individual contract. Since the plaintiff was only a little over forty years old when he was dismissed and since his health and the capacity to work and to adapt himself corresponded to his age, a pension amounting only to one half of what he would have obtained had he been incapacitated was to be considered as adequate. It would be unfair to make an award which would only make provision for payments as his need arose. In the words of the Court of Appeal, the result was ‘a pension which is only modest, measured by his former position and potential increases after 1945 owing to age, but which runs since June 1953 irrespective of any other remuneration.’

On a second appeal by the defendant the judgment of the court below was reversed and the claim dismissed for the following reasons.

Reasons

. . . A supplementation of the contract by way of interpretation is only possible if the contract is incomplete [references]. In the present case it is doubtful whether a lacuna existed in the contract or whether the latter contained an intentional restriction of the contactual pension rights which is therefore incapable of an extension. In any event, a contract can only be supplemented by way of interpretation in accordance with the principles of good faith [references]. The plaintiff has argued that the legal ethos at the time when the contract was concluded must be decisive. This is incorrect [references]. In principle it must be ascertained what the parties would have stipulated had they foreseen the subsequent chain of events [references]; moreover, any supplementation of the contract by way of interpretation must not result in a modification, or limitation of the contractual intention or in an addition to it, nor in a change of the contract,

APPENDIX I: CASES 657

but only in a supplementation of the substance of the contract [references]. However, if accordingly the intention of the parties must be taken into account, as it is expressed in the contract, ie as it existed at the time of the conclusion of the contract, nevertheless in cases were the lacuna in the contract to be supplemented, did not exist from the beginning but arose only afterwards in consequence of further developments, any subsequent event must be disregarded [references]. If the event is one which is affected by a change in the political situation, or if it occurred after a change in the legal ethos, then either the contract cannot be supplemented by interpretation, because the event cannot be interpreted according to the intention of the parties which was based on a situation and or legal ethos which were entirely different, or the application of good faith, which para 157 BGB requires to be observed also when a contract is to be supplemented by interpretation, must bring about that the change in the legal ethos is taken into account. In the present case only the first possibility must be considered

. . . Because of his political past the defendant could not employ him and, as subsequent events have shown, the plaintiff was precluded for years from providing his services. The defendant had to replace the plaintiff by another full time employee. In normal circumstances it seems out of the question that the plaintiff would have been conceded a pension in similar circumstances, unless he is in distress . . . The payment of a pension to a healthy person, capable of work, aged forty-one cannot be expected from a savings bank—leaving aside, perhaps, the case of an extraordinary wasting away of his powers—if the right to a pension is connected with the premature dismissal caused by a disability to work in the person of a servant and necessitates the appointment of another full time employee to fill the vacant position. If the plaintiff had been promised a pension for this contingency, he would claim for himself advantages beyond the reign of National Socialism, which he would never have obtained, had he not been connected with National Socialism. Any such agreement would be void according to para 138 section 1 BGB.

Until now and at present the plaintiff cannot either claim a pension on grounds of fairness. The plaintiff receives in his present employment a net annual income of DM25–30,000. If he were to receive a pension in addition he would be better off than if he had remained in the defendant’s employment. The fall of National Socialism would therefore have yielded him an advantage in addition to the advantages he obtained through National Socialism. It is not equitable to grant him such an advantage, while the defendant must fill the position by a salaried replacement and the plaintiff is not in want.

It is irrelevant that the defendant can afford pension judgments to the plaintiff, but it is relevant that equity does not support a solution whereby, having been dismissed for personal reasons, he would receive a pension in addition to any salary for services to another after his obligations towards the plaintiff had ceased, although in normal circumstances he would never have received a pension in the event that happened . . .

658 APPENDIX I: CASES

Case 49

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 9 OCTOBER 1986 NJW-RR 1987, 144

Reasons

The appeal court leaves open the question of the claimant’s authority for the claim, and considers all the claims to be time-expired on 29 September 1982. It assumes that there was a guarantee period of two years in accordance with § 12 (1) of the contract and that the period commenced with the inspection and approval of the building work in accordance with § 8 (1) of the General Conditions of Contract for Architects’ Contracts (AVA). It regards the length and commencement of the guarantee period as ‘negotiated’ (ausgehandelt). The appeal in law successfully challenges this.

1.According to § 12 (1) of the architects’ standard form of contract, a period of 2 years is agreed as the limitation period for the liability of the architect in accordance with § 8 of the AVA. This number is, like other entries in the form—with the exception of the hand written correction of a description of house types and the date of the document—inserted with a typewriter. The contract document therefore appears, as the appeal court also accepts, to be general conditions of contract put forward by the defendant. In such conditions of contract, the statutory guarantee period cannot be effectively shortened (. . .). General conditions of contract are not however present in so far as the contractual conditions have been ‘negotiated’ individually between the parties (§ 1 (2) of the AGBG (General Conditions of Contract Act) [§ 305 (1) sentence

3BGB]).

2.The appeal court bases its finding that the length and commencement of the guarantee period had been ‘negotiated’ on the evidence of the civil engineer A interrogated by it, who had concluded the architect’s contract with the defendants on behalf of F. A has stated:

He knew the form of contract brought by the first defendant to the negotiations as the standard form of the Architect’s Association, and had therefore had no doubts about its use. The points which were to be individually determined had been talked through. In so far as the form had needed to be completed, these issues had been very intensively discussed, as well as the limitation issue. He had had in mind first of all to get a five-year period accepted. But then he had discovered that the developer R would only be liable under its guarantee for two years. The limitation period for the liability of architects should to run in tandem with the period for the developer’s liability. The participants were in agreement here in assuming that the period should begin with the inspection and approval of the building for the defendants as well. Apart from the level of the fee, where he had had to make concessions to the defendants, the contract had corresponded with his wishes in every respect.

The course of dealings thus described does not support the appeal court’s finding that the length and commencement of the guarantee period were ‘negotiated’.

(a)‘Negotiate’ means more than ‘treat’ (Verhandeln) [references omitted]. So it does not suffice for a finding that the contract or individual clauses were ‘negotiated’ that the form put forward is known to the negotiating partner and does not meet with objections, or that the content is merely explained or discussed and corresponds with the wishes of the partner [references omitted].

APPENDIX I: CASES 659

(b)It is only possible to speak of ‘negotiation’ when the user first seriously puts ‘on the table’ the core content which is contrary to statute law in his general conditions of contract, ie the provisions which amend or supplement the substantial content of the statutory regime, and gives the negotiating partner freedom of formulation for protection of his own interests, with at least a real possibility of influencing the shaping of the content of the contractual conditions [references omitted]. He must therefore clearly and seriously declare himself prepared to make the desired amendment to the individual clauses. As a rule, such preparedness also leaves its mark in identifiable amendments to the pre-formulated text. In special circumstances a contract can however be rated as the result of a ‘negotiation’ even if in the end, after thorough discussion, it stays in the form of the original draft [references omitted].

(c)Neither the defendants’ submissions nor the description of the course of dealings by the user’s contracting partner give any ground for thinking that the defendants here would have been seriously prepared to amend the pre-formulated contractual conditions at the wish of the negotiating partner. The civil engineer A appearing for F and the future clients’ association has neither requested nor secured any amendment to the text as pre-formulated with the gaps already filled in, in spite of exhaustive discussion. Instead, he has agreed to all the contractual conditions. His unsuccessful attempt to bring the fee down did not concern the pre-formulated contractual conditions. It is true that he had ‘in mind’ at first get a five-year guarantee period accepted. But he abandoned this of his own accord when he had discovered—and this can only have happened from his firm—that the developer R associated with F was only to provide a guarantee for two years, which he apparently saw as irreconcilable. Nothing in his description of the dealings suggests that the two-year period provided for by the defendants for their liability had seriously been put ‘on the table’ by them. A has only given evidence about his own considerations which caused him to accept the two-year period required by the defendants. For this, he could not even get a reduction of the remuneration accepted, even though this was at that time inherently possible. Thus it can in any event be deduced from his representation of the results of the dealings that he gave way to a supposedly better insight and thereby submitted to the contractual conditions.

Case 50

BUNDESGERICHTSHOF (TENTH CIVIL SENATE) 18 MAY 1995 BGHZ 130, 19

Facts

The claimant, a savings bank, granted continuous credit to the building company U-GmbH & Co KG (from now on called the principal debtor or KG). On 18 January 1984, the defendant, which was a member of the KG with a limited liability share in the sum of DM100,000, accepted liability as guarantor on the basis of a form without limitation in time or amount and which was unconditionally enforceable [ie under which the person granting it cannot raise the objection that there has not yet been an unsuccessful execution against the principal debtor] for the credit granted to the KG. According to no 1 sentence 1 of the ‘Guarantee Conditions,’ the guarantee was taken

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up ‘for the securing of all existing and future demands by the savings bank against the principal debtor, including conditional or fixed term ones. . .from their business relationship (in particular from current account, credits and loans of every kind and bills of exchange) as well as from bills of exchange which are submitted by third parties, guarantees, transfers or statutory transmissions of debts’. At the same time, the defendant committed itself not to charge currently held real property. The defendant latter breached this duty. Shortly afterwards, in October 1985, it left the KG in return for a pay-off in the sum of DM150,000. There is dispute as to whether this took place as a result of pressure from the claimant. In January 1986, the claimant raised the current account credit allowed to the principal debtor to DM 2.5 million. At the same time it granted two loans for 2 million and DM 1.5 million. By a letter of 19 February 1990 which reached the claimant on 22 February 1990, the defendant terminated the guarantee. At this point in time, the principal debtor’s bankruptcy was already imminent, and it occurred shortly afterwards. The claimant claimed against the defendant as guarantor for a sum of over DM 10 million. By the present claim it demands payment of a part sum of DM 1 million. The Landgericht and the Oberlandesgericht allowed the claim in principle. The defendant’s appeal in law led to quashing and reference back.

Reasons

A.The appeal court has stated that the guarantee contract was effectively created. (. . .)

B.These deliberations do not stand up to legal examination in certain important respects. The wide declaration of purpose is partially ineffective. It is therefore uncertain whether the guarantee was still securing demands when the defendant terminated it.

I.Admittedly the guarantee contract was—if one ignores the general conditions of contract problem—effectively concluded, and was not affected by the defendant leaving the company.

1. The declaration of the purpose of the security in no 1 sentence 1 of the ‘Guarantee Conditions’ according to which a guarantee is taken up ‘for the securing of all existing and future demands, including conditional or fixed term ones, from their business relationship (in particular from current account, credits and loans of every kind, and bills of exchange)’ satisfies the requirements as to certainty of content under § 765 BGB. (. . .)

2. The guarantee was not limited in time in such a way as only to apply for the length of the defendant’s membership of the company and to be extinguished when it left the company. Nor was it limited to those demands by the claimant which had arisen up to the point when the defendant left. It says expressly in the contract that the defendant was providing a guarantee without limitation in time. In its regime there are no gaps to be closed by supplementary contractual interpretation for the case of the guarantor’s membership of the company ending (. . .). This is because the defendant could— and the appeal court correctly refers to this—take its exit as a cause for terminating the guarantee by notice. Under Guarantee Condition no 5 a termination for the future was always possible, without this needing to be based on any grounds. The defendant has not taken this route, although it would have been reasonable for it to do so (. . .).

APPENDIX I: CASES 661

II. However, the declaration of the purpose of the security violates § 9 of the AGBG (General Conditions of Contract Act) [§ 307 BGB] and possibly § 3 of the AGBG [§ 305c (1) BGB].

1.The extension of the guarantee to all existing and future demands by the claimant in the preformulated declaration of purpose, which should be regarded as a general condition of contract [reference omitted], must be measured against the General Conditions of Contract Act. There is no individual agreement with priority which could remove the significance of the declaration of purpose (§ 4 of the AGBG [§ 305

(1) sentence 3 of the BGB]). (. . .)

2.A guarantee declaration in a form by which liability is widened to all existing and future obligations of the principal debtor arising from a banking business relationship can be surprising—with the result that it has not become a component of the contract (§ 3 of the AGBG [§ 305c (1) BGB])—if the guarantee is taken up for the purpose of securing a current account credit. (. . .)

(b)A regime in general conditions of contract has the character of surprise if it clearly deviates from the expectations of the contracting partner, who should not sensibly need to take it into account in the circumstances. The contracting partner’s expectations here are determined by the general and the individual circumstances accompanying the conclusion of the contract [references omitted]. The general accompanying circumstances include the degree of deviation from the dispositive statute law and the usual formulation for that area of business. The special accompanying circumstances include the course and content of the contractual negotiations as well as the outward character of the contract [references omitted]. According to the view put forward by the senate so far, a clause in a bank’s or savings bank’s form-based contract is not surprising, if in it a guarantor secures all existing and future claims from the banking business relationship against the principal debtor, even though the cause for taking up the guarantee was only a particular claim by the credit institution against the principal debtor. (. . .) The senate had given as its reasoning that, according to § 765 (2) BGB, it was included in the rules of the statutory provision that a guarantee could also be taken up for future demands against the principal debtor of undetermined amounts. None of the provisions of §§ 765 ff BGB (and in particular not § 767 BGB) provide for the limitation of the guarantee to a determined maximum when it had been taken up from the outset for future claims arising from a determined business relationship In the light of this statutory regime, and the goal pursued by it of unilaterally securing a creditor, the guarantor could not be protected, released or otherwise relieved simply because he had taken up the global guarantee in respect of the establishment or extension of a particular obligation of the principal debtor.

(c)The senate does not adhere to this case law, which has partly met with agreement [references omitted] and partly with disapproval in the academic literature [references omitted]. In contrast to its previous view, the senate deduces from § 767 (1) sentence 3 BGB a requirement for limitation of the guarantee. The provision states that a guarantee obligation is not widened by a legal transaction which the principal debtor enters into after the taking up of the guarantee. This regime should not only be applied when a limitation is actually agreed. The statute assumes it to be selfevident that, besides the certainty of the demands to be secured, there should for the guarantor’s protection be a limitation of the guarantee by reference to a sum of money. In this manner, unilateral extension of the scope of the guarantee by the

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principal debtor and the creditor on their own authority is to be prevented. An unlimited extension of liability by the legal transactions of others contradicts the fundamental protection of the guarantor’s private autonomy [references omitted]. He will not generally expect such a deviation from dispositive statute law. As the relationship with the bank is a business relationship with an open content, the objective limitation of the guarantor’s liability to demands from the banking business relationship does not suffice to protect the guarantor [references omitted]. In so far as the guarantor’s expectations are not determined by the statutory model but by the course and content of the contractual negotiations, the senate adheres to the case law of the fifth and eleventh civil senates of the Bundesgerichtshof. In the case of mortgages on land for security purposes for repayment loans, these senates consider the extension of the real (dinglich) liability to all existing and future obligations of the third party to be in principle ‘surprising’ in so far as they go beyond the cause for the security contract [references omitted: ‘causal case law’]. (. . .) the guarantor who enters into a guarantee because of a particular credit which is limited in amount should not [need] to take into account a clause in a form under which the guarantee extends to all existing and future demands from the banking relationship, without any limitation as to amount [references omitted]. Admittedly the surprise presupposed in § 3 of the AGBG [§ 305c (1) BGB] cannot arise if the guarantor, when taking on the guarantee, does not actually think about the level of the debts for which he promises to assume responsibility. (. . .) It is different however if the guarantor when giving a guarantee declaration orientates himself to the granting of a particular credit, or to the extension of an existing credit by a certain sum, or to the prolongation of a particular credit, and it is permissible for him to do so. No substantial change is needed to this assessment if the credit which forms the actual cause for the guarantee is granted on current account. (. . .)

(d)Widening the guarantor’s liability to all existing and future obligations of a company by means of a form will not as a rule be ‘surprising’ for a guarantor who as director, or sole or majority shareholder of the principal debtor can determine the type and level of its obligations. He does not need the protection of § 767 (1) sentence

3BGB (. . .).

(e)In the present case the surprise effect of the wide declaration of purpose cannot be assessed conclusively. (. . .)

3.This is because the extension of the guarantee to all demands—even future ones— under the banking relationship without limitation of amount is ineffective because it infringes § 9 of the AGBG [§ 307 (2) BGB]. (. . .)

(b)The extension of the guarantee liability by means of a form beyond the demand which was the cause of the guarantee to all present and future obligations of the principal debtor is not reconcilable with the main statutory decision behind § 767 (1) sentence 3 of the BGB (see above 2c) (§ 9 (2) no 1 of the AGBG [§ 307 (2) no 1 of the BGB]). At the same time, it so limits important guarantor’s rights which arise from the contract’s nature that the attainment of the contract’s purpose is endangered (§ 9 (2) no 2 of the AGBG [§ 307 (2) no 2 of the BGB]). On both grounds an unreasonable disadvantage to the guarantor must be assumed [references omitted].

(aa)A wide declaration of purpose expects the guarantor to take on an incalculable risk. The guarantor has no influence over the creation and proper discharge of new debts. If he has to be responsible for them, his liability can suddenly amount to many

APPENDIX I: CASES 663

times the amount he had reckoned for in the worst case. This could threaten him with ruin. He is supposed to be protected from such consequences by § 767 (1) sentence 3 of the BGB. He should not run the risk, without his agreement, of incurring an incalculable liability though the uncontrollable steps of third parties—the principal debtor and the creditor.

(bb)Furthermore, if a private person takes on a guarantee, limited liability follows as a rule from the purpose of the contract. The prohibition contained in § 9 (2) no 2 of the AGBG [§ 307 (2) no 2 of the BGB] is supposed to prevent contractually important rights and duties being undermined by general conditions of contract [references omitted]. The legal issues which are contractually important depend, in the case of contracts shaped by statute, on the statutory type of contract. The subjective horizon of the contracting parties’ expectations takes second place to this. In the case of a guarantee, the prohibition of dispositions by other parties is contractually important because of § 767 (1) sentence 3 of the BGB.

(c)Within the framework of § 9 of the AGBG [§ 307 BGB] the cause of the guarantee is to be understood primarily in an objective sense. This is different from § 3 of the AGBG [§ 305c (1) BGB] which is predominantly geared to the parties’ subjective concepts of purpose (. . .). Even a guarantor who intends unthinkingly to be responsible for the principal debtor’s ‘obligations’ as a whole is unreasonably disadvantaged if it is required of him in a form to be jointly liable for other debts than those which were the objective cause of the guarantee. The objective cause is the current need of the creditor for security, but preserving the prohibition of dispositions by other parties. (. . .)

4.The fact that extension by the form of the guarantee liability to all demands arising from the banking relationship has not become part of the contract does not lead in the present case to its ineffectiveness. The declaration of purpose should instead be preserved in the form that the guarantee secures all existing and future demands, including conditional and fixed term ones, by the defendant against the principal debtor under the credit relationship as at the time of the giving of the guarantee declaration. The decisive factor is therefore in principle the credit limit at that time.

(a)The legislator has in principle decided in § 6 (1) of the AGBG [§ 306 (1) BGB] that—in contrast to § 139 BGB—the legal consequences of the control of general conditions of contract are limited to the clauses or parts of clauses affected in each case. The whole clause, or even the whole contract, including the parts not directly affected by the control of general conditions of contract, would only exceptionally be ineffective if adhering to the regime—possibly supplemented under § 6 (2) of the AGBG [§

306(2) BGB—is unreasonable for a contracting partner (§ 6 (3) of the AGBG [§ 306

(3) BGB]). When there are objections to a clause or part of a clause in general conditions of contract, the preservation of the contract in other respects in principle assumes of course that the provision can be split into a permissible and an impermissible part. For this, division would need to be possible into components which would each be comprehensible in themselves and meaningfully separable from each other [references omitted].

(b)The declaration of purpose here is divisible in its content and subject matter (see above 3(a). Over against this, perfect linguistic separation is not possible. (. . .) Although a version of the clause which is free from objections can only be achieved by

664 APPENDIX I: CASES

rewording rather than by leaving out individual sections, this does not amount to an impermissible reduction in order to maintain validity (. . .) The ban on reductions to maintain validity (. . .) is supposed to protect the contracting partner of the user from unfair clauses, and ensure that the content of general conditions of contract does justice to the interests on both sides. It would be inconsistent with this to permit the user, when he puts forward his conditions, to go beyond the boundary of what is permitted in an unscrupulous way, with nothing more to fear than that the court would move the detriment to his partner in the transaction back to a permissible level. It is not a question of that here. On the contrary, the rewording of the clause should facilitate the retention by the contract of a performance content: the very content which corresponds to the guarantor’s conceptions when giving his guarantee declaration, so that his justified interests are taken fully into consideration. The total invalidity of the guarantee would—measured by the protective purpose of the General Conditions of Contract Act—be an excessive legal consequence (. . .). To separate linguistically

(a) the taking up of the guarantee for the demand the securing of which was the cause for the guarantee from (b) the extension of the guarantee to all existing and future obligations of the principal debtor, it would have sufficed to divide the declaration of purpose accordingly into two sentences. In this case it was beyond question that the part of the declaration of purpose concerning the main obligation can exist after elimination of the other part, and the guarantee can remain effective as such. Therefore there is no prohibition existing for the guarantor’s protection against producing the same result by the rewording of a unified clause (. . .)

Chapter 4

Case 51

BUNDESARBEITSGERICHT 21 OCTOBER 1966

NJW 1967, 173

Reasons

I. . . .

A widow’s claim against the former employer of her divorced husband for payment of a pension can only be based on the contract of employment between her divorced husband and the defendant, his former employer. . . .

II. The Landgericht correctly interpreted the defendant’s undertaking to pay a pension to Mr R, the divorced husband of the plaintiff, as not giving rise to rights in the person of the plaintiff. . . .

1. It is not correct, as the appeal court assumes, that pension undertakings must be interpreted restrictively. It is correct that no claim for a company pension can legally be derived from the contract of employment alone, but rather requires a separate legal basis (BAGE 4, 360, 367 = NJW 56, 1732; BGHZ 16, 50, 51 = NJW 55, 501). This does not mean however that there needs to be an explicit undertaking to provide a pension. It is generally accepted that as well as individual contracts or collective agreements, even a so-called tacit agreement or a customary practice within a business or

APPENDIX I: CASES 665

even the principle of equal treatment can act as the legal basis for a pension claim [references]. The general rules on interpretation apply throughout. Like the contract of employment, pension undertakings which generally form part of that contract are subject to the same rules on the interpretation of civil contracts as those found in §§ 133, 157, 242 BGB.

2. When applying the general rules on interpretation the same result is reached as that of the Landesarbeitsgericht (LAG).

(a) In No 5 of the pension undertaking the ‘wife’ of the deceased employee is promised a lifelong pension. As correctly stated by the LAG, the general linguistic use of the word ‘wife’ does not include a divorced wife. Legislation uses this term in the same way. Legal provisions generally contain an addition where the legislator intends to express that the provisions apply not only to spouses but also to divorced partners

. . . §§ 58 et seq of the Marriage Act (EheG) which variously refer to ‘spouses’ when including divorced former spouses do not lead to a different conclusion since the title of that section of the Act is called ‘consequences of divorce’ which clarifies that it deals with divorced partners. (Other examples listed) . . .

(c) The legal provisions of the law on civil servants and on social security in favour of divorced spouses provide no generally binding legal principle applicable for contractual pension undertakings made by private employers. Under the principle of contractual freedom, a private employer promising his employees old age and widows/widowers pensions is not bound to use the general public law principles of, and provisions on, civil servants and social security. Nor must an employer include divorced spouses who had a maintenance claim against the deceased employee, in the group of persons entitled to a widow’s pension. It is not up to the court to decide whether or not such practice would be desirable. An explicit inclusion of a relevant provision in the contract is an indispensible precondition for such claim. The current legal provisions provide no legal basis for a former employee’s pension claim against his former employer, and where such a pension claim is agreed by contract, the law does not grant a divorced spouse who had been entitled to maintenance a direct claim for a widow’s pension. Such a claim by a divorced spouse must have been specifically agreed on, for instance by naming the entitled person in the contract. This was not the case here. The defendant’s pension undertaking contains nothing which could be construed as a reference to regulations which apply for civil servants or to provisions on social security . . .

Case 52

BUNDESGERICHTSHOF (THIRD CIVIL SENATE) 10 MAY 1951 BGHZ 2, 94

Facts

The plaintiff was leaving the hospital where his wife was a private patient when he fell and suffered concussion, a fractured skull, and a cerebral haemorrhage. He alleged that the accident was due to the dangerous condition of the main entrance of the hospital, and claimed damages from the defendant. So far as his action was based on breach of contract it was dismissed at all levels of jurisdiction.

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Reasons

The Court of Appeal held that the defendant was not liable on its contract with the plaintiff for the hospitalisation of the plaintiff’s wife. It accepted that under a contract of lease the tenant’s family have a contractual claim against the landlord if there is a defect in the leased dwelling or its approaches which is attributable to him and they suffer harm thereby; and it agreed that the hospitalisation contract is like a lease in certain respects; it found however that the lease features of a hospital contract are really very subsidiary: the patient has no claim to any particular room, and the primacy of the medical treatment reduces the significance of the premises as compared with a contract of lease. Therefore no contractual liability of the defendant arose under § 278 BGB.

In contesting these views, the appellant emphasises the fact that he himself made the contract whereby his wife was taken in by the defendant as a private patient. The contract bound him to pay the hospital bill and bound the defendant not only to care for his wife (§ 328 BGB), but as a subsidiary duty, to enable him to visit his wife in safety. Given that he was a principal contracting party, it is irrelevant, says the plaintiff, whether, had he not been, the defendant would be liable to him under § 328 BGB in the way the landlord is liable to the tenant’s family.

Contrary to the appellant’s view, the contractual liability of the defendant for the accident which the plaintiff suffered as he was leaving the hospital by the front steps cannot depend on whether it was the plaintiff himself or his wife who entered into the hospitalisation contract. It is true that a contract is formed when a private patient is taken into a hospital, even a hospital run by a public body (RGZ 64, 231; 83, 72; 111, 263; see also RGZ 108, 87), and that the plaintiff as husband acquired contractual rights against the defendant (RGZ 64, 233); yet it is not from the formation of the contract but from its content that a duty to take care of the plaintiff’s safety must arise. If in addition to the primary obligation towards the patient to give him medical treatment, the terms of the contract include an obligation towards certain third parties, the hospital would be contractually liable to those third parties regardless of whether they had participated in the formation of the contract or not.

The hospitalisation contract is doubtless a contract of services (Dienstvertrag) [(RG JW 1938, 1246; other references omitted], whereby the patient is to be provided with bed and board as well as with medical treatment and care. The medical treatment is however the essential and critical element, the bed and board being by contrast rather subsidiary [see RGZ 112, 60; other references omitted]. There is thus no occasion to infer any subsidiary contractual duty to ensure that the patient’s husband be safe in visiting the hospital. But the result would be just the same even if one held, in view of the purpose of the hospitalisation contract, that there was an independent contract for lodging and meals collateral to the main contract for medical services; the result would be the same, too, if a separate contract with different terms were made with a doctor (RG JW 1936, 3182 no 6), for example, if the patient were taken into the hospital on the referral of the doctor treating her so that the treatment could be continued there. For even if there were a separate contract with the hospital for lodging and meals, the plaintiff as husband would have no contractual claim to safe access to his sick wife, despite the lease features of the contract. It is true that under the law of lease the tenant’s family have the same rights against the landlord regarding the safety of

APPENDIX I: CASES 667

the premises as the tenant himself [RGZ 91, 21, 24; 102, 232; 152, 175, 177; 169, 87; other references omitted]. In accordance with the purpose of the contract, rights are granted under § 328 BGB to those who belong to the tenant’s household, members of the family and domestic help; but no such rights are granted to guests: the precondition is living together in the rented premises. The tenant intends (and his intention, though inexplicit, is perceptible by the landlord) to have the lease include the members of his family and respect their needs; to persons outside the home who stand in no particular relationship to the leased premises, this does not apply. The recognition of the tenant’s implicit contractual purpose to put his family in the optimum legal position may have led to giving a child a direct claim for proper medical treatment when the treatment is arranged by its statutory representative (RGZ 152, 175), but even so it is only the child being treated who has a direct claim for the contractual performance arising out of the contract. When the husband takes the wife to hospital, he admittedly has a contractual claim that she be properly treated, but apart from that he is in no special relationship with the hospital and has no contractual claim for care towards his own person; he therefore cannot demand safe access to his wife in the hospital on the basis of the hospitalisation contract. We need not decide whether it would make any difference if the husband, with the consent of the hospital management, had stayed in the hospital, even overnight, in order to be near his wife. On the facts, the plaintiff had no claim against the defendant for breach of a contractual duty of care.

Case 53

BUNDESGERICHTSHOF (SEVENTH CIVIL DIVISION) 9 NOVEMBER 1966 BGHZ 46, 198

Facts

The plaintiff’s grandmother (the testatrix) died on 13 March 1962 when the plaintiff was ten years old. She left her estate to her three daughters. One of them was the defendant, and aunt to the plaintiff. The testatrix left two savings bank books, one of the Stadtsparkasse (municipal savings bank) the other of the Kreissparkasse Köln (Cologne Disctrict Savings Bank) both made out in the name of the plaintiff. The defendant took both savings books. After the start of the court action, she relinquished one of these to the plaintiff. This litigation concerns the Kreissparkasse savings book. There is DM9554.17 in the account. The lower courts have rejected the claim for surrender of the book. The plaintiff’s further appeal is successful.

Reasons

. . .

3. In assessing the evidence, the only question that arose was whether or not the testatrix and the District Savings Bank concluded a contract in favour of the plaintiff (§ 328 BGB) with the effect that the plaintiff ab initio owned the claim against the bank in respect of the funds, ie both the opening balance and later payments. The facts raised the question of whether the testatrix only intended to leave the savings account as a bequest to her granddaughter with the result that she became owner of the

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savings account only at the death of the testatrix, unless of course the testatrix had otherwise disposed of it.

(a) The fact that such a bequest is possible through a contract between living persons and without the need for the formal requirements requested for wills and testaments can directly be deduced from §§ 328 II, 331 I BGB (RGZ 106, 1 et seq; BGHZ 41, 95; BGH NJW 1965, 1913; BGB-RGRK § 516, No 29). There is no need once again here to discuss the counter-arguments put forward by Boehmer (Staudinger/Boehmer, Erbrecht, 11. ed. Introd. § 27), Coing (Kipp/Coing Erbrecht, 11. ed., § 81(IV) and (to a certain degree) by Lehmann (Staudinger/Lehmann, BGB, 11. ed., before s 1937, No 14). But in order to assume that the opening of a savings account in a third person’s name constitutes a case as envisaged by § 331 BGB, the contract between the saver and the savings bank must show that the saver wishes to bequeath the funds on his/her death. The savings bank must also have intended this effect. There is however no need for very strict demands in respect of this point. When a savings contract is concluded, the savings bank allows the saver to decide which person is entitled to the savings and at what point, and does not influence the decision. Savings banks accept any instructions from the saver as to who shall have a claim to the funds (see RG LZ 1932, col 955). According to § 808 BGB, by payments made to the holder of the savings book, the savings bank is freed from any claims brought by the person actually entitled to the funds. In deviation from other contracts, for instance giro accounts, where, in the interests of the contractual party who enters an obligation, it must be unambiguously clear who in fact is entitled under the contract, in the case of savings contracts it is sufficient that the person entitled to the savings is somehow identifiable from the contract, though not necessarily clearly and specifically, so long as it is eventually possible to identify without doubt who the beneficiary is and under which conditions he/she becomes entitled. Where later on several persons make a claim for the funds, the savings bank can rid itself of any obligation by payments made to the holder of the book. But the bank can leave it to the various claimants to settle the question of entitlement amongst themselves or if necessary with the aid of the courts, and then to pay the person which the court decision names as successful claimant.

(b) The typical feature of this case lies in the fact that a close relative (grandmother) opened the savings account in the name of her relative, who was still a child (grandchild), without handing over the savings book and, as must be assumed, without informing the beneficiary that a savings account had been opened in her favour.

As already explained in detail (see above under 2(c)), such behaviour must normally be interpreted as indicating that the saver wishes to retain the right of disposition until her death. On the other hand it cannot normally be assumed that the grandmother’s intentions to name her granddaughter as entitled party should have no legal consequences whatsoever (see Mordhorst, ‘Spareinlagen auf fremden Namen’ MDR

1956, 4 6; Ritter, Der Sparvertrag auf den Namen eines Dritten, Erlanger Diss., 67 et seq). Unless the circumstances of the case indicate otherwise, by opening the savings account in the grandchild’s name, the grandmother expresses her intention, irrespective of her continued right of disposition, to bestow the savings bank deposits, or what is left in the account at the time of her, ie the grandmother’s death on her granddaughter and that she therefore intends to give her granddaughter preferential treatment to the detriment of her other heirs. It could have been precisely for this reason

APPENDIX I: CASES 669

that the testatrix, immediately before her death, announced her intention of bestowing DM40,000 on the plaintiff a fact which, for the purposes of this further appeal can be assumed as proven. In view of this aspect of the case, the court of appeal needed to consider the plaintiff submissions to this point.

(c) It is possible to bestow funds on a third person under § 331 BGB by opening a savings account in that other person’s name (see OLG Kiel, LZ 1919, 971). It is not prohibited just because the saver and the recipient did not conclude a legally valid agreement clarifying the rights in the savings account (Valutaverhältnis) with the result, as far as the heirs are concerned, the entitlement to the savings account was received without legal basis and consequently gives rise to the heirs’ claim for unjust enrichment. However, in its decision, reprinted in NJW 1965, 1913, at 1914 (= WM 1965, 748), the Bundesgerichtshof has pointed out that the naming of the beneficiary can constitute the saver’s offer to the beneficiary to bestow funds on him/her (promise to make a gift or conditional gift) which the beneficiary can accept even after the saver’s death (§§ 130 II, 153 BGB); an offer which, under § 518 II is not subject to any formal requirements, since the gift was already made when the offer was accepted (see also Erman/Westermann, BGB, 3. ed.; § 331, note 4.)

4. Under § 564 ZPO, the appeal court’s decision had to be quashed. The court of further appeal cannot give a final ruling, since it cannot itself establish exactly for which purposes the testatrix opened the savings account in the name of the plaintiff. This point needs clarified by the court of appeal to whom the case is returned under § 565 ZPO. In further hearings, the parties will be given the opportunity to make supplementary submissions and to raise further claims in the light of the above findings. Whether or not the testatrix, by opening the savings account, intended to make a disposition under § 331 BGB can only finally be ascertained by close inspection and interpretation of the relationship between the relatives, especially the relationship between the testatrix and her daughters ( the heirs) and, on the other hand, her relationship to the plaintiff, her granddaughter. Any ill effects from remaining doubts and uncertainties must be borne by the plaintiff.

Case 54

REICHSGERICHT (FOURTH CIVIL SENATE) 8 FEBRUARY 1923 RGZ 106, 1

Facts

The claimant, sole heir according to the will of the deceased HE who died in 1918, demands from the defendant the surrender of several saving bank books allegedly forming part of the inheritance. During her life, the testatrix had personally paid in the savings amounts and the books had been made in the names of her siblings that of the defendant among others. As requested by the deceased, each book contained a stipulation according to which the testatrix, during her life, was entitled to withdraw capital and interest without consent from the ‘owners of the books’ or to make other provisions in respect of the capital and the interest. The testatrix later on handed over the books to the defendant which are now in her possession. The Landgericht decided in favour of the claimant, the court of appeal rejected the claim. The further appeal is unsuccessful.

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Reasons

The decisions is based on the finding that an agreement had been reached between the testatrix and the administration of the savings bank according to which on the testatrix’s death or at the later time as specified in the books, the ‘persons entitled as shown by the books’ have a direct claim against the savings bank for payment of the amount of the credit in the savings account. As a result of the agreement, the defendant and her siblings (or children of her siblings) under §§ 328, 331 of the Civil Code (BGB) became creditors of the savings accounts set up in their name as from the date specified in the books, whereby they also became owners of these books according to § 925 BGB. Simultaneously, the agreement replaced a formal assignment of the savings-bank deposits which was not carried out by simply issuing the books and their re-registration under the new names (RGZ, 60, 143; 73, 221; 89, 402).

The legal validity of the agreement cannot be disputed under § 331 BGB. There were no particular formal requirements which had to be observed, even though payments to third persons were to be made free of charge. In the case of a contract for the benefit of third persons, the question of possible formal requirements can only be relevant for the relationship between promisor and promisee (see Warn. 1914, No 243, p 341; judgment of 22 January 1920; IV 397/19). In this case the promise of a gift was not made directly to the third person and was not directed at that third person, so that neither the formal requirements of § 518 nor those of § 2301 apply. The relationship between the testatrix and the savings bank is a contract for a loan on interest which does not require a special form in order to become valid.

Reservations as to the legal validity of agreements such as this one can arise solely from the fact that by using this kind of agreement there is—indisputably—a danger that the formal requirements set out for testaments are circumvented. However, no such illegal circumvention can be assumed where the law itself in its § 331 which contained no restrictions whatsoever, provides legitimate means of avoiding formal requirements in respect of wills and testaments. Moreover, the misgivings are not as grave as it initially appears. The Inheritance Tax Act (Erbschaftssteuergesetz) of 20 July 1922 (RGBI. 1922, 695) in its § 2 (1) (No 4) makes provision for the taxation of such transactions. According to §§ 214 et seq, and § 32 KO (Bankruptcy Act), the creditors of the estate can challenge such transactions. In this context it can be left undecided whether or not heirs entitled to a compulsory portion of the inheritance (Pflichtteilsberechtigte) can defend themselves against their creditors by using § 2329 BGB. Possible misgivings must also take second place to the demands of commercial life which, in ever more frequent cases, use such transactions in order, amongst other purposes, to meet a considerable economic interest of the parties. The majority of legal writers and the case law (see in particular Hellwig, Verträge auf Leistung an Dritte p 350 et seq; Endemann, Bürg. Recht, 8, ed., vol 3, § 30, vol. 4, § 87 IV, no 6) favour the recognition of such contracts and the Reichsgericht in the decision of its III. Senate (RGZ 88, 137) has followed this opinion in a case not unlike the present one, as has the II. Senate in an earlier decision (RGZ 80, 177). There seem to be no dissenting decisions of the Reichsgericht and this is particularly true of the decision reproduced in RGZ 83, 223. The case to be decided does not concern a contract in favour of a third person, since the testator’s contractual partner merely held the legal position of a messenger acting on the testator’s instructions. Finally, there is no

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discrepancy between the court’s opinion as stated above and the one held by this Senate and cited by the further appeal (RGZ 98, 279), since in that case the legal question to be solved in respect of the current case was deliberately left undecided. In RGZ 98, 297 the court merely refers to the above-mentioned reservations concerning the legal validity of agreements of this kind; but as shown above and on repeated reflection, such reservations cannot be given the weight of a decisive factor. The above-mentioned decision dealt with an agreement of the testatrix’s death. The heir’s action against these third persons to agree to the surrender of the securities to the estate was successful because—a legal point which must be followed—the contract which is subject to the law of obligations and which is concluded with the bank in favour of third persons, could not transfer ownership to these third persons. A second study of this decision as to whether or not the reason given in that decision suffices to uphold it, or whether the heirs, despite the lack of an effective transfer of ownership in the securities, were bound by an obligation in rem and thus barred from exercising their claim of ownership, is not needed in deciding this case (for this point see in particular Kipp in Festschrift für Luitpold: ‘Wer kann mit Vermaächtnissen beschwert werden?’ p 141).

The further appeal also submits that the testatrix, in exercising her right of disposition over the credit balance which she had retained for the duration of her life had, by appointing the claimant as her sole heir, legally validly transferred to that heir her own claims against the savings bank. However, it follows from the stipulations in the savings books that the testatrix had retained the right to demand the capital and the interest be paid to her only as against the savings bank. In this way, ie by a declaration to the contractual partner (the savings bank) the contractor could at any time be partially or completely cancelled by the testatrix A unilateral cancellation through the appointment in her will of a third person as her heir was not envisaged and not permissible.

Finally, the appeal court correctly assumes that the claimant cannot claim the surrender of the books to her as heir on the basis of the contract of its deposit allegedly concluded between the testatrix and the defendant. According to the appeal court’s view, the purpose and content of the contract was that the holder of the books (the bank) surrendered these books after the testatrix death to the persons entitled as shown by the entries in the books. In respect of the savings book intended for the defendant herself, a possible claim for surrender in favour of the claimant and based on the contract for deposit has lapsed because the defendant, according to the above reasons, has become creditor of the credit balance and thus, according to § 925 BGB owner of the book already in her possession. The claimant was likewise no claim for the retransfer of the other books stemming from the contract of deposit, because that contract had been concluded, as the appeal court ascertained, in favour of the other relatives and grants them, according to § 331 BGB which in this context also applies, a direct claim under the law of obligations for possession of the books in exclusion of the heiress.

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Case 55

BUNDESGERICHTSHOF (FIFTH CIVIL SENATE) 29 JANUARY 1964 BGHZ 41, 95

Facts

The parties are joint heirs of a woman who died in 1953. Shortly before her death the decedent wrote to her bank ‘After my death please give my niece [the defendant] . . . the share certificates lodged in my safe-deposit box and the money in my account . . .’ After her aunt’s death the defendant obtained the share certificates from the safe-deposit box and sold them. The plaintiff now claims part of the proceeds as belonging to the estate.

The Landgericht and the Oberlandesgericht gave judgment for the plaintiff, but on the defendant’s appeal the decision was reversed and the case remanded.

Reasons

The only question the Court of Appeal dealt with was whether the defendant had obtained joint ownership in the share certificate. As the appellant points out, it should also have asked whether she did not have at least a personal claim against the estate to have joint ownership vested in her.

The court below was quite right to hold that the decedent’s instruction to the bank created no real right in the defendant: real contracts for the benefit of third parties are not recognised by the courts as a matter of positive law (RGZ 66, 97, 99–100; 98, 279, 281–3; 106, 1, 3). Nor is there a case for anything like a right of expectancy or Anwartschaftsrecht (such as was mentioned in RGZ 106, 1, 3, as against RGZ 98, 279, 281–3), less far-reaching than a full vested right, but imposing a real obligation on the heirs.

But the decisions are uniform on the following point: a person who wishes to make a gratuitous grant of a right against another which is to vest only on his death (§§ 328, 331 BGB) may do it by means of a contract for the benefit of that third party (here the donee) even without observing the formal requirements for a donatio mortis causa [§ 2301 BGB) (RGZ 80, 175, 177–8; 88, 138–9; 106, 1, 2–3; 128, 187–9; other references omitted]. This certainly applies where the right granted is a right to claim money from a bank. Why should it be different when it is a question of a right to claim a share certificate? In both cases the grant under §§ 328, 331 BGB is of a personal claim which the third party (here the defendant) automatically acquires on the death of the promisee (here the decedent) against the promisor (here the bank). In both cases performance consists of a conveyance (transfer of ownership in the money or the share certificate) which the bank is obliged by its legal relationship to the promisee (the decedent: the Deckungsverhältnis) to effect for the third party. How the promisee’s heirs are ultimately affected by the real transfer of rights which arises through this per- formance-transaction depends on the legal relationship between the third party and the decedent (the Valutaverhältnis). If it is a question of gift, it may be effected in two ways: the account-holder can make a promise of gift direct to the beneficiary (which quite probably happened here, given that the parties lived together), or he may make a contract with the bank for the benefit of the third party donee, containing an offer of his promises gift for onward transmission by his contractor, the bank, to the

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beneficiary, which the beneficiary can accept by silence, since this is what the accountholder wants (RGZ 128, 187, 189). Any informality in the gift promise is thus cured by performance (§ 518 BGB; RGZ 128, 187, 189), and the third party is entitled to receive and retain, even against the heirs of the promisee, what the bank now owes him. Accordingly in German law the result of this case depends entirely on whether the decedent wanted the defendant to have the shares as a gift, or only in order to defray expenses. This is also the right preliminary question as to the defendant’s liability in tort (was her dealing with the share certificate contrary to law in the sense of § 823 BGB?) Indeed, in both cases, even if she had no real right in the shares, a personal claim for the transfer of ownership would entitle her to win by the exceptio doli (dolo petit qui petit quod redditurus est).

Case 56

BUNDESGERICHTSHOF (SIXTH CIVIL DIVISION) 24 JUNE 1969 BGHZ 52, 194

Facts

As general agents for Europe, the defendant sold H installations, produced by company S in M (USA), and used for simplifying the feeding of animals. In order to advertise for these installations, he had organised a working trip to the USA in the summer of 1960 to inspect the installations operating on American farms. He had invited mainly farmers and agricultural consultants. For the flight out and back he chartered a plane from an American airline. In September 1961, he organised a second similar fact-finding trip for which he had gathered 74 participants. For this trip he had again chartered a plane from the ‘PA’ company. The overall flight costs were charged to the participants. On 9 September 1961, the participants departed from Düsseldorf for the USA in a plane belonging to the chartered airline. After a stop-over in Shannon (Ireland), the plane started to cross the Atlantic. A few minutes later it crashed. All passengers were killed.

Under the Warsaw Convention for the Unification of Certain Rules Relating to the International Carriage by Air of 12 October 1929 (in the following: WC) (RGBl. 1933 II, 1039), their surviving dependants, among them the plaintiff, received from the third-party insurer of the ‘PA’ the maximum sum of liability insurance. However, the dependants were not satisfied with this sum. They brought an action for a judicial declaration that the defendant was liable to compensate them for current and future losses from the death of their breadwinners.

The Landgericht (High Court) rejected the claims, the Oberlandesgericht (Court of Appeal) found in their favour. The defendant’s further appeal resulted in the latter decision being quashed and the matter being referred back to the court of appeal for the following reasons.

Reasons

The appeal court interprets the contract concluded by the defendant with the participant to the effect that the defendant had personally become liable for transporting the

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participants by air to the USA and back. Since he had thus become an air carrier in the sense of the Warsaw Convention (WC), and the transportation had not been free of charge (Art 1 WC), he was liable under Art 17 WC. He could not rely on the maximum amount set out by Art 22 WC. The appeal court did not decide whether or not the plaintiff could deduce the defendant’s unlimited liability from Art 25 WC, since the court held such liability already to be founded by the the defendant’s breach of Art 3 II 2 WC, as he failed to issue air tickets. His letter to the participants could not be construed as air tickets.

There are fundamental legal doubts in respect of the appeal court’s decision (VersR 1968, 583) declaring the defendant unrestrictedly to be liable under Art 3 II 2 WC.

(. . .) B.

I. The appeal court’s findings are correct that the defendant acted as air carrier and is thus liable under the Warsaw Convention.

1. The application of the Convention presupposes that this is a case of international air transport in the sense of its Art 1 (see § 51 of the Air Transport Act—LuftVG), and that the defendant acted as air carrier in the sense of the Convention. The decisive question is whether the participants had concluded a transport contract with the defendant o whether the latter had only been bound by the participants’ mandate to arrange for their transportation by an airline, whereby only that carrier, ie the ‘PA’ was liable.

(a) The appeal court rightly proceeds from the letter of invitation which the defendant sent on 4 July 1961 to numerous farmers, agricultural consultants, etc as possible purchasers or advisors on purchases of the ensilage installation. This letter, accompanied by a registration form, stated:

‘The great interest which active farmers, scientists and professional journals show in the H process for rationalising the feeding of animals has caused us to organise a second working trip to the USA this autumn to which we cordially invite you.

We shall probably leave Düsseldorf on 8 September 1961 and fly to Chicago. The return flight will take place on 30 September 1961 from New York.

The costs, including bus trips and accommodation, will probably run to DM1900. All in all there will be 76 participants. . . .

In Germany, the trip will be organised by us and in the USA by the S company

. . .’

The appeal court rightly finds that this letter is not yet an offer to conclude a contract but rather an invitation to apply to the defendant for participation in the trip The deceased passengers did so by filling in and returning the registration form and by sending DM1900. By his letter of 23 August 1961, the defendant accepted the offers. It said:

‘Concerning: Second H study trip to USA Dear Mr . . . (followed by name)!

We confirm with thanks receipt of DM1900 and inform you that we have made a firm booking for you for the second H. study trip to the USA. Attached you will find a circular with further instructions regarding the trip.’

The appeal court holds that the participants could only understand this letter to mean that the defendant wanted to be liable for organising the air transport although by

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using an airline (§ 278 BGB), since the defendant retained the right personally to select the participants. All applications needed to be directed to the defendant who was to receive payment. The trip was an advertising trip organised by the defendant for his own purposes. Although he instructed the participants that a Lockheed was to be used, he did not indicate with which airline the participants needed to conclude a contract. They knew that the defendant himself was not an airline and that he did not own a plane. However, in 1961, it was already customary that companies organised air transport on planes which they chartered from airline companies.

(b) The further appeal submits that the appeal court’s reasoning infringes general rules of interpretation and fails to consider vital circumstances. There are, however, no such indications.

The assessment of the contents of the contract, which the appeal court reached after interpreting the parties’ expressed and tacit declarations of intent (§§ 133, 157 BGB), is feasible. It infringes no principles of logic or experience. The further appeal incorrectly submits that the case concerns an interpretation of typical clauses of model contracts. The fact that the defendant concluded identical contracts with all participants does not alter the fact that individual declarations needed to be interpreted.

The Court of Appeal investigated the defendant’s allegation that he did not intend to be personally liable for transportation but rather only intended to arrange the conclusion of a contract for transport between the participants and an airline company enlisted by him. The appeal court does not wish to rule out that the defendant intended merely to act as intermediary, but it holds that he should have clearly expressed this intention to the participants.

(aa)As repeatedly submitted by the defendant, his legal position in relation to the participants was not that of a travel agent. Normally, when air transport is offered, a travel agent merely intends to act as an agent. It is not the travel agent but rather the airline, whose ticket he sells, who is eventually liable as air transport operator (Schleicher/Reymann/Abraham, Das Recht der Luftfahrt, 3. ed., Art 1 WC, n 28, p 274; Riese, ZLW 1962, 8; Bodenschatz, VersWi 1957, 358; Georgiades, RFDA 1953, 16 et seq; decision of the Court de Cassation, Paris, RFDA 1956, 217). The same applies where several air passengers get together (group travel) and one of them deals with an airline with whom he then concludes a group transport contract, so for instance the chairman of a sports club, or a company acting for its employees. In such cases it is the operating airline alone who acts as air carrier and not the chairman or the company owner (see Schleicher/Reymann/Abraham, above, Art 1 WC, n 26; Bodenschatz, above, p 360; Riese, ZLR 1958, 7; Meyer ZLR 1957, 328, at 330). The case before the court cannot, however, be compared to those cases. Contrary to the position of a travel agency, this case concerns a trip organised by an enterprise which is part of a worldwide corporation and which could be trusted to be able to organise its own air travel in respect of a trip which benefitted its own commercial interests.

(bb)The defendant’s liability as carrier of his air passengers would be excluded, if he merely intended to be and indeed acted as agent of an air carrier. The appeal court correctly rejects the submission that this was the case.

The defendant made no submissions as to how the participants had commissioned him in their name to conclude a contract with an airline. The fact that, when concluding the charter contract, he did not name the participants speaks against such interpretation. Above all, the appeal court’s reasoning is strengthened by the fact that

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the defendant never informed the participants with which airline they were to fly, ie with which contractual partner the defendant should conclude the contract in their name . . .

The ‘agent-clause’ in Art 17 of the charter-party concluded between the defendant and the airline does not point out that the defendant intended, and was expected, merely to act as the participants’ agent. Although this clause, used by many companies which are members of the IATA (International Air Traffic Association) when planes are chartered, states that the charterer concludes the contract ‘both on his own behalf and as agent for all persons carried in the aircraft’ (see to this point Sundberg, Air Charter, 1961, 359 et seq), it is doubtful whether the word ‘agent’ used in this clause means an agent in the sense of § 164 BGB or merely an intermediary, as will be shown below (see Grönfors, Air Charter and the Warsaw Convention (1956), p 115, n 4; Schweickhardt, ZLW, 1964, 13). This question does not need to be answered in this context. No inference to the participants’ detriment can be drawn from the contract concluded by the defendant with the airline, for instance that they, by returning the completed application forms, had given the defendant power of agency.

(cc) In detailed submissions the further appeal tried to substantiate the fact that the defendant, when concluding an air charter-party with the chartered company for his participants, merely acted under a mandate from the participants (contract for ser- vices—Geschäftsbesorgungsvertrag). As a result and as against the participants, he was not liable for transport. Like a forwarding agent (see § 407 BGB) who arranges transportation through a carrier, he simply undertook carefully to select the company chartering out the plane.

The further appeal correctly holds that such a construction is possible (see Guldimann, Internationales Lufttransportrecht (1965), Art 1 WC, n 8; Schweickhardt, ZLW 1964, 23; Riese, ZLW 1962, 8; Rudolf, ZLW 1960, 146) and could have been envisaged for these particular circumstances. But, in the sphere of commercial law, the answer to this question already poses grave difficulties, ie the point whether an agent who concludes a contract with a third person in the interests of his principal does so as an agent only (commission agent, forwarding agent) or whether he acts on his own account (own business). The present case presents the same difficulties. Its solution depends entirely on the circumstances and on the interpretation of the statements made by the parties (Schleicher/Reymann/Abraham, above, Art 1 WA, n 28; Schweickardt, Schweizerisches Lufttransportrecht (1954), pp 50, 51) . . .

Decisive here is the general principle according to which any interpretation of declarations of intent is not governed by what the party possibly intended to declare but rather by what was in fact declared. The recipient is not responsible for any uncertainties; their effects need to be borne by the person who failed clearly to express himself. The appeal court applied this principle. In so far as it concludes that the defendant was not merely a ‘forwarding agent’ but had rather undertaken to carry out transportation himself, this result cannot be faulted. The defendant had fixed the price at DM1900. There was never any mention of the fact that he needed to provide his ‘principals’ with an account on how these sums had been spent. The participants had not approached him with the order to arrange for them a trip to the USA. It was he who advertised a working trip to be organised by him and in his interests.

The further appeal alleges that this was ‘merely’ a contract in favour of third persons (§ 328 BGB). This allegation misses the vital point. It is possible that the ‘Aircraft Charter Contract’ concluded between the American airline (chartered company) and

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the defendant (charterer) was also concluded in favour of the ‘group’ listed in the contract as persons to be transported (so Art 8 of the contract), as is often the case in such charter contracts (see Drion, Limitation of Liabilities in International Air Law (1954), No 120, n 3). However, the decision in this case does not hinge on the relationship between the defendant and the airline (the covering contract) but rather on the underlying debt relationship (Valuta-Verhältnis’) between the defendant and the participants. As held by the appeal court, in case of a transport charter this can again take the form of a transport contract, ie a sub-contract on transportation, which the charterer concludes with the travellers whom he has attracted, and for the performance of which contract he has concluded a further transport contract with the operating airliner (von Bodenschatz, VersWi, 1957, 358 so-called ‘real charter contract; similarly Pelichet, Responsabilité Civile en Cas d’Affrètement et de Location d’Aéronef (1963), p 40). Where such a triangular relationship exists, the charterer is the air carrier in relation to his passengers and liable under Art.17 WC (Schleicher/ Reymann/Abraham, above, Art 1 WC, n 26; Riese, ArchLuftR, 1939, 138; Bodenschatz, above, 360; Goedhuis, National Air Legislations and the Warsaw Convention (1937), p 134; Shawcross/Beaumont, on Air Law, 2. ed, 1951, n 513 = 3. ed., 1966, 603). Contrary to the further appeal’s opinion, the ‘agent-clause’ in Art 17 of the charter-party is not the decisive point which is decisive. This clause intends to create a direct legal relationship between the chartered company and the passengers assembled by the charterer, so that the chartered company, as against the passengers, acts as air carrier in the sense of Art 1 WC with the result that when claims for damages are brought against him, he can draw on the restrictions on liability set out in Art 22 WC, even where initially he did not know who his passengers were (‘undisclosed principal’; see Sundberg, above, 360; Shawcross/Beaumont, above, 2. ed., No 351 = 3. ed., 480; Drion, above, No 120; Rudolf, ZLW 1960, 146; Dutoit, La Collaboration entre Compagnies Aériennes (1957), p 101). Thus, this ‘agent’ clause can have the effect that the passengers also acquire a personal, direct claim for transportation against the chartered company (§ 328 BGB). This does not however change the fact that the passengers first and foremost have concluded a contract for transport with the charterer acting as their ‘agent’. An interpretation of this internal relationship between charterer and air passengers does not depend on the interpretation of the outer relationship between charterer and chartered company, ie the contents of the charterparty. The decisive question is whether or not the defendant concluded the contract not only in his own name, but for his own interests and as air carrier for the passengers gained through advertising. The appeal court has correctly answered the question in the affirmative . . .

II. The court of appeal correctly ascertained that the defendant is basically liable under Art 17 WC . . .

III. (But) the facts on which the appeal court bases its decision only justify the finding that the defendant’s liability is limited by the maximum amount set out in Art.22 WC. But since ‘PA’’s insurance company has already paid the maximum amount, additional liability requires the existence of other claims.

1. The plaintiffs submit that the defendant’s liability is unlimited under the rules on breach of contract (§ 325 BGB, positive breach of contract, contract with protective effect in favour of the surviving dependants) and on tort under §§ 823 et seq BGB. This is not correct. Once it has been ascertained that the defendant acted as air carrier, ie

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was liable under Art 17 et seq. WC; all other bases for liability are thereby excluded (Art 24 WC).

2. Thus, the claim for unrestricted liability can only be well founded if the dependents’ allegation is correct that the defendant or the ‘PA’ company and its staff acted so negligently that their behaviour amounted to intentional breach of contract (Art 25 WC). The appeal court has not answered this question. Since this point can only be ascertained by a court which considers the facts, this case is referred back to the appeal court for further deliberations and decision.

Case 57

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 17 JANUARY 1985 BGHZ 93, 271

Facts

The defendant, an airline company, chartered seats to company T for a return flight from Frankfurt/Main to Santa Lucia (Antilles, Caribbean) planned for 9 and 16 December, 1980. Company T passed on a number of these seats to company O, Fernreisen GmbH, a travel agent, for air package tours. On 15 December 1980, company T stopped payments.

On 16 December 1980 employees of the defendant refused to let a Mrs H take the return flight to Frankfurt, although she had booked with company O air tickets for the trip to Santa Lucia between 9 and 16 December 1980 for herself and her companion. As the reason for their refusal the employees stated that company T had not paid for the flight. Mrs H and her companion then flew back with another airline. The resulting costs of US$1,783.60 plus interest were successfully claimed by Mrs H against company O.

The plaintiff, an insurance company structured as a public limited company, indemnified company O for the claim of the court action plus interest amounting to DM44,575,64 in addition to the legal fees and court costs amounting to DM1397.32. The plaintiff now claims the entire amount of DM5972.96 plus interest from the defendant. Both the Landgericht and the Oberlandesgericht have granted the claim for DM4575.69 plus interest. The further appeal, though admissible, was unsuccessful for the following reasons.

Reasons

The Court of Appeal (Berufungsgericht) is of the opinion that the charter contract between company T and the defendant constituted a true contract in favour of a third party as set out in § 328 BGB, by which Mrs H had obtained against the defendant a right to transport. By refusing to transport Mrs H, the defendant became liable to pay Mrs H damages under § 325 BGB. In divergence from the provisions of § 334 BGB, the defendant could not raise against Mrs H the possible defence of breach of contract for outstanding payments, which he has against company T. As far as the relationship between the chartered company and the benefiting traveller goes, one must assume that the plea of unpaid charter fees was tacitly

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excluded since the traveller relies on having acquired a claim of transportation against the airline free from any pleas.

As against Mrs H, the defendant and company O were joint debtors. As company O has satisfied Mrs H’s claim for damages, this claim transferred to company O under § 426 (2) BGB. Although both joint debtors are in principle liable in equal proportions, in this case § 254 BGB comes into play mutatis mutandis. The defendant must therefore solely bear the loss, since he has caused the client H further transport costs by refusing transportation. Company O thus has a claim against the defendant amounting to the payments made to Mrs H and this claim has passed on to the claimant.

The further appeal is unsuccessful.

1. As a result of the travel contract concluded between Mrs H and company O as tour operator, Mrs H had a claim for transportation from Frankfurt/Main to Santa Lucia and back against company O (§ 651(a)(1) BGB). As the Court of Appeal rightly held, this claim for transport also existed as against the defendant. It is true that there existed no direct contractual links between Mrs H and the defendant and, in particular, company O as tour operator did not act as the defendant’s agent. But when concluding the travel contract for herself and her companion, Mrs H had at the same time booked two of the tickets chartered to company T by the defendant. The charter contract concluded between the defendant company T constitutes a contract for transport in favour of Mrs H (see BGHZ 52, 194, 201/202; LG Frankfurt/Main [1983] NJW 52; Ballhaus in BGB-RGRK, 12. ed. 328, note 50; MünchKomm/Gottwald,

§328, note 39; Schwenk [1970] BB 282, 284).

(a)Contrary to the opinion of the further appeal, such a contract in favour of Mrs H. cannot be denied for the reasons that (1) the charter contract does not contain an agency clause; (2) the air tickets had been issued by company T and not by the defendant and (3) the defendant did not know the persons to be transported. It is true that the decision in BGHZ 52, 194, 202 and the legal literature following this ruling (see Ballhaus, above; Schwenk, above) are of the opinion that when a contract in favour of third persons is to be assumed, special significance is to be attached to such an ‘agency’ clause, whereby the charter contract is concluded in the name of the charterer as well as for the benefit of various air passengers to be transported. However, such a clause is not the determining factor in the classification of the charter contract as contract in favour of third parties. Likewise, the place where the air tickets were issued is not decisive.

A charter contract obliges the chartered party to make available to the corridor seats on the flight organised by him. He knows that the persons to be transported are normally only named after the charter contract has been concluded, by the charterer or by a third person empowered to act for him, once package travel contracts have been signed. Thus under § 328 (2) BGB it is the main purpose of a charter contract to transport air passengers who are identified to the chartered party only when the charterer or the third person insert their names on the air ticket. The contractual partners had intended that the contract had this particular aim. It is thus appropriate to assume that the air passengers who, at the time the charter contract was concluded would normally not be known, and in whose interests the charter contract was concluded, have direct contractual claim for transportation against the chartered party even where the charter contract does not contain an agency clause and their air tickets are not issued by the chartered party himself.

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(b)Contrary to the opinion of the further appeal the provisions of § 651 (a) BGB also contain nothing against the assumption that a contract in favour of a third party was concluded. It is true that under § 651 (a) BGB the traveller who has concluded a tour contract in principle only has the tour operator as his contractual partner; but when executing specific tour services that tour operator can make use of other persons or bodies providing services to carry out his obligations. This arrangement, merely concerning the relationship between the tour operator and the passenger, does not rule out that the passenger, as a result of the specific form of the contract, in addition to his claim against the tour operator also has a claim against these third persons so employed. The opinion held by most legal writers contractually holds that it is possible to construct the contract between the tour operator and the person providing the service as a contract in favour of a third party which provides the passenger with direct claims against the provider of the service (see Beuthien in Studienkommentar zum BGB, 2. ed., § 651 (a) Note 3; Brox [1979] JA 493, 494; Erman/Seiler BGB, 7. ed., § 651 (a), note 11; MünchKomm/Lowe, before § 651 (a), note 15; Palandt/Schwerdtner, BGB, 12. ed., § 651 (a), note 27 et seq., see also Bartl Reiserecht,

2.ed., note 269).

(c)Finally, the various interests of the parties are best served if the charter contract is seen as a contract in favour of the passenger. Especially in the case of air package tours, the passenger depends to a large degree on the services of the chartered party as the case before the court shows. His interest in a journey which is as trouble-free as possible therefore demands that he is able to direct his claim for transportation not only against the tour operator, but against the airline. The interests of the chartered party in only being liable to the tour operator for the provision of the services are comparatively slight.

2.The appeal court’s opinion is also to be upheld where it finds that in respect of the relationship between Mrs H and the defendant the charter contract excludes the application of § 334 BGB. It correctly assumes that the defendant could not counter Mrs H’s claim for transportation by the plea that company T had not fulfilled the contract.

(a)The rule contained in section 334 BGB according to which the promisor can use pleas arising from the main contract against demands from the third party can—even tacitly—be excluded (see Gottwald, above, § 334, note 2). In particular, the very nature the main contract can mean that the debtor cannot use all pleas from this contract against the third party (see BGH [1980] NJW 450; LG Frankfurt/Main [1983] NJW 52, 53; Palandt/Heinrichs, above, § 334 Note 1; Staudinger/Kaduk, above, § 334 Note 8).

This is the case here. The defendant concluded the charter contract with company T—a tour operator—which then transferred the chartered airline seats to company O—against a tour operator. For this reason the defendant had to assume that the seats were used as part of travel contracts concluded by the tour operators with travellers and that these travellers would already have paid the costs of the flight, included in the overall price for the journey, before the start of the journey irrespective of whether they had been obliged to do so. The defendant had also agreed that company T issued air tickets for the seats which he had chartered out. Under these circumstances the defendant must have known—as the appeal court rightly assumes— that passengers booking an air package tour and who are not aware of the specific legal form of the transport contract, expected and could expect that their claim for

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transportation against the defendant was free from pleas. As chartered party, the defendant could not oppose Mrs H’s claim by pleading that the charter contract had not been fulfilled. Rather, it is part of his area of risks to ensure that payments which passengers made for the flight are received by him in time.

(b)The argument raised by the further appeal cannot be followed, according to which it was up to company O to fulfil the customer’s expectations and to make appropriate arrangements with the defendant. The charter contract concluded between the defendant and company T is a contract in favour of air passengers. The air passengers’ interests were thus adequately protected as set out above; there was no need for any further agreements between company O and the defendant. Mrs H, customer of company O could also rely on the fact that the defendant would provide her with transportation, once she had paid the fare for the journey.

(c)The defendant also had no other reasons for refusing to transport Mrs H. The appeal court correctly assumes that the defendant, as against Mrs H could not plead an overbooking allegedly made by company T. Even where the defendant’s claim is correct that: first, company T had regularly overbooked flights, and secondly, that on

16December 1980 the defendant had accepted a number of company T’s passengers in Santa Lucia, this provides no explanation as to why Mrs H in particular could not have been given transport for reasons of overbooking. In this respect the appeal court rightly points out that Mrs H had not been refused transport for that reason but rather because company T had allegedly not paid for the air ticket.

3.As a result of the defendant’s unjust refusal to provide return transport, Mrs H had a claim for damages against company O under § 651 (f) BGB, since company O as tour operator was vicariously liable for the defendant’s fault. On the basis of the charter contract concluded in her favour and broken by the defendant, Mrs H had an additional claim for damages against the defendant, arising out of § 352 BGB. Since in respect of this claim, as the appeal court rightly assumes, the defendant and company O are liable as joint debtors, and company O has in the meantime settled Mrs H’s claim, under § 426 (2) BGB her claim against the defendant has passed onto company O.

The appeal court’s reasoning can also not be faulted according to which, as far as the relationship between the defendant and company O was concerned, the defendant in analogous application of § 254 BGB, was not merely liable for his portion of the performance of the contract but was rather liable in full. By unjustly refusing to provide return transport, the defendant has caused the additional transport costs incurred by Mrs H. There is no reason to assume that company O caused this damage, since company O fulfilled its duty to provide Mrs H with return passage by booking the chartered flight seats. Furthermore, company O had no way of putting pressure on the defendant to fulfil his duty to transportation. It is thus appropriate that the defendant, according to the degree of his own fault, is liable in full for the entire damage [see decision of the Senate in BGHZ 59, 97, 103 with references].

4.The claimant indemnified company O their insured, for the damage stemming from Mrs H’s claim. According to § 67 (1)(1) of the Insurance Contracts Act (WG) Mrs H’s claim against the defendant has thus passed to the claimant.

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Case 58

REICHSGERICHT (SEVENTH CIVIL DIVISION) 4 JUNE 1902 RGZ 51, 403

Reasons

On 29 October 1900, the merchant Karl W obtained a personal life assurance worth DM10, 000 for the benefit of his wife, the plaintiff. After his death on 22 May 1901, a bankruptcy petition was filed in respect of his inheritance and the defendant appointed as receiver in bankruptcy. He objected to the payment of the insurance sum to the plaintiff who now by this action demands his approval to the payment. The receiver bases his objection on the fact that the insurance contract constituted a gratuitous transfer in the sense of § 32 II of the Bankruptcy Order (KO) which is subject to rescission under these provisions. Both lower courts have ruled in favour of the plaintiff. The appeal court held that there is in fact a gratuitous transfer subject to rescission, according to § 32 II KO, if funds were disposed of which formed part of the deceased bankrupt person’s estate. Here, this was not the case. Under § 330 BGB, when the life assurance contract was concluded, the plaintiff on the death of her husband directly acquired an entitlement to demand payment of the insurance sum from the insurance company. The husband himself had of course never owned the right to be paid by that company.

The defendant bases his further appeal on § 331 I BGB which states:

‘Where the obligation is to be performed to a third person after the death of the person to whom it was promised, in case of doubt that third person acquires the right to performance of the undertaking on the death of the recpient of the undertaking.’

The further appeal could not succeed.

According to § 330 BGB, in cases as here, where a contract was concluded in favour of a third person and where there is doubt, that third person acquires a directly actionable claim if the life assurance contract made provision for payment of the insurance sum to the third person. In respect of all contracts in favour of a third person § 331 I BGB, as quoted above and cited in the further appeal provides that where an obligation to a third person is be performed after the death of the recipient of the undertaking, that third person acquires the claim only at the point of death. This result equally applies to insurance contracts. Unless otherwise agreed, up to that point the beneficiary of such an insurance contract merely acquires an expectation to receive the insurance sum but not yet a conditional right. (see Dernburg Bürgerliches Recht, vol. 2, § 106, n II, 1; Planck, Bürgerliches Gesetzbuch, n 1 to § 331).

However, the following points need to be considered in respect of the manner of acquisition at the above specified point in time: The beneficiary acquires assets which the deceased had provided to be transferred at the point of his death; but since this point of death is decisive for the acquisition, the assets are not part of the inheritance and do not stem from the testator’s estate. Instead, at the point of death, the beneficiary acquires the respective claim directly as a result of the insurance contract. Contrary to other provisions dealing with the transfer of rights in case of death, legislation here provides for a direct acquisition mortis causa. Since a right acquired in such manner is not part of the estate, it cannot be touched by the creditors of the estate (see Endemann, Bürgerliches Recht, 3 to 5 ed., vol. 3, § 66, 287).

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In respect of § 331 I BGB, Jaeger and Hellwig come to a different conclusion. Jaeger holds that: ‘In case of doubt, the third person acquires the claim at the point of death directly from the testator’ (Kommentar zur Konkursordnung, n 28 to § 32). Hellwig deduces that at the point of death ‘the assets are shifted directly at the expense of the stipulator’s estate’ (Die Verträge auf Leistung an Dritte, § 57, 367). In view of their opinion that at that specific point in time a transfer of property occurred, both writers presume that, where a bankruptcy petition was filed in respect of the estate of the person who received the undertaking, under the preconditions set out in §§ 30 to 32 KO the receiver in bankruptcy can rescind the bequest to the third person and the event of death acts as point of acquisition of that bequest.

But this court cannot follow these arguments for the above-stated reasons. When the BGB entered into force, the outcome remained the same. The Reichsgericht previously held (see Seuffert, Archiv, vol. 48, 452) that in a case like this, acquisition in favour of a third person directly although conditionally occurred when the contract in favour of the third person was concluded. The result was that at the point when the bankruptcy order was made in respect of the insured testator’s estate, rescission of the testator’s respective legal dispositions was excluded, because, as stated above and regarding the claim for payment of the insurance sum, no assets were distributed which were part of the estate to which the creditors in bankruptcy were entitled. Under the provisions of the BGB rescission is likewise excluded since, according to these now applicable provisions, the assets which are subject to the bankruptcy petition were not reduced by acquisition of the now unconditional claim for payment of the life assurance proceeds.

Case 59

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 19 SEPTEMBER 1973 BGHZ 61, 227

Facts

The plaintiff claims damages for the harm caused to the house of its insured, B (the landlord), to whose rights it is subrogated (§ 67 Insurance Contract Act—

Versicherungsvertragsgesetz—VVG).

The first defendant had rented one floor of B’s house since 1966, as well as a further room which he used as a store-room. On the ground outside the house he kept a single-axle motor-trailer, equipped for the sale of food and drink and containing two cylinders of propane gas which fuelled some cooking apparatus and two lights. The second defendant was a salesman employed by the first defendant.

On the early morning of 21 December 1967 there was an explosion due to escaping propane gas. This explosion destroyed the vehicle and damaged doors and windows in the landlord’s house as well as the paintwork outside and in. On 22 December 1967 the landlord gave immediate notice to quit, and the first defendant moved his vehicle to another plot of land which he rented.

The plaintiff indemnified the landlord and now claims payment of the sum of DM3718.98, first demanded on 11 October 1969, on the basis that on the evening of 20 December 1967 the second defendant carelessly failed to turn off the taps of the propane gas cylinders.

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The Landgericht gave judgment for the plaintiff, but the Oberlandesgericht reversed on the ground that the claim was time-barred, a point which the defendants had raised in their second ground of appeal. The plaintiff’s appeal is dismissed.

Reasons

I. . . . II. Claims against the first defendant.

1.The Court of Appeal assumed, without detailed investigation, that the landlord (to whose rights the plaintiff is subrogated) had concurrent claims against the first defendant in tort and under the contract of lease. It found these claims time-barred under § 558 BGB [now § 548 BGB]. The Court held that no claim arose under § 7 Road Traffic Act (Strassenverkehrsgesetz—StVH) because the trailer-shop was not a ‘motor vehicle’ in the sense of § 7 of that enactment, nor was it ‘in operation’ at the time, as required by that provision.

2.In the circumstances of the case there is much to be said for this last point, but we need not determine it now for, as we shall explain, the applicability of § 558 BGB means that if any claim did arise under the Road Traffic Act it would in any case have prescribed.

The Reichsgericht and the Bundesgerichtshof have always held, with virtually no dissent from commentators, that the short prescriptive period of § 558 BGB applies to all damages claims, regardless of their basis, which the landlord can bring in respect of alteration to or deterioration of the leased property. This includes claims under the Road Traffic Act, at any rate when, as here, the garaging, keeping, or parking of the vehicle is envisaged by the lessee and the harm results from such a use of the leased property. To hold otherwise would frustrate the purpose behind § 558 BGB, namely that the parties should be prompt in finalising the landlord’s claims for damages, for § 14 StVG has a two-year prescriptive period which the landlord could invoke in order to displace § 558 BGB.

3.The main damage caused by the explosion, according to the Court of Appeal, was to parts of the property that were neither demised by the lease nor, like the front door, the entrance hall, and the staircase, provided for common use by people including the first defendant. The Court of Appeal, following the Reichsgericht in RGZ 75, 116, was right to hold that this is no obstacle to the application of§ 558 BGB to all claims for damages arising out of harm caused by the explosion.

(a)It is true that the six-month prescriptive period of § 558 para 1 BGB applies by its terms only to claims in respect of alteration to and deterioration of the leased property, and of itself this applies only to the property which the lessee may use under the lease contract, exclusively or in common with others. To this extent, at any rate, the statutory rule is unequivocal: all claims in respect of such harm prescribe in six months. Desirable as it might be to have a single prescriptive period for claims for damage to leased and to unleased property, the binding nature of § 558 as a special rule of the law of leases makes it impossible to say that where damage to unleased property occurs as well, claims for damage to the leased property prescribe in thirty years (§ 195 BGB).

(b)Quite the contrary. It frequently happens that a tenant causes simultaneous harm to leased and unleased parts of the property. If in such cases one part of the claim prescribed in six months and the other only in thirty years, the aim of § 558

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BGB, namely to procure that the landlord’s claims be swiftly and finally dealt with, would only be partially achieved. We must therefore follow the Reichsgericht in holding that in such mixed cases the uniform short prescriptive period of six months applies. To construe § 558 BGB in this manner causes no juridically unacceptable disadvantage to the landlord, at any rate where he is in immediate possession of the unleased parts which are damaged, for then he can forthwith ascertain the nature and extent of the damage just as he can when the tenant returns the leased property (see this Senate 2 October 1968, NJW 1968, 2241). We must take it that that is the situation here, for the plaintiff has not asserted that those parts of the dwelling which were not leased to the first defendant were leased to anyone else and thus inaccessible to him. We therefore need not investigate when the period of prescription begins to run in respect of harm to property leased not to the defendant but to other tenants, supposing that one could in law have different start-points for the six-month period of prescription depending on when the damages parts of the property were returned to the landlord (compare § 558 para 2 BGB).

(c)We must also reject the idea of having different periods of prescription depending on whether the harm is caused predominantly to the leased property (as in RGZ 75, 116) or to parts of the property not included in the lease. To handle such mixed cases in that way would lead to legal uncertainty, as the Court of Appeal pointed out, and would leave open the question how to deal with a case where the harm caused to leased and unleased property was equal in extent.

(d)Nor can it matter how extensive the harm caused to the parts of the property not leased may have been; for the clear intention of the statute is that the landlord is bound by the short prescriptive period even when very considerable harm is caused to the leased part of the premises. All this flows from the legislator’s concern that the landlord’s claims for damages be dealt with quickly and definitively.

(e)Another factor which tells in favour of having a uniform short period of prescription is that the duty of care incumbent on the tenant of premises applies to the whole premises and not just to those parts which are leased to him, for, leaving aside other concurrent claims which the landlord might have, the tenant could hardly be liable for damaging the leased property unless he were in breach of this duty. The tenant has a contractual obligation to take care that his use of the leased property causes no harm to other parts of the property. There can hardly be any overwhelming reason for having separate periods of prescription when the tenant causes harm to leased and unleased parts of the property by a single act or omission in breach of his duty of care. It can be left open what the decision should be if the only harm caused by the tenant’s breach of his duty of care is to objects not included in the lease, since the question does not arise here.

(f)The appellant does attempt to split the lease into two, one object being the land on which the sale-trailer was kept, and the other the store room. Had there been two contracts of lease between the first defendant and the landlord, such a division might arguably be acceptable, but even the plaintiff makes no such assertion. If there is but only contract of lease, § 558 BGB applies to all parts of the property which are leased, and also those, such as the external stairway, the front door, and the foyer, which are in common use and provide a necessary link between the various parts which have been leased. It is thus impossible to say, as the appellant tries to do, that none of the damage due to the explosion in front of the house was to ‘leased things’ under § 558 para 1 BGB.

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5. The appellant raises no objection to the manner in which in which the period of prescription was computed, and no error of law is to be found therein. The Court of Appeal was consequently right to dismiss the claim against the first defendant.

III. Claims against the second defendant.

1.Here, too, the Court of appeal allowed the defence of prescription, in reliance on the decision of this Senate in BGHZ 49, 278. As in that case, the person from whom damages were claimed here was an employee and agent for performance of the tenant who, being drawn into the protective ambit of the contract of lease, could invoke the short prescriptive period of § 558 BGB just as the tenant himself could. There was the further ground, as in the decision cited, that the second defendant was engaged in a ‘dangerous activity’ on behalf of the first defendant, and was thus entitled, if sued, to be indemnified by him; but if the second defendant was liable and the first defendant was liable to indemnify him, the first defendant would then lose the protection of § 558 BGB.

2.The appellant objects to this that the second defendant was not engaged in any dangerous activity: there are gas cookers in every house, but housemaids and cooks are not engaged in a dangerous activity. The concept of dangerous activity was developed in relation to truck drivers and agents of that kind whose employment was inherently dangerous. There is much to be said for this, but we need not decide whether in the end of the day we agree with it for, as can be inferred from the cited decision, the tenant’s assistant is entitled to invoke the short period of prescription if he falls within the protective ambit of the contract of lease. The Court of Appeal was right to hold that this was true of the second defendant.

(a)This Senate has repeatedly explained that contracts of lease are a prime example of the application of the legal doctrine of contracts with protective effects for third parties (see BGHZ 49, 278, 279; 49, 350, 353). The courts include a third party in the protective ambit of a contract if the creditor owes him a duty of care and protection. In the case of leases this applies not only to the tenant’s family but also to domestic servants and other assistants who, consistently with the lease, share in the use of the leased property or indeed, as here, use it on behalf of the tenant.

(b)It is therefore beyond doubt that the second defendant was included in the protective ambit of the contract of lease. The question then arises whether this entitles him to invoke the defence under § 558 BGB in his own right. As was explained in BGHZ 49, 278, 279, the primary effect of the protection is that the third party, if injured by the landlord’s breach of contractual duty, may sue him for damages. But if the third party has the right to sue the landlord for damages, it is difficult to see why, when he has damaged the landlord, he should not be able to invoke the short prescriptive period, just like the tenant himself. Ultimately, the third party is given a claim for damages because it would be unjust, when the tenant has a claim, to deny a like claim for contractual damages to the third party who uses the leased property as envisaged and comes to harm thereby or thereon. If this is so, it would be no less unjust to deny the protection of § 558 BGB to a tenant’s assistant when he has caused harm to the leased property while using it on behalf of the tenant or pursuant to a contract with him. If the contract of lease can extend its protective ambit to a third party in appropriate cases like the one before us, there can be no doctrinal reason why its protective effects should be limited to granting a claim for damages. On the contrary,

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it is entirely appropriate to extend it so as to curtail liability by means of the short prescriptive period [reference omitted].

(c)As this Senate said in the two decisions cited, it is extremely important not to over-extend the circle of persons who fall within the protective ambit of the contract, but there can be no objection to including, along with the tenant’s family, at least those employees who are, consistently with the lease, using the leased property with the tenant or on his behalf. Here, at any rate, the main idea is not so much that the tenant was under a duty of care and protection for the third party, and thus to a certain extent responsible for his wellor ill-being (see BGHZ 51, 91, 96) as that the third party was using the leased property consistently with the lease and that this involved the risk, equally evident to the third party and the tenant, of his damaging the leased property and being sued for it. This inclusion of the third party in the contract is the real justification for giving him the defence of prescription under § 558 BGB, the same benefit that the tenant enjoys (Gernhuber reaches the same result for the more extreme case of contractual exemption clauses in JZ 1962, 553).

(d)In NJW 1969, 1469, Boeck objects to the decision in BGHZ 49, 278 as being incompatible with the rules regarding common debtors. This is unjustified. It is true that under § 425 BGB one common debtor cannot invoke the prescription which benefits another, but here, even assuming that the defendants are common debtors of the landlord, the second defendant has the defence under § 558 BGB not in any accessory capacity deriving from its availability to the first defendant as tenant, but rather in his own right, this being precisely the protective effect of the contract of lease.

Case 60

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 15 FEBRUARY 1978 BGHZ 70, 327

Facts

Two storage sheds on the defendant’s property were joined along their length by a common wall. The defendant used one of these sheds for his own business; the other he had let on 6 September 1972 to the firm K to equip and use as a depot. As from 1 February 1974 the defendant had sublet this shed to the plaintiff by an oral agreement.

On 16 July 1974 it rained very heavily; rainwater came through the wall between the two sheds, flooded parts of the plaintiff’s business premises and damaged the furniture he displayed there. The plaintiff alleged that the flooding had made it impossible to continue using the shed, and quit as from the end of September 1974. K refused to accept this, and sued the plaintiff for the rent until the end of 1974, when the sublease could be terminated. K obtained judgment.

The plaintiff now seeks damages for the harm due to the flooding, on the ground that, as the defendant knew when he entered into the headlease, the downpipes and the valley between the two sheds were inadequate to contain and carry off the rainwater from the two roofs. Not only was the defendant liable in tort (§ 823 BGB); he was liable to the plaintiff for breach of the lease contact also, for although the plaintiff was not a party to the lease, he fell within its protective ambit.

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The plaintiff’s claim was dismissed in both lower courts, and his appeal was also dismissed.

Reasons

I. The Court of Appeal rejected the plaintiff’s claim in tort (§ 823 BGB) on the ground that the defendant had not been at fault. This cannot be impugned, since there is no error of law in the Court of Appeal’s evaluation of the evidence and findings of fact. II. The plaintiff only has a contractual claim for damages on the lessor’s ‘guarantee’ (for which fault is not a prerequisite—§ 538 BGB), if he comes within the protective ambit of the head lease between the defendant and the firm K. The Court of Appeal held that he does not; in reliance on the judgment of the Oberlandesgericht Celle of 4 October 1974 (VersR 1975, 838) it said that the plaintiff did not need such protection because it had a claim on the sublease against its own contractor, k, and ‘therefore does not need any additional ‘contractual’ debtor’. We agree with this.

1.We have regularly held that in certain circumstances it is possible for a third party to acquire rights under a contract between two other persons, rights which give rise to contractual claims and whose content depends on what the principal parties have agreed (BGHZ 49, 278; 61, 227; NJW 1976, 1843). The third party can only be properly included in the protective effect of ambit of the contract if he can be expected to come into contact with the performance or the object of performance (here the property leased: see BGHZ 49, 350, 354; 61, 227, 234). This requirement is satisfied in the present case, because although the defendant’s written agreement to the sublease was not obtained as required by 4 para 2 of the lease between the defendant and K, there is no doubt that the defendant knew of the sublease to the plaintiff and acquiesced in it. There can thus be no suggestion that the plaintiff’s use of the leased property was unauthorised (see BGHZ 49, 350, 355 f).

2.That does not mean that the plaintiff sub-lessee was drawn within the protective ambit of the contract between the defendant and the firm K. It is perhaps doubtful whether the sub-lessee was using the rented property in the way that the tenant’s family or employees do, that is, regularly (bestimmungsgemäss). This was regarded as critical for the decision in BGHZ 61, 227, and NJW 1976, 1843, but it need not be discussed further here. The critical factor, as the Court of Appeal saw, is that the plaintiff had no such need of protection as would justify giving it a direct contractual claim against the defendant: the plaintiff already had a contractual claim against its own landlord, K, a claim with the same content as the claim it urges against the defendant. In particular, it can claim damages from K, its contractor, under § 538 BGB, given appropriate facts. Now the reason why a third party is granted a claim for damages is that it would be unjust if, when the tenant automatically has a claim, he, the third party, were denied one when he regularly and without any contract comes into contact with the leased property and comes to harm through it or on it. Ultimately it is based on the principle of good faith (see BGHZ 49, 350, 351; 51, 91, 96; 61, 227, 233). But if the victim has his own contractual claim with identical content, albeit against another debtor, he has no need to invoke the protection of a contract concluded between others. To allow a claim in a case like this on the basis of a contract with protective effect for third parties would conflict with the frequently expressed concern of the courts to avoid an endless extension of the protected class (BGHZ 49,

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354; 61, 234). This reinforces our view that it would be wrong to include the subtenant in the protective effect of the main lease.

This is not in conflict with the decision in BGHZ 49, 350, where the question whether the subtenant was a so-called ‘creditor for purposes of protection’ was expressly left open (at p 355).

Case 61

REICHSGERICHT (SEVENTH CIVIL SENATE) 25 FEBRUARY 1921 RGZ 102, 65

Facts

A merchant called F had a giro account at the head office of the defendant bank in H. On 27 January 1919 he went with the plaintiff to its Altona branch, and told them that the firm H & T, which had an account at that branch, had issued an instruction to credit him with DM8200. The bank teller ascertained by telephone that this was true. F then instructed him to transfer the sum of DM8200 to the plaintiff’s account in a Hamburg bank. The transfer by H & T in F’s favour was duly executed, but that by F in the plaintiff’s favour was not. The plaintiff now claims payment of DM4200, with interest (F, who has now fled, having paid him DM4,000 in cash of the DM8200 owing) on the basis that the defendant bank was contractually—and also tortiously— liable for this sum.

Both lower courts rejected the claim. The plaintiff’s appeal is dismissed.

Reasons

The Court of Appeal accepted the plaintiff’s account of what happened at the Altona branch of the defendant bank, namely that the bank teller first checked by telephone that H & T’s instructions to transfer were under way, and F then instructed him to credit the DM8200 to the plaintiff’s account in the Hamburg Privatbank. On receiving F’s chit instructing them to make this transfer, the teller turned to the plaintiff and said ‘That’s all right. We will credit this sum to your account.’

The Court of Appeal rejected the plaintiff’s argument that this statement by the defendant’s teller created a contract between him and them whereby they were bound to credit his account in the Hamburg Privatbank with DM8,200. The plaintiff was a complete stranger, and the teller was not one of the officers who alone had authority under the bank’s constitution to enter into any such obligation. This is correct in law.

[The court then rejected the appellant’s claim that he was assignee of F’s rights against the defendant, and that the defendant bank was liable to him in tort].

The Court of appeal proceeded to say that although F had a right against the defendant, arising from the transfer instructions he had given them, to have the DM8200 transferred to the plaintiff’s account, no such right vested in the plaintiff, for a giro transfer is not a contract for the benefit of a third party (§ 328 BGB) so as to enable the third party to make a direct claim against the bank.

The respondent denies that F himself had any claim against the defendant because the credit instructions he had given the teller in the branch office in Altona where F

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had no account could not result in any contract between F and the head office in H; a fortiori the plaintiff could have no claim. But the respondent is in error. The Altona branch of the defendant is not an independent legal person, but simply an office of the defendant which is empowered to do independent banking business. Moreover, if the Altona branch accepted F’s credit transfer instructions and communicated them to the head office where F did his business, the defendant was bound under F’s contract with the head office to honour his instructions. Thus F certainly had a right that the defendant credit to the plaintiff’s account the DM8200 which F had transferred in his favour.

We must therefore decide the question whether the Court of Appeal was correct to hold that the plaintiff obtained no direct claim against the defendant bank from the credit transfer instructions in his favour given to it by F. The Sixth and Fourth Civil Senates (RGZ 84, 354; 91, 119 . . .) have held otherwise, but this court has investigated the matter in depth and cannot in principle follow those decisions. Admittedly the reasons given by the Oberlandesgericht in the present case are not convincing, for it is not true that a contract for the benefit of a third party can only arise if it is the intention of both parties that he should have an unconditional and irrevocable right to the sum whose transfer is in question: the third party’s right may perfectly well be conditional, dependent, for example, on the non-exercise of a power of revocation. The Court of Appeal’s view can however be supported on other grounds.

The simple giro transfer (the red cheque of the Reichsbank) has not elicited a view, much less a closely reasoned view, from many commentators. There used to be much dispute on whether the holder of a white cheque had any claim for payment against the drawee bank, but the discussion was terminated by the enactment of the Cheques Act of 11 March 1908 which provides that the holder has no such claim (§§ 15, 18; RGZ 99, 77). As to the red cheques, some writers have denied that it is a contract which gives the third party a direct claim against the bank [references omitted], while at least one author would grant such a claim, though he does not argue that point closely. Nor do we find much legal basis for the opinion of the Sixth and Fourth Civil Senates of the Reichsgericht in the decisions cited; in any case what was there said was obiter.

The answer must depend in the first instance on § 328 para 2 BGB: in the absence of specific provision, it is a matter of inference from all the circumstances, especially the purpose of the contract, whether the third party is to have a direct right to claim performance. Also relevant is the rule of construction in § 329 BGB: a person who agrees with another to satisfy the latter’s indebtedness but without assuming the debt is not to be supposed, in cases of doubt, to have conferred on the creditor a right to bring a direct claim against him for satisfaction. It is therefore a question of the will of the parties whether the third party is to have a direct claim for performance. If no such intention is expressed in the contract, it is a question whether it may be inferred from all the circumstances, especially the purpose of the contract; where there is nothing more than an undertaking to perform, there is a presumption against such in inference.

In the normal case a credit transfer instruction is simply a direction to the bank to transfer a certain sum from the credit of the mandator to a third party. The bank is not normally informed of the transaction underlying the transfer. If the mandator’s account is in credit or if it is prepared to allow him an overdraft, the bank executes the

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instruction by taking the amount from the mandator’s account and putting it in that of the third party, and then informing both parties of what it has done. If the third party’s account is at a different bank, the bank receiving the instruction does not enter into any relations with him at all, but transfers the sum to the other bank to be credited to him, it is then that bank which informs the third party of the credit. Nothing whatever in the purpose of the contract makes it necessary to assume that the parties intend to give the third party a claim against the bank for the execution of the transfer. On the contrary, we must agree with Düringer-Hachenburg [reference omitted] that banks which enter into Giro contracts have, at least in the normal case, no such intention. Much less is such an intention to be inferred if the third party is not even its customer. We have seen that the Cheques Act refuses to allow the holder of a white cheque to sue the bank; the reason is that if the third party, the holder, had a direct claim against the bank, the bank would be exposed to litigation with total strangers with whom they had had no dealings (reference omitted), the legal relationship between the transferor and the third party being as unknown to the bank as the relationship between the transferor and the bank is unknown to the third party. The same consideration applies in the present case, and the Cheques Act gives a valuable indication of the principles on which it should be decided. If in the case of a white cheque, which is handed directly to the third party by its maker, and which has the quality of an order bill, indeed usually a bearer bill, the holder obtains no direct claim to payment against the drawee bank, such a claim by the third party must surely be rejected in the case of a red cheque, which generally never comes into the hands of the third party; indeed, he commonly remains in complete ignorance of the proceeding it triggers until he is told that the sum has been credited to him, and he may never learn of it at all if the maker stops the instruction before it is carried out or if he has no funds to meet it.

This is not to deny that under very peculiar circumstances it might be possible exceptionally to conclude that the parties had a different intention. But there are no such circumstances here. In particular, the teller’s remark, quoted at the outset of this opinion, is no basis for finding any different intention, quite apart from the fact that he had no authority to bind the defendant to anything in the least unusual.

There was no need to convene the United Civil Senates to discuss this question of law since the decisions of the Sixth and Fourth Civil Senates which we have mentioned were on basically quite different facts, and the view of the law which they gave and we do not accept was given obiter and was unnecessary to the decisions.

Case 62

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 24 FEBRUARY 1972 BGHZ 58, 184

Facts

The B GmbH H & Co (hereinafter ‘the developers’) was building private dwellings in Sch, and entered into preliminary contracts of sale (Kaufanwärterverträge) with the plaintiffs in 1968. Negotiations with the plaintiffs were principally conducted by the defendant, then an assistant director of the developers, charged, inter alia, with the

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sale of these dwellings. In the course of the negotiations the plaintiffs had received from the developers a document called ‘Instructions for Sale’: it gave a detailed description of the properties for sale, referred to the need to take a brokerage fee of 3 per cent into account in the individual prices and stated that any interested party could refer for further particulars to the defendant, who was empowered by the developers to enter into transactions concerning land.

The defendant then, in the name of the developers, concluded preliminary contracts of sale with the plaintiffs. In each case he gave them three copies of the contract for signature, two of which (one for the plaintiffs and one for the defendant) contained the following clause: ‘6. Financing: the total cost, exclusive of architect’s fee, of these ownership apartments is guaranteed as being DM . . ., plus 3 per cent brokerage fee to be paid to the H.I.-K. GmbH.’ The third copy, which the defendant gave to the developers, did not contain the addition about the brokerage fee.

Some time after the contracts were signed, the plaintiffs were billed for payment of the fee on invoices headed ‘H.I.-K.’ and signed by the defendant. The plaintiffs paid the sums to the account indicated in the invoices, but in fact the firm ‘H.I.-K. GmbH.’ was a figment, and the sums paid by the plaintiffs passed to the defendant.

Feeling that they had been taken in by the defendant, the plaintiffs had the brokerage agreements rescinded for fraud, and in the present proceedings reclaim the sums they paid to the defendant on the ground that they unjustifiedly enriched him.

The Landgericht gave judgment for the plaintiff, but the Oberlandesgericht allowed the defendant’s appeal (JZ 1971,424, noted Lorenz). The plaintiff was permitted to appeal, and the appeal was successful.

Reasons

I

1. The Court of Appeal held that the plaintiffs had no claim under the rules of unjust enrichment (§ 12 BGB) for the return of the sums which the defendant had received. The Court inferred from the plaintiffs’ own evidence that they were unaware that the defendant was identical with the payee of the brokerage fee, and that their payments were not in purported performance of any brokerage contract between themselves and him. The plaintiffs’ duty to pay arose solely from the brokerage clauses in their contracts with the developers, genuine contracts for the benefit of third parties which conferred a right on the third party, here the defendant.

The Court of Appeal of course realised that the plaintiffs had had the brokerage agreements with the developers rescinded for fraud, the defendant having had no authority to make any such contracts. It nevertheless held that in a case such as the present, where the Deckungsverhältnis (or relationship between promisor and promisee) is defective the promisor cannot claim back from the third party what he has rendered, but must turn to the promisee, even in a case of double nullity, as it is called, when he Valutaverhältnis, the link between the promisee and third party, is also baseless. Admittedly, if the promise had intended to make a gift to the third party and the gift was effective in law, the promisor might have an enrichment claim against the third party analogous to that provided by § 822 BGB, but this was not such a case.

2. . . .

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3. We cannot agree that the defendant was an obviously inappropriate person for the plaintiffs to sue in restitution.

(a)It sometimes happens where there is a genuine contract for the benefit of third parties, that is, where the third party acquires a claim of his own, that the legal relationship between the promisor and the promisee (the Deckungsverhältnis) proves to be ineffective or defective. It has long been a matter for dispute how the principles of restitution operate in such a case (reference omitted). This is not the moment to resolve all the problems involved or to provide an answer to all the questions.

In a case concerning a credit transfer where the mandate to transfer was invalid this court stated its agreement with von Caemmerer (JZ 1962, 385, 386) that a just and realistic appraisal of the restitutionary significance of situations in which more than two people are involved depends on the peculiarities of the particular case (BGHZ 50, 227, 229). This is true whenever a third party is implicated in the performance, for, as von Caemmerer rightly emphasises, there are many different ways in which obligations and performance may be made dependent on the existence of legal relationships. This applies also to genuine contracts for the benefit of third parties, that is, contracts which give the third party an independent right [reference omitted]: it is still critical what purpose the parties had in mind, given the intentions they expressed.

(b)This inevitably determines which party is to be regarded as rendering the performance and which as receiving it under the law of enrichment, for it is now established that by ‘performance’ (Leistung) § 812 para 1 BGB means a conscious act which is intended to increase the wealth of another [BGHZ 40, 272, 277; 48, 70, 73; 50, 227, 230 ff.; other reference omitted]. The purpose of the act is inferred from the will of the parties; if there is a mismatch between the intentions of the transferor and the transferee we look at the matter objectively from the viewpoint of the recipient (BGHZ 40, 272, 278), but if the intentions of the parties coincide, their purpose in effecting the transfer alone determines what the ‘performance’ is in terms of enrichment law.

(c)The Court of Appeal recognised this basic principle but did not apply it correctly.

(aa)The Court of appeal obviously assumed that whenever there is a genuine contract for the benefit of a third party, a transfer made by the promisor to the third party is always intended to constitute both performance by promisor to promisee (in the Deckungsverhältnis) and also performance by promisee to third party (in the Valutaverhältnis): only by taking the exchanges in these two legal relationships together could one explain who, in ‘real economic’ terms, was eventually to benefit from the performance. Now his may be so in many cases (for example, where there is ‘shorthand performance’ (abgekürzte Leistung), using the contract for the benefit of a third party), but not necessarily in all. On the contrary, it can make sense, even economic sense, to see the transfer by the promisor to the third party as intended so exclusively for the third party that the transfer constitutes in enrichment law a performance to the third party whose validity depends only on that of the Deckunsverhältnis. Apart from the example of the life-care contracts covered by § 330 BGB (see von Caemmerer JZ 1962, 385, 387) one can imagine cases of other kinds in which it would be the intention of the parties that the third party acquire his own claim against the promisor based exclusively on the Deckungsverhältnis between promisor and promisee and entirely independent of any Valutaverhältnis between promisee and third party. The first class of case that comes to mind is those in which (contrary to § 335 BGB,

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which is not mandatory) only the third party is to have a claim against the promisor or those in which the creation of such a right exhausts the Valutaverhältnis (reference omitted). In such cases it is quite just to hold that the performance relationship of enrichment law exists only as between third party and promisor.

(bb) The present case shows this peculiarity. The brokerage fee agreement in favour of ‘H.I.-K.’ (that is, the defendant) was made by the plaintiffs within their preliminary sale contracts with the developers, represented by the defendant. But the parties to the brokerage fee agreement omitted the relevant clauses from the copy of the preliminary sale contracts which went to the developers; this omission symbolised the splitting of the fee agreement from the preliminary sale contract and rendered the one independent of the other.

But the parties’ own evidence already showed that they were independent. According to the defendant, the parties acted as they did in order that the legal relationship between the developers and the plaintiffs remain unaffected by the brokerage fee agreement. Again, even the plaintiffs said that they did not suppose that the agreement in question was in satisfaction of any debt owed by the developers to ‘H.I.-K.’; they took it that they themselves owed the fee to the beneficiary for services rendered. Indeed, the plaintiffs’ only dealings regarding the brokerage fee were with H.I.-K. It was in H.I.-K’s name that the defendant invoiced them and received payment from them. With these proceedings the developers had absolutely nothing to do. Thus although the plaintiffs made the brokerage agreement with the developers, its economic centre of gravity lay in their legal relationship with the third party.

On these facts the only possible inference is that the sole purpose of the plaintiffs in paying the defendant was to satisfy as against him their debt to ‘H.I.-K.’ which arose from the preliminary sale contracts, the sole basis of that debt in law. This was also the defendant’s understanding and could not be otherwise. Given such a common purpose, the relationship of the parties was that of party rendering and party receiving a performance in the sense of enrichment law, such that if the sale contracts proved defective an adjustment fell to be made.

(cc) This holding is not in conflict with prior holdings of this court. The case decided by the Fourth Civil Senate on 20 March 1952 (BGHZ 5, 281) is an example of so-called ‘shorthand performance’ not here in issue. The case before the Eighth Civil Senate of 4 April 1962 (NJW 1962, 1051) did not involve any contract for a third party at all. So far as can be seen, this is the first time that the Bundesgerichtshof has had to decide a case with the features of the present one.

Case 63

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 7 NOVEMBER 1960 BGHZ 33, 247

Facts

On 11 April 1953 two adjacent stressed concrete panels in the roof of the SiemensMartin steel foundry in W fell some fifty to sixty feet to the ground and struck two persons working there. S, an engineer, was killed on the spot, leaving a widow and two children; L, a workman, was badly injured.

APPENDIX I: CASES 695

The roof had been constructed by the defendant between October 1952 and March 1953. The old framework of the roof had been retained, but the one-piece concrete skin was replaced by the stressed concrete panels which the defendant had developed. The plaintiff, as statutory insurer, paid L and the dependants of S, and now claims an indemnity, based on tort and on positive breach of contract (§§ 328, 618 BGB, in connection with § 1542 RVO (Imperial Insurance Ordinance)).

The defendant denies that its work under the building contract with the steel foundry was unworkmanlike; as a subsidiary point it asserts that if there were any fault in the construction of the roof, the steel foundry was also to blame, and the plaintiff is affected thereby; finally, the defendant raises the defence of prescription.

The Landgericht dismissed the claim, but on the plaintiff’s appeal the Oberlandesgericht gave judgment for the plaintiff. On the defendant’s appeal, this decision was reversed and the case remanded.

Reasons

1(a) The court of Appeal did not decide whether the victims’ (and consequently the plaintiff’s) claims in tort, if any, were prescribed. It held that the victims had a direct claim against the defendant for positive breach of contract under §§ 328, 618 para 1 and 3, 844 BGB. Its building contract with the steel foundry put the defendant under a subsidiary duty to avoid causing harm to the contractor in the execution of the work. In a case falling under § 618 par 1 BGB this duty of the defendant was owed also to the customer’s employees; for breach of these contractual duties such people could sue the defendant directly in contract.

(b)This is in line with the doctrine developed by the Reichsgericht and the Bundesgerichtshof; the basis of this liability is a contract for the benefit of third parties, in the sense that it protects those third parties towards whom the creditor himself owes duties of care and protection.

(c)The Court of Appeal was quite correct to include the victims of this accident in the circle of those who are protected by the building contract. Of course this circle must not be unduly large, but in the present case it was sufficiently constricted. The two victims were among the workers and staff who were permanently employed in the factory whose roof the defendants had built. There was thus a group, numerically limited and spatially compact, towards whom the employer had a special duty of care under § 618 BGB regarding the safety of the work place. This was the only group which the Court of Appeal included within the protective ambit of the building contract; it did not, as the appellant asserts, include the foundry’s entire workforce of several thousand people.

2.The Court of Appeal was quite right to hold that the victims’ claims passed to the plaintiff under § 1542 RVO. It has already been held (BGHZ 26, 365) that § 1542 RVO applies to contractual claims for damages as well as to claims in tort.

3.The Court of Appeal was right to hold that the defendant’s fault was a contributory cause of the accident and that therefore it was liable for positive breach of contract . . .

4.The Court of Appeal believed that it was irrelevant whether any fault on the part of the steel foundry contributed to the accident, so it did not investigate this question. The appellant is right to criticise this.

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The question is whether in a case like this the contributory fault of the defendant contractor affects the injured third party by reason of § 254 BGB. The only cases before the Reichsgericht and the Bundesgerichtshof so far have been those where the contractor was the victim’s statutory representative or his agent for performance. In these cases the fault has been imputed to the victim (BGHZ 9, 316; 24, 325).

According to the commentators, the party in breach should always be able to face the injured third party with the contributory fault of its contractor under § 254 BGB, and not just when the contractor is the statutory representative or an agent for performance.

Unlike the Court of Appeal, we agree with this. As in all contracts for the benefit of third parties, it is only out of the contractual relations of the main contractors that the protected third party obtains his rights against the person who injures him. This being so, it is logical that his rights against the party injuring him be no grater than those of the main contracting party. This can be inferred from the juridical basis of § 334 BGB, whereby contractual defences good against the promisee are good against the third party as well. Some time ago the Bundesgerichtshof said ‘the extension of the plaintiff’s legal protection by his inclusion in the protected contractual sphere’ involves that ‘he must accept the concomitant legal disadvantages.’ This points to the solution we wish to adopt, and also shows that it is quite equitable.

Since the judgment in issue took no account of any contributory fault of the steel foundry, it cannot be upheld.

5. If the plaintiff’s claim could be based on tort, as it might possibly be, the defendant’s liability would be unaffected by any contributory fault on the part of the steel foundry. The Court of Appeal did not find it necessary to investigate this question, and it has not decided whether any such claim has prescribed. Since this court does not have the requisite facts to make such a decision itself, the judgment under appeal must be vacated and the matter remanded to the Court of Appeal.

Case 64

REICHSGERICHT (THIRD CIVIL SENATE) 5 OCTOBER 1917 RGZ 91, 21

Facts

The male plaintiff is a senior assistant on the railways. When he was moved to J, he was provided with accommodation which had previously been used by Dr, the station supervisor. A few months after moving in, his daughter, the female plaintiff, contracted tuberculosis, and had to go on a voyage for her health. The plaintiffs attribute this illness to the fact that the dwelling was infested with tuberculosis bacilli, Dr’s wife having had pulmonary trouble, and that the defendant state failed to disinfect the dwelling until five or six days after they moved in. They therefore claim damages for the loss attributable to the disease, not all of which may have manifested itself.

The Landgericht allowed the claims. The Oberlandesgericht rejected the defendant’s appeal in respect of the male plaintiff’s claim, but allowed it in respect of that of the female plaintiff, whose claim was therefore dismissed. The female plaintiff’s appeal was allowed, and the defendant’s appeal was dismissed.

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Reasons

On the basis of the evidence, the Court of Appeal concluded that the female plaintiff became ill because the service dwelling in which she lived had been infected with tuberculosis bacilli during the illness of Mrs Dr, but it held that the only person to whom the defendant was liable was the male plaintiff: he had a claim, based on an analogous application of §§ 618, 278 BGB, for the damage he had suffered through his daughter’s illness. The Court said that the delay in disinfecting the house was due to the fault of Dr D, the railway doctor appointed by the defendant who attended to Mrs Dr. It was the duty of Dr D to inform the railway authorities of all cases of tuberculosis which came to his notice in his capacity as railway doctor, and if he had performed this duty, the house would have been disinfected at the right time. But the Court of Appeal disallowed the female plaintiff’s claim for damages on the ground that she had no contractual or similar relationship with the defendant, and that her claim in tort failed because the defendant, having adduced exculpatory proof under § 831 BGB, was not liable for Dr D.

So far as the male plaintiff’s rights are concerned, the Court of Appeal was correct in the result but wrong in the reasons, and so far as the female plaintiff’s rights are concerned, it was wrong in both regards.

Since the male plaintiff is an official, the solution must be looked for in public law; and since there are no relevant texts, it must depend on the principles which emerge from the nature of the case in the light of the legal ideas which control decisions in analogous relationships subject to private law. It is established by the Reichsgericht that the state and other bodies of public law owe their officials a duty of care such as is implied into the contract of employment by § 618 BGB. Thus it has been held that under the Prussian Law on Conditions of Service of Teachers in Public Schools of 3 March 1897, local authorities are bound to ensure that the accommodation they provide for teachers are safe and properly maintained, and that they are liable for any injury or illness caused to the teacher by culpable breach of this duty (RGZ 71, 243). This duty of care is closely related to the fact that the accommodation is provided so as to enable the occupant to perform his service obligations or to perform them more easily. Being required to use the service dwelling for the performance of his duties, the official can expect the local authority to protect him adequately against defects in the dwelling which imperil his health. This leads to the conclusion that in respect of official accommodation the state owes the same duty of protection to the dependants whom the official is entitled to lodge in the dwelling as to the official himself. For if the official is bound to use the accommodation provided, so, too, are they, in the interests of maintaining the family community.

So far as the official himself is concerned, the protective duty owed to him means that he can hold the state responsible for its breach, not only when his own health suffers, but when he suffers loss through injury to the health of a dependant. Just as the official’s entitlement to compensation when his own health is affected is based on the application of § 618 BGB by analogy, so when a dependant’s health is affected, private law powerfully suggests that the dependant has a claim for damages as well as the official himself. If a landlord is responsible for unhealthy conditions on the leased premises and a member of the tenant’s family suffers thereby, the tenant can sue the landlord under § 538 BGB for the consequent harm he may suffer (RGZ 77, 99, 101).

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But in addition the dependant himself can normally sue the landlord for his own harm (though not for his pain and suffering). Unless very peculiar circumstances indicate a different conclusion, the tenant of a family dwelling who concludes a lease must be taken, as the landlord must know, to intend to obtain the maximum protection for the members of his household and to acquire for them the same rights in relation to the safety of the premises as he himself enjoys against the landlord (§ 328 BGB). If the landlord’s contractual duties are not extended in this manner, injured dependants would be restricted to claiming in tort, and would not have the benefit afforded to the tenant by §§ 278, 538 BGB, that the landlord is strictly liable for any defects in the premises existing at the time of the contract. To give such different rights to the tenant and to his dependants is offensive to proper legal sentiment and false to the tenant’s purpose in contracting, for, as the landlord is bound to know, he wants his dependants to be as well placed as himself to sue for damages. So, too, in the contract of employment of private law where the employer provides the employee with a family house so as to facilitate the rendering of the contractual services, the employee must be taken to intend the employer to assume the duty, as regards the condition and maintenance of the living quarters, to protect his dependants from danger to life and limb to the same extent as himself (§ 618 BGB) and to have them acquire rights of their own to this effect. Now if an official who is directed to live in service quarters could not claim from the state protection against dangerous defects in the living premises for those dependants who are entitled to stay in the dwelling, and if his dependants did not have a claim of their own to that effect, there would be an intolerable difference in the treatment of cognate legal relationships in public and in private law. Such differential treatment would be all the more unjustifiable as the official and his dependants do not have the freedom of choice which is open to the tenant or employee and their dependants, but are bound to use the accommodation provided. This extension to the dependants of the state’s duty of care is also in line with the development in public law of the state’s duty to look after the family of its officials. It is one of the benefits to which officials are entitled, not by way of contractual counter-performance for their services, but as a means of assuring their position in life.

In the case for decision the state has failed to satisfy its duty of care, since it failed to take steps to ensure that its service accommodations were disinfected sufficiently soon after the departure of an occupant in whose family tuberculosis had broken out. The rules certainly provide that in such a case the station master is to undertake the disinfection. A duty is also imposed on railway doctors and supervisors to inform the railway authorities of any cases of tuberculosis in the family of railway employees which come to their knowledge. If this duty is performed, the railway authorities would be in a position to give the station master due notice of any required disinfection. But if no such notification is given, as may easily happen, the regulations make no provision for securing the object in question. The dangers to which officials are exposed in the absence of such notification is such that the defendant should have provided for steps to be taken which would permit the premises to be disinfected at the right time, possibly by making inquiry of the station doctor before assigning accommodation to a new occupant.

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Case 65

OBERLANDESGERICHT DÜSSELDORF 3 OCTOBER 1974 NJW 1975, 596

Facts

The plaintiff’s son was stabbed in a brawl and was taken to the defendant’s hospital where the chief surgeon saw to the stab wound in the skin and stomach lining. The youth died. At the post-mortem it transpired that there were other wounds which had not been cared for, in the rear stomach lining, in the upper and lower intestine, and in the left kidney. The plaintiff asserted that the chief surgeon had caused her son’s death by failure to attend to these wounds, and claimed damages for loss of support.

The Landgericht rejected the claim. Before the Oberlandesgericht the plaintiff sought to answer the defendant’s proof of exculpation under § 831 BGB, first by asserting that the defendant was itself to blame in failing to provide an assistant surgeon for the operation, and then by arguing that the defendant was personally liable in contract and must answer for the fault of the chief surgeon as its agent for performance. The plaintiff’s appeal was dismissed.

Reasons

The plaintiff has no claim for damages against the defendant. There can be no claims under §§ 242, 276 BGB for breach of contractual duty since there was no contract between the parties. The hospitalisation contract with the defendant under which the plaintiff’s son received medical treatment and care in the hospital was made not with the plaintiff but with the local medical union (AOK). It is true that AOK did not actually refer the plaintiff’s son to the hospital—this was an emergency case—but the contract was formed later when AOK agreed to pay the bill. It is not alleged that any contractual negotiations took place between the parties, and it is clear that there were none.

Nor did this contract have any protective effect for the plaintiff. Such protective effect only applies to the insured and not to his dependants (RG JW 1937, 926; BGHZ 2, 94). Normally the protective effect of a contract is limited to those persons who, by their connection with the creditor, come into contact with the debtor’s performance, and whose safety is, to the debtor’s knowledge, as important to the creditor as his own. This requirement is normally met only when the creditor has a joint responsibility for the protection and care of the third party (BGHZ 51, 91, 96; BGHZ 56, 269; BGH NJW 1959, 1676; 1970, 38). This is not the case with the plaintiff here. The decision of the Bundesgerichtshof to which the plaintiff refers (NJW 1959, 1676) is of no assistance to her, for in that case the third party was one of the plaintiff’s employees, ie a person who came into contract with the debtor’s performance through the creditor and to whom the creditor owed a duty of care and protection. These preconditions are not satisfied here: the defendant’s performance did not affect the plaintiff and AOK is not bound to afford her care and protection. Nor can it be said that the plaintiff was ‘close to the performance’ (Leistungsnähe). The performance which was owed by the defendant, namely medical care and attention in its hospital, did not affect the plaintiff. She was not the patient. Furthermore, the plaintiff in this case was in no

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relationship with the creditor AOK. She cannot acquire a claim against the defendant by founding on her own relationship with the third party, her son (under § 328 BGB), or on his duties towards her.

Case 66

BUNDESGERICHTSHOF (SECOND CIVIL SENATE) 11 APRIL 1951 BGHZ 1, 383

Facts

The plaintiff, who had ingrowing toenails, was referred for outpatient treatment to the defendant city’s hospital by the local medical union of which he was a member. He was made to sit down on a threepiece settee, about 30 inches high, designed for gynaecological examinations but used as an auxiliary operating table, the back part having been fixed in a horizontal position. The second defendant, who had been the hospital’s chief doctor for many years, gave the plaintiff a local anaesthetic, an injection of 2 per cent Novocaine solution, in either one big toe or both. While waiting for this to work, the plaintiff suddenly lost consciousness and fell off the settee. He injured his cervical column in the fall, and has since experienced severe stiffness and loss of function in both arms. At the time of the accident the second defendant was standing at the door of the small operating theatre, speaking to his chauffeur, and the operating sister was quite close to the plaintiff, treating a patient for burns.

The plaintiff claims that the defendants are liable on the following grounds. No one had told him to lie down after the injection, so he was still sitting when he suddenly became unconscious. Had he known he should lie down, he would have done so, and not fallen. The second defendant should have realised and guarded against the risk of a sudden faint, in particular by making him lie down, but instead of taking any such steps he left the plaintiff to his own devices after giving him the injection. This was the sole reason for the accident, which had rendered him wholly and, as it seemed, permanently unfit for work. The plaintiff claims an annuity for lost earnings and damages for pain and suffering from both defendants.

The Landgericht rejected the claim, but the Oberlandesgericht held the plaintiff entitled to a monthly sum for loss of earnings and damages for pain and suffering. The defendants’ appeal was successful only in part.

Reasons

The plaintiff has a good contractual claim against the first defendant. The Reichsgericht always held that when a medical union refers a member to a hospital, the contract it makes with the hospital is one in favour of the patient whereby, under § 328 BGB, the patient acquires a direct claim to proper treatment against the operator of the hospital (RGZ 165, 106). The first defendant entrusted to the second defendant the treatment of the union patient referred to it, so he became the first defendant’s agent for performance and the first defendant is accordingly responsible to the plaintiff under § 278 BGB for any fault committed by the second defendant in the execution of his professional medical activity.

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Between the plaintiff and the second defendant there were no direct contractual relations. A hospital doctor’s duty to undertake the proper treatment of union patients is normally owed only to the hospital which appoints him. But if a hospital doctor actually does embark on the treatment of a union patient and injures him in his health by infringing widely recognised rules of medical science, he is liable to the patient under §§ 823 ff. BGB, whether or not he has any contract with the patient. It is immaterial whether the fault of the doctor is one of commission or of omission. The doctor may be under no obligation to the patient to treat him at all, but if he does so, he must avoid injuring him in body of health by breach of the rules of medical science [reference omitted].

In the instant case the Court of Appeal was right to find that it was the second defendant’s fault that the plaintiff did not lie down after the injection; he should have told him himself or got the operating sister to do so.

The appellant contends that the failure to tell the plaintiff to lie down was not an adequate cause of the consequent harm. This is not so. The decisions of the Reichsgericht cited by the appellant on consequences for which the actor is not responsible because the causal connection is not adequate, refer to consequences which occur only under extremely peculiar circumstances and through quite improbable concatenations of events, and which can be ignored in the normal course of things. The consequences here, according to the expert, are not of this kind. On the contrary, the expert expressly emphasised that the reason for the good old rule that a patient should always be prone or supine during all manipulations and injections is precisely the possibility of a faint and a fall; it may be true that this rule cannot always be observed in practice and often is not, but such practical considerations cannot relieve the doctor of the charge that he ignored a duty of care. In such a case there can be no question of any interruption of the adequate causal connection. The appellant is also wrong to say that the Court of Appeal pitched the doctor’s duty of care too high. The Court was right to follow the expert, whose evidence was based on his knowledge of the rules of the medical art, and who stated in terms that there was undeniable negligence in this case unless perhaps it could be proved that the sister had been enjoined to attend to the patient and that the patient had disobeyed her instruction to lie down.

It follows that the plaintiff’s claim for monthly payments is established against the first defendant under §§ 276, 278 BGB and against the second defendant under § 823 BGB. However, the second defendant alone is liable for the damages for pain and suffering under § 847 BGB. Only under § 831 BGB could the first defendant be held liable for such damages. The defendant city asserts that it has satisfied the requisite exculpatory proof. We agree. It was common ground that the second defendant had been chief doctor in the first defendant’s hospital for many years and that the nurse had served as operating sister for nine years without any criticism. The plaintiff did not even assert, much less prove, anything that tended to show that the second defendant had been guilty of any fault during his twenty years’ service in the defendant city’s hospital. Under such circumstances the hospital management cannot be expected to adduce any further exculpatory proof.

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Case 67

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 19 JANUARY 1977 NJW 1977, 2073

Facts

The defendant is an attorney who represented the plaintiff’s father in divorce proceedings. In January 1972 the plaintiff’s father and mother met in the defendant’s office, where they signed a divorce agreement drawn up by the defendant. It contained the following clause: ‘§ 6. As to the house, the parties agree that the half belonging to Mrs M is to be transferred to the three children in equal parts. Mr M hereby agrees not to sell his half but to transfer it to his present legitimate children. An appropriate notarial contract to this effect is to be concluded immediately after the divorce is final. Mr M further promises that once the divorce is final he will indemnify Mrs M against any liabilities arising from the house or its construction

. . .’ A divorce decree was granted in February 1972, and the defendant, in the name of the plaintiff’s father, thereon waived any rights of appeal, as did the mother’s attorney. The plaintiff’s mother now refuses to transfer her interest in the property to the plaintiff and his siblings.

The plaintiff claims damages for breach of the defendant’s duty as attorney. The Landgericht rejected the claim but the Oberlandesgericht allowed it. The defendant was permitted to appeal, but his appeal was dismissed.

Reasons

I. [The reasoning of the Court of Appeal].

II. Despite the appellant’s contentions, this reasoning is sound in law.

1.[The defendant was in breach of his duty as attorney].

2.Nor is there anything wrong in law with the Court of Appeal’s holding that although there was no contract between the plaintiff and the defendant, the plaintiff could sue the defendant for damages for his faulty breach of contract.

(a)The Court of Appeal found that there was here a contract with protective effect for third parties and that the plaintiff’s claim arose therefrom. We do not have to decide whether this is so.

(aa)Certainly an important factor pointing in that direction is that the plaintiff was the son of the attorney’s client and was entitled to care and protection from him (compare BGHZ 61, 227, 233). The usual problem in cases of contracts with protective effects for third parties is whether the victim was someone the debtor could expect to be harmed by a breach of the contract. That is not the problem here. The very words of § 6 of the divorce agreement drawn up by the defendant show that the children were its sole beneficiaries, the only people apt to suffer if the agreement proved invalid.

The only question here is how far the protective effect of this contract works in favour of the children, in particular whether they have any claim for damages for breach of contract in their own right. Now the contract between client and attorney is such, given its nature and structure, that it can only be very seldom, whether one interprets the contract extensively or invokes § 242 BGB (see BGHZ 56, 269, 273; NJW

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1975, 977), that the duties it generates can be sued on by third parties, for the fiduciary relationship between client and attorney makes it strongly bilateral and self-contained [references omitted]. Thus the fact that third parties have an interest in what an attorney does will not normally lead to any extension of his liability, even if those persons are named or known to him. However, an exception must be made where a contract drafted by the attorney is designed to vest rights in third parties specified therein, especially third parties who, as in the present case, are represented by the client. It is true that most of the cases where the courts have granted third parties a claim for damages arising out of a contract to which they were not parties have involved personal injury or property damage and its consequences [BGHZ 49, 350, 355; NJW 1955, 257; other references omitted], but it is not impossible for a third party to have a personal claim for economic loss caused by breach of subsidiary contractual duties (NJW 1968, 1929; BGH NJW 1975, 344). In drawing the line here one must certainly apply an especially stringent test: the circle of persons to whom the protective effect of a contract extends is to be narrowly drawn, so as to avoid blurring the line between contractual and tortious liability in an unacceptable manner (BGHZ 66, 51, 57; NJW 1974, 1189). It must always be borne in mind, in claims for purely economic loss, that the debtor is not to be made liable for the mere ricochet effect of his conduct on third parties.

(bb) Despite this, we cannot, on the special facts of the present case, fault the Court of Appeal’s holding that the plaintiff was drawn into the protective ambit of the attorney’s contract. The respondent invokes a decision of this court of 6 July 1965 (NJW 1965, 1955), but this is not quite in point. The court there did allow the daughter of a client to sue the attorney although she was not herself a party to the contract, but the court was reluctant to categorise the contract as one with protective effect for third parties [references omitted]. Contracts with protective effect for third parties are concerned with breach of subsidiary duties by the contractor (see BGH NJW 1975, 344), whereas in that case the question was really whether the attorney could be made liable towards the client’s daughter, the third party, for a breach of specific duties of performance (reference omitted). Our case is clearly distinguishable.

(b)The plaintiff might also base his claim here on the concept of Drittschadensliquidation, a doctrine which borders on, if it does not actually overlap, the area of application of the doctrine of contracts with protective effect for third parties (see BGHZ 49, 350, 355). It would have been quite proper for the defendant’s client to indemnify his son, the plaintiff, for the harm he had suffered, and one could then infer from the fact that he brought suit as his son’s statutory representative that he was making an assignment of his own claim which the plaintiff, on the threshold of majority, could implicitly accept. But we need not pursue the matter here.

(c)In whatever legal or doctrinal category one puts the present litigated facts, the result must be that the plaintiff has a direct claim against the defendant attorney for compensation for the harm which he suffered as a result of the defendant’s failure to tell his father of the need to implement the agreement in § 6 of the divorce document. Any other conclusion would be inconsistent with the meaning and purpose of the attorney’s contract here and of the father—son relationship between the client and the plaintiff of which the defendant was well aware.

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Case 68

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 16 OCTOBER 1963 NJW 1964, 33

Facts

The defendant lets out most of his house. The plaintiff rents business premises on the ground floor and sells carpets there. Most of the rooms on the floor above are let to a teacher of commerce, K, who runs a trade school there (hereinafter called the K trade school). The two toilets already on that floor were included in the lease to K, which provided that K was to instal two more, so that there should be four toilets in all near the K trade school. It was agreed that the two toilets at the end of the corridor (each having an outer room with a wash hand basin as well as the toilet proper) should be available for use by other tenants on that floor.

The defendant himself was one of those who made use of the toilets. He is an optician who practises his profession in the rooms on the first floor which were not leased to the K trade school, and which he adapted for that purpose. A door leading from his surgery into the corridor gives access to the toilets. The second floor was let to an insurance company, and the defendant lived on the third floor.

In the night of 3–4 November 1958 (after one of the defendant’s evening surgeries) the plaintiff’s business premises on the ground floor were flooded. Large quantities of water came through the ceiling under the common toilets on the first floor and damaged the premises below. The plaintiff claims damages for the harm caused by the water to the carpets and other goods he had stored there. The Landgericht dismissed the claim, but the Oberlandesgericht gave judgment for the plaintiff and the defendant’s appeal is dismissed.

Reasons

I. The Court of Appeal found that a tap had been left running in one of the common toilets and that this was the cause of the damage. It was unknown who had left the tap running, or even whether it was one of the students at the K trade school or one of the defendant’s patients. It was quite possible that a tap was just dripping at the time when Mr and Mrs K made their evening round along with B, one of the staff of the K trade school. But it was an evening when the defendant had an evening surgery, and he could not swear that he had no patients that evening. One of the defendant’s guests or patients might have forgotten to turn the tap off. The appellant does not contest these findings of fact.

On these facts the Court of Appeal found the defendant and the owner of the K trade school liable to the plaintiff as joint debtors. It said that a lease of rooms in a building in which other rooms are let to other tenants is a contract for the benefit of third parties, namely the other tenants, and is to be treated like a contract with protective effects for them. Thus if by breach of the duty of care which he owes in the first instance only to the landlord, a tenant causes damage to other tenants of the same building, he is liable to them. To the extent that he was using the toilets, the defendant should be equated with a tenant: he was under the same duty of car as a tenant. The plaintiff could therefore claim the same protection as if the first floor had been let to

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K and another tenant. Several tenants would be liable as joint debtors in respect of damage caused by breach of their duties of care, both towards the landlord and towards the plaintiff, and each would be responsible for the fault of the other without possibility of exculpation, despite the rule of construction of § 425 BGB. The same must apply to the liability of the defendant towards the plaintiff by reason of his use of the common toilets.

II. The result is right, despite the appellant’s objections.

1.It must be granted to the appellant that exception can be taken to the Court of Appeal’s view that the contract of lease is a contract with protective effect for the fellow tenants. It is true that the Bundesgerichtshof has accepted the doctrine, advanced especially by Larenz and Gernhuber [references omitted], that where the contractual duties of care and protection should in accordance with good faith and the purpose of the contract be owed to certain other persons as well as to the main contracting party, such a third party can sue the person whose breach of such a contractual duty causes him harm (NJW 1959, 1676). But the circle of persons entitled to enjoy the protective effects of a contract has been drawn very narrowly by the Bundesgerichtshof. The decision cited explains that such contracts are certainly not intended to give a contractual claim for damages to everyone who may suffer harm as a result of the debtor’s breach of a duty of care. It accords with the sense and purpose of the contract and the principle of good faith that the only persons to whom the debtor owes his contractual duty of care and protection are those who are brought into contact with his performance by the creditor and in whose welfare the creditor has an interest because he himself is bound to take care and protect them, like the members of a man’s family or the employees of an entrepreneur. To extend the contractual debtor’s responsibility in this way is justified because he must know that the safety of the limited and compact group of persons to whom the contractual protection ensures is of as much concern to the creditor as his own. Thus Larenz (NJW 1960, 77, 80) emphasises that it is only towards those whose wellbeing affects the creditor so closely that he would obviously want them as well protected as himself that responsibility can justifiably be imposed. Gernhuber (JZ 1962, 553, 555) speaks of a rule of customary law whereby a third party is to a certain extent included in the obligational relationship of others if the risks inherent in the performance of the obligation affect him at least as much as the creditor, or if the risks connected with a want of safety in the creditor’s sphere affect him like the debtor, because, consistently with the contract, he is performing in lieu of the debtor. No such close links generally exist between landlord and tenant in leases of rooms in a building. The landlord is not normally jointly responsible for the ‘weal or woe’ of his tenant, and he has no occasion to be as concerned with the tenant’s security as with his own. Furthermore, as Gernhuber notes (JZ 1962, 553, 556), the courts have not yet granted protective effects to third parties who have suffered only property damage.

2.But it is not necessary to come to a final conclusion on this matter because the judgment of the Court of Appeal can be supported on other grounds.

(a)Had it been the defendant himself who failed to turn off the tap, he would have been liable to the plaintiff, not only as user or joint-user of the toilets, as the Court of Appeal held, but also as landlord under the contract of lease: for in addition to his principal duty to afford the tenant the use of the leased premises, the landlord is also under a duty to take care to avoid having an adverse or damaging effect on the tenant

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while the tenant is using the leased property [RGZ 159, 27, 33; other references omitted]. If breach of this duty of care causes harm to property brought on to the premises by the tenant, the landlord is liable. There is a converse case, though similar in law, where a tenant by breach of his duty to take care of the leased property causes water damage to property not comprised in the lease but belonging to the resident landlord; here the Reichsgericht held that the tenant’s liability extends to all the harm which he has caused to the landlord through culpable breach of the contract of lease, not just to the harm he causes to the leased property (RGZ 84, 222, 225). The decision of the Bundesgerichtshof of 14 October 1955 is based on the same view. Here a tenant was claiming damages from his landlord for flood damage to property he had brought on to the rented premises. The water came into the rented premises from the store room above them, which was evidently not leased. The BGH explained that the claim lay under §§ 276, 278 BGB, in connection with § 536 BGB: the landlord was bound to maintain the tenanted premises in such a condition as to enable them to be used without disturbance, and he is liable if he or anyone authorised by him fails to deploy the necessary care to perform this duty.

It is immaterial whether the breach of the duty of care arose from the landlord’s actual use of the building in which the tenant leased the rooms. A tenant who is damaged by a cause emanating from the premises leased by a fellow-tenant in general has no contractual action against him, but this does not mean that he cannot sue the landlord if the harm emanates from premises which the landlord has reserved. It is possible to make the landlord liable because he is in a contractual relationship with the tenant, whereas there is normally no such contract between different tenants. That a landlord who uses rented premises may come under contractual duties is shown by the decision where the Reichsgericht held the landlord bound to take care to close the gate to the courtyard in common use (RGZ 103, 372).

Nothing contrary to this follows from the decision of the Reichsgericht in RGZ 103, 9. It is true that in that case the Reichsgericht held that the mere fact that the rooms had been leased did not generate any responsibility on the part of the landlord for property brought on to the premises by the tenant, but the peculiarity of that case was that the landlord had no connection whatever with the property so brought in: the tenant kept the room he rented unlocked, and property was stolen from it without the landlord having been in any way to blame. That case is very far removed from the present case.

If the landlord uses rooms in the tenanted building his duty is so to conduct himself that the tenant is not damages. In the present case therefore the defendant should have taken care that the taps were turned off and that water could not get into the plaintiff’s business premises.

The defendant is equally liable if it was one of the defendant’s relatives or patients that left the tap running: such persons count as agents for performance under § 278 BGB, because they are engaged with his consent in satisfying the duty of care he owes to the plaintiff. Furthermore, in such a case the defendant would himself have been at fault, because if he makes the toilets available to his patients, he is bound to check, or get someone else to check, that they have been left in a proper condition once the surgery is over.

(b) This duty of care was objectively breached. The condition of the leased room was such that the property brought on to the premises by the plaintiff was put at risk.

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Water from toilets which were used in part by the defendant came through the ceiling into the plaintiff’s business premises and damaged the goods which were stored there. It was the duty of the defendant to prevent any such happening. It is admittedly uncertain on the findings of the Court of Appeal whether the person who failed to turn off the water tap was one of the defendant’s patients or employees: the omission might be attributable to one of the persons attending the K trade school. If so, should the defendant have been aware of the danger thus threatening the tenanted premises? Was he to blame for not preventing it? Did his surgery outlast the classes in the trade school? These questions are unanswered but, contrary to the view of the appellant, it is not for the plaintiff to answer them. Where damage may occur to the beneficiary of a contract from a whole range of dangers emanating from the debtor, courts and writers agree that when damage occurs it is for the obliged party to exculpate himself rather than for the entitled party to bring proof on matters which fall outside his area of control, and usually outside his knowledge as well. [BGHZ 23, 288, 290; 27, 236, 238; 28, 251, 254; NJW 1962, 31; other reference omitted]. It is true that this principle, stemming from §§ 282, 285 BGB, was first developed in relation to contracts of services, employment and lodging, and there may perhaps be limits to its application to contracts of lease, but its application is certainly justified on the special facts of this case. In the exercise of their professions, both the defendant and K permitted a large number of virtually uncontrollable persons to use the toilets. This increased the danger that some negligence on the part of a user might damage the premises which the plaintiff leased and the property he had brought on to them. This danger fell outside the plaintiff’s control and surveillance. The defendant made it even more difficult to establish responsibility because he himself used the toilets in common with K. In a case such as the present where the guilty person must come from the circle of one or two parties, each of whom blames the other, the plaintiff can hardly ever prove whose negligence caused the harm; such difficulty of proof, as the Court of Appeal was right to observe, is unjust. The defendant must be charged with proving what steps he took to prevent danger arising to the plaintiff’s rented premises and why he is not to blame. This is the principle which underlies the rule of the division of proof which we have mentioned, and it squares with the view of Raape, who says that the rule should apply to cases of positive breach of contracts of lease as well. He gives an example which is quite close to the present case: while an attic is being cleared, so many heavy objects are placed in a room that the floor gives way, and property belonging to the tenant of the rooms below is damaged. All the tenant need prove is that the floor which collapsed was overloaded. Then it is for the landlord to prove that he knew nothing whatever about the overloading, perhaps because the clearance was being done by another tenant.

Because the defendant has not adduced the proof which is required for his exculpation, the Court of Appeal was right in law to allow the claim.

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Case 69

REICHSGERICHT (THIRD CIVIL SENATE) 3 JUNE 1921

RGZ 102, 232

Facts

The plaintiff and her husband lived on the third floor of a house belonging to the defendant and rented from him by the husband. On the morning of 23 October 1918 her husband was found dead and she was found unconscious in their bedroom. This was due to gas poisoning, the gas having come, according to the plaintiff, from the floor below. On the floor below the defendant was having gas replaced with electricity, and had retained G, a master plumber, to remove the gas pipes. At the end of his work on 21 October, one of G’s workmen failed to plug the gas pipe leading from the gas metre to the apartment of one Gr, a publican. The gas metre was turned off at the time, but it was turned on by Gr on 22 October, and gas then flowed out of the unstopped pipe and filtered through the ceiling into the living quarters above, those of the plaintiff and her husband as well as those of Gr himself.

The plaintiff claimed compensation for her own illness and for the loss she suffered through her husband’s death, the claim being based on the contract of lease which her husband had entered as well as on tortious negligence. The defendant denied the plaintiff’s assertions about the gas poisoning and contended that the accident had occurred because a gas tap in their apartment had carelessly been left on either by the plaintiff or by her husband.

Both lower courts dismissed the claim, but the plaintiff’s appeal was allowed.

Reasons

The Court of Appeal accepted the plaintiff’s version of the cause of the gas poisoning. It held, in accordance with decisions of this court (see, eg, RGZ 91, 24), that the contract of lease concluded by the plaintiff’s husband was one for the benefit of the plaintiff under § 328 BGB and that therefore the plaintiff had a personal contractual claim against the landlord for breach of his contractual duty of care under §§ 536, 538 BGB. It also held, correctly, that the landlord was contractually bound to each of his tenants not to damage them by works being effected on the premises and to indemnify them for any harm due to culpable breach of this duty. The Court nevertheless rejected the plaintiff’s claim because the defendant was neither personally at fault nor liable for the negligence of an agent for performance (§ 278 BGB). There was no personal fault in the defendant because the person to whom he had entrusted the work, the master plumber G, was a specialist. He had thereby fulfilled his duty of care to see that the works were carried out properly and in a manner not involving risk to the occupants of the house, all the more so since what was involved was a simple and easy task which the chosen specialist could be expected to carry out properly. It was not common practice for the landlord himself to supervise specialist tasks which he was in no position to evaluate, nor to appoint a representative to do so for him. It therefore could not be expected that the defendant should supervise G’s work. Nor was the defendant liable under § 278 BGB, because the work being done on the gas pipes was not in execution of any duty owed by the defendant to the plaintiff, but of a duty owed by

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the defendant to the occupant of the lower apartment: G and his workmen could therefore not be regarded as the defendant’s agents for performance vis-à-vis the plaintiff.

The appellant criticises the Court of Appeal’s opinion on both points. Criticism of the finding that the defendant was not personally at fault is without merit. In the case of work such as was here entrusted to the master plumber G, the defendant was under no duty, either personally or through a clerk of works, to see that the work was being carried out properly or to check it as soon as it had been completed. A subsequent inspection, perhaps in the defendant’s own interests, would not have prevented the accident.

On the other hand, the appellant is right to say that there has been misapplication of §§ 2778, 536, 538 BGB. The Court of appeal itself recognised that the landlord has a contractual duty to all his tenants not to injure them by work being done on the premises. This duty stems directly from the basic duty imposed on the landlord by § 536 BGB, which is not simply to make the rented property available at the outset of the lease in a condition suitable for use in accordance with the contract, but also to maintain it in this condition for the duration of the lease. But this is not a duty merely to avoid doing harmful work on the premises, it is a positive duty to see that the rented property is maintained in a condition suitable for contractual use. It therefore includes the duty to take care that the tenant’s uses of the premises is not unacceptably affected by any work being done on the premises, including work done in parts of the building other than those demised to the tenant for his exclusive use. If the landlord allows work to be done in the house which runs the risk of affecting the tenanted premises, he is bound under the contract of lease so to effect these works that this danger is averted, regardless of where in the house or why the work is being done. The landlord of a house whose ground floor needed strengthening or whose gas or water supply was defective at any point would clearly be contractually bound as against tenants anywhere on the premises who were endangered thereby to do any repairs properly. If he entrusts the work to someone else he is using that other person for the performance of his duty towards all such tenants: he must therefore answer for his assistant’s fault under § 278 BGB as if it were his own. The same is true if the danger arises from works undertaken in rooms rented to others. For example, suppose a supporting wall on the ground floor is to be removed in order to enlarge the windows. The landlord’s contractual duty to do these works is owed only to the tenant of the ground floor and not to other tenants, but if he actually engages on the work, he owes to all the tenants in the house a contractual duty so to manage it that the rooms they rent are not adversely affected. To this extent therefore the workmen whom the landlord employs for modification of the building are his agents for performance under § 278 BGB not only as against the tenants whose rooms could be affected by the work of reconstruction. So here, taking the plaintiff’s assertions as true, although the defendant was indeed under no contractual duty towards the plaintiff to replace the gas pipes by electric wiring, he was responsible to the plaintiff and to the other tenants in the house for seeing that the gas pipes were removed without risk of gas flowing into their rooms. Those persons to whom the defendant entrusted the removal of the gas pipes were consequently his agents for performance vis-à-vis the plaintiff too.

Such an application of § 278 BGB in respect of the landlord’s obligation to maintain the leased property so that it remains fit for contractual use is correlative to the

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tenant’s liability for his employees arising from his duty to treat the leased property properly: those whom the tenant engages in the business he runs on the tenanted premises are his agents for performance of his duty to treat the premises properly, even if he owes the landlord no duty whatever to run the business in which those persons are employed (see RGZ 84, 222). . . .

Case 70

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 18 JUNE 1968 NJW 1968, 1929

Reasons

I. The Court of Appeal held that the firm D had no contractual claim. This is correct in law.

1. The firm D bought the machine from the firm R, not from the defendant. The Court of Appeal was correct in holding that there were two separate sale contracts— one between the defendant, who manufactured the machine, and its Swiss general agent, R, and the other between R and the purchaser, D (compare RGZ 87, 1, 2). The appellant’s contention that R was the commercial agent of the defendant and had sold the machine to D in the defendant’s name is in conflict with the admitted facts on which the Court of Appeal based its judgment. It is agreed that R regularly bought the defendant’s machines on its own account and sold them on its own account to Swiss customers. Consistently with this, it was R and not the defendant who on 19 December 1961 offered D the machine which was later bought, a purchase which D confirmed on 12 February 1962 to R, not to the defendant. Then on 21 February R ordered the machine from the defendant, an order which the defendant confirmed on 22 March 1962 to R, and not to D. On 30 September 1963 the defendant sent its invoice to R, which then, on its own account, invoiced D.

On these facts the Court of Appeal was right to conclude that even if R called itself ‘general agent,’ it was a merchant acting as a principal rather than as a commercial agent. The fact that R constantly acted for the defendant and, so far as possible, for no one else, does not mean that it sold in the name of the defendant any more than the fact that it referred to the defendant in its accounts as ‘our house.’ What was said in the negotiations by R’s manager and what was written by Dr L, the firm’s administrative adviser, is immaterial here. In support of the Court of Appeal’s conclusion it may be noted that in its confirmation of order of 22 March 1962 the defendant allowed R ‘10 per cent rebate for onward sale.’

2. If R was the buyer of the machine, then D can only claim on the contract of sale if it can sue on the contract between R and the defendant. The Court of Appeal committed no error of law in saying that this was not possible.

(a) According to the Court of Appeal, the plaintiff did not claim to be assignee of any claims for damages which R might have had against the defendant on the contract between them. There was therefore no occasion to check whether R had any claim against the defendant in respect of harm suffered by it, or, pursuant to the transfer of risk of carriage, by D (compare § 447 BGB; BGHZ 40, 99, 101). The appellant now says that the fact that R had received the purchase price from D entailed a silent trans-

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fer of any claim for damages it might have. The Court of Appeal did not investigate this question. Nor did it need to do so, since the plaintiff made no mention of an express or implicit assignment in either head of claim. It consistently founded on D’s own claims and not on any assigned claims of R, doubtless because R, as the defend - ant’s general representative, was unlikely to transfer any claims it might have against ‘our house.’

(b)The Court of Appeal also denied that D had any personal claim for damages on the footing that the sale to R by the defendant was arranged as a genuine contract for the benefit of third parties. That is quite correct in law.

The Court of Appeal recognised that a sale by manufacturer to his ‘contract dealer’ (Vertragshändler) whereby the manufacturer is to deliver the goods directly to the sub-vendee (Streckengeschäft) can be interpreted so that the sub-vendee obtains a direct right to have the goods delivered or rather, in this case, properly loaded. It nevertheless found no good reason to treat the contract of sale between R and the defendant in this manner. Contrary to the view of the appellant, there is no legal error in such a construction, especially as the Court of Appeal highlighted the fact that the machine was not collected from the defendant by D, the supposed beneficiary, but by a carrier arranged by R.

(c)The only remaining question is whether D is included within the protective ambit of the sale contract between R and the defendant. This depends on the meaning and purpose of the contract. The Court of Appeal held not and, despite the appellant’s objections, this is the right result.

(aa)The defendant delivered the machine to R ‘ex works,’ the place of performance, according to the confirmation of order, being the defendant’s place of business at G. The parties are agreed that the defendant’s liability is to be determined by German law. Now it is to be noted that the provision of § 447 BGB (which is rendered applicable in certain cases by §§ 651, 644 § 2 BGB) does not apply as between the defendant and R: it was not the defendant who, at R’s request, had the machine carried by a forwarding agent or carrier for whom it had itself arranged: it was R who had the machine collected from the defendant.

It was not the defendant’s obligation to arrange for the delivery of the machine. It was certainly bound to hand it over to the carrier or agent sent by the purchaser in such a condition that the carrier could deliver it to the purchaser unharmed (RGZ 115, 162, 164; further references omitted). The duty to load the thing in a professional manner is part of the vendor’s duty to deliver the purchased object to the purchaser (§ 433 para 1 BGB), and the Court of Appeal was right to describe this duty as a subsidiary one. If the vendor is in breach of it he cannot rely on any transfer of risk under §§ 446, 447 BGB, which unburden him only of risks incidental to the carriage of the goods. If he fails to pack them properly or load them in a professional manner on to the vehicle of the carrier or agent, he is responsible for the consequent destruction or deterioration of the goods [see RG, JW 1901, 725 no 19; other references omitted]. It is wholly immaterial that harm attributable to such a breach of contract arises only after the vendor has handed the goods over to the carrier (reference omitted).

The defendant has not denied that although it sold the machine ‘free ex works’ it undertook to load the machine on to the truck. If its workmen committed a fault in this, then it would be answerable under § 278 BGB; the damage to the goods would not be

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‘accidental’ so the defendant could not rely as against R on the provisions of §§ 446, 447 BGB. The rules of §§ 323 ff BGB would remain applicable, and the defendant would be liable in damages and would in particular forfeit its right to claim the price.

(bb) But this helps the plaintiff only if the defendant’s duty to load the machine properly was owed to D as well as to its purchaser, R. The Court of Appeal did not regard this as established.

The appellant, as against this, relies on the decisions of this court to the effect that third parties are to be drawn within the protection of a contract if the debtor’s duty of care should be respected not only as towards his contractor, but as against others (NJW 1959, 1676; VersR 1959, 1009; also BGHZ 33, 247, 249). In addition to personal injury cases, this court has allowed the third party a personal claim for damages for property damage and even for merely economic loss (NJW 1965, 1955; BGHZ 49, 350). We need not here ask whether this expansion of liability results from an extensive construction of the contract based on the principle of good faith [reference omitted] or from some other source [reference omitted]. This line of decisions has been criticised in some quarters, but the Bundesgerichtshof has adhered to it (BGHZ 49, 278; BGHZ 49, 350).

Still, this court has frequently emphasised that it is only within narrow limits that contractual duties of care are to be extended outside the circle of the actual parties to the contract [VersR 1962, 86; other reference omitted]. The distinction between direct and indirect victims should be maintained. The general rule is that contractual liability is annexed to the tie that binds the creditor to his contractual partner. If these principles are forgotten, a contractor will be unable to tell, and so calculate, what risk he is undertaking, and it will be difficult to justify holding him liable. Thus it is by no means enough that third parties ‘come into contact’ with the performance of the debtor through the creditor. In modern commercial transactions involving long chains of dealers this is almost always the case. The concept of ‘contract with protective effect for third parties’ must be restricted not only as regards the subjects, ie those third parties who are drawn into the protected area, but as regards its objects, ie the terms of the contract from which it is sought to draw such protective duties. The meaning and purpose of a contract, once it is construed in accordance with the principle of good faith (§ 157 BGB), will only justify the extension of the duties of care and protection to third parties if the principal creditor himself owes them protection and care and is in some sense responsible for their ‘weal and woe’ (see BGHZ NJW 1964, 33). This will normally be so only in rather personal situations, such as exist in the family or in employment or in tenancy. An especially strict test must be applied if the protective effect is to apply to property damage and economic loss.

This is not the place to decide in detail what people deserve and need to be included. The Court of Appeal essentially relied on the above principles of law and asked whether the contract between the defendant and R could be construed in such a way as to give D a place in the protective purpose of the contract, at any rate so far as the duty to load the gods with care was concerned. The Court did not misapprehend the fact that the machine was clearly produced in accordance with D’s wishes, and was to be delivered directly to D, but it saw in this fact no sufficient reason for giving D a personal right to claim damages. From the legal point of view this is perfectly right. It is essentially just a question of the construction of the contract, a matter over which a court of review has only limited control. Doubtless tradesmen

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do think it important to take care of their customers’ interests, but not in the sense of owing them ‘protection and care’ [reference omitted]. In a Streckengeschäft like the present, the goods are packed and loaded so as to reach the ultimate purchaser, but this just helps to decide how they are to be packed and loaded: it is not a sufficient reason for bringing the sub-purchaser within the protection of the contractual subsidiary duty.

(cc) The appellant says that good faith demands his inclusion in the protection of the contract, for otherwise the result would be inequitable. The considerations it adduces are only partially correct.

It is true that R could claim damages from the defendant because, as we have said, the defendant is not relieved by § 447 BGB. If so, says the appellant, it would be unjust if D were ‘saddled with’ the loss since the risk of carriage had passed to it (§ 447 BGB; compare art 185, Swiss Code of Obligations (OR)). But this is wrong. There was surely a contract of sale and delivery between R and D, but it relieved R only of the true risks of carriage, whereas here we have harm due to improper loading. The seller, R, had to see to the loading, and since it had the loading done by the defendant, it must answer for the defendant’s fault in this regard, as the Court of Appeal correctly said by invoking § 278 BGB and the comparable rule in Swiss law (Art 101 OR). D may well have good claim against R (for damages or for refund of the purchase price) wherein R could assign to D its claims for damages against the defendant (compare § 281 BGB and the similar rule in Swiss law).

No further consideration of these factors is needed to show that the results of the decision of the Court of Appeal are not necessarily inequitable or such as to constrain us to grant D the right to claim damages directly from the defendant.

II. The Court of appeal was right to hold that D had no claim for damages against the defendant on the basis of negotiorum gestio (Geschäftsführung ohne Auftrag). In loading the machine the defendant was neither executing a mandate from R nor yet performing a task for D for which it had no mandate: it was doing its own duty as seller to deliver the machine to the purchaser [reference omitted]. The appellant’s proposals on this matter are based on a misconception of the law.

III. Nor did the firm D have any claim in tort against the defendant on the ground that the defendant caused ‘its’ machine, the machine of D, to be loaded in an unprofessional manner. D had already paid DM30,000 towards the purchase price, but that did not make it ‘owner by Vorbehalt’ as the Court of Appeal rightly held. Nor was D in indirect possession of the machine during the carriage. The carrier was in possession of the machine during the carriage. The carrier was in possession of the machine for R, not for D.

1. As we have explained there were here two sale contracts which must be kept legally distinct. We must also distinguish the transfer of ownership from the defendant to R from the further transfer to D. When the machine was handed to the carrier sent by R, the risk passed to R and the risk of carriage passed simultaneously to D, regardless of the fact that here R was delivering directly from the factory rather than from his own place of business or place of performance (BGHZ 24 March 1965, NJW 1965, 1324). But the transfer of risk has nothing to do with the transfer of ownership (nor with the acquisition of a vested right of future ownership) (RGZ 93, 330, 331; 85, 320). In a contract for sale and delivery ownership only passes to the purchaser when the purchased property comes into his hands (RGZ 108, 25, 27–8; 102, 38, 40; 99, 56, 57;

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NJW 1960, 1952), although it may happen earlier in exceptional cases, for example if the vendor, in handing the goods to the carrier, untypically intends to vest them in the purchaser and the carrier is authorised by the purchaser to acquire ownership in them as his agent [see RGZ 84, 320, 322; other reference omitted].

In the present case it may be assumed that on handing the machine to the carrier the defendant was ready to transfer his ownership in it to R (probably conditionally on the outstanding price being paid). The carrier commissioned to deliver the machine to R had been chosen not by the defendant but by R. The carrier and forwarding agent were therefore in possession of the machine as intermediaries for R. It does not follow from this that R would have been ready to transfer ownership to D before the machine actually arrived at it destination, let alone immediately. So far as the relationship between R and D goes, one should maintain the principle already mentioned, that when there is a contract for the sale and delivery of goods, the property passes only on the delivery of the goods to the purchaser. In the relationship between D and R the carrier was ordered by the seller, not by D, to whom the carrier was unknown until the accident. The carrier could not acquire ownership directly for D without some special authorisation (see RGZ 103, 30, 32; 102, 41; 84, 320, 322).

2. After investigating all the circumstances, the Court of Appeal found that there was no such authorisation here. The appellant’s objections to this are without merit.

The Court of Appeal did not overlook the possibility that in view of the particularly close interfusion of the two sales contracts the defendant might have transferred the property directly to D, through the intermediacy of the carrier, but it decided that this had not happened, especially since the loading chit which the defendant gave to the carrier said ‘To the order of the Firm R & Co.’ This is legally unassailable. Nor was the Court of Appeal wrong to ignore the fact that the invoice which the defendant sent to R on 30 September 1963 stated, under the heading ‘“Delivery”. To be collected by truck belonging to K in Z, for delivery to D in N.’ Such a delivery note is a feature of every Streckengeschäft and it did not evince any intention on the part of the defendant to transfer ownership directly to D.

Case 71

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 10 JULY 1963 BGHZ 40, 91

Facts

The plaintiff, who makes belts, had done business for many years with the defendant, who processes leather. The defendant sold the plaintiff 36 pieces of natural suede, dyed green, for DM581.93, having obtained it from the firm H. The plaintiff made the leather into belts for women’s dresses and sold most of them to the firm K-F, which delivered them to a mail order house. Many of these dresses then developed yellow stains at the points where the belt and the material met. K-F withdrew some 395 of these stained dresses.

The plaintiff claims damages from the defendant on the basis that the stains were caused by the faulty dyeing of the leather supplied by the defendant. K-F had suffered a loss of DM10,375.50, but it was common ground that K-F had made no claim for

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this sum against the plaintiff, and the plaintiff did not contend that it was liable to K-F. The plaintiff nevertheless claimed to be entitled to sue for the damage suffered by its purchaser as if it were a loss.

The Landgericht held that the defendant must pay for the harm suffered by K-F, and the Oberlandesgericht dismissed the defendant’s appeal. The defendant’s further appeal is now allowed.

Reasons

A. . . .

B.

1.The appellant’s criticism of the Court of Appeal’s view that the plaintiff may claim damages for the loss suffered by its purchaser is well-founded.

According to the Court of Appeal, it must be assumed that at the time they made the contract of sale, the parties implicitly agreed that the plaintiff should be entitled to sue for any loss suffered by its purchasers, whether or not those purchasers could claim compensation from the plaintiff.

II.

1.This initial assumption is already open to doubt. An implicit declaration of intention denotes conduct which, while not apparently constituting a declaration at all, is treated, by reason of its factual context, as evincing an intention to produce specific legal results. An implicit declaration is accordingly a genuine declaration of intention. Here the parties themselves did not allege that it was their agreed intention (expressed by their conduct, here silence) that the plaintiff should be able to sue for any loss suffered by its purchasers; nor did the Court of Appeal adduce any facts in support of its conclusion. It is plain therefore that when the court speaks of an implicit agreement, it means only that it feels that the plaintiff should have the right in question and that this can be achieved by the method of creative implication.

2.We cannot agree with this. It is true that the courts, with the approval of the commentators, have under certain circumstances made exceptions to the general principle that damages can only be claimed by the person who has suffered the loss; a contracting party has then been granted the right to claim as damage suffered by itself a loss actually accruing to a third party. This is called Schadensliquidation im Drittinteresse [reference omitted]. The cases in which such a right has been allowed to take various forms, but their common feature is that the entitlement under the contract and the interest protected by the contract are vested in different persons, and that therefore the harm caused by a breach of contract strikes the third party rather than the contractual creditor. That such a shifting of interest (Interessenverlagerung) or shifting of loss [references omitted], as writers call it, should not benefit the person causing the harm is generally agreed.

(a)One line of cases involves indirect representation: a party concludes a contract in his own name but at the instance of and on the account of a third party. The Reichsgericht and the Bundesgerichtshof have always held, as a firm principle, and without any nice reasoning, that the person executing the order can sue for damage suffered by the person giving it (RGZ 90, 240, 246; 113, 250, 254; 115, 419, 425; BGHZ 25, 250, 258).

(b)In another line of cases there is an ‘unburdening of the risk’ [references omitted]: it sometimes happens that a person who is bound to deliver a chattel to another is

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relieved from his obligation if the chattel is destroyed by the fault of someone else. One example arises when a chattel which has been sold on the terms that it is to be handed over to the purchaser somewhere else has been delivered to a carrier such as the railways. Then § 447 BGB makes the risk pass to the third party purchaser, who remains bound to pay the price. Although the only person to suffer is the third party purchaser, the vendor is held entitled to claim this loss from the party causing it (RGZ 62, 331). The same is true when a chattel which is the object of a bequest is destroyed before it is handed over to the legatee: the heir is relieved of liability under § 275 BGB, but he may claim the loss suffered by the legatee from the person causing it [references omitted].

(c) The final class of case in the area of Schadensliquidation im Drittinteresse is those where one person is looking after the goods of another. A party’s contractual obligation to care for and protect the goods applies where the property has been put at the bailor’s disposal by a third party who owns it. If the owner is damaged as a result of a breach of this contract, the bailor is allowed by the courts to bring a contractual claim for the compensation of the harm which has been suffered by the owner, especially if the bailee could meet the owner’s claim in tort by relying on § 831 BGB. The Reichsgericht used to invoke the cases on indirect representation in order to justify this holding, and said that in both situations the interests of contractor and third party were very intimately connected (RGZ 93, 39).

A different basis for Liquidation des Drittschadens was offered by the Reichsgericht in its judgment in RGZ 170, 246. Suppletive contractual construction was employed there in order to hold that the defendant, who had contracted to repair a city refrigerator, had granted the city the right to sue it for any loss suffered by butchers whose meat in the cold store was spoiled as a result of careless repair work. This is also the basis given by the Bundesgerichtshof for its decision in BGHZ 15, 224, 227. In this case a carrier had contracted with a forwarding agent, and owing to the fault of the latter a truck which belonged to the carrier’s wife had been confiscated by the authorities in the Soviet zone. In another decision of the Bundsgerichtshof on 27 January 1958 [reference omitted], a steamer which was under charter was damaged by the carelessness of the person supplying it with water. Although the harm was suffered by the owner of the ship, the charterer was allowed to claim this loss from the supplier of the water. In so deciding, the Bundesgerichtshof invoked RGZ 93, 39 and BGHZ 15, 224.

3. Commentators have strenuously opposed the use of contractual construction as the way to grant the right to claim damages for a loss suffered by a third party, on the ground that to impute any such intention to the parties is to do violence to their true will [reference omitted]. We need not go into this question here since the case before us does not fall within any of the types of case we have mentioned. It is common ground that the plaintiff did not buy the leather from the defendant at the instance of and on the account of its purchaser. Nor is there any intimate linkage of interests in the sense of the decisions regarding the duty to look after someone else’s goods. It may be, as the Court of Appeal held, that the purchaser has an interest in having smooth business relationships with its customers, but this fact by no means satisfies the precondition of an intimate connection of interests as laid down in the decisions cited. It cannot be suggested that the seller is under any duty to promote the advantageous development of the buyer’s business relationships with its sub-vendees.

Nor does anything said by the parties justify the Court of Appeal’s implication into the contract of a clause that the plaintiff should be able to sue for damage suffered by

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its purchasers regardless of whether they themselves could sue the plaintiff. For one thing there is no gap or lacuna in the contract which calls for any such implication. It is not true that whenever a contract fails to regulate a certain matter there is a gap which needs to be filled. The decisions of the courts make it plain that such a gap exists only when the factual setting or the real agreed intention of the parties shows that the express terms are obviously inadequate. The courts must not, in completing the contract, extend its object. To the extent that the parties have not explicitly deviated from what is laid down by the case, they leave the completion of their contract to its statutory provisions [BGHZ 9, 273, 277; other references omitted]. Thousands of sale contracts are made every day which contain no provision about whether the purchaser is to be entitled to sue if a defect in the goods causes harm to his sub-purchasers. Not all these contracts have a gap: on the contrary, the parties operate on the basis that the statutory rules shall apply. But the Code proceeds on the principle that, apart from exceptional cases such as §§ 618 para 3, 1298 BGB, the only damage one must pay for when one breaks one’s contract is damage caused to the other contractor himself. It may be different where the contract gives rise to a duty to protect the third party, but that is a special case which does not arise here.

The Court of Appeal offered no basis for its conclusion that if the parties had thought about the possibility that the plaintiff’s customers could suffer if the leather were badly dyed, they would, as decent businessmen, have agreed that the defendant should be liable to the plaintiff, even if the plaintiff was not or could not be sued by his customers. On the contrary, experience suggests that in reality businessmen are much more interested in protecting themselves from such damages claims by using exemption clauses, so far as the courts will let them, for such claims are unpredictable in their extent, incapable of being covered in an economically satisfactory manner by increasing the sale price or taking out insurance, and apt, as in the present case, greatly to exceed the value of the goods sold.

There is the further requirement that any contractual gap should be capable of being filled by suppletive interpretation. That requirement is not met here. A term cannot be implied into a contract unless it is a compelling and self-evident conclusion from the agreement as a whole such that unless such a term is implied, the result would obviously be in conflict with what was in fact agreed (BGHZ 12, 337, 343; 29, 107, 110). The Court of Appeal has not said why the plaintiff’s customers have refrained from suing. They may have omitted to obtain a guarantee from the plaintiff of the quality of the dyeing of the belts, or they may believe that the plaintiff is not liable in damages for any faulty and positive breach of contract. But claims for damages based on defects in purchased goods have been restricted by the legislator, and with good reason. If the Court of Appeal were right, the plaintiff’s customers would have a claim for damages here if the defendant were guilty of a positive breach of contract as against the plaintiff, although the law of sales would deny them one in their own right. They would be in as good a position as if the defendant had committed a positive breach of contract as against them, not just as against the plaintiff. Such a rule can hardly be said to be necessary in order to advance the general purpose of the contract or to save the plaintiff from intolerable hardship

In a judgment of 7 August 1959 (Betrieb 1959, 1083) this senate held that a plaintiff who had bought goods in order to incorporate them with goods belonging to a customer could sue for the harm suffered by his customer owing to a defect in the

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purchased goods. The court was by no means saying that the principles of Drittschadensliquidation apply within the chain of purchasers. It emphasised that it all depended on the construction of the contract between the parties, and that if the intention and purpose of the contract make it clear that the interest of the third party is to be protected, the person whose contractual rights have been infringed may be entitled to sue for the damage to the third party. The peculiarity of that case was that, according to the construction of the contract made by the court below and binding on this court, the seller had agreed to assume the buyer’s risk as against the buyer’s customer, and had bound itself to pay for damage which third parties might suffer from using the goods which had been sold. The decision is not as far-reaching as Erman suggests [reference omitted]. In the case before us however it is quite plain, even on the findings of the Court of Appeal, that the defendant was not bound to stand in for harm suffered by the plaintiff’s purchasers and sub-purchasers.

4. Schadensliquidation im Drittinteresse is sometimes allowed by courts and commentators on other grounds than contractual interpretation, but those grounds have no application here either. A claim may be available where all the damage due to the harmful conduct of the obligor is suffered by a third party rather than by the person with title to sue. There must be only one damage, one which the claimant would have suffered if the protected interest had been vested in him. The third party is harmed instead of the person with the claim [reference omitted]. So, in the types of case that we find in the reports and the books, as between the plaintiff and the third party, the harm is suffered only by the person represented, not by the person representing him, only by the person to whom the risk has passed, not by the person from whom it has passed, only by the owner of the thing, not by the person who bailed it by contract to the defendant. The doctrine is not triggered by the mere fact that in addition to the person with title to sue a third party has suffered harm. Allowing a person to sue for damage to a third party must not be permitted to bring about any extension of liability founded in law or contract by duplicating the victims whom the person causing the harm must satisfy. The Reichsgericht stressed this vital point in its decision in RGZ 170, 246, where butchers’ meat was spoilt in the city cold-store badly repaired by the defendant. It emphasised that the damage must be one and the same, whichever party, city or butcher, had the title to sue. The only harm involved was the damage to the meat, and, as the Reichsgericht explained, no ‘multiplication’ of the harm resulted from granting the city a right to claim for the loss suffered by the butchers.

No such simple displacement of loss or interest in this sense occurs when a buyer resells the thing and his sub-buyer suffers harm through a defect in it, since it is quite possible that the first buyer himself also suffers a loss. That is why Tegert [reference omitted] is right to deny that the seller is contractually liable for harm caused by defects in the thing to subsequent acquirers in a chain sale. Another reason for not applying Schadensliquidation im Drittinteresse in chain sales is that if the first seller were liable to eventual sub-buyers for his breach of contract, he would be faced with an accumulation of loss which is intolerable and contrary to the basic principles of contract law [reference omitted]. The judgment of the Reichsgericht in DR 1941, 637 clearly supports this, because although it held that the first purchaser had the right to sue for the loss suffered by his sub-purchaser, it based its decision on the fact that he had bought the thing on the instructions and for the account of that person. The Reichsgericht thus decided the case on the basis of indirect representation, as it was

APPENDIX I: CASES 719

called, and this would not have been necessary had the court thought a purchaser entitled as such to sue for the loss suffered by his sub-vendee.

Nor can the original seller be made liable on the general principle of respect for good faith. It is not inequitable that a sub-purchaser’s claims should depend on the contract of sale he himself has made. If the terms of his own contract afford him no claim for damages, equity does not require us to let him claim damages from the original seller through his vendor, simply because the original seller is liable in damages to his vendor. There is no general principle that a person who causes harm must pay for it even if his creditors suffers no damage. To this extent at least Werner [reference omitted] is right to emphasise that damages are in principle payable only for harm actually sustained by the claimant, not as a kind of penance due from the person responsible.

We need not enquire whether a different conclusion might not be called for, on the grounds of justifiable reliance, in a case where the producer of goods vaunts their merits through advertisements and thereby induces an ultimate consumer to buy them through an ‘anonymous’ chain of distributors. No such fact situation is present here.

Case 72

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 12 JULY 1977 NJW 1977, 2208

Facts

The defendant was carrying out the earth removal operations required in the construction of an aqueduct and reservoir for the city B and the local water authority. In the course of the works a mechanical digger operated by one of the defendant’s men damaged an electric cable which supplied several concerns. As a result current to the plaintiff’s business was interrupted for 32 minutes, and the work of its 1385 employees brought to a halt.

The Landgericht and the Oberlandesgericht dismissed the claim for damages. The plaintiff’s appeal was also dismissed.

Reasons

I.

1. The Court of Appeal held that the plaintiff had no tort claim under § 823 para 1 BGB, since no legal interest protected by this rule had been invaded: in having to pay wages when no work could be done owing to the lack of current the plaintiff suffered a purely economic loss. The Court also held that there had been no invasion of an established and operative business. Furthermore, no claim arose under § 823 para 1 BGB, for although there was a provincial regulation regarding the safeguarding of electric cables during building operations (§ 18 para 3 Provincial Building Ordinance of Baden- Wurttemberg—BadWurttBauO), it did not have the character of a protective law (Schutzgesetz) in favour of customers supplied from the national electricity grid.

2This is perfectly in line with the decisions of this court.

(a)This court has frequently stated the preconditions which must be met before damages are payable for affecting a business (BGHZ 29, 65; 41, 123; 66, 388, 393).

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Those principles involve the conclusion that the damage done by the defendant’s mechanical digger to the electric cable was not an invasion of the plaintiff’s business as such, since there is lacking the requirement of intimate connection with the business (Betriebsbezogenheit). In a similar case (BGHZ 29, 65, 74) the court said that the breaking of an electric cable supplying a factory is no more intimately connected with the business than injury to its employees or damage to its vehicles: it is not an essential characteristic feature of an established and operative business that it have an uninterrupted supply of electricity, especially as all the other customers connected to the same cable have the same legal relationship with the utility that supplies the current. We need not dwell on this point since even the appellant does not contest it.

(b) Although it had previously held otherwise (see, eg, NJW 1968, 1279), this court in its decision of 8 June 1976 (BGHZ 66, 388) stated that § 18 para 3 BadWurttBauo (and the similar provisions of the building ordinances of other Länder) are not protective laws in favour of subscribers who suffer economic loss through a lack of current due to damage to a cable. Accordingly there are no legal objections to the view of the Court of Appeal, which evidently was unaware of that decision. Nor, indeed, does the appellant himself contest this part of the judgment.

II. The plaintiff also puts forward a contractual claim both in his own right and by assignment. The Court of Appeal rejected this. The underlying facts are that representatives of the parties had a meeting on site with representatives of the water authority and the city, that the plaintiff’s business manager and the city representative drew attention to the presence of the main electric cable where the earthworks were about to begin and stressed how vital it was for the plaintiff’s business, and that the defendant’s clerk of works was then told that any digging in the neighbourhood of the cable must be done by hand rather than by machine. The Court of Appeal analysed these facts correctly, and its holding that the plaintiff was not drawn into the protective ambit of the contract of services between the water authority and the defendant cannot be faulted.

1. The case law recognises that persons not immediately involved in a contract may yet be drawn within its protective ambit, with the result that although they cannot bring a claim for performance, as would be the case if it were a true contract for the benefit of third parties under § 328 par 1 BGB, they may nevertheless have a contractual claim for damages if they suffer harm owing to faulty conduct by the debtor in breach of contract (on this see BGHZ 49, 350; NJW 1975, 344; NJW 1954, 874; BGH VersR 1955, 750; NJW 1956, 1193; NJW 1959, 1676; BGHZ 51, 91, 96). The cases agree that whether third parties are to be included in the protective area of a contract when they were not involved in its formation and have not been expressly covered by the parties, depends on the meaning and purpose of the contract and its construction in accordance with the principle of good faith (§ 157 BGB) (see BGHZ 56, 269, 273); in the long run what is critical is not so much the relationship between the contractors themselves as the special relationship between the creditor and the third party whose inclusion is in question (see especially BGHZ 51, 91, 96). In order to avoid an intolerable extension of contractual duties of care beyond what the principle of good faith can demand of the debtor of the contractual performance, the court has frequently observed that the duties of care and protection can only be extended beyond the actual parties to the contract if the principal creditor, here the water authority has some responsibility for the well-being of the third party, as owing him protection and

APPENDIX I: CASES 721

care (see especially BGHZ 51, 91, 96; NJW 1974, 1189). This requirement, which is needed so as to avoid blurring the line between contractual and tortious liability in an insupportable manner and contrary to the will of the legislature, is normally present only when there is a legal relationship of a personal nature between the contractual creditor and the third party, such as commonly arises in family relationships, in employment, and in landlord and tenant cases (see BGHZ 51, 91, 96).

2.Contrary to the appellant’s contention, the Court of Appeal acted consistently with these principles in holding that the requirements for including the plaintiff in the protective area of the contract for work between the defendant and the water authority were not satisfied in this case.

(a)In particular the water authority here was in no way responsible for the wellbeing of the plaintiff. For the contractual creditor, the plaintiff was only one of a large number of subscribers that might be affected by damage to the cable. As this court said in its judgment of 3 November 1961 (VersR 1962, 86, 88), contractual duties must not be extended in cases where faulty work or failure to take security measures could cause harm to people of all kinds—house-owners, tenants, entrepreneurs and so on— for then the class of people protected by the contract would be unlimited and unforeseeable. The mere fact that the plaintiff’s business was apt to suffer a considerable economic loss through interruption of the electricity supply does not justify holding that the water authority, which could itself suffer if the plaintiff was damaged, must look out for its wellbeing. Even if it is true that the contractual creditor had a certain interest in the safety of the cable, this interest was only a general one, and not one solely or predominantly related to the needs of the plaintiff for which the plaintiff could claim protection from the creditor.

(c)Nor can it be said that the meeting on site modified the contracts of works between the defendant and the water authority. The water authority was bound to give such instructions before the work started in order to enable the defendant to take the necessary steps to protect the utility cables (including telephone cables—§ 317 StGB), and the special reference to the harm the plaintiff might suffer if the current were interrupted was insufficient to bring it within the protective area of the contract contrary to the principles already stated. It is important that at the time he concludes the contract, the contractual debtor should be able to see what risk he is undertaking, and this would be impossible if the creditor could later determine what third parties were to be included in its protective area by making a unilateral declaration to the debtor or to some unauthorised employee.

3.The Court of Appeal was also right to hold that the plaintiff had no assigned claim for damages from the water authority. The requirements of Drittschadensliquidation are not met (BGHZ 51, 91, 93, ff). There is no special legal relationship between the plaintiff and the water authority, the defendant’s contractual creditor, such as would justify holding that in law it was not the creditor but the plaintiff who suffered the harm. Only if, at the time of the wrong, the creditor’s interest is vested in, or has passed to, the third party, does the party liable have to make good to the creditor what is lost by reason of the creditor’s legal and economic relations with the third party. Apart from a few exceptional cases (eg, BGHZ 40, 91, 100) this only applies when the creditor has contracted on the third party’s account (eg, BGHZ 40, 91, 100) this only applies when the creditor has contracted on the third party’s account (for example, BGHZ 25, 250, 258) or when the object which the debtor was to safeguard belonged

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not to the creditor but to the third party (as in BGHZ 15, 224). No such fact situation is present here (see also NJW 1959, 479). We need not now enquire what the case would be if the defendant contractor had undertaken by contract a specific duty of care towards the third party, since as has been stated, no such agreement is shown to have been made.

Case 73

BUNDESGERICHTSHOF (SECOND CIVIL SENATE) 29 JANUARY 1968 BGHZ 49, 357

Facts

The plaintiff chartered a Rhine barge, The Avanti, belonging to the first defendant and captained by the second defendant, to carry a load of sheet metal from Basel to the Ford Works in Cologne. The metal was owned by Cornigliano, which had sold it to Ford and had arranged with Panalpina to take it to Cologne. Panalpina entrusted the arrangements for the Rhine journey to the Schweizerische Reederei AG, its parent company, who had the plaintiff, another daughter company, effect it.

The cargo was damaged en route owing to unseaworthiness and bad stowage. Cornigliano allowed Ford to deduct the amount of the damage from the purchase price, and then passed this loss to Panalpina, whence it passed through Schweizerische Reederei to the plaintiff; along with the debit in each case went an assignment of all claims in respect of the damage. The plaintiff was thus exercising, inter alia, the rights of Cornigliano, the owner.

The plaintiff’s claim was dismissed by the Landgericht, but the Oberlandesgericht allowed it, and the defendants’ appeals were unsuccessful.

Reasons

I. . . .

II. . . .

1. The appellant contests the view of the Court of Appeal that Cornigliano (the vendor and principal of the forwarding agent) could claim for the harm suffered by Ford (the purchaser and consignee) under the doctrine of Schadensliquidation im Drittinteresse. We need not take a position on this question for, as we shall see the decision does not depend on it.

The risk of damage to property is normally borne by its owner. However, when there is a contract for sale and delivery, ownership and risk are split. The vendor owns the thing, but the purchaser bears the risk, the vendor having shifted to him any damage which may be caused to the thing. Suppose the object sold is destroyed or damaged during the carriage. One thing, at any rate, ought to be crystal-clear, namely that the person who causes the harm should not benefit from the split between title and risk. Only sheer conceptualism could lead to the unacceptable conclusion that the person responsible is liable neither to the vendor, because the vendor, who is still able to claim the price from the purchaser, has suffered no loss, nor to the purchaser, although he has suffered economic loss, because he has no ownership to be protected

APPENDIX I: CASES 723

by § 823 par 1 BGB. It is common ground that whereas the vendor as owner is entitled to sue for damages, the purchaser is not. What is disputed is whether in such a suit the owner may claim for his own loss or for the loss suffered by the purchaser. The view that the owner is claiming for his own loss rests on the consideration that since the tortfeasor has nothing to do with the special legal relationship between vendor and purchaser, the owner can claim for his loss as if the risk had not passed to the purchaser. On this view, the purchaser’s economic loss cannot be relevant because § 823 para 1 BGB does not protect the purchaser’s contractual right to have the property transferred to him. But there is another view. It would allow damage tortiously caused to the object of a contract of sale and delivery to be recovered under the doctrine of Liquidation im Drittinteresse, a theory which was first deployed in cases of breach of contract, eg, in the case of indirect representation. In the present case we need not decide which view to adopt. The difference of opinion is only important when the purchaser’s loss exceeds the loss the vendor would have suffered had it not been shifted. But that does not arise in this litigation. Cornigliano, the vendor, has indemnified the purchaser, Ford, by allowing a reduction of the purchase price. So the loss in suit is the loss suffered by Cornigliano itself, the loss of part of the purchase price (the deduction for the damage suffered by the sheet metal). The facts do not suggest that the agreed price was out of line with the market value of the damaged cargo.

Although Cornigliano was under no duty to make any allowance to Ford for the loss Ford suffered it was not, in so doing, in breach of its duty to mitigate its loss (§ 254 para 2 BGB). If the loss in suit were Ford’s loss—as it is under the doctrine of Schadensliquidation im Drittinteresse which the Court of Appeal applied—§ 254 para 2 BGB would be irrelevant because that loss was immitigable; and on the assumption that Cornigliano is claiming for its own loss, § 254 para 2 BGB does not apply, because the legal relations between vendor and purchaser (here the transfer of the risk) are res inter alios acta quoad the wrongdoer.

Case 74

BUNDESGERICHTSHOF (FIRST CIVIL SENATE) 29 JANUARY 1969 NJW 1969, 789

Facts

A collection of jewellery owned by the plaintiff was being carried in the boot of a car by their traveller K, then a general agent and now a partner in the firm. In the middle of June 1965 K hired a room in the defendant’s hotel, as he had often done before. On returning to the hotel one evening at about 10pm, he gave the night porter the keys of the car (including the key of the boot) and told him to have the car garaged. The garage in question was nearby but it was not part of the hotel: it belonged to B, a firm which serviced and rented cars. If a guest wished his car garaged, this was the garage which the defendant hotel used. The porter called B and had the car fetched by one of its employees. There were notices in the hotel rooms about this service in June 1965. They said ‘Contract Garaging. Day and Night. Cars Fetched and Returned.’

One of B’s employees collected the car and the porter handed him the keys of the car and its boot. The car was returned next morning by a different employee at about

724 APPENDIX I: CASES

9am and left in front of the hotel. In the middle of the afternoon K and his colleague T drove to H to see a customer, and when T went to the boot to collect the jewellery he found it locked. K and T then looked through the collection and saw that a number of wrist watches had been stolen from it. The lock of the boot was undamaged, and police enquiries proved fruitless.

The plaintiff claims compensation both in his own right and as assignee of the rights of K. The Landergericht dismissed the claim and the Oberlandesgericht dismissed the appeal. On the plaintiff’s appeal, the judgment below is reversed and the case remanded.

Reasons

I. . . .

II. 1. . . 2. . .

3 (a) The Court of Appeal clearly assumed that if the defendant were liable in contract for the loss of the wrist watches the plaintiff could claim for its loss on the basis of an assignment to it by K. This is correct. The principle of Schadensliquidation des Drittinteresses is applicable. It is implicit in the agreement between the defendant and K, already a contractual guest in the defendant’s hotel, for the deposit of the car for reward, that the defendant’s contractual liability for the protection of the car applies even if the car belongs to a third party, it being irrelevant whether the defendant knew or should have known or had any ground of supposing that it did so belong (BGHZ 15, 224, 228).

(b)On the other hand, there are objections in law to the view of the Court of Appeal that the contract of deposit in this case did not cover the contents of the boot. By its very nature the contract of deposit applies to the moveable which is handed over to the depositee for protection as an entirety, whether it consists of a single object, a collection of objects which are legally or physically discrete, or of one single thing which contains a number of objects which are legally or physically separate. So far as can be seen, this has never been doubted before (see BGH NJW 1968, 1718). Thus the defendant’s contractual duty extended to safeguarding the contents of the boot.

Given the findings made by the Court of Appeal, that the watches were stolen while the car was in B’s garage, the defendant had the burden of proving that its inability to return the property was not due to matters for which it was responsible (§ 282 BGB). It is not enough for the defendant to prove that it took all necessary care, which in any case it has not yet done. The circumstances here (the boot being opened without harming the lock, the removal of the more valuable objects from the collection, the employment in the garage of a person who, according to the district attorney was ‘well-known to be a burglar and confidence-trickster’) strongly suggest that it was the fault of the defendant or one of its agents for performance (§ 278 BGB) that the goods have gone, so the defendant can exculpate himself only by proving what in fact caused their loss (RGZ 149, 284 ff.; BGH NJW 1952, 1170). This has not been done.

(c)The outcome of the case now depends on whether the defendant has a total or partial defence on the ground that the plaintiff or its partner K was at fault under

§254 BGB. This defence was raised by the defendant, but the Court of Appeal naturally did not consider it.

APPENDIX I: CASES 725

As will be seen, this court cannot conclusively apportion responsibility for the harm under § 254 BGB, since the requisite facts have not been found by the Court of Appeal. The judgment of that court must therefore be vacated and the matter remanded to it for further proceedings and decision on the merits and on costs, taking the following considerations into account.

4. The Court of Appeal will have to verify whether fault on the part of K or the plaintiff contributed to the loss in issue, so as to reduce, perhaps to nothing, the damages payable by the defendant (§ 254 BGB). Given such a fault, then the amount of responsibility to be attributed to K and therefore to the plaintiff depends in the first instance on how far the harm was preponderantly caused by one or other party; the critical factor here is whether the conduct of one party not only enabled the harm to occur but made its occurrence substantially more probable than did the behaviour of the other party. The temporal order of the events which caused the harm is not critical (BGH NJW 1952, 537, 539; NJW 1963, 1447, 1449). Only if one cannot conclude from the respective causal efficacy of the conduct of both parties that the harm was preponderantly caused by either of them should the degree of fault of the two parties be considered. Then the first thing to do, before proceeding to apportionment, is to determine the amount of the fault of each party.

The first factor to consider is that K left the jewellery in the boot of the car without telling the porter or anyone else on the defendant’s staff that it was valuable and that the risk of loss was consequently very high (§ 254 par 2 sentence 1 BGB). If the boot had a separate key—this is not clear—the fact that K gave it as well as the car key to the porter would increase the plaintiff’s contribution.

K’s behaviour seems intrinsically to be grossly negligent of his own interests, but various considerations, some undisputed, others inferable from the plaintiff’s evidence, make it seem less grave. There is the standing of the hotel to be considered and the quality of service which the guests would expect. Guests want to be spared the bother of parking their car, but they also expect it to be safeguarded as they themselves would do. According to the defendant, the garage ticket states that no liability is accepted for the contents of the boot, but since the plaintiff’s evidence is that the ticket was not handed to K before, or even at the time when, the car was handed over, the defendant would not be showing the careful service to be expected of such a hotel unless he told K that the garage owner’s exclusion of liability made it risky to leave things in the boot. There is the further fact in this case, according to the plaintiff, that K had been a frequent guest in the defendant’s hotel in recent years. It was known to the hotel staff who looked after him that he carried a valuable collection of jewellery with him in the car and they never sought to dissuade him from leaving it in the boot, as he sometimes did. Furthermore, on the present occasion the staff knew that K had the jewellery with him. It is true that K did not always leave the jewellery in the car, but he may have been induced to believe that when the car was securely garaged the jewellery in its boot would also be safe. It is not clear on the evidence whether K knew where the car was garaged or how it was secured, so he could perhaps infer from the information provided in the hotel that his car would be looked after in a manner appropriate to its standing. The Court of Appeal will have to investigate these circumstances, determine the causal potency of the conduct of both parties, and apportion the responsibility between them.

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Chapter 5

Case 75

BUNDESGERICHTSHOF (FIFTH CIVIL SENATE) 9 JULY 1980 BGHZ 78, 28

Reasons

I.

The parties are carrying out the transfer of the half share in the co-ownership of a flat. The proprietor of this right is the first party. The second party is his minor son. The first party—described as the ‘transferor’—‘transferred’ this share in the co-ownership by way of gift to the second party—described as the ‘transferee—by a notarially authenticated contract between the parties dated the 1st April 1978. The parties declared in the contract that they were agreed about the transfer of the right and furthermore the transferor consented to and the transferee applied for, the entry of the change in ownership in the Land Register. It says in parag VI 5 of the document that the transferee knew of the existing communal and house rules in relation to the residential property and entered into these.

These communal rules have been made the content of special ownership in accordance with the provisions of §§ 8 (2), 5 (4) and 10 (2) of the WEG (Ownership of Flats Act).

On receipt of the application for registration at the Land Registry, the registrar of the Amtsgericht took the view in an interim decision on 10 October 1978 that the appointment of a supplementary administrator (Ergänzungspfleger) was necessary for the transfer, as the gift did not merely provide a legal advantage for the second party. This was because of his entry into the management contract (no 5 of the document).

The registrar and the Amtsgericht have not amended the decision in response to the objection entered against it. The Landgericht has rejected the appeal (which now is counted as a complaint) as unfounded.

The Bavarian Oberste Landesgericht wishes to reject the further complaint by the parties. But it considers itself to be prevented from doing so by the judgment of the Bundesgerichtshof published in BGHZ 15, 168, and has therefore put the matter before the Bundesgerichtshof for decision, in accordance with § 79 (2) of the GBO (Land Registry Regulations).

II

. . .

III

The further complaint, which is admissible, is unsuccessful in this case.

The transfer of ownership applied for can, in accordance with § 20 of the GBO, be allowed only in the case of a conveyance which has been effectively declared in law. But there is no such legally effective conveyance according to § 107 BGB, because the second party does not merely obtain a legal advantage by the conveyance of the half share in the flat ownership, and it therefore required the interpolation of a guardian: 1. The question of whether there is a legal disadvantage simply because of the public burdens associated with every kind of acquisition of land can, in relation to the gift being discussed here of a share in a flat ownership, be left undecided, as in the cases in

APPENDIX I: CASES 727

which the Bundesgerichtshof concerned itself with the gift of land [reference omit- ted]—eg BGHZ 15, 168. Nor is it necessary to discuss whether the fact that ownership of the flat which has been transferred by way of gift is burdened by a legal charge (Grundschuld) could play a role in this connection.

The acquisition of ownership of a flat (or a share in this) exhibits, in comparison with the acquisition of a piece of land, the special feature that the transferee, by acquiring a real property right, enters simultaneously into the community of owners of the accommodation. He enters into the many kinds of duties connected with this by statute law (§§ 10 ff of the WEG), and is subjected to the statutory provisions about the administration of the communal property (§§ 20 ff of the WEG). However, it can be left undecided here whether a legal transaction by which a minor acquires ownership of a flat is to be regarded as one which is not exclusively beneficial if no provisions have been made amending the statutory model for the community relationship of the owners of the accommodation between each another and for the administration of the communal property [references omitted]. This is because, in the case for discussion here, a legal disadvantage which—independently from the entry into the communal order agreed in para VI no 5 of the notarised document—is, according to §§ 8 (2), 5 (4) and 10 (2) of the WEG, directly associated with the acquisition of the real property right, can in any case be seen in the fact that in the communal order agreed between the owners (up to this point in time) of the accommodation, the duties applying to the individual owners by virtue of statute law have been increased—and not just insignificantly.

Not is it possible to dispute the view that the acquisition in the present case cannot be a pure legal advantage by claiming that the legal disadvantages mentioned are not independent duties but—as the communal order has been made the content of special property—obligations inherent in the ownership itself. This is because in contrast to, for instance, the case of the gift of land burdened with the rights of a mortgagee (Grundpfandrechte) (which, according to the widely held opinion, can only be assessed as a gift of unburdened land [BayObLGZ 1979, 49, 53 with references]), the transferee is liable here for the duties imposed on him not just as real property obligations with the acquired property but also personally.

2. As therefore, according to § 107 BGB, the minor second party’s own declaration could not lead to any legally effective conveyance (§ 4 (1) of the WEG), the contract needed the consent of the statutory representative in accordance with § 108 (1) of the BGB. The declaration of the first party, the second party’s father, in the conveyance cannot amount to a simultaneous declaration of such consent because the first party was prevented from representing the second party by § 181 of the BGB.

The court submitting the case correctly assumes that the provisions of § 181 of the BGB are not inconsistent with an act here by the first party on behalf of the second party because the conveyance only fulfils the first party’s obligation validly based on the gift contract (§ 181 (last half sentence) of the BGB).

. . .

What is decisive however is that it would not be reconcilable with the protective purpose of § 107 BGB, in the case of a gift of flat ownership by the statutory representative to a minor who is over seven years old, to undertake the assessment of whether the gift merely gives the minor a legal advantage separately on the one hand for the obligation contract and on the other hand for the real property transaction fulfilling it. The result of such a split approach would be that, where the basic

728 APPENDIX I: CASES

transaction [the obligation contract] has a beneficial character, ignoring legal disadvantages which are associated with the transfer of the real property right, the statutory representative is authorised in the light of § 181 (last half sentence) of the BGB to represent the minor in accepting the conveyance, or in approving the acceptance declared by the minor himself. In so far as such a split approach is recommended in BGHZ 15, 168 (there in relation to a gift of (unburdened) land and without any conclusive opinion on the question of whether in such a case the fulfilment [real property] transaction also is only legally advantageous for the minor), the second civil senate, as it has stated when questioned, will not follow it.

The protection of minors which § 107 of the BGB seeks to achieve would, if the exceptional provisions of § 181 (last half sentence) of the BGB were permitted to apply in relation to the fulfilment transaction, be largely excluded for gifts by statutory representatives. The question of whether in an actual case the acquisition of a real property right by way of gift brings with it legal disadvantages in the sense of § 107 of the BGB is not influenced by whether the gift is made by a third party or by a statutory representative. (The question of the ‘benevolence’ of the donor also plays no role here). But if, on acquisition from a third party, the interests of the minor are to be protected by the required incorporation of the statutory representative precisely because of such disadvantages, the minor’s interest demands the incorporation of a guardian on an acquisition from the statutory representative according to the general principle of law contained in § 181

BGB. Otherwise the issue (which is decisive according to the sense and purpose of § 107 BGB) of whether the legal transaction turns out in the end to be legally burdensome to the minor would be left out of consideration [references omitted].

The question of the legal advantage or disadvantage of a gift is therefore to be assessed from consideration of the obligation contract and the real property contract as a whole, in accordance with this balancing of interests indicated by statute. Account is therefore taken in the same way of the case of a gift by a statutory representative as well as of a gift by a third party. . . . According to the sense and purpose of § 107 BGB, such an interpretation is justified, even taking into account that the provisions are related to ‘a (one) declaration of will,’ when according to the view put forward here, several declarations of will are to be combined for an overall assessment. There is in any case a corrective against too narrow a treatment of § 107 BGB, as the court submitting the case has also recommended. This is that even the concept of exclusive benefit is to be seen subject to the protective purpose of § 107 BGB (without however going as far as saying that the ‘legal’ advantage here would be replaced by the ‘economic’).

Case 76

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 31 MAY 1990 BGHZ 111, 308

Facts

The claimant demands from the defendant on the basis of a transferred right the remainder of his payment for work in the sum of DM20,505 and interest. The

APPENDIX I: CASES 729

claimant’s husband, the witness S, carried out skilled trade work for the defendant in 1985 and 1986 without being entered in the Skilled Trade Register and without having registered a business. Both these things were known to the defendant. He has paid at least DM4500 to S for his services. S has not paid taxes and social insurance contributions. S has transferred to the claimant the remainder of the demands for payment for work asserted by him.

The Landgericht has ordered the defendant to pay to the claimant DM11,880 and interest. In other respects it has rejected the claim. The Oberlandesgericht has rejected the claim entirely. The claimant’s appeal in law, which has been admitted, led to quashing of the appeal court judgment and reference of the matter back to the

Oberlandesgericht.

Reasons

1.The appeal court accepts that not only the defendant, but also his contracting partner S, had violated the Act to Combat Illegal Labour (SchwArbG). S had carried out a skilled trade independently without being entered in the Skilled Trade Register (§ 1 para 1 no 3 of the Act to Combat Illegal Labour). He had at the same time acted in order to obtain economic advantages of a substantial extent. These endeavours sufficed for fulfilment of the definition. He therefore had neither contractual nor statutory claims which he could have transferred to the claimant.

2.That is correct as a starting point.

. . .

3.The contracts concluded by S and the defendant were therefore void according to § 134 of the BGB. As the Senate [reference omitted] has explained in more detail, the Act to Combat Illegal Labour is intended simply to forbid illegal labour by the threat of financial penalties against the contractor as well as against the client and to prevent the exchange of performances between the ‘contractual partners’. This in itself is an important indication that the legal order intends to deny effectiveness to a contract which disregards the prohibition of illegal labour. In particular—as the senate has explained in detail [reference omitted]—the purpose of the Act to Combat Illegal Labour can only be attained if contracts of this kind are regarded as not legally effective. That applies at least when, as here, both parties have violated the Act to Combat Illegal Labour. In the individual case, though, the ‘appeal to invalidity’ in respect of a legal transaction which violates a statutory provision can violate good faith, so that the contract must be treated in the end result as effective [reference omitted].

4.The claimant can therefore, because of the invalidity of the concluded contracts, derive rights if need be from the dismantling of them. According to the case law of the senate, §§ 677 ff BGB are in principle applicable in cases of this kind [reference omitted]. But the ‘expenditure’ of S consisted here of an activity which was prohibited by statute. He could not ‘consider this to be necessary according to the circumstances’; simply for this reason a claim to reimbursement in accordance with §§ 683,

670BGB does not apply.

5.But the claimant can, contrary to the view of the appeal court, successfully refer to the provisions on unjustified enrichment. The assumption of a claim under § 812 para

1sentence 1 1st alternative of the BGB does not fail here in the end result because of the provision in § 817 sentence 2 of the BGB. This provision applies in principle for

730 APPENDIX I: CASES

case formulations of the kind present here. It can also be used against the creditor’s successor [reference omitted].

In the present case, the assignor S has violated the Act to Combat Illegal Labour by his skilled trade activity. According to the findings of the appeal court, both parties intended to implement their contracts as illegal labour. There can therefore be no doubt that S was aware of the violation and intended it all the same.

6. Enrichment claims belong however to fairness law and are therefore subject to a special degree to the principles of good faith [reference omitted]. It would not be reconcilable with these principles if the defendant did not have to restore the value of what he had unlawfully received, but could keep it without paying for it. The Reichsgericht, in the case of prior performance in respect of the purchase of a brothel, has described the purchaser’s intention not to pay but to refuse to hand over the house which he had acquired by referring to § 817 sentence 2 BGB as deceitful conduct not protected by the legal order [reference omitted]. The position is similar here. When applying the prohibition in § 817 sentence 2 BGB [reference omitted] on demanding back, which affects the creditor harshly, it is not possible to leave out of account the purpose pursued by the prohibiting statute in question [reference omitted]. Accordingly a restrictive interpretation of the provision (which is problematic from the point of view of legal policy and disputed in the area of its application) can be required in the individual case. The Act to Combat Illegal Labour does not primarily pursue the protection of either one or both contracting partners, but principally the safeguarding of public interests. In particular labour market policy considerations were in the foreground when the Act was enacted. According to the official reasons, illegal labour leads to increased unemployment in many branches of the vocational world, causes tax losses and harms the social insurance fund; it also endangers the independent business proprietor, who cannot work so cheaply as the illegal worker. The client should only secondarily be protected from having no guarantee claims in respect of defective work peformance [reference omitted]. The Act was formulated as a protective statute in the sense of § 134 BGB because the goals pursued could only be attained by the invalidity of the forbidden transactions [reference omitted]. But on the other hand, by excluding contractual claims, the objective of the Act, which is principally the policy of preserving order, is largely complied with. It is not irrefutably required, for the implementation of the aims of the Act, for the customer in a case of illegal labour to be allowed to keep the performance without payment, at the cost of the illegal worker who performs first. This is because the exclusion of contractual claims (combined with the risk of a criminal prosecution and the subsequent payment of taxes and social welfare contributions when the illegal labour becomes known) is sufficient on its own to provide the general preventative effect desired by the legislature. The guarantee of a settlement in enrichment law—especially in the limited scope required (see further below on this)—is in the view of the senate not inconsistent with this general preventative effect. According to the view of the legislature, the client, who is generally stronger economically, should moreover on no account be treated more favourably than the economically weaker illegal worker [reference omitted]. Under these circumstances a view based on good faith acquires decisive importance, ie that it would not correspond with fairness to leave unpaid for an unjustified advantage to the customer who has benefited from the prior performance [references omitted]. According to § 818 para 2 BGB the enrichment claim provides compensation for

APPENDIX I: CASES 731

the value which has accrued to the defendant without legal ground. When valuing what has been obtained by the illegal labour, it is necessary first to bear in mind that the illegal worker can on no account receive any more by way of an enrichment settlement than he had agreed—in an invalid way—as payment with his client [reference omitted]. However as a rule quite susbstantial reductions from this will be appropriate because of the risks associated with illegal labour. A particular consideration which strongly reduces the value of the claim is that contractual guarantee claims are not present from the outset because of the invalidity of the contract. If defects have already shown themselves, these are additionally to be included into the calculation of the settlement within the framework of the balancing exercise.

Case 77

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 22 SEPTEMBER 1983 NJW 1984, 230

Facts

In 1976 the defendant entrusted the claimant, who had made an appropriate offer in the name of ‘H-Metallbau (Metal Construction),’ with the delivery and installation of windows and doors and with the execution of other metal work for the construction of a office block. The claimant in her claim demanded the balance due. Having regard to the defendant’s numerous complaints about defects, the parties agreed in an exchange of letters of 1 December 1978, 9 January 1979 and 26 January 1979 that an expert opinion should first be obtained regarding the defects complained of by the defendant in proceedings for the preliminary gathering of evidence; and then the claimant should eliminate the defects, and after this the defendant should pay the balance of the sum demanded for the work. After receipt of the expert’s opinion, the claimant stated that it was prepared to eliminate the defects. The defendant however declined this, and referred to the fact that it was entitled to have the defects removed by a third party. The claimant, who was also technically unsuited for the work, had not only not made any serious efforts for several years to put the work right, but she was also—as the defendant had first discovered in 1979—not legally in a position to do so, as she was not a member of the Chamber of for Skilled Trade but merely a member of the Chamber of Industry and Commerce. She therefore lacked the authority to carry out the skilled work to be dealt with here.

The Landgericht found the defendant liable in accordance with the application. The appeal and the appeal in law were unsuccessful.

Reasons

As the appeal court. . .considers,. . .the necessary elimination of defects has admittedly still not been effected. The defendant could not however derive any rights from this, as it had ‘consistently refused and prevented’ the remedial works which had been repeatedly offered. The fact that the claimant and her husband were not entered as managers in the register of skilled tradesmen did not permit the defendant to free itself from the agreement which had been made. The appeal in law is unsuccessful in challenging this.

732 APPENDIX I: CASES

1. First it takes the view that the work contract concluded between the parties is void in accordance with § 134 of the BGB as only a master tradesman entered in the register of skilled tradesmen was allowed to undertake the services put out to tender. After it had discovered that the claimant had not been entered, it (the defendant) had been able to avoid the consequential agreement of December 1978 / January 1979. This was conclusively seen by the fact that it had rejected any remedial work by the claimant. That is wrong simply because the prerequisite assumed by the appeal in law for the avoidance declaration (invalidity of the work contract) is not present. It is necessary to proceed on the same basis as the appeal court that the fact that the claimant is not entered in the register of skilled tradesmen has no influence on the effectiveness of the contracts in question, even if the claimant’s business falls under the provisions of the Skilled Trade Order.

She ought then in principle not to carry out any skilled trade services, because neither she nor her husband had the master tradesman’s certificate necessary for the entry or an appropriate approval of an exception (§§ 7 ff of the HandwO (Skilled Trade Order)). Nevertheless a violation—as assumed here—of this statutory prohibition would not of itself lead to ineffectiveness of civil law contracts which deviate from it.

(a)The question of whether legal transactions which contravene the prohibition are void under § 134 BGB is to be answered according to the sense and purpose of the prohibiting provision in question. The decisive issue is whether the statute is not only opposed to the conclusion of the legal transaction but also its effectiveness in private law and therefore its economic consequence [references omitted]. Even the fact that an act is made punishable or is threatened with a fine as an administrative offence (see

§117 (1) no 1 of the Skilled Trade Order) does not irrefutably cause the invalidity of the civil law transaction. That applies above all when the prohibition only concerns one of the parties concluding the contract (the claimant in this case): as a rule such a contract is valid [references omitted]. In special cases invalidity admittedly can also follow from the violation of unilateral prohibitions, if the purpose of the statute cannot be otherwise attained and the regime created by the legal transaction cannot be accepted ([reference omitted] for a violation of the

Legal Advice Act; [reference omitted] for banned advertising of medicines; [references omitted]). Such an exception is present, for example, if the statute creating the prohibition is to serve the protection of the individual consumer and therefore also that of the particular contractual partner [references omitted]. If on the other hand it is a question of a mere administrative provision which forbids an otherwise unobjectionable legal transaction on the grounds of regulation of trade or a policy of preserving order, the validity of a contract which is concluded contrary to the prohibition remains unaffected [references omitted].

(b)The Bundesgerichtshof has not so far decided what consequences in civil law a violation of § 1 of the Skilled Trade Order carries with it. The opinions in the case law and the literature—few in

number—refer to the purely public law function of preserving order which this provision has, and therefore unanimously assert the effectiveness of contracts which contravene the prohibition

[references omitted]. The Senate endorses this view, having regard to the purpose of the Skilled Trade Order.

APPENDIX I: CASES 733

The legislator has made permitting the independent carrying on of a skilled trade dependent on proof of vocational knowledge and skills, in order to maintain the high level of performance and

peformance capacity of skilled tradesmen in the interests of business as a whole. At the same time he wanted to ensure the proper training of new recruits for skilled trade, as also for the rest of the business world. He saw an appropriate and necessary means for the attaining of this goal in the introduction of proof of qualifications and entry in the skilled trade register (BverfGE 13, 97 [107ff.] = NJW 1961, 2011 with extensive references to the story of the origin of the Skilled Trade Order; [reference omitted]). On the other hand, averting dangers for the general public or the individual from an improper exercise of a vocation were of no concern to him. Instead the decisive factor was interest in the maintenance and promotion of a sound capable level of trade as a whole [reference omitted]. Sufficient account can be taken of this by measures in vocational law or public law sanctions (§§ 16, 118 of the Skilled Trade Order), without it being necessary to deny effectiveness in civil law to an individual legal transaction which had come into existence within the framework of the prohibited carrying on of a trade [references omitted]. A further argument in favour of this result is the fact that § 3 of the Skilled Trade Order allows subsidiary or auxiliary services to skilled trades to be carried out by a different main enterprise, and § 4 of the Skilled Trade Order even permits the continued conduct of the business of a deceased master tradesman for a certain period by his surviving dependant who does not have vocational knowledge and training. It follows from this that the contract for building works concluded between the parties is not invalid under § 134 BGB.

2. Nevertheless the appeal in law considers that the defendant was not bound to the agreements of December 1978 / January 1979. The defendant had—so it now claims— made a mistake about the skilled trade law status of the claimant and effectively made a declaration of avoidance immediately after revelation of the true state of affairs. The appeal in law is likewise unsuccessful here.

(a)It is doubtful whether the defendant has given a proper declaration of avoidance at all in the sense of § 143 BGB by its refusal of the offer of remedial work by the claimant. It is true that the express use of the word ‘avoid’ is not necessary for this. But it is always necessary for there to be a statement or conclusive conduct from which it unambiguously follows for the recipient of the avoidance that the declarant wishes to overturn the legal transaction retrospectively because of lack of intention [references omitted]. Here the defendant has merely referred to the fact that it considered the carrying out of remedial works by the claimant to be unreasonable because of the extensive defects and the lack of proof of the skilled trade qualification. The fact that this was lacking in the clarity necessary for a declaration of avoidance argues strongly in favour of the above view. In the end the Senate does not however need to go into this question in greater detail, as the defendant in any case has no ground for avoidance worth considering.

(b)The only kind of avoidance which comes into consideration is one in accordance with § 119 (2) BGB according to which a mistake about the characteristics of a person which are of importance in the affairs of life is to be regarded as a mistake about the content of the declaration. This includes the natural features of personality as well as those factual and legal circumstances which, as a result of their nature and assumed duration would, according to the general view of things, usually

734 APPENDIX I: CASES

influence the assessment of a person in all or in certain legal relationships [reference omitted]. This can—depending on the circumstances—quite reasonably include the qualification of the contracting partner in vocational law, as is necessary for an entry in the register of skilled tradesmen. But whether a mistake about this justifies avoidance of a legal transaction is dependent on the special circumstances of the individual case. In this respect account must be taken of the transaction avoided and its objectives [references omitted]. If the concept of mistake about a characteristic is not to become too trivial and to give rise to intolerable legal uncertainty [reference omitted], only those characteristics of a person may be considered as of significance in the affairs of life which the declarant has made the basis of the contract in some recognisable manner (without him needing actually to turn them into part of the content of his declaration) [references omitted].

That—so far as concerns the entry of the claimant in the register of skilled trades- men—has not happened in the present case. The defendant may admittedly on the conclusion of the building contract and of the later agreement for remedial work unconsciously have proceeded on the basis that the claimant fulfilled the prerequisites in vocational law for her trade activity. It has however never expressed the view that this circumstance was to be of importance for the commissioning of the work. It only seemed to matter to it that the claimant’s business enterprise was in a position to carry out the contractual services with the necessary expert knowledge and reliability [reference omitted]. The issue of whether the business was legally a skilled trade one or an industrial one with a subordinate skilled trade sideline was however unimportant. As the appeal court correctly established, the claimant has at no time given the impression that she was proprietor of a skilled trade enterprise. She described her trade in a neutral manner as metal construction, was a member of the Chamber of Industry and Commerce and took part in business life under this designation for many years, without any objection from the competent authorities. If the defendant nevertheless only intended to conclude the work contract with a registered skilled trade business, it would have had to make its intention clear in an appropriate manner. As it has not done this, avoidance of the

agreement of December 1978 / January 1979 is excluded, without regard to whether the claimant actually violated the provisions of the Skilled Trade Order or not.

3.Finally the defendant has also not behaved unreasonably subsequently in adhering to that agreement. (Details are given).

4.As a result of the defendant’s refusal in respect of the claimant’s repeated offers of remedial work, the claim for payment for the remainder of the work has in the meantime become due.

(Details are given).

Case 78

BUNDESVERFASSUNGSGERICHT (FIRST SENATE) 22 MARCH 2004 NJW 2004, 2008

Facts

The constitutional complaint concerns inheritance certificate proceedings, the subject matter of which is succession to the former Crown Prince Wilhelm of Prussia (the

APPENDIX I: CASES 735

testator) who died in 1951, and was the oldest son of the former Kaiser Wilhelm II, who died in 1941. In 1938, the testator concluded an inheritance contract with his second son LF, with the participation of Wilhelm II. It appointed LF as the sole first heir (Vorerbe) (heir appointed in such a way that a subsequent heir (Nacherbe) will inherit in the future). The estate included among other things a substantial part of the socalled house assets (Hausvermögen) situated in Germany of the former Prussian royal house.

In connection with the inheritance contract, Wilhelm II renounced his rights to the house assets in favour of the testator.

In his will in 1950 the testator explained among other things that he would support ‘the contract of 1938,’ and also appointed his son LF as his ‘universal heir’ of the assets which are not included ‘in the assets which passed from my father to me.’ LF, who died in 1994, drew up a will in 1981 in which he appointed his grandson GF, the son of his third son who had died in 1977, as sole heir of all his assets. This appointment of an heir was also to take place if LF had become the full heir of the former house assets.

The complainant is the oldest son of LF. After LF’s death, he applied for the issue of an inheritance certificate as sole subsequent heir of the testator. He had previously among other things declared in a notarised document in 1961 with reference to the house statute (Hausgesetz) of 1920 and § 1 of the inheritance contract of 1938 that, if he concluded a marriage which was not with someone of equal rank in birth according to the principles of the old house constitution (Hausverfassung) he ‘irrevocably renounced all rights which I have as possible successor.’ He repeated this renunciation in notarised documents of 1967 and 1976, in each case on the occasion of marriages which were described in these documents as not being with persons of equal birth. GF applied for the issue of an inheritance certificate that he had become sole heir of the testator after the death of the first heir. He made an ancillary application for issue of an inheritance certificate for LF stating that LF was the sole heir of the testator.

The Probate Court declared by an interlocutory order of the 7 September 1995 that it intended to grant an inheritance certificate for LF as sole heir of the testator. The equal birth clause in § 1 of the inheritance contract was, according to modern standards, void for violation of good morals under § 138 BGB. This led to the invalidity of the succession by the subsequent heir which had been directed, but not to the ineffectiveness of the appointment of LF as sole heir. The complaint lodged against this by the complainant was rejected by a decision of the Landgericht of Hechingen of 17 February 1997. It agreed with the view of the Probate Court and regarded the equal birth clause as void for violation of § 138 of the BGB. The court reached the conclusion, by way of supplementary interpretation of the inheritance contract, that LF had been appointed as sole full heir. On a further complaint by the complainant, the Oberlandesgericht of Stuttgart by a judgment of 19 August 1997 submitted the case to the Bundesgerichtshof for decision (ZEV 1998, 185 = FGPrax 1997, 230). The Oberlandesgericht considers the further complaint to be unfounded because in any case the objection based on § 242 BGB of impermissible exercise of a right prevents appeal to the equal birth clause. However, the Oberlandesgericht considered itself to be prevented by the decision of the Bavarian Oberstes Landesgericht (BayObLGZ 1996, 204) from rejecting the complaint.

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The Bundesgerichtshof by its decision of the 2 December 1998 quashed the decision of the Landgericht and referred the case back to the Landgericht for different treatment and fresh decision. It regarded the equal birth clause in § 1 of the inheritance contract as effective (NJW 1999, 566).

If at the relevant point in time none of the male descendants satisfied the requirements of the equal birth clause, there would be no appointment of a subsequent heir, so the first heir might retrospectively have become full heir. After obtaining a legal historian’s opinion on the question of whether the complainant’s wife was of equal birth, the Landgericht rejected his complaint by a decision of 7 December 2000. The Probate Court was instructed to issue an inheritance certificate to GF which showed him as subsequent heir of the testator. The court came to the conclusion that the complainant was not in an equal birth marriage. He was therefore excluded from succession. The complainant’s further complaint was rejected by a decision of the Oberlandesgericht of the 21 November 2001 (FamRZ 2002, 1365). The disputed decision of the Landgericht did not reveal any error in law.

The complainant is contesting the decision of the Bundesgerichtshof, and the decisions of the Landgericht and the Oberlandesgericht submitted to it, by his constitutional complaint, which has been lodged within the time limit. He complains, among other things, of a violation of his basic rights under Art 6 para 1 and Art 3 paras 1 and 3 of the Basic Law. The Federal Constitutional Court allowed the complaint, quashed the decisions challenged, and referred the matter back to the Landgericht.

Reasons

The chamber accepts the constitutional complaint for decision, because this is necessary for implementing the complainant’s basic right under Art 6 para 1 of the Basic Law (§§ 93b sentence 1, 93a (2) b of the Federal Constitutional Court Act). The prerequisites for a decision by the chamber allowing the complaint are present (§ 93c (1) sentence 1 of the Federal Constitutional Court Act). The disputed decisions violate the complainant’s basic right to freedom of marriage (Art 6 para 1 of the Basic Law). 1. The Federal Constitutional Court has already decided the constitutional law questions which are determinative for the assessment.

According to the consistent case law of the Federal Constitutional Court, an objective order of values is embodied in the basic rights provisions of the Basic Law, which applies as a basic decision in constitutional law for all areas of law, and which also primarily acquires decisive significance in the interpretation of general clauses in civil law. In so far as § 138 and § 242 BGB refer quite generally to good morals, custom (Verkehrssitte) and good faith, they require concretisation by the courts according to standards of value concepts which are primarily determined by the decisions of principle in the Constitution [references omitted].

This however does not change the fact that the Federal Constitutional Court does not in principle have to examine the interpretation and application of simple law. It merely has to secure the observance of basic right norms and standards by the ordinary courts.

. . . The threshold of a violation of objective constitutional law which the Federal Constitutional Court has to correct is only reached if the decision reveals mistakes in interpretation which are based on a view of the meaning of a basic right which is in principle incorrect, in particular in the scope of its protective area, and which are also of

APPENDIX I: CASES 737

some weight in their material significance for the actual case. The Federal Constitutional Court’s examination in relation to the application of the general clauses of §§ 138 and 242 BGB is limited to the question of whether the courts have correctly recognised the meaning and scope of the basic right to freedom of marriage, and balanced it against the testator’s freedom of testamentary disposition by a comprehensive assessment of the particular circumstances of the individual case [reference omitted]. . . .

2. Taking these standards as a basis, the decisions which are being challenged do not stand up to examination in constitutional law. The Bundesgerichtshof in its decision in relation to the assessment of the equal birth clause has failed to recognise the significance of the complainant’s basic right to freedom of marriage (Art 6 para 1 of the Basic Law). . . .

(a)The starting point is the testator’s freedom of testamentary disposition as a determinative element of the guarantee of the right of inheritance protected by Art 14 para 1 sentence 1 of the Basic Law. As a power of disposition for the owner which goes beyond his death, it is closely associated with the guarantee of ownership and, like it, enjoys especially emphasised protection as an element in the securing of personal freedom [reference omitted]. It gives the testator the opportunity to regulate succession himself by a disposition on death largely in accordance with his personal wishes and ideas [reference omitted]. In particular, the testator is not compelled by the Constitution to treat his descendants equally [reference omitted]. The freedom of testamentary disposition also embraces the freedom not to have to arrange succession to one’s assets by the general convictions of society or the views of the majority [reference omitted].

(b)The testator’s freedom of testamentary disposition protected by Art 14 para 1 sentence 1 of the Basic Law is set against the complainant’s basic right under Art 6 para 1 of the Basic Law. Art 6 para 1 of the Basic Law guarantees the freedom to enter into marriage with a partner chosen by oneself [reference omitted]. The equal birth clause contained in the inheritance contract of 23 November 1938 is apt indirectly to influence the freedom of marriage of the testator’s descendant who was appointed as the subsequent heir. Because complete exclusion from succession is linked to entering into a marriage which is not of equal birth in the sense of the house constitution, the descendant is confronted with the alternatives of not concluding such a marriage or losing his position as the subsequent heir. The interference continues even after the conclusion of a marriage which is not of equal birth in the sense of the house constitution. This is based on the fact that the descendant could possibly still be appointed as subsequent heir if he was at least in a marriage which accorded with the house constitution at the time the subsequent heir became entitled. Pressure was therefore indirectly exerted on the complainant, even after entering into a marriage which was not of equal birth in the sense of the house constitution, to dissolve this marriage. As marriage is protected by Art 6 para 1 of the Basic Law as a life partnership which is in principle indissoluble [reference omitted], there is an indirect continuing interference by the equal birth clause.

(c)The Bundesgerichtshof has admittedly looked at the question of whether the equal birth clause exceeds the limits drawn by the order of values in the Basic Law within the framework of §§ 138 and 242 of the BGB. But the balancing exercise undertaken by it does not satisfy the requirements of constitutional law that the balancing should be comprehensive and take into account the special circumstances of the individual case.

738 APPENDIX I: CASES

. . .

(bb) Finally the question of whether the concept of equal birth in the sense of the house statute was still appropriate, after the abolition of the monarchy, to justify interferences with the freedom of marriage of the claimant to the inheritance was not sufficiently considered within the framework of the balancing exercise.

The succession to the throne in the German Reich and in Prussia is determined according to the house statute of the Brandenburg Hohenzollerns. The office of the German Kaiser was indissolubly linked with the Prussian Kingdom under Art 11 of the Constitution of the German Reich of 16 April1871 (RGBl, 64 [69]). The provisions relating to the Prussian crown determined the acquisition and loss of the office of Kaiser in the Reich (see Laband, Deutsches StaatsR, vol I, 6th edit [1912], § 10 II). Art 53 of the Constitution for the Prussian State of 31 January 1850 provided that the crown, in accordance with the house statutes, is inheritable (Gesetz-Sammlung für die königlich Preußischen Staaten [Collection of statutes for the royal Prussian states], p 17 [24]). Those provisions of the house statutes which regulate who belongs to the royal house thereby became a component of the Constitution. Descent from an equal birth marriage in the sense of the house statutes became a decisive criterion for capacity to succeed to the throne (see Bornhak, Preußisches StaatsR, 2nd edit [1911], § 29,

Hubrich, Preußisches StaatsR, 1909, § 9).

When the Weimar Reich Constitution of 11 August 1919 (RGBl, 1383) and the Prussian Constitution of the 30 November 1920 (Preußisches Gesetzsammlung [Collection of Prussian statutes], p 543) came into effect, the republican form of state was introduced. The Constitution of the German Reich of 16 April 1871 was abolished (Art 178 para 1 of the Constitution of the Weimar Reich). Art 81 para 1 of the Prussian Constitution abolished the Constitution of 31 January 1850. The house statutes of the former ruling imperial and royal houses thereby simultaneously became superfluous in the context of the law of the state.

Since the Basic Law came into effect, Art 20 para 1 and Art 28 para 1 sentence 1 of that Law prevent the reintroduction of the monarchy. The marriage and family traditions of noble families have no meaning today for determining the head of state (see Herzog, in: Maunz/Dürig, GG, Stand: September 1980, Art 20 note III marginal notes 5–8; Stern, Das StaatsR der BRep Dtschld, vol I, 2nd edit [1984), § 17 II 2).

Against the background of changed circumstances in the law of the state, the Bundesgerichtshof should on constitutional grounds have considered, within the framework of the balancing exercise whether an appointment of an heir linked with the preservation of the equal birth principle can still justify interferences with the heir’s freedom of marriage, and whether a substantial basis of justification for an appointment of an heir on such conditions has ceased to exist. This principle cannot fulfil today its original function in the law of the state—the regulation of the succession to the throne in an inherited monarchy.

APPENDIX I: CASES 739

Case 79

BUNDESGERICHTSHOF (TWELFTH CIVIL SENATE) 19 FEBRUARY 2003 NJW 2003, 1860

Facts

The parties are a divorced couple. They are in dispute about the validity of a contract for the purchase of land which was concluded between them. The parties married in 1985, and the marriage produced two children, born in 1986 and 1989. In 1994, the claimant entered into an extramarital relationship with R, an asylum seeker of Algerian nationality. From this relationship, the claimant gave birth to a child on 13 February 1996. The parties concealed its true parentage in their circle of relations and acquaintances. After R’s application for asylum had been rejected with legal effect in May 1996, his deportation was set for March 1997. The claimant thereon asked the defendant for consent to an immediate divorce which would enable her to marry R, and thereby prevent his deportation. After lengthy discussions, the parties concluded a notarially authenticated contract on 13 December 1996 in which the claimant transferred to the defendant her half share in the co-ownership of the land on which the family home was built, at the price of DM132,000. On 4 February 1997 the parties’ marriage was dissolved. On 17 March 1997 the claimant declared her avoidance of the land purchase contract. The claimant seeks a declaration that the contract of 13 December 1996 is void. . . . In substance she claims that the transfer of the half share in the co-ownership was contrary to good morals, because its value was DM250,000 and therefore there was a gross disproportion to the agreed price of DM132,000. Conscious of the relationship between these values, and exploiting the claimant’s emotional predicament, the defendant had obtained a financial advantage from the contract which could not be approved.

The Landgericht rejected the claim. The Oberlandesgericht rejected the claimant’s appeal. The claimant in her appeal in law seeks what she demanded at first instance. This appeal led to quashing and reference back.

Reasons

According to the view of the Oberlandesgericht, the contract concluded by the parties is effective even if it is assumed in favour of the claimant that her share in the land which was transferred to the defendant for DM132,000 was worth DM250,000, and that in acquiring it the defendant had exploited her emotional predicament to his advantage.

. . . These deliberations do not stand up to legal examination in all respects.

1. The Oberlandesgericht was in the end result correct to deny the presence of the prerequisites of § 138 (2) BGB.

(a) It is true that fulfilment of the definition of extortion is not prevented, as is stated in the disputed judgment, by the absence of ‘special circumstances’ which give the agreement an ‘objectionable character.’ As the wording of § 138 (2) BGB indicates (‘in particular’), a legal transaction ‘by which someone, exploiting the predicament . . .

of another, causes financial advantages to be promised or granted . . . in return for a performance which are in conspicuous disproportion to the performance,’ is always

740 APPENDIX I: CASES

void. Reference to § 138 (1) BGB is not needed for this [reference omitted]. There is therefore no room for an examination of whether special—additional—circumstances give the agreement an objectionable character. . . .

(b) In the case to be decided here, there is however no extortionate transaction. This is because the defendant did not, as is required by § 138 (2) BGB, exploit a predicament of the claimant by concluding the purchase contract in respect of the land. The Oberlandesgericht has admittedly assumed, in the claimant’s favour, that the defendant has exploited the claimant’s emotional predicament to his advantage. But this assumption does not bind the court dealing with the appeal in law, because it is obviously based on an understanding which is wrong in law of the characteristics of the definition which have been set out.

It is admittedly true that even psychological distress can represent a predicament in the sense of § 138 (2) BGB [reference omitted]. But the claimant’s anxiety that future life together with R would be frustrated in the case of his deportation does not fulfil this prerequisite. As the Bundesgerichtshof has explained, the predicament which, when exploited, leads to invalidity of the exploitative legal transaction must arise from the present situation of the exploited partner. The fear of the partner to the transaction that his future plans could come to nothing if the transaction does not take place cannot form the basis of such a predicament [BGH NJW 1994, 1275 [1276]; prevailing opinion, references omitted]. A present predicament for the claimant could admittedly be founded on the fact that, in the case of the impending deportation of R, her child would have to grow up without his natural father. Whether the claimant felt this prospect to be a predicament is not beyond question, as the parties had passed the claimant’s child off in their circle of relatives and acquaintances as the legitimate child of them both, and received it into the family with the other two children they had both had. The question can however remain undecided, as it does not appear that the defendant had exploited any such possible predicament which the claimant had by concluding the land purchase contract. The extortionate exploitation of a predicament assumes that the partner to the transaction who is acting extortionately is to provide the exploited partner with a payment or performance in kind (see, as to this requirement, BT-Dr 7/3441, p 40), and the exploited partner is dependent on this for the resolution of his predicament [references omitted]. There are no grounds for this in regard to the land purchase contract concluded by the parties. It is not apparent that the claimant was dependent on the payment of the purchase price by the defendant for the resolution of her possible predicament. Whether the claimant was dependent on the defendant’s consent for the divorce has no significance for the definition of extortion. For one thing, consent to the divorce is not an element of the contract about the transfer of the claimant’s share in the co-ownership to the defendant. For another, this consent is not a performance of economic value, and the definition of extortion assumes this to be necessary for a transaction involving exchange when it asks for a conspicuous disproportion between the—to introduce the necessary supplementary word: economic—value of the performance to be provided by the partner to the transaction who is acting extortionately and the financial advantage promised or granted to him for it [reference omitted].

2. The denial by the Oberlandesgericht of the presence of the prerequisites of § 138

(1) BGB is not supported by the factual findings in the disputed judgment, because there are no special circumstances which would give the agreement an objectionable

APPENDIX I: CASES 741

character. A legal transaction which does not fulfil the definition of extortion in § 138

(2) BGB can nevertheless be void under § 138 (1) BGB if a conspicuous disproportion exists between the performance and counter-performance, and further circumstances are present, in particular that the person benefiting has acted out of reprehensible frame of mind [reference omitted]. If the disproportion between performance and counter-performance is especially blatant, the conclusion that there has been intentional or grossly negligent exploitation of a circumstance inhibiting the contracting partner (and therefore a reprehensible frame of mind) can be justified [reference omitted]. An especially gross disproportion can be assumed if the market value of a piece of land is almost twice as high as the purchase price [reference omitted]. The Oberlandesgericht has assumed in the claimant’s favour that the half share in the coownership in the parties’ land which had until then been jointly held, though sold to the defendant for DM132,000, had been worth DM250,000. It is therefore necessary to proceed on the basis of this value relationship for the purpose of the appeal in law proceedings. Admittedly no finding can be obtained from this on the question of whether the defendant has violated good morals by concluding the land contract with the claimant. On a contract for the purchase of land which is concluded between spouses in the context of divorce proceedings, it will not in any case be possible to deduce a conspicuous disproportion leading to the immorality of the transaction merely from the relationship of the value of the land and the purchase price, if the purchase price—as the defendant has submitted here—is part of a more comprehensive financial settlement. A land value which exceeds the purchase price may be reflected in other economic concessions by the person making the acquisition. Likewise the judge of fact will take into consideration the new orientation of their circumstances in life which is necessary for both spouses in the case of divorce. He will have to apply strict requirements before finding a reprehensible frame of mind arising from the exploitation of the distressed situation of a spouse who wants to secure an early divorce. It will be necessary, for instance, to consider the fact that—as the defendant claims here— the parties wanted by their agreement to preserve for their children the property which had so far been held jointly, and therefore to come up with a purchase price for the acquiring spouse which was capable of being financed. Although in contracts for an exchange of services or goods a flagrant disproportion between performance and counter-performance may in the individual case suggest the assumption that the contracting partner thereby benefited has intentionally exploited this to the disadvantage of the other, the principles of law developed on this issue cannot in any case be transferred to family law contracts [reference omitted]. . . . In particular the legal order could not accept—as the deliberations of the Oberlandesgericht suggest—a spouse making false statements in divorce proceedings about the expiry of the year of separation (§ 1565 (2) BGB), and in this way paving the way for the other spouse to obtain the ‘quick’ divorce which this spouse wants, and using this ‘concession’ to negotiate a sale by the spouse who wants the divorce of her property to him at half price.

3. The disputed judgment cannot accordingly stand, at any rate on the basis of the reasoning which it gives. The senate cannot make a conclusive decision in the case.

. . .

742 APPENDIX I: CASES

Case 80

BUNDESGERICHTSHOF (TENTH CIVIL SENATE) 13 MARCH 1990 BGHZ 110, 336

Facts

The claimant granted an instalment loan to the defendant on 2 December 1981 which was negotiated by a third party and which was based on the following calculation:

Amount of loan: 25,000.00 DM Agent’s fees: (5 per cent) 1,250.00 DM

————————————

Financing sum 26,250.00 DM

Interest (1.1 per cent per month) 17,325.00 DM Handling fee (4 per cent) 1,050.00 DM

————————————

Total loan 44,625.00 DM

The ‘effective rate of interest (bank) incl handling fee’ was given in the loan application as 26.2 per cent pa and the ‘credit costs (incl agents)’ as 29.3 per cent pa.

The loan was to be repaid from 1 January 1982 by a first instalment of DM729 and DM59 subsequent instalments of DM744 a month. The defendant paid a total of DM38,229.10 up until January 1987 after several warnings and respites. He refused further payments on the ground that the loan contract was void due to interest so high that it was contrary to good morals.

The claimant appropriated a part of the payments to interest for delay, fees and interest for periods of respite, and out-of-court legal action costs. By the action, it has claimed a balance of DM12,766.40 plus 21.6 per cent interest on DM12,184.90 since 1 December 1986. The claim has been rejected at both previous instances. The claimant’s appeal in law, which has been admitted, was unsuccessful.

Reasons

I

The appeal court regarded the instalment loan contract as void under § 138 (1) of the BGB, and gave as its reasoning:

II

This assessment withstands examination under the appeal in law. The prerequisites of § 138 (1) BGB are subject to this in their full scope [reference omitted].

1. According to the case law of the third civil senate of the Bundesgerichtshof, which this senate has followed, and on the basis of which the appeal court has also acted, a conspicuous disproportion between performance and counter-performance is part of the objective definition of an extortionate instalment loan transaction. The most important basis of evaluation here is a comparison of the effective contractual rate of interest with the effective market rate [reference omitted].

(a) According to the calculations of the appeal court, the contractual rate of interest of 29.3 per cent exceeded the market rate of 16.64 per cent relatively by 76.08 per cent and absolutely by 12.66 percentage points. . . .

APPENDIX I: CASES 743

(b)A relative difference in rate of 76.08 per cent does not suffice, as the appeal court has recognised, to establish a violation of § 138 (1) BGB. The Bundesgerichtshof considers that a conspicuous disproportion between performance and counterperformance in principle only exists when the contractual rate of interest is around twice as high as the market rate [reference omitted]. As exceeding by 100 per cent is not a hard and fast limit but only a guideline, the application of § 138 (1) BGB should still be approved if the relative difference in rates is between 90 per cent and 100 per cent, and the other credit conditions laid down by the bank bring the burden imposed on the borrower into the intolerable area (BGHZ 104, 102, 105 with further references). On the other hand, if the contractual rate of interest exceeds the market rate relatively by less than 90 per cent, the Bundesgerichtshof has routinely denied a conspicuous disproportion (BGHZ 99, 333, 336; 104, 102, 105). In the present case, the relative difference in rates is, at 76.08 per cent, clearly beneath this limit.

(c)The appeal court has therefore correctly based the assumption of a conspicuous disproportion between performance and counterperformance not on the relative, but on the absolute difference in rates of 12.66 percentage points.

(aa)The Bundesgerichtshof has not so far expressed a definitive opinion on the question of whether in the case of instalment loan contracts, besides the relative difference in interest rate of about 100 per cent, a predetermined absolute difference in interest rate can serve as a guideline for the comparison of interest rates, and at what percentage the limit should be. It has merely decided that such an additional standard limit would not in any case be set at 11.5 per cent [reference omitted] but that in an individual case an absolute difference of 13.58 per cent, with a relative difference in rate of 83.72 per cent, can suffice for application of § 138 (1) BGB if, in addition, substantial parts of the loan serve to discharge other loans with more favourable rates of interest (BGHZ 104, 102, 106). The question has been answered in differing ways by first instance courts and the literature.

(bb)According to the view of the senate, an absolute difference in interest rates of 12 per cent acquires a similar guideline function to the relative difference of about 100 per cent. The degree by which the average rate of interest (Schwerpunktzins) is exceeded is, in high interest periods in which the absolute difference in interest rates is of greater importance [reference omitted], an insufficient criterion for the finding of a conspicuous disproportion between performance and counter-performance. High average interest rates (Schwerpunktzins), where the percentage by which they are exceeded is about 100 per cent (which should be regarded as allowed in principle), make absolute differences in interest rates appear permissible, even though they do not have a reasonable relationship to the higher refinancing costs and the growing insolvency risk for the instalment loan banks. The calculation of the contractual rate of interest is determined not only by the expenses of refinancing, enforcement of payment and risk reserves, but also, to a substantial extent, by the relatively constant operating costs and the profit margin. Exceeding the market rate of interest by 12 per cent or more therefore clearly goes beyond the increased costs, even in the case of a generally high level of interest, and allows instalment loan banks an enhancement of their profits at the cost of borrowers. These are, as a rule, of limited financial capacity, and are in any case exposed by the high credit fees to especially heavy burdens. In cases of this kind, a conspicuous disproportion between performance and counter-performance is therefore present even if the relative

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percentage by which the average rate of interest is exceeded does not reach the critical limit.

2. In this case, the contractual rate of interest exceeds the market rate absolutely by 12.66 per cent, and is therefore above the guideline mentioned. The conspicuous disproportion between performance and counter-performance which is accordingly present, as the appeal court has stated, in the end result correctly, is further increased by the regime relating to the consequences of delay contained in the claimant’s loan conditions, which excessively burdens the defendant. . . . Bearing that in mind, as well as, in particular, the conspicuous disproportion between performance and counterperformance which has been explained, the appeal court has, within the framework of the overall balancing exercise undertaken, correctly regarded the loan contract as contrary to good morals (§ 138 (1) BGB).

. . .

Case 81

BUNDESVERFASSUNGSGERICHT (FIRST SENATE) 19 OCTOBER 1993 BVERFGE 89, 214=NJW 1994, 36

Facts

The constitutional complaints concern the question of how far the civil courts are obliged on constitutional grounds to subject guarantee contracts with banks to control of content when relatives with no income or assets of recipients of credit undertake high liability risks as guarantors. Bank contract law is not regulated by special statutes. It is governed by the contract law of the BGB, and by the AGB (general conditions of contract) in which credit institutions have almost completely and uniformly regulated their services. In granting credit, they use contractual forms which are largely the same. A central credit committee, to which the associations of the credit institutions belong as members, achieves co-ordination. In the security practice of credit institutions, it has become usual in the case of consumer credit and business credit with medium sized undertakings to conclude guarantee contracts with family members. Their income and assets are frequently left uninvestigated. The purpose of such contracts is not exclusively to increase the assets available for liability. It is also to deal with transfers of assets, and to make recipients of credit exercise care in their business dealings by bringing in their relatives (opinion of the Federal Association of German banks). For the last ten years the civil courts have been increasingly concerned with cases in which young adults have become hopelessly overburdened with debt because they had provided guarantees for high bank loans to their partners or parents, even though they only had tiny incomes.

(a)The courts of first instance at first subjected the above contractual practice to extensive content control. . . .

(b)The control of the content of contracts by first instance courts was largely rejected by the ninth civil senate of the Bundesgerichtshof [reference omitted]. The third civil senate has agreed with this in substance [reference omitted]. Guarantee contracts could not be regarded as contrary to good morals just because they would probably lead to overburdening with debt. The freedom to formulate contracts

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included, for everyone of full legal capacity, the legal power to take on obligations which could only be fulfilled under especially favourable conditions. The business inexperience of a guarantor was no ground for imposing duties of explanation and advice on credit institutions. A person of full age knew in general, even without special indication, that the giving of a guarantee declaration represented a risky transaction. The bank could therefore assume that a person who took on a guarantee obligation knew the significance of his action, and assessed his risk on his own responsibility. Different considerations would apply if the bank by its own action (and in a way which it could recognise) caused the guarantor to make a mistake by which the risk of liability was increased. This case law has partly found reserved approval in the academic literature [references omitted]. But it was predominantly rejected [references omitted]. Even some first instance courts have failed to follow it [references omitted]. The criticism is to the effect that the Bundesgerichtshof had carried out the task of judicial control of content in too inflexible and indiscriminatory a manner, and had thereby failed to fulfil the basic decision in the Constitution. . . .

The proceedings 1 BvR 567/89: The complainant’s father operated at first as a real estate broker; he erected and sold flats for owner occupation. In 1982 he asked the city savings bank C for a doubling of his credit limit of DM50,000 to DM100,000. When the city savings bank demanded a security, the complainant, who was at that time 21 years old, signed a pre-printed guarantee document on 29 November 1982 with a maximum sum of DM100,000, plus additional obligations, which included among other things: . . .

The increase in credit was accordingly granted. The complainant received a right of signature for her father’s credit account, but had no assets herself. She had no vocational training, was mainly unemployed, and at the time of the guarantee declaration earned DM1150 net per month in a fish factory. In October 1984, the complainant’s father gave up his real property business and operated as a shipowner. The city savings bank financed the purchase of a ship with DM 1.3 million. In December 1986, it terminated the outstanding credit (about 2.4 million DM), and informed the complainant that a claim would be made against her under the guarantee. The complainant at first claimed a declaration that her guarantee was invalid. After the city savings bank had raised a counterclaim for payment of DM100,000 with interest, the parties to the initial proceedings declared the claim for a declaration to be settled. The Landgericht allowed the counterclaim by the judgment which is being challenged. On the complainant’s appeal, the Oberlansdesgericht changed the decision of the Landgericht, and rejected the counterclaim (WM 1988, 1436 (1438)): The city savings bank was obliged on the ground of fault in contractual negotiations to release the complainant from the guarantee, as it had violated its duties of provision of information. It was true that in general the creditor did not have to explain to the guarant or what risk he incurred. But an exception from this principle was required when the creditor’s conduct recognisably caused the guarantor to make a mistake. It was equivalent to this when a credit institution trivialised the type and scope of guarantee liability to a guarantor who was obviously unskilled in business, and thereby influenced his decision. This was the case here. It was established by the evidence that the gist of what the representative of the city savings bank had said when the guarantee document was signed was: ‘Here, please, just sign this. It doesn’t mean you’re entering into any big obligation; I just need it for my records.’ He had thereby

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substantially ‘glossed over’ and trivialised the actual risk for the complainant. It could not be assumed that she would have been prepared, on a realistic assessment, to take on the guarantee. The Bundesgerichtshof quashed the decision of the Oberlandesgericht by the judgment which is being challenged, and rejected the complainant’s appeal against the judgment of the Landgericht (BGH NJW 1989, 1605 = LM § 765 BGB no 67 = ZIP 1989, 629): Guarantees are legal transactions creating one-sided obligations for which the creditor as a rule has neither a duty of explanation nor a duty to obtain information about the state of the guarantor’s knowledge. A person who is aged over 18, and therefore of full age according to statute law, knew in general, even without special experience in business matters, that a guarantee declaration gave rise to liability risks. A guarantor’s expectation that he would not have a claim made against him could not be the basis of a business transaction. The representative of the city savings bank had done nothing which would have influenced this assessment. At the time of the guarantee declaration, the principal debtor’s credit was good, and the information given by the bank employee was therefore correct. The complainant as guarantor should herself have kept an eye on the further development of the father’s business affairs and therefore her future liability risk. Express reference had been made in the guarantee form to the possibility of giving notice of termination.

The complainant by her constitutional complaint objects to the violation of her basic rights under Art 1 para 1 and Art 2 para 1 of the Basic Law, in combination with the principle of the social state. . . . At the time of the guarantee declaration her available (pfändbar) income consisted of DM413.70. Since October 1991 she had been the single mother of a son. She lived on social assistance and child benefit (Erziehungsgeld). Up to January 1992 a debit balance calculated at DM160,000 had accumulated. It could not therefore be expected that she could ever pay off an obligation of this kind.

The proceedings 1 BvR 1044/89: The complainant entered into a guarantee in 1979 with the claimant bank which was unconditionally enforceable [ie, under which the person granting it cannot raise the objection that there has not yet been an unsuccessful execution against the principal debtor] for the securing of a so-called ‘insurance loan,’ which had been granted to her husband for a total of DM30,000. At the time of the guarantee declaration she had no income or assets. As a housewife, she cared for her two children born in 1971 and 1978. As her husband fell into delay with interest payments, the bank gave notice terminating the loan in 1988. The debit balance at that time amounted to DM32,140.31. It was reduced to DM16,274.02 by realisation of the repurchase value of the life insurance. The bank made a claim against the complainant for this sum. The Landgericht allowed the claim by the judgment which is being challenged: No doubts existed about the effectiveness of the guarantee promise. § 310 BGB was not applicable, as obligations which became due in future, however high and unfulfillable, did not represent transfer of future assets. The guarantee contract was also not void under § 138 of the BGB. When the guarantee was taken on, it was possible that the complainant would take up employment before the liquidation of the credit, or would obtain other income. If her husband should become unemployed, he could take over the care of the household and the children. But even longterm inability to perform did not lead to immorality of the guarantee contract. No claim had been made that the bank was culpable in relation to the giving of advice. The Oberlandesgericht rejected the complainant’s appeal on the same grounds as the

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decision of the Landgericht, by a judgment which is also challenged. The complainant by her constitutional complaint objects to the violation of her basic rights under Art 1 and Art 2 of the Basic Law. It was known to the bank that as a mother of two small children she would not be able to take up employment in the foreseeable future. With such employment as could at the moment reasonably be expected of her, she would never be in a situation to release herself from the guarantee obligation. In fact, the indebtedness would be bound to increase continually, despite regular payments. The consequent destruction of any prospect for the future resulted in a violation of the Constitution.

Reasons

B. . . .

C. In so far as the first complainant’s constitutional complaint is permissible, it is also successful. But the second complainant’s constitutional complaint is unfounded.

1. Both constitutional complaints are directed against civil court judgments for the payment of money. The normative foundations which support the judgments are not challenged: no objection is made to the determinative provisions of the BGB. The complainants’ objections are concerned instead with the interpretation and application of those general clauses which require control of the content of obligation contracts by the civil courts, primarily §§ 138 and 242 BGB. In the concretisation of these clauses, the basic right guarantee of private autonomy and the general right of personality had to be considered, and the civil courts had failed to recognise this in the initial proceedings. This reasoning includes the significance of those basic rights to which concretisation of general clauses in civil law applies.

The Basic Law contains in its basic rights section fundamental decisions in constitutional law for all areas of the law. These fundamental decisions develop through the medium of those provisions which directly control the area of law in question, and above all have significance in the interpretation of general clauses in civil law (see BVerfGE 7, 198 (205f) = NJW 1958, 257; BVerfGE 42, 143 (148) = NJW 1976, 1677). When § 138 and § 242 BGB refer quite generally to good morals, custom (Verkehrsitte) and good faith, they require concretisation by the courts by the standard of value concepts which are primarily determined by decisions of principle in the Constitution. Therefore the civil courts are constitutionally obliged to have regard to the basic rights as ‘guidelines’ in the interpretation and application of the general clauses. If they fail to recognise this, and therefore make a decision which is to the disadvantage of a party to the proceedings, they violate that party’s basic rights (see BVerfGE 7, 198 (206f) = NJW 1958, 257; consistent case law).

However, the Federal Constitutional Court does not in principle have to examine the interpretation and application of simple law. It is merely obliged to secure the observance of the basic right norms and standards by the ordinary courts. It cannot therefore oppose a legally effective civil court decision just because it would itself have put the emphasis elsewhere in the assessment of conflicting basic right positions, and therefore decided otherwise. The threshold at which a violation of the Constitution takes place which the Federal Constitutional Court has to correct is only reached when the disputed decision reveals mistakes in interpretation which are based on an opinion which is in principle incorrect of the significance of a basic right (in particular

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the scope of its protective area). These mistakes must also be of some importance in their material significance for the actual case (BVerfGE 18, 85 (93) = NJW 1964, 1713; BVerfGE 42, 143 (149) = NJW 1976, 1677; consistent case law). Measured by this standard, the judgment of the Bundesgerichtshof cannot subsist in the case of the first complainant (II). On the other hand, it does not appear in the case of the second complainant that the civil courts, in the decisions which have been challenged, have failed in principle to recognise the significance of the basic rights (III).

II. 1. The guarantee contract which the Bundesgerichtshof had to assess differed significantly from everyday credit securities. The first complainant undertook an extraordinarily high risk in it, without having an economic interest of her own in the credit secured. Renouncing almost all those protective provisions of the BGB which could be removed by agreement, she gave an unconditionally enforceable guarantee of her father’s entrepreneurial risk to an extent which went far beyond her economic circumstances. It was foreseeable from the start, and easy for the credit institution to establish, that if liability arose the complainant would probably not be in a position right to end of her life to free herself by her own power from the burden of indebtedness which she had undertaken. In this situation, the question of the prerequisites and reasons for the conclusion of the contract had to be dealt with, especially as the party’s submission concentrated on this. The complainant had claimed in the trial courts that the city savings bank had violated pre-contractual duties of showing consideration, and had pursued its own interests in exploiting her business inexperience. The Oberlandesgericht followed this view in the end result. However, the Bundesgerichtshof saw no cause to exercise control over the content of the guarantee contract. The Bundesgerichtshof did not ask itself the question of whether and how far both contracting partners could actually freely decide about the conclusion and content of the contract. This contains a misunderstanding of private autonomy as guaranteed by the basic rights.

2. (a) According to the consistent case law of the Federal Constitutional Court, formulation of legal relationships by the individual in accordance with his intentions is a part of the general freedom of action (see BVerfGE 8, 274 (328) = NJW 1959, 475; BVerfGE 72, 155 (170) = NJW 1986, 1859). Art 2 para 1 of the Basic Law guarantees private autonomy as ‘self determination by the individual in the legal world’ (Erichsen in: Isensee/Kirchhof, Hdb d StaatsR VI, p 1210 marginal no 58). Private autonomy is necessarily limited, and needs legal formulation. Private legal regimes therefore consist of a calibrated system of rules and methods of formulation, co-ordinated with each other, which must fit into the constitutional order. But this does not mean that private autonomy can be dealt with by the legislature as it pleases, and its guarantee in the basic rights can lose its content as a result. The legislature is bound in the necessary formulation by the objective law guidelines of the basic rights. He must open up an appropriate area of activity in the legal world for the self-determination of the individual. According to its regime content, private autonomy must be implemented by the state. Its guarantee so to speak follows justitial realisation, and is therefore the basis of the legislature’s duty to make available methods of formulation of legal transactions which must be treated as legally binding and, in the case of a dispute, form the basis of enforceable legal positions.

(b) The duty to shape the private legal system gives the legislator a problem of practical concordance. Equally ranking holders of basic rights take part in civil law

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transactions and they pursue differing interests and (frequently) opposing goals. As all participants in civil law transactions enjoy the protection of Art 2 para 1 of the Basic Law, and can appeal to the basic right guarantee of their private autonomy to the same extent, it is not only the right of the stronger party which should apply. The conflicting basic right positions should be seen in their reciprocal effect on each other, and should be limited in such a way that they are effective for all participants as extensively as possible. In procedural law, the proper reconciliation of interests follows from the coinciding intentions of the contracting partners. They both bind themselves, and therefore together make use of their individual freedom of action. If one of the contracting parties has such a strong ascendancy that he can in fact unilaterally determine the contractual content, this results, so far as the other contracting party is concerned, in determination by another (see BVerfGE 81, 242 (255) = NJW 1990, 1469). Admittedly the legal system cannot provide for all situations in which equilibrium in negotiations is more or less impaired. Simply on grounds of legal certainty, a contract ought not subsequently to be put in question or corrected for every disturbance of equilibrium in negotiations. However, if it is a question of a categorisable case which reveals a structural inferiority of one of the contracting parties, and if the consequences of the contract are unusually burdensome for the inferior contracting party, the civil law system must react to this and facilitate corrections. This follows from the basic right guarantee of private autonomy (Art 2 para 1 of the Basic Law) and the social state principle (Art 20 para 1 and Art 28 para 1 of the Basic Law).

(c) Current contract law satisfies these requirements. The authors of the BGB admittedly proceeded on the basis of a model of formally equal participants in private law transactions, even if they created various protective norms for the weaker party in legal transactions. But even the Reichsgericht gave up this way of looking at the matter, and ‘changed it back into a material ethic of social responsibility’ (Wieacker,

Industriegesellschaft und Privatrechtsordnung [The Industrial Society and the Private Legal System] 1974, p 24). Today there is extensive agreement that contractual freedom only works in the case of an approximately balanced relationship of the strengths of the partners as the means for an appropriate reconciliation of interests, and that the reconciliation of disturbed contractual parity is one of the chief tasks of current civil law (see the overview by Limbach, JuS 1985, 10 with further references; finally Preis,

Grundfragen der Vertragsgestaltung im ArbeitsR [Fundamental questions on the formation of contracts in labour law] 1993, p 216 ff). Large parts of the BGB can be interpreted in the sense of this task (Hönn, Kompensation gestörter Vertragsparität [Compensation for disturbed contractual parity] 1982). In this connection the general clauses of the BGB have central significance. The wording of § 138 (2) BGB expresses this particularly clearly. It describes typical circumstances which automatically lead to the inferiority of one contracting party in negotiations, and which include his inexperience. If the superior party exploits this weakness in order to promote his interests unilaterally in a conspicuous manner, this leads to invalidity of the contract. § 138 (1) BGB links invalidity quite generally to a violation of good morals. Calibrated legal consequences arise from § 242 BGB. Civil law jurisprudence is in the end result united in taking the view that the principle of good faith describes an inherent boundary to the contractual power of formulation, and forms the basis of the authority for judicial control of the contract’s content (see finally, Fastrich, Richterliche Inhaltskontrolle im

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PrivatR [Judicial control of content in private law] 1992, p 70 ff; Preis, p 249 f). There is admittedly disagreement in the academic literature about the prerequisites for and the intensity of this control of content. However, for the assessment in constitutional law, it is sufficient to establish that current law in any case has instruments available which make it possible to react appropriately to structural disturbances of contractual parity. For the civil courts, a duty follows from this to ensure, in the interpretation and application of the general clauses, that contracts do not serve as a means for determination by another. If the contracting partners have agreed a regime which is in itself permissible, a more extensive control of content will as a rule be unnecessary. But if the content of the contract is unusually burdensome for one party, and obviously inappropriate as a reconciliation of interests, the courts ought not to content themselves with saying: ‘Contract is contract.’ Instead they must resolve whether the regime is a consequence of structurally unequal negotiating strength, and if necessary intervene to correct it, within the framework of the general clauses of current civil law. How they must proceed here, and what conclusion they should reach, is primarily a question of simple law, to which the Constitution leaves a wide margin. But it is necessary to consider whether there is a violation of the basic right guarantee of private autonomy if the problem of disturbed contractual parity is not noticed at all, or its resolution is sought by unsuitable methods.

3. The disputed decision of the Bundesgerichtshof is marked by such a violation. The guarantee declaration which is in dispute was assessed as if a normal contract with corresponding interests and comprehensible risks had been made. All the arguments by which the first complainant tried to prove her weakness in negotiations were rejected by reference to the fact that she was of full age and should have ascertained the risks arising herself. That is not sufficient. The risk of liability which the first complainant undertook by the guarantee contract in dispute, without having any economic interest of her own, was—as already explained—unusually high. Besides this, it was extraordinarily hard to evaluate. The guarantee sum laid down only described a maximum for the main demand; the considerable costs and interest on the credit were to be added to this, without the basis of their calculation having been shown in the guarantee contract. Above all however there was no limitation on the business obligations secured. Besides, when the removal by negotiation of the protective provisions in guarantee law is considered, it becomes clear that the first complainant was to be liable practically as a partner of her father. Even people experienced in business could scarcely have evaluated the meaning and the extent of this risk. For the 21-year-old first complainant, who had no skilled vocational training, the meaning and extent were practically incomprehensible. In a case of such pronounced inferiority of a contracting partner, the decisive issue is the way in which the contract came into existence, and in particular how the superior contracting partner has behaved. However, the Bundesgerichtshof denies any duty of explanation or guidance on the part of the credit institution. The Bundesgerichtshof even regards the pressure exerted by the bank employee with the words ‘You’re not entering into any big obligation’ as insignificant. It merely sees in this—contrary to the findings of the Oberlandesgericht—provisional information about creditworthiness, which could have no influence on the negotiating position of the complainant. That does not do justice to the problematic nature of this case, and fails to meet the basic right guarantee of private autonomy so fundamentally that the decision cannot stand. Whether a

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violation of the general right of personality also falls to be considered can accordingly be left undecided.

III. In the case of the second complainant, it is not a question of taking on a high entrepreneurial risk which it is hard to evaluate. The guarantee concerned a consumer loan, which was not unusually high if the initial cost for the setting up of a household is considered. The recipient of the loan was the second complainant’s husband, so it might be assumed that she was herself directly interested in the grant of the loan. According to the findings of the disputed judgments, the circumstances accompanying the conclusion of the contract also gave no cause for suspicion that the second complainant had been forced to make her guarantee declaration, or that her freedom of decision had been infringed in some other way. There are likewise no grounds for finding any possible fault in relation to advice by the credit institution. The bank has admittedly made the grant of the loan dependent on the security of a guarantee, but according to the findings of the Landgericht, it has not violated any duties to give information here, and in particular has not glossed over the risk of liability. In assessing these facts, the Landgericht has dealt thoroughly with the general clauses in §§ 138 and 242 BGB. It is not evident that it had misunderstood the basic right guarantee of private autonomy. The Landgericht and the Oberlandesgericht admittedly refused to declare the guarantee contract to be invalid just because the second complainant did not have an income or assets of her own. But having regard to the kind and level of the loan, that is not open to objection on constitutional grounds.

Likewise the complaint of a violation of the general right of personality does not succeed. It can be left undecided whether and how far this undesignated freedom developed by the case law is affected if there is hopeless indebtedness when a credit or guarantee contract is made. It cannot be deduced from the findings of the judge of fact in the initial proceedings that such a danger had existed. Nor is it sufficiently demonstrated in the constitutional complaint.

Case 82

BUNDESGERICHTSHOF (ELEVENTH CIVIL SENATE) 14 MAY 2002 BGH NJW 2002, 2228

Facts

The parties are disputing about the validity of a guarantee. The claimant savings bank concluded five loan contracts on the 13/14 April 1994 with the R-Bau-GmbH (R-GmbH), the former first defendant and a further member of the R-GmbH. Among these was a current account credit contract for a maximum sum of DM200,000 at a rate of interest of 12.5 per cent pa. At the same time the second defendant (the defendant), the wife of the former first defendant, took on an unconditionally enforceable guarantee [ie, under which the person granting it cannot raise the objection that there has not yet been an unsuccessful execution against the principal debtor] up to a maximum sum of DM100,000 for securing all existing and future demands by the claimant against the borrowers, including conditional and time limited ones. Previously the B-Bank GmbH had arranged a deficiency guarantee for 80 per cent for the credit granted. After the opening of total execution proceedings regarding the

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property of R-GmbH on the 31 May 1996 had been refused for want of assets, the claimant terminated all the loan contracts instantly. In the following period the B-Bank GmbH paid the claimant a sum of DM207,471.01 and empowered it to commence court proceedings in respect of the demands which it had as deficiency guarantor against the borrowers and the defendant as co-guarantor. After realising various securities, the claimant has made a claim for payment.

The Landgericht allowed the claim against the former first defendant in part. It allowed it against the defendant in accordance with the application in a sum of DM100,000 plus interest. The defendant’s appeal was largely unsuccessful. The appeal in law was successful, and led to quashing of the disputed decision and reference of the case back to the appeal court in so far as the decision was to the defendant’s disadvantage.

Reasons

I. The appeal court regarded the taking up of the guarantee by the defendant as effective, giving its reasons in substance as being: . . .

II. These deliberations do not stand up to legal examination in crucial respects. Contrary to the view of the appeal court, the parties’ guarantee contract (according to the defendant’s disputed submission, from which it is necessary to proceed for the purpose of the appeal in law) violates good morals, and is consequently void.

1.According to the case law of the ninth and eleventh civil senates of the Bundesgerichtshof, which has now coincided, the application of § 138 (1) BGB to guarantee or joint liability contracts concluded by credit institutions with private providers of security as a rule depends crucially on the disproportion between the scope of the obligation and the financial capabilities of the guarantor or joint debtor who is personally close to the main debtor [references omitted]. It is true that the mere fact that the person affected probably cannot even bear the interest fixed by the parties to the loan contract out of the available (pfändbar) part of his income or assets in the long term at the time when the security takes effect is not as a rule enough for making the negative value judgment of immorality. Where such a blatantly excessively demand is made there is however (unless there are additional circumstances) a rebuttable presumption based on general experience of life, that he has taken on the ruinous guarantee or joint liability only because of emotional attachment to the main debtor, and the provider of credit has exploited this in a morally objectionable manner [consistent case law, see Senate, references omitted].

2.Contrary to what the appeal court has assumed, the defendant was, according to her submission, probably not in a position when she took on the guarantee to bear alone, and long term, the interest agreed in the credit contracts which were the cause of the guarantee declaration, with its maximum sum of DM100,000, from her own available income and/or assets. There is therefore a factual presumption, which would have to be refuted by the claimant, that the defendant took on the guarantee only because of emotional attachment to her husband.

(a)According to her evidence, which remains unchallenged, the defendant earned DM1470 net per month as a part time teacher at the time she took on the guarantee in March 1994. This income was, considering her duty to maintain her son who was at that time seven years old, unavailable (§ 850c (1) of the ZPO (Civil Procedure Order)).

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Her income from the letting of a sub-divided house in the sum of DM1232.50 monthly was subject, according to her disputed submission, to expenses of DM2143, for interest and repayment of the mortgage loan, allegedly valued at around DM300,000. These expenses were, as the appeal court recognises, necessary to produce the rental income. It has not been established that less than DM1232.50 per month of the expenses related to interest, nor is this evident in the light of the amount of the mortgage loan. In fact, according to the defendant’s submission, it is necessary to assume that not even part of her rental income was available for servicing the current interest on the guaranteed loan sum of DM100,000. The appeal court’s assumption that the defendant was in a position, with the assistance of her salary and her rental income, to create wealth therefore has no basis.

(b)According to her evidence, the defendant does not even have available assets for consideration when assessing her capacity to pay. According to her submission, for which proof has been provided, and which the appeal court in breach of procedural rules (according to the justified objection of the appeal in law) has not investigated, her sub-divided residential property has a market value of only DM300,000, and is mortgaged to the full extent of its value. This mortgage liability must be considered when assessing the guarantor’s ability to pay. The ninth civil senate of the Bundesgerichtshof has admittedly put forward the opposite view in two older decisions [references omitted]. But in the light of the opinion now also shared by the ninth civil senate, that the effectiveness of a guarantee is only determined by the guarantor’s actual economic capacity [references omitted], this view is out of date. According to this new case law, it is simply logical to reduce the guaranteed risk only by the value of the security effectively available in the individual case of the committed real asset, ie to take the value of real mortgages into account so as to reduce assets. Not to consider them would contradict the usual practice of banks, and would, in particular in the case of real mortgages for the full amount of a property’s value, lead to a guarantor having to be treated as able to pay even though he obviously is not (Nobbe/Kirchhof, BKR 2001, 1 [9f]). It is not therefore possible to adhere to the older case law of the ninth civil senate mentioned above. This (ie, the eleventh) senate is, in accordance with § 132 of the GVG (Constitution of the Courts Act) in a position to amend the case law without invoking the Grand Senate for Civil Cases, as it has competence for guarantee issues, in place of the ninth civil senate, under the plan for division of the business of the Bundesgerichtshof applying since 1 January 2001.

(c)From the viewpoint of a credit institution acting in a rational manner (which is the determinative viewpoint here) on the take up of the guarantee in March 1994, it was not possible to count on an immediate, substantial and long-term improvement in the defendant’s income and assets. In view of the age of the seven-year-old son that she was caring for, full-time vocational activity by the defendant in the near future appeared rather improbable. It has neither been alleged and substantiated nor established that the situation regarding the income and assets had turned out more favourably than was to be expected when the guarantee was taken on. The controversial issue argued by the reply to appeal in law of whether the guarantor’s financial situation at the time the guarantee arises must also be considered when assessing the issue of immorality therefore does not present itself.

3.Contrary to the assumption of the appeal court, which referred to the case law of the ninth civil senate of the Bundesgerichtshof (which was formerly competent for

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guarantee law), the creditor’s interest in protecting itself from transfers of assets between married couples does not affect the immorality of a guarantee which creates blatantly excessive financial demands on the spouse entering into it. Besides this the appeal court has overlooked the fact that a claim against a spouse entering into a guarantee creating blatantly excessive financial demands should be rejected even according to the case law of the ninth civil senate, as unfounded at that time, if no transfer of assets has taken place—as is the case here [references omitted].

(a)As this senate has already stated in its decision on 29 June 1999 submitted to the Grand Senate for Civil Cases [references omitted], the goal of preventing possible transfers of assets does not on its own justify an unlimited demand for joint liability. Without special grounds, which must be explained by the provider of credit and if necessary proved, it is not in principle possible to assume that a guarantee (or the taking on of joint liability) for a blatantly excessive demand exists from the outset merely to prevent a substantial transfer of assets between the main debtor and the provider of the security. Such an agreement, which would give personal security a quite special meaning, is not in any way usual practice, or to be deduced from circumstances outside the contractual document. A person who proposes such a restricted interpretation of the guarantee or joint liability agreement by appealing to the real intention of intelligent contracting parties puts himself outside generally recognised principles of interpretation. Besides this, he violates the prohibition on a reduction of guarantees or joint liability contracts contained in forms in such a way as to retain their validity. If the provider of credit claims against the person concerned (as here) without asserting even only as a starting point that (and to what extent) a transfer of assets has taken place which is substantial in relation to the amount of the credit, this post-contract behaviour, which is to be considered within the framework of contractual interpretation [references omitted], also shows that assumption of a tacit limitation of liability is not justified.

(b)This opinion is meanwhile also shared in principle by the ninth civil senate of the Bundesgerichtshof. But it regards itself as prevented from applying the principles recognised by it for the future to guarantee contracts dating from the period before 1 January 1999 as well [references omitted]. This was because it considered that it had not been sufficiently apparent to the credit institutions to what extent they had to safeguard their interest in a protection which was as effective as possible from transfers of assets through appropriate contractual regimes over and above the mere taking up of a guarantee. This senate cannot follow this differentiated way of looking at the matter.

It can remain open here whether and to what extent the trust of a party to proceedings in the continued existence of the case law of the highest courts is worthy of protection [see on this Schimansky, WM 2001, 1889 with further references]. This case does not crucially depend on the answer to this question, because for an intelligent creditor the trust which is essential for protection for dispositions could not arise. The idea that preventing transfers of assets by the main debtor was an element which could prevent a finding of immorality was considered for the first time by the ninth civil senate of the Bundesgerichtshof [references omitted] in reaction to the decisions of principle by the Federal Constitutional Court of 19 October 1993 (BVerfGE 89, 214 [229ff] = NJW 1994, 36) and 5 August 1994 (BVerfG NJW 1994, 2749). The ninth civil senate has in this connection expressly contradicted the differing case law of the

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eleventh civil senate [references omitted]. The eleventh civil senate has also in the ensuing period continually adhered to the view that the mere goal of preventing possible transfers of assets does not in principle justify an economically pointless demand for joint liability by the provider of credit [references omitted]. There could therefore be no question of established case law of the highest courts in favour of considering the creditor’s interest in protection from transfers of assets without the guarantee being expressly limited to this purpose [references omitted].

III. The appeal court judgment should therefore be quashed (§ 564 (1) of the ZPO, old version). The case is not ready for a final decision, in particular there are no findings by the judge of fact on the value of the defendant’s sub-divided house, on the valuation of the mortgage loan and on the defendant’s monthly interest and repayment obligations when the guarantee contract was concluded. The case therefore had to be referred back to the appeal court for further elucidation of the facts (§ 565 (1) sentence 1 of the ZPO, old version).

Case 83

BUNDESGERICHTSHOF (TWELFTH CIVIL SENATE) 11 FEBRUARY 2004 BGH NJW 2004, 930

Facts

The parties, who are divorced, are in dispute about maintenance after marriage and settlement of the accretion (Zugewinn) [ie, increase in spouses’ assets during marriage]. The applicant, who was born in 1948, and the respondent, who was born in 1955, married on 22 November 1985. The children M and V were born from this marriage on 24 March 1986 and 21 May 1989. The applicant has worked as consultant to a business since 1985. The respondent, has passed master’s degree examinations in ancient history, history of art and German philology, and led archaeological excavations in 1984 and 1985, but gave up this activity because of pregnancy. At the wish of her husband she did not pursue her intention of obtaining a doctor’s degree; she devoted herself to the household and bringing up the children. On 17 February 1988 the parties concluded a notarised marriage contract. In it they renounced ‘reciprocal claims to any . . . maintenance after marriage, with the exception of the wife’s claim for maintenance for looking after the children . . . in the case of a divorce.’ Besides this they agreed a division of assets for the future. They declared that no accretion had arisen so far. As a precaution they mutually renounced any possible settlement claims in respect of accretion which had arisen. They excluded any pension settlement. The respondent’s renunciation was made on the condition that the applicant should (a) effect from June 1988 at the latest a private life insurance for the respondent for the capital sum of DM80,000 on the completion of her sixtieth year, with the option of a pension instead, and (b) pay the premiums regularly on this during the existence of the marriage. In the case of divorce he was to pay to her three times the annual premium on the insurance in one sum in settlement. He would not then be liable for any further payments. On 27 April 1988, a life insurance of DM80,000 was effected with L for the respondent, and the applicant subsequently made payments on this. On 13 November 2001 in the

756 APPENDIX I: CASES

divorce proceedings before the Amtsgericht, he committed himself, as an amendment to the original contract, to pay the instalments continuously until the insurance matured on 1 May 2015. The applicant obtained, according to the findings of the Oberlandesgericht, a monthly average income ‘in the final years’ of DM27,000 net from subordinate and independent work. The respondent has carried on an ‘alternative’ toy shop, latterly together with a post office, at her place of residence since 1994. Her monthly income from this activity amounts—according to her—to DM1084 before taxes. The parties lived in a house in A with a living area of 200 square metres on a plot of about 1200 to 1300 square metres, which the parties had rented from the applicant’s brother for a total monthly rent of DM2548. The respondent received from the applicant monthly housekeeping money of DM2692, and compensation for her assistance in his office at the house of DM500 monthly. Besides this, the nature of their marital economic circumstances, so far as concerned clothing, furnishings and fittings, was modest, according to the findings of the Oberlandesgericht. The parties have been living separately on a permanent basis since February 1999. In accordance with the agreed wishes of the parties, the children usually live with the respondent. The applicant pays maintenance for them in accordance with the highest level on the Düsseldorf table.

The Amtsgericht dissolved the parties’ marriage by a combined judgment, and established that there would be no pension settlement. Besides this, it ordered the applicant to pay DM3671 basic maintenance to the respondent, and DM1081 old age pension maintenance. It rejected the respondent’s applications for further maintenance and for information and payment of an accretion settlement within the framework of a step action (Stufenklage). The judgment of the Amtsgericht is legally effective since 13 April 2002 in relation to the pronouncement on the divorce and the pension settlement. On the respondent’s appeal, the Oberlandesgericht ordered the applicant to pay basic maintenance of 2897 euros to the respondent monthly in advance, as well as pension maintenance of 952 euros. Apart from this, it rejected her appeal in relation to the claim for maintenance. Likewise it rejected the applicant’s cross appeal by which he contested the judgment for payment of maintenance exceeding DM2500 (= 1278.23 euros) monthly. In relation to the accretion settlement, it ordered him to provide information about his assets at the end [of the marriage] and in other respects it referred the case back to the Amtsgericht (NJW 2003, 592 = FPR 2003, 130 = FamRZ 2003, 35 with a note by Bergschneider, Fam RZ 2003, 39). The applicant appealed against the appeal judgment, in so far as it is adverse to him, by an appeal in law which has been admitted. The appeal led to partial quashing of the disputed judgment, and reference of the case back to the Oberlandesgericht.

Reasons

I. In the view of the Oberlandesgericht, the respondent is entitled, besides care maintenance, to a claim for top-up maintenance as well as to the giving of information for the purpose of the accretion settlement. The notarised contract between the parties of 17 February 1988 did not exclude these claims as—measured by standards mentioned by the Federal Constitutional Court in its decisions of 6 February 2001 (NJW 2001, 957) and 29 March 2001 (NJW 2001, 2248)—it should be regarded as ineffective. . . .

These deliberations do not stand up to legal examination.

APPENDIX I: CASES 757

II. Statute law gives married couples the opportunity by agreements made during (or by way of precaution before) marriage to regulate in a binding manner maintenance after marriage or other matters in relation to pensions and assets for the case of a subsequent divorce (§§ 1408 (1), (2), 1585c BGB).

1. According to the case law of the senate so far, full contractual freedom existed in principle for agreements of this kind. There was no special control of content based on whether a regime was reasonable (Senat, NJW 1997, 192; see also NJW 1991, 913)— apart from agreements under § 1587o of the BGB. Giving up maintenance after marriage did not affect a core area of marriage (Senat, NJW 1985, 1833). It was also not an element in the nature of marriage that an ‘economic life partnership’ would arise or that the spouses would participate on the dissolution of the marriage in the changes in assets which had occurred during the marriage (Senat, NJW 1985, 1833).

The only limitations to the validity of such an agreement arose from §§ 134 and 138 BGB. Whether an agreement violated good morals in the individual case depended on its overall character, to be deduced from its content, motives and purpose. In this connection further insights could be gained from the time elapsing before a divorce which was not intended but only considered to be possible (Senat, NJW 1985, 1833, and NJW 1991, 913). It was not sufficient on its own that the agreement had been concluded in an effort to escape all the disadvantageous consequences of a divorce (Senat, NJW 1991, 913). Nor did it suffice that the regime could have an effect which was exclusively or predominantly to the disadvantage of one of the spouses (Senat, NJW 1997, 192). Finally, the immorality of the agreement could also not be derived merely from the circumstance that the woman concluding the contract had been pregnant by the man, and he had made the conclusion of the marriage with her dependent on the conclusion of this contract. As the man could have refrained from marrying regardless of the woman’s pregnancy, and could have confined himself to the legal obligations of a father not married to the mother, it was not possible to assume a reprehensible exploitation of the woman’s predicament (Senat, FamRZ 1996, 1536 [1537] and FamRZ 1997, 156 [157f]). Admittedly renunciation of the right to maintenance could be contrary to good morals, and therefore be void, if the parties had regulated their family burdens based on the marriage in a way which was objectively to the disadvantage of social welfare (Senat, BGHZ 86, 82 [88]; FamRZ 1985, 788 [790], and FamRZ 1992, 1403). Awareness on the part of the parties that they were harming the social welfare authority by their agreement would not be absolutely necessary for this. The fact that they had shown gross negligence in closing their minds to such knowledge could suffice (Senate, NJW 1985, 1833). Also the divorced party against whom a claim for maintenance was made was in certain cases prevented from appealing to a renunciation of maintenance by the other party under the principle of good faith (§ 242 of the BGB). This could be the case if the circumstances existing at the time of renunciation of maintenance had developed afterwards in such a way that paramount interests of the children of the marriage which deserved protection were inconsistent with reliance on the renunciation (Senate, NJW 1985, 1835, and NJW 1987, 776) This was so even if the parties had considered the development which then actually arose— ie, divorce when the children’s need for care and control was continuing—when concluding the renunciation of the maintenance (Senate, FamRZ 1992, 1403 [1404]). The duration and level of the duty of maintenance was admittedly limited in such a case in so far as the child’s welfare did not require the continued existence of a claim

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to maintenance [references omitted]. So far as the level was concerned, the spouse having care and control only had a claim to maintenance in so far as she was reliant on it to cover her own necessary living expenses in order to fulfil her duties of care and control. The spouse with care and control should only be granted more than the necessary maintenance if special grounds relating to child welfare demanded this (Senate [references omitted], FamRZ 1997, 873 [874f]).

2. The decisions of the Federal Constitutional Court of 6 February 2001 (NJW 2001, 957) and of 29 March 2001 (NJW 2001, 2248) give cause for examination of the case law set out above.

(a) By its senate decision of 6 February 2001 [reference omitted] the Federal Constitutional Court has followed to its case law on the control of the content of guarantee contracts (NJW 1994, 36) and on the prohibition on competition by trading agents (Handelsvertreter) without compensation (NJW 1990, 1469). The court carried the principles developed there over to marriage contracts and agreements about maintenance. According to these, the private autonomy guaranteed by Art 2 para 1 of the Basic Law assumed that the prerequisites of self-determination were in fact present. The mutual intention of the contracting parties expressed in the contract would as a rule permit the conclusion that a proper adjustment of interests had been effected by the contract, and the state had in principle to respect this. However, it might be evident on the basis of a one-sided imposition of contractual burdens, and of a substantially unequal negotiating position of the contracting partners, that in a contractual relationship a partner carried such weight that he could effectively determine the contractual content unilaterally. It was then the task of the law to work towards the preservation of the basic right positions of both contracting partners in order to prevent self-determination for one contracting partner turning into determination by someone else. This also applied to marriage contracts by which married people regulated their highly personal relationships for the period of their marriage or afterwards. Art 6 para 1 of the Basic Law gave them the right here freely to formulate their partnership internally for the time being in accordance with marital and family responsibility and considerations. Admittedly it was only a marriage in which the man and woman were related to each other in a partnership with equal rights which was protected in constitutional law. The state had as a result to set boundaries to the freedom of the spouses to formulate their marital relationships and reciprocal rights and duties with the assistance of contracts. These boundaries had to be set at the point where the contract was not an expression of a life partnership with equal rights, but reflected a one-sided dominance of one marriage partner based on unequal negotiating positions. This had as a rule to be assumed when an unmarried pregnant woman was faced with the future alternatives of either caring for the child alone, or of involving the child’s father in responsibility by marriage, although at the price of concluding a marriage contract with him which imposed heavy burdens on her. Whether such a contract clearly burdened the woman more than the man also substantially depended on the family structure which the contracting partners sought to achieve and on which they based their contract. If the partners to the marriage mutually renounced their statutory claims to maintenance after marriage, this did not create an unequal burden in the case of marriages in which both partners pursued careers of equal value and shared the tasks of home and family. However if the life plans of the partners provided that one of the married partners should give up a career to dedicate himself

APPENDIX I: CASES 759

substantially to looking after the children and the household, the renunciation of maintenance after marriage disadvantages this spouse. The more statutory rights in the marriage contract were negotiated away, or additional duties were undertaken, the stronger this effect of unilateral disadvantage became. It was the task of the courts to subject the content of the contract in cases of disturbance to contractual parity to control via the general clauses of civil law and, if necessary, to correct it in order to preserve basic right positions of a partner to the marriage contract which were infringed. Such control of content is not inconsistent with freedom of marriage, because the latter does not justify unlimited freedom in formulation of marriage contracts, nor, in particular, a one sided allocation of burdens in such a contract. Accordingly, part of the law of marriage is conventionally compulsory law.

(b)The senate decision mentioned above only directly concerned the effectiveness of a marriage contract made before the marriage in which a pregnant woman had committed herself, among other things, partially to release the husband and child’s father from claims to maintenance of the expected child in the case of divorce. But the Federal Constitutional Court in its chamber decision of 29 March 2001 [reference omitted] developed this case law, and objected to an appeal court decision which had awarded only the necessary care maintenance to the wife, but had rejected her further applications for maintenance, and accretion and pension settlements. Prior to their marriage, the spouses had contractually excluded maintenance subsequent to the marriage, as well as accretion and pension settlements. The Oberlandesgericht should— according to the Federal Constitutional Court—have taken the special situation in which the wife found herself at the conclusion of the contract, as a pregnant woman who already had a severely disabled child from another relationship (and this alone was a clear indication of her inferior position as a contracting partner), as a cause for subjecting the whole content of the contract to control. In this connection it should have investigated the question of whether the marriage contract burdened the wife unilaterally and unreasonably—especially in her constrained family and economic circumstances.

3.The question of what consequences follow from these decisions for the assessment of marriage contracts in general—and thus also for cases in which the wife is not pregnant at the conclusion of the contract—is answered in different ways in the literature and in the specialist publicity.

(a)Differences exist in assessing when—in general—it is possible to speak of a onesided allocation of burdens for the case of a divorce. . . .

(b)The significance which should be attributed to an imbalance existing between the contractual partners is also differently evaluated. . . .

(c)The Federal Constitutional Court has expressly left open the question of the instruments with which the specialist courts should carry out the control of content given to them. The literature on this subject which considers sanctions differentiates between §§ 138 (1) and 242 BGB according to the extent of the disadvantage . . .

III. According to the senate’s view, it is not possible to give a general answer which is conclusive for all conceivable cases about the conditions under which an agreement— by which spouses regulate their maintenance rights or assets for the case of a divorce in a manner which deviates from the statutory provisions—is ineffective (§ 138 BGB) or makes an appeal to all or individual contractual rules impermissible (§ 242 BGB). What is necessary is an overview of the agreements made, the reasons for which and

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the circumstances in which they came into existence, and the shaping of married life, both as intended and realised. It is necessary to proceed here from the following principles:

1.The statutory regimes about maintenance, accretion and pension settlement after marriage are in principle subject to contractual amendment by the spouses. The current law does not recognise an irreducible minimum content in the consequences of divorce in favour of the spouse entitled.

(a)The legislator has admittedly set against the principle enshrined in § 1569 of the BGB—of personal responsibility of each spouse for his own maintenance after mar- riage—an almost complete system of maintenance claims. These ensure the protection of the socially weaker spouse after the divorce, and are in particular to compensate for the disadvantages caused by marriage which that spouse has suffered because of the marriage or the bringing up of children in progressing in his own career and building up a corresponding pension for old age. On the other hand, the legislator has in §§ 1353, 1356 of the BGB guaranteed the right (protected in the Basic Law; see Art 6) of spouses to shape their married life together on their own responsibility and free from statutory handicaps, in correspondence with their individual ideas and needs. The contractual freedom in relation to the consequences of divorce is in this respect a necessary complement to this guaranteed right, and originates from the legitimate need to agree deviations from the statutorily regulated consequences of divorce so as to suit the individual picture of the spouses’ marriage better. . . .

(b)The accretion settlement is less an emanation of post-marriage solidarity than an expression of distributive justice which can certainly compensate for disadvantages related to marriage in the individual case. But in its standardisation it reaches far beyond this goal, and, not least for this reason, is subjected by § 1408 (1) of the BGB to the disposition of the spouses. . . .

(c)These considerations apply—at any rate in principle—for the pension settlement as well, which admittedly is to be understood in accordance with its objective as anticipated maintenance for old age, but on the other hand is copied from the mechanism of the accretion settlement. § 1408 (2) BGB therefore expressly permits modifications by way of marriage contract to the pension settlement as well, up to the point of its total exclusion, although these become ineffective if a spouse applies for divorce within a year.

. . .

2.The basic negotiability of the consequences of divorce may not however lead to the possibility of the protective purpose of the statutory rules being avoided at will by contract. That would be so if it gave rise to an allocation of burdens which was evidently one-sided and not justified by the individual formulation of marriage relationships, and which it seems unreasonable for the burdened spouse to accept on a sensible assessment of the nature of the marriage. This assessment should be made following reasonable consideration of the interests of the other spouse and his trust in the validity of the agreement made. When statutory rules are negotiated away by contract, the burdening of the one spouse will weigh all the more heavily and the interests of the other spouse will need to be examined all the more closely, as the intrusion into the core area of the law about the consequences of divorce become more direct.

(a)This core area includes primarily care maintenance (§ 1570 BGB), which is not subject to the free disposition of the spouses in view of its connection with the interest of the child. It is true that it is not exempt from any modification. So cases could

APPENDIX I: CASES 761

nevertheless be imagined in which the mother’s job permits her to combine care of the children with gainful employment without the child’s upbringing suffering. All-day care by the mother does not seem to be an unalterable prerequisite for a good upbringing, so the spouses could reach an agreement to bring in third parties to take on care when the child reaches a certain age, in order to facilitate the mother’s return to her career as soon as possible.

Besides this, in relation to the core area of the consequences of divorce it will be possible to undertake an order of ranking for their negotiability which is primarily regulated by the significance which the individual rules relating to the consequences of divorce have for the person entitled in his current situation. Thus the securing of the current need for maintenance for the person entitled is as a rule more important than, for example, the accretion settlement or later pension settlement. Within the definitions of maintenance, after care maintenance (§ 1570 BGB), illness maintenance (§ 1572 BGB) and maintenance because of old age (§ 1571 BGB) will have priority. . . .

(b)Pension settlement is ranked at the same level as maintenance because of age.

. . .

(c)The accretion settlement proves to be the most accessible to disposition by marriage contract. The understanding of marriage does not require, as Schwab has correctly indicated (DNotZ 2001, 9 [16]), a definite co-ordination of the assets acquired in the marriage. Life partnership in marriage was and is—even as a partnership between a man and a woman with equal entitlements—not necessarily also an assets partnership Even the equal weighting of career activity and family work empha- sised—for the purpose of the law about maintenance after marriage—by the Federal Constitutional Court (FamRZ 2002, 527 [529]) does not result in definite structuring of the marriage assets sphere. . . .

3.Whether an evidently one-sided allocation of burdens arises from an agreement which deviates from the statutory law about the consequences of divorce, and which it seems unreasonable for the burdened spouse to accept, must be examined by the judge of fact. This task is not made otiose by the fact that the burdened spouse was sufficiently advised by a notary about the content and consequences of the contract (a A Langenfeld, DNotZ 2001, 272) especially as in any case such examination and advice only takes place for agreements in notarial form, as prescribed by § 1408 (1) in combination with §§ 1410, 1587o (2) sentence 1 BGB. It does not occur with maintenance agreements which are made by private writing or without formal requirements— as permitted by § 1585c BGB.

(a)The judge of fact must in this connection first examine—within the framework of control of validity—whether the agreement, at the point in time when it came into existence, obviously leads to such a one-sided allocation of burdens in the case of divorce that—detached from future developments with the spouses and the circumstances of their lives—it should be wholly or partially denied the recognition of the legal order because of violation of good morals, with the consequence that the statutory rules take its place (§ 138 (1) of the BGB). An overall assessment is necessary here, in the context of the individual circumstances at the conclusion of the contract, in particular those relating to income and assets, the style of marriage as planned or already realised, and the effects on the spouses and the children. Subjectively, it is necessary to consider the goals pursued by the spouses in the agreement, and the other motives which caused the spouse who benefited to want to shape the marriage

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contract in this way, and induced the disadvantaged spouse to comply with this wish. The verdict of immorality will as a rule only fall to be considered if rules from the core area of the statutory law about the consequences of divorce are negotiated away by the contract entirely, or at any rate in substantial parts, without this disadvantage being mitigated for the other spouse by other advantages, or justified by the special relationships of the spouses, by the type of marriage which they either sought for or lived, or by other important interests of the benefited spouse.

(b) In so far as a contract accordingly subsists, the judge must then—within the framework of the control of its exercise—examine whether and to what extent a spouse is misusing the legal power granted to him by the contract if, in the case of divorce, when faced with a statutory consequence of divorce desired by the other spouse, he appeals to the fact that this was effectively negotiated away by the contract (§ 242 BGB). It is not only the circumstances at the time of the conclusion of the contract which are determinative for this. What is decisive is whether now—at the point of the breakdown of the relationship—an obviously one-sided allocation of burdens arises from the agreed exclusion of a consequence of divorce, and it would be unreasonable for the burdened spouse to accept it. This needs to be so even when appropriate regard is paid to the interests of the other spouse and his trust in the validity of the agreement which has been made, and when the nature of the marriage is rationally assessed. That can in particular be the case if the formulation of the marital relationships actually agreed deviates fundamentally from the original life plan on which the contract is based. A spouse will as a rule not be able to demand post-marriage solidarity here, when he for his part has violated marital solidarity. However, in so far as there is a reasonable settlement of disadvantages related to the marriage, issues of culpability will take second place. Overall, the balancing exercise required must be orientated to the order of rank of the consequences of divorce. The higher the rank of the consequence of divorce which is contractually excluded but is now being claimed, the more weighty must be reasons which—considering the factual style of the marriage which has in the meantime materialised by agreement—argue for its exclusion. If a spouse’s appeal to the contractual exclusion of the consequence of divorce does not stand up to judicial control of the exercise of rights, this does not lead, within the framework of § 242 BGB, to the invalidity of the contractually agreed exclusion. Nor does it necessarily lead to the implementation of the consequence of divorce provided for by statute but contractually excluded.

The judge must instead order a legal consequence which takes account in a calibrated manner of the justified interests of both parties in the situation which has now arisen. The more central the legal consequence provided for by statute is to the core area of statute law about the consequences of divorce, the more closely the judge will have orientate himself to that legal consequence.

IV. The disputed decision does not satisfy the above requirements for judicial control over the validity and exercise of agreements relating to maintenance or marriage contracts.

1. The Oberlandesgericht regarded the contract as invalid as a whole because the respondent had renounced maintenance claims under §§ 1571 to 1576 BGB to accretion and pension settlements, and an unreasonable one-sided regime to her disadvantage had therefore been made. The fact that the parties had allowed the care maintenance under § 1570 BGB to stand changed nothing in this assessment as this

APPENDIX I: CASES 763

was only a question of the minimum maintenance which was in any case to be left to a parent bringing up a child, in the interests of children needing care, according to the case law of the Bundesgerichtshof under § 242 BGB. This view of the Oberlandesgericht is not supported by the factual findings in the disputed judgment. Such invalidity could, as explained, only arise from § 138 (1) BGB—within the framework of an overall consideration of the agreed rules (validity control). The prerequisites for a violation of good morals are however neither explained nor are they otherwise evident.

(a)The reasons which caused the parties to conclude their agreement are not obvious. In particular it has not been established what motives induced the respondent contractually to renounce part of the rights she has in the case of a possible divorce. The Oberlandesgericht assumes the respondent was in a position of inferiority when the contract was concluded, and that the applicant misused this. In the light of the limitation of § 138 (1) BGB to serious violations of the moral order, there is no factual basis for such an evaluation. At the conclusion of the contract, the respondent had already been married to the applicant for more than two years, and was not pregnant again. She had an academic education which she had already used successfully in her career. The interruption of her career which had accompanied the birth of her (first) child was little more than two years behind her. Full economic dependence of the respondent on the applicant of the kind on which the assessment of the Oberlandesgericht was based has therefore not been demonstrated. The fact emphasised by the Oberlandesgericht, that the respondent in the context of her pregnancy did not, at the applicant’s wish, pursue a promotion which she had sought, has no importance for the question of the immorality of her renunciation of the statutory consequences of divorce. That also applies to the applicant’s good situation so far as income and assets are concerned, which the Oberlandesgericht stresses, but without establishing that it existed at the time when the contract was concluded. In particular, no ‘predicament’ for the respondent can be derived from the applicant’s favourable financial situation which could have caused her to embark on a partial renunciation of the rights which were granted to her by statute law in the case of divorce, and which were especially valuable where income was above average—as the Oberlandesgericht explains.

(b)The objective content of the notarised contract made by the parties cannot, according to the findings so far, form the basis of an accusation of violation of good morals either. This is because the direct core area of the statutory consequences of divorce is not affected by the agreement. The parties have not negotiated away the maintenance to the extent that ‘a claim to maintenance by the wife for care of the children’ is in question. . . .

The parties have admittedly negotiated away important consequences of divorce in respect of maintenance for illness and old age. This could—in connection with the further rules—however form a basis for an accusation of immorality if the parties, in planning their lives at the time that they concluded the contract, had proceeded in agreement on the basis that the respondent should completely withdraw from her working life on a permanent basis, or at least long term, and should devote herself to work for the family. This is because it is only in this case that the respondent would be prevented from building up her own security permanently against the risks of old age or illness, and a constant dependence on the applicant would be formed. But no such agreed life plan has been established. . . .

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The exclusion of the duty of maintenance agreed by the parties for the case of unemployment, and the renunciation of top-up maintenance (for the period after caring for the children) and fairness maintenance do not—simply from their significance in the system of the law on the consequences of divorce—justify the verdict of immorality. Nor does any different conclusion arise from the exclusion of statutory property status. 2. In so far as it follows that the agreements made by the parties—even in a subjective respect—withstand judicial validity control by the standard of § 138 (1) BGB, it remains to be examined whether and how far the applicant is prevented by § 242 BGB from appealing to the agreed exclusion of individual consequences of divorce (control of exercise). . . .

The other points of view cited by the Oberlandesgericht also cannot support the accusation of misuse of a right. The applicant’s particularly high income—at least in the later years—does not need to be shared by the respondent in contradiction of the property status agreement made. This also applies for the assumption (which is not more precisely verified) that the respondent—working all day in her shop business— had enabled the applicant, by her conduct of the household and care of the children, to devote himself fully to his career activity. The interests of their children are not affected by the co-ordination of the parents’ assets. Other circumstances of significance for § 242 BGB are not evident.

V. The disputed decision cannot after all stand. The senate cannot make a final decision on the basis of the findings made by the Oberlandesgericht in the case. The case therefore had to be referred back to the Oberlandesgericht so that it could finish making the findings necessary for the required control of validity and exercise. . . .

Chapter 6

Case 84

BUNDESARBEITSGERICHT (SECOND SENATE) 27 NOVEMBER 2003 NZA 2004, 597 = DB 2004, 1208

Facts

The parties are in dispute about the validity of a notice of termination of appropriate length and a ‘declaration renouncing the claim to notice protection’ signed by the claimant, and about a dissolution application made by her. The claimant had worked for the defendant as a cleaner since e 14 April1995. She was finally employed in the DRK (German Red Cross) care home B. Her tasks included, among other things, the cleaning of the guest room and the outer surface of the nurses’ cupboards. On 30 March 2002 another worker at the DRK noticed how the claimant was standing in front of a nurses’ cupboard which she had opened. The further details are disputed between the parties. On 3 April 2002, a conversation took place between the claimant, the manager of the establishment and the defendant’s attorney, after DRK had refused further co-operation with the claimant. The claimant was accused of attempted theft. Another DRK worker had seen how the claimant had held that worker’s handbag and opened it. In the course of the conversation, the defendant

APPENDIX I: CASES 765

threatened the claimant with an extraordinary notice of termination, and stated that the employment relationship could also be terminated by agreement by a notice of appropriate length. The claimant consented to this. The defendant gave the claimant written notice on 3 April 2002, by which the claimant’s employment relationship was terminated by a notice of appropriate length on 31 May 2002. After this the claimant signed the ‘declaration renouncing the claim to notice protection,’ formulated and signed by the director, which says: ‘The employee declares: I, BF, received on 3 April 2002 the appropriate period of notice terminating my employment on 31 May 2002. I raise no objections against the business related termination of my employment, and will not, on whatever grounds, avail myself of my right to claim continued existence of my employment, or pursue a claim raised with this objective. The contents of the declaration were known, approved and signed by us’. The claimant has disputed the notice of termination by her claim which reached the Arbeitsgericht (labour court) on 24 April 2002, and which seeks the dissolution of her employment in return for a compromise payment. She has avoided her signed declaration under § 123 BGB, in particular for the impermissible threat of an extraordinary notice, and the failure to grant an appropriate period for reflection. . . . Besides this, she revoked her declaration under § 312 of the BGB, new version. As an employee, she was a consumer. The typical situation of a doorstep transaction was present. The agreement was concluded at her workplace, and she had not been advised about the legal consequences of the renunciation declaration, nor about a possible right of revocation. . . .

The Arbeitsgericht rejected the claim. The Landesarbeitsgericht (state labour court) rejected the claimant’s appeal. The claimant is pursuing her claim by her appeal in law, which has been admitted by the Landesarbeitsgericht. The appeal was unsuccessful.

Reasons

The employment relationship of the parties has been ended with legal effect by the termination agreement of 3 April 2002–31 May 2002. The claimant’s application for dissolution is therefore pointless.

A. . . .

B. . . .

I. The claimant has not effectively avoided the termination agreement.

1.The claimant could not effectively avoid her declaration under § 119 (1) of the BGB on the ground of lack of consciousness of making a declaration, or of a mistake about the contents of the declaration based on ‘absence’ of glasses. This claim has not been pursued by her anyway, and is not included in the appeal in law. This is because she has not declared the possible avoidance without delay in the sense of § 121 (1) BGB. The avoidance declared by the statement of claim of the 24 April 2002 only occurred after three weeks had elapsed, and therefore not without delay in the sense of the norm mentioned.

2.The claimant has also not effectively avoided her declaration under § 123 (1) BGB.

(a)According to § 123 (1) BGB, a person who has been induced unlawfully by threat to give a declaration of will can avoid the declaration with the consequence that it becomes invalid under § 142 (1) BGB. A threat in the sense of this norm assumes objectively the intimation of a future evil, the infliction of which is in some way represented as dependent on the power of the person making the intimation. An

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employer’s threat to end the employment by an extraordinary notice of termination, if the employee is not prepared to accept an ordinary notice and to renounce the right to raise a claim to notice protection, represents the intimation of a future significant evil, the realisation of which lies within the power of the employer making the intimation [consistent case law of the senate, references omitted]. The threat of an extraordinary notice is unlawful if a sensible employee could not take such a notice seriously into consideration. The threat of the notice can, as a rule, only be unlawful because of the mismatch of method and purpose. If the person making the threat has no justified interest in the attainment of the goal pursued (acceptance of a notice of termination of appropriate length by the employee or giving up the right to testing by the court) or if the threat should not be regarded as an appropriate method for the attainment of this goal according to the principle of good faith, the threat is unlawful [references omitted]. It is not necessary that the threatened notice of termination, if given, would have been found valid in notice protection proceedings [references omitted].

(b)In this connection it cannot be generally expected of a sensible employer that, in his consideration of the matter, he should ‘guess’ the assessment of the court of fact. The only case in which the employer cannot contemplate giving an extraordinary notice declaration (as a means of inducing the employee to give in and accept a notice of termination of appropriate length—giving up the right to a claim for notice protection— or to conclude a termination agreement) is if he would have to assume, considering all the circumstances of the individual case, that the threatened notice, if it was given, would very probably not stand up to testing by an Arbeitsgericht [references omitted].

(c)The disputed judgment stands up to this limited standard of testing. The defendant’s threat of an extraordinary notice to terminate the claimant’s employment was not unlawful. According to the deliberations of the Landesarbeitsgericht, which are correct, a sensible employer in the defendant’s situation might consider giving an extraordinary notice. On the basis of the incident on 30 March 2002, there was a suspicion, based on facts, that the claimant had substantially violated her contractual duties. These facts were the co-workers’ cupboard door, which had indisputably been opened, the claimant’s admission that she had opened the cupboard door out of curiosity, the opening of someone else’s handbag asserted by a witness, and the DRK’s wish for the claimant’s recall. . . .

II. The claimant has not effectively revoked the termination agreement of 3 April 2002 under §§ 312 (1), 355 BGB ( new version). The statutory prerequisites are not fulfilled.

1. Under § 355 (1) sentence 1 BGB (new version) a consumer is no longer bound by a declaration of will aimed at the conclusion of the contract if a right of revocation has been granted to him by statute law, and he has revoked his declaration of will in time. § 312 (1) sentence 1 no 1 BGB (new version) grants a right of revocation to the consumer under § 355 BGB (new version) in the case of a contract between an undertaking and a consumer which has as its subject matter a performance in return for payment, and the consumer has been induced to conclude it by oral negotiations at his workplace (door step transaction).

2. . . .

3. The claimant does not however have a right of revocation under §§ 312 (1), 355 BGB (new version). The termination agreement of 3 April 2002 is not a doorstep transaction in the sense of § 312 (1) sentence 1 no 1 BGB (new version).

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(a)It can remain undecided whether the claimant is a consumer in the sense of

§312 (1) in combination with § 13 BGB [new version, references omitted]. It can also be left undecided whether a termination agreement has as its subject matter a performance in return for payment in the sense of the norm at all—or whether this is only so when a compromise payment or something similar is made—or whether it is a question of a disposition transaction not encompassed by the norm (confirming a performance in return for payment—referring to the ‘actus contrarius’ [references omitted]; denying it [references omitted]).

(b)In any case, the parties’ termination agreement is not a doorstep transaction. It is true that the agreement was concluded ‘at the workplace’ in the sense of the norm, and the wording of § 312 (1) sentence 1 no 1 BGB (new version) appears therefore at first sight to include a termination agreement concluded on the employer’s business premises [references omitted]. The concept of the workplace in the sense of this norm is generally widely understood, and encompasses the whole of the business area, including the staff section [references omitted]. But a different result follows—as the Landesarbeitsgericht has correctly recognised—from the structure of the statute, its sense and purpose and the history of its origin.

(aa)It contradicts the structure of statute law to apply § 312 BGB (new version) to employment termination agreements. The doorstep right of revocation under §§ 312 ff BGB (new version) is a consumer protection right which is related to the type of contract [references omitted]. It only includes ‘special forms of sale.’ The statutory right of revocation has no application to contracts which are not sale transactions—like employment contracts, and cancellation contracts in employment law [references omitted].

(1) § 312 BGB (new version) is part of the second book of the BGB, third section, first title, second sub-title. The second sub-title is headed ‘Special forms of sale.’ Besides doorstep transactions, distance sale contracts and electronic transactions—and therefore special forms of sale—are brought together and regulated in this sub-title. However, neither employment contracts nor employment termination contracts fall within the forms of sale mentioned, as the consumer mentioned in the norms must be a recipient of appropriate goods or services [references omitted].

(2) The second sub-title implements the Directive for the protection of consumers for cases of contracts concluded outside business premises. According to Art 1 of Directive 85/577/EC, only those obligations are covered by it which a consumer enters into, within the framework of a doorstep transaction, as against a person carrying on a business, as a counter-performance for goods or services (ECJ 17. 3. 1998, [1998] ECR I-1199 = EuGH NJW 1998, 1295). No grounds can be deduced from the statutory provision for saying that the German legislature, in implementing the Directive, wanted to make a right to revocation available in employment termination contracts above and beyond the sphere of the Directive’s application.

(3) Besides this, it follows from § 312 (3) no 2 BGB (new version) that only (certain) sale transactions in §§ 312 ff BGB (new version) can be intended, ie when the exercise of the right of revocation is made dependent on a minimum sum of 40 euros.

(4) . . .

(5) Finally there is the fact that a right of revocation for an indefinite period under

§355 (3) sentence 3 BGB (new version) in the absence of proper advice would not be compatible with the general interest in expediting employment termination disputes, as is expressed for instance in §§ 4, 7 KSchG (Notice Protection Act), § 17 TzBfG (Part

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Time and Fixed Term Act) [references omitted].

(bb)The history of the origin [of the statutory provision] also argues against applying the statutory right of revocation to employment termination agreements.

(1) . . .

(2) It is recognisable from the statutory materials that only the three special forms of sale were included under the second sub-title: doorstep transactions, distance sale contracts and contracts concluded electronically. The second sub-title is intended first to gather together the material regulated until now in individual statutory provisions to facilitate practical application of the law. Secondly, it was intended to systematise the regulated material in order to avoid contradictions in evaluation. These goals argue unambiguously for regulating merely the special forms of sale known and mentioned so far in §§ 312 ff of the BGB (new version). . . .

(3) . . .

(cc)Finally the sense and purpose of the regime in § 312 BGB (new version) argue decisively against extending the right of revocation to employment termination agreements. Contrary to the claimant’s view, a situation comparable to the doorstep transaction is not in principle present when a termination agreement is concluded on business premises.

(1) §§ 312 ff BGB (new version), serve the protection of the consumer. They are supposed to protect the consumer from the dangers associated with the so-called direct sale. The consumer is to be preserved on the one hand in the preparation and in the conclusion of a transaction from infringement of his freedom of decision in legal transactions, and from a surprise in the conclusion of a transaction in certain situations (BT-Dr 10/2876, p 6f; BGH [26 March 1992], NJW 1992, 1889 [1890]; BGH [25. 10. 1989], BGHZ 109, 127 [133]). But, on the other hand, he should not simply be protected by the right of revocation under § 312 BGB (new version) from unwise legal transactions, or those which are unfavourable to him. This is clear from the fact that, eg, a right of revocation does not exist in respect of transactions at the workplace if the negotiations originate from an initiative on the part of the consumer (§ 312 (3) no 1 BGB (new version)).

(2) A certain type of sale and marketing is common to the doorstep transactions enumerated in § 312 (1) sentence 1 nos 1 to 3 BGB (new version). This makes the statutory second sub-title ‘Special forms of sale’ clear. It is common to the statutory definitions that the conclusion of the contract takes place outside business premises, ie outside fixed selling and shopping areas, publicly accessible to the consumer [references omitted]. The result of the legal transactions mentioned in § 312 BGB (new version) is based for the supplier essentially on a special situation for concluding the contract, in which it is suggested to the consumer that the offer is a limited one which could only be accepted immediately [references omitted]. Because of this situation the consumer has no opportunity to compare the quality and price of the offer with other offers (BT-Dr 10/2876, p 6). There is insufficient information available for him to make a rational decision. If he does not want to lose the deal, he must contract. § 312 BGB (new version) is accordingly intended to provide the consumer with the opportunity of obtaining comparative information. The intention is thereby to correct the asymmetry of information—in retrospect—by a claim to information and a time limited right of revocation [references omitted]. § 312 BGB (new version) accordingly creates protection for the consumer which is situation related [references omitted]. § 312

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(1) sentence 1 BGB (new version) differentiates here according to individual typified situations. While in the case of § 312 (1) sentence 1 no 1 and no 3 BGB (new version) the danger of surprise is the prominent feature, no 2 of § 312 (1) sentence 1 takes account primarily of the fact that the consumer is not in a position to withdraw from the negotiations. For § 312 (1) sentence 1 no 1 BGB (new version) the situation (ie, the location) mentioned in the statutory provision in which preparation for the contract takes place is crucial for creating the effect of surprise. It is only for this typified case that the legislature considers a general protection of customers to be necessary. Therefore a right of revocation for termination agreements under § 312 (1) sentence 1 no 1 BGB (new version) cannot be affirmed by reference to the fact that the employee could only withdraw from contractual negotiations which take place at his workplace with difficulty [references omitted]. If preparation for the contract or conclusion of the contract take place in ‘normal’ business premises, ie in a place which is typical for the contract, § 312 BGB (new version) does not protect the consumer, not even from superior knowledge or special ‘negotiating skills’ on the part of the contracting partner.

(3)The employee concluding a termination agreement on business premises therefore does not, as a rule, find himself in a situation encompassed by the protective purpose of § 312 BGB (new version).

The contractual negotiations and the conclusion of the contract do not occur in an atypical place which is alien to the employee and to the legal transaction to be concluded, which is a ‘termination agreement in employment law.’ The ‘workplace’ in the sense mentioned is in fact typically the place in which questions relating to the employment relationship are discussed and regulated. Accordingly, there is in principle no surprise element which is typical of the situation. The employee must and will assume ‘at his workplace’—in fact in the staff areas—that the employer (or a superior) will discuss questions and problems of his employment with him, and if necessary, regulate them by way of a legal transaction. The workplace is not only the area in which the employment contract commitments come into existence, but also the place in which they are dissolved [references omitted]. For this very reason it is impossible to assume any surprise about the place of negotiations. In fact it would be strange to conduct conversations about the employment relationship and its termination not on the business premises but in a ‘neutral place’ (lawyer’s office or somewhere similar).

(4)Admittedly the employee is sometimes only presented with an offer of cancellation to be accepted ‘now, today.’ But this cannot generally lead to the statutory revocation rules which typify particular situations being applied en bloc to employment cancellation contracts. §§ 312 ff BGB (new version) assume a double need for protec- tion—related to the type of situation and to the type of contract [references omitted]. Therefore the objection that the consumer would in part be more strongly protected on concluding economically substantially less important contracts than an employee on concluding a cancellation contract, by which, as a rule, the whole basis of his life’s existence would be affected [references omitted] leads nowhere. It cannot form the basis of a right of revocation which does not exist in statute law.

(5). . .

III. The claimant’s declaration is also not—as the appeal in law considers it to be— ineffective just because the defendant had given the claimant no time for reflection before signing the termination agreement [references omitted]. In particular the reliance on § 242 BGB (new version) which the claimant claims, is not appropriate

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according to the case law of the senate to form the basis of such a weighty invasion of private autonomy as granting a right of revocation not statutorily provided for would represent, especially as the claimant had not even claimed to have sought for an appropriate period for reflection. . . .

IV. Contrary to the view of the appeal in law, the termination agreement by the parties of 3 April 2002 is not ineffective because of an inappropriate disadvantage to the claimant under §§ 307, 310 (4) BGB (new version) either. The agreement is not subject to control of content under § 307 (2) BGB in combination with § 310 (3) BGB (new version).

. . .

V. As the employment relationship has been effectively ended on the basis of the termination agreement by the parties on 31 May 2002, no further testing is needed as to whether the notice of termination on 3 April 2002 is socially justified in the sense of § 1 (2) of the KSchG, and whether the claimant could, if necessary, have effectively dissolved the employment relationship under §§ 9, 10 of the KSchG in return for a compromise payment.

Case 85

LANDGERICHT HANAU (FIRST CIVIL SENATE) 30 JUNE 1978 NJW 1979, 721

Facts

The defendant, the deputy head teacher of a girls secondary modern school, ordered as its agent ‘25 Gros rolls’ of toilet paper from the claimant. The defendant signed an order form filled out by the claimant’s representatives on which the designation ‘Gros = 12 x 12’ appears near other details. When the claimant tried to deliver the goods, the girls school refused acceptance of the predominant part of them. The claimant then claimed against the defendant, and arranged for a demand for payment to be delivered to her, which she contested. Besides this, she avoided the legal transaction. She disputes having had knowledge of the meaning of the quantitative designation ‘Gros’. She claims merely to have ordered 25 double packs of toilet paper, which the school had accepted and paid for. Admittedly the designation ‘Gros’ had been mentioned in the order. The agents had however described this, in combination with the statement of quantity 12 x 12, as a type of packaging.

The claim to payment for the toilet paper was unsuccessful.

Reasons

The claimant has no claims under § 179 BGB against the defendant. It is true that the school, represented by the defendant, has not approved the majority of the legal transaction. Fulfilment of the contract by the defendant is inapplicable however because the contract has been effectively avoided by the defendant. The defendant in giving her declaration of will was mistaken about the content of her statement (§ 119 (1) BGB). She definitely did not want to buy 25 x 12 x 12 = 3600 rolls of toilet paper, but merely 25 large (große) rolls. The claimant asserts that the defendant would have

APPENDIX I: CASES 771

known precisely what content would have been attributed to her declaration. It is not however possible to assume such a fact. It is completely contradictory to experience that someone, as the agent of a school which can only be described as a small institution, should order at one time 3600 rolls of toilet paper each with 1000 sheets. This is a quantity which would have covered the needs of the establishment for several years. Apart from the fact that this scarcely appears conceivable on the grounds of financial control, which normally takes place annually, storage difficulties alone for such a quantity of goods lead to the assumption that any deliberate action of this kind should be excluded. Nor does the argument that the defendant as a teacher must have been conversant with the meaning of the expression of quantity used inevitably mean she knew it. Apart from the fact that it has not been established which subjects she teaches, the description of quantity ‘Gros’ is today quite unusual and archaic, so it can no longer be regarded as an unquestionable part of teaching material. Besides this, the information ‘Gros = 12 x 12’ gives no clarity here, as the number of rolls cannot be conclusively deduced from it. Other units of measurement could quite well be intended, in particular having regard to the spelling mistakes made by the claimant’s agents on the order form.

Case 86

BUNDESGERICHTSHOF (NINTH CIVIL SENATE) 27 OCTOBER 1994 BGH NJW 1995, 190

Facts

The claimant bank is claiming against the defendant, an Iranian woman, on the basis of a guarantee. The defendant visited her father Dr M in N on a number of occasions since 1980. He came from Iran and has acquired German citizenship In August 1980, the defendant opened a savings account with the claimant, which had a business relationship with Dr M On 8 March 1985, Dr M and his wife bought a house for DM800,000. The purchase price was to be financed by the claimant. On 5 March 1985 the defendant, who was accompanied by Dr M, signed a guarantee form worded in German, produced by the claimant on its business premises. The claimant did not explain or translate the contents of the form before signature. According to the document, the defendant provided a guarantee which was unconditionally enforceable (ie, the person granting it could not raise the objection that there had not yet been an unsuccessful execution against the main debtor) and without a limit as to time or amount, for all existing and future demands by the claimant arising from its business relationship with Dr M and his wife. On 10 April 1985, the claimant granted the main debtors a loan of DM800,000. The claimant, which has given further credit to the main debtors, claims a remaining total demand of more than DM400,000 under the business relationship

The claimant demands from the defendant the payment of a liability on the part of the main debtors in the sum of DM251,783.91, and submission to an execution arising from a charging order (Arresthypothek) for DM255,000 on an owned residence which the defendant acquired in the middle of 1985. The claim was successful at the lower instances. The defendant’s counterclaim for an order directing the claimant to

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approve the cancellation of this charging order was dismissed. The defendant’s appeal in law led to quashing of the disputed judgment and reference back.

Reasons

I. The appeal court accepted that there was a legally effective guarantee by the defendant (§§ 765 ff BGB) . . .

II. These deliberations do not stand up to legal examination in all respects. 1. . . .

(c)Contrary to the doubts expressed in the appeal in law (but not explained in any more detail), the written form of the guarantee declaration, which is necessary according to § 766 BGB, has been observed. The document expresses the guarantor’s intention to assume liability for another person’s obligation, and describes the creditor, the main debtor and the guaranteed obligation [see BGH NJW 1993, 1261 (1262) = LM H. 7/1993 § 766 BGB no 25 with further references]. The defendant has disregarded the warning function of written form: she signed the document without finding out its content and realising the significance of the step she was taking.

2. The appeal in law is however successful in its objection to the appeal court denying any right by the defendant to avoid her contractual declaration on the ground of mistake about its content, and thereby to remove the legal efficacy of the guarantee contract retrospectively (§§ 119 (1), 121, 142 (1), 143 (1) BGB).

(a)Contrary to the view of the appeal court, the defendant has demonstrated conclusively and without possibility of contradiction that, when she gave her declaration of will, she had been mistaken about its content (§ 119 (1) case 1 BGB). Her last assertion, that she assumed at that time—on the basis of a corresponding communication by the main debtor—that it was a question of a formal signature in respect of her investment with the claimant (a savings account), is decisive. She states that she did not know at this point in time that the main debtors had bought a house seven days previously, and that the claimant was to finance the purchase price. Admittedly it had originally been submitted on behalf of the defendant that she knew that she was to guarantee the financing of the main debtors’ purchase price debt on the house purchase. But the defendant dropped this submission before the oral hearing, because according to her statement—until now unrefuted—it did not originate from her, but was based on allegations by the main debtor to her attorney. Her case is accordingly not contradictory in this respect (see § 138 (1) of the ZPO (Civil Procedure Code)). If her submission is correct, the defendant was mistaken about the content of her declaration. Even the person who has signed a document without reading it can avoid if he has formed a certain, although incorrect, concept of its content (BGH BB 1956, 254; BAG NJW 1971, 639 (640)). If the defendant assumed that by her signature she was approving a factual event in relation to her savings account, she did not know that she was giving a declaration in respect of a legal transaction. Or if the defendant assumed that by her signature she was undertaking a legal transaction in relation to her savings account, then she did not know that she was entering into a guarantee liability. In both cases the defendant, without perceiving it, expressed something different from what she had in reality intended to declare; she was mistaken about the meaning that her declaration acquired in the sphere of legal transactions (see BGH, LM § 119 BGB no 21).

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(b)This mistake was a causal factor in relation to the signature of the document, according to the defendant’s further submissions (§ 119 (1) of the BGB; see BGH NJW 1988, 2597 = LM § 119 BGB no 29 = BGHRBGBB § 119—Causality 1). The defendant has asserted that she would not have signed a guarantee obligation if she had known the true state of affairs. This amounts to claiming that this is how she would have behaved on a rational assessment of the case. Admittedly the defendant, according to her submission, felt under an obligation of gratitude to the main debtor, because he had arranged a pain relieving back operation for her. But for the defendant to be responsible for the main debtors’ obligations to the sum of DM800,00 for the house purchase, and beyond this for their further debts arising from the financed acquisition of three owned residences, was out of proportion to such a debt of gratitude.

(c)The appeal court has left open whether the defendant has avoided her contractual declaration without delay in accordance with § 121 BGB. According to the defendant’s submission, that cannot be ruled out. The declaration of avoidance in the lawyer’s statement of 3 July 1991, which was delivered to the claimant on 12 July 1991, could not succeed on the basis of the reasoning given in it that the defendant had known when signing the guarantee document that she was to guarantee the credit to be used to pay the purchase price for the main debtors’ house; she had, as a result of lack of knowledge of the language, not known that she was giving a guarantee declaration by her signature. If this submission is correct, the defendant would not have been mistaken in the legal sense, as her intention and her declaration would have been in agreement. On the other hand the defendant’s assertion, made for the first time in the statement of 16 September 1991, that she had not known when signing the document that she was giving a guarantee for the main debtors, is legally significant. She had assumed instead that her signature concerned her investment with the claimant. It can be left undecided whether the defendant, as the reply to the appeal in law claims, has by this submission put in a new ground for avoidance in an impermissible manner (see on this BGH NJW 1966, 39 = LM § 143 BGB no 4). The defendant has at least, by claiming a different ground of avoidance in place of the original one, made a new declaration of avoidance. The question of whether this is in time is to be assessed according to the point in time at which it was given (see BGH NJW 1966, 39

=LM § 143 BGB no 4; NJW-RR 1993, 948). The appeal court will have to test whether the declaration of avoidance in the statement of 16 September 1991, which was forwarded to the claimant by the court on the same day, occurred without culpable delay (see BGH WM 1962, 511 (513)). This cannot be ruled out, according to the defendant’s submission, in the special circumstances of the present case. The defendant acquired knowledge of the grounds of avoidance at the earliest when her attorney learnt about the basis of the claim by seeing the court documents. This occurred at the beginning of July 1991. According to her submission, the defendant discussed the factual and legal position at the beginning of September 1991 with her attorney.

(d). . .

3. . . .

4. As a guarantee obligation on the part of the defendant is not established, she could not be ordered to submit to the execution on the basis of the charging order (§ 932 of the ZPO, §§ 1147, 1184 BGB). On the same ground, the appeal court could not reject the defendant’s counterclaim that the claimant should be ordered to co-operate in the cancellation of this charging order.

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Case 87

BUNDESGERICHTSHOF (FIRST CIVIL SENATE) 28 FEBRUARY 2002 BGH NJW 2002, 2312

Facts

The parties are in dispute about whether a remuneration agreement made between them includes VAT. In 1993, the parties and the B newspaper made an agreement about the production and sale of a video film. According to this, the net income from the sale of the film, which was to be marketed by the B newspaper, was to be divided between the three partners in equal shares. The question of the claimant’s VAT responsibilities was neither addressed in the agreement nor otherwise between the parties. The claimant has had a total of DM71,030.57 paid out to it by the defendant for the period from December 1993 to October 1995 on the basis of the agreement. He was therefore called on to discharge VAT, for which the tax rate was, in response to his objection, reduced from the original rate of 15 per cent to 7 per cent. The claimant now demands reimbursement by the defendant of the sum arising from this of DM4972.14 by his claim which was partially withdrawn at first instance after reduction of the tax rate. He claims that the defendant had assumed, just as he himself had, that he was not subject to VAT. The defendant has contested this. She has in particular disputed being under a mistake about the claimant’s VAT liability.

The appeal court has allowed the claim which had been rejected by the Landgericht. The defendant’s appeal in law, which has been admitted, is directed against this decision. It led to rejection of the claimant’s appeal against refusal of the claim by the Landgericht.

Reasons

I. The appeal court considered the defendant to be contractually bound to reimburse the VAT to the claimant. . . .

II. The challenges in the defendant’s appeal in law directed against this judgment are successful. The appeal leads to quashing of the decision challenged, and restoration of the judgment of the Landgericht rejecting the claim. The claimant is not entitled to the claim made in this action from any legal point of view.

1. According to the case law of the Bundesgerichtshof, the agreed price for a performance also in principle settles the expenditure for the purposes of the VAT to be paid by the person making the performance. The settlement of the expenditure is a dependent component of the payment to be made [‘gross price’; references omitted]. . . . Different considerations apply if the parties have agreed a ‘net price’, for which a trade usage or custom (Verkehrsitte) can be determinative [references omitted]. The claimant has not however claimed any circumstances which could justify a corresponding contractual interpretation in this case. Nor has the appeal court established such circumstances. The claimant has instead relied on an identical mistake by both parties in relation to the duty to pay VAT on the shares of the proceeds paid out by the defendant to him (see on this presently at 2). The appeal court has among other things explained in the reasons for its decision (no I 4) that the question of the (claimant’s) duty to pay turnover tax had indisputably not been asked in the first place.

APPENDIX I: CASES 775

2.The question of who has to bear the VAT which has actually arisen can admittedly be susceptible to a supplementive contractual interpretation, if nothing can be deduced from the wording of the contract in this respect—as in this case. It is a prerequisite for this however that the parties assumed by way of identical mistake that a turnover effected between them is not subject to the duty to pay VAT [references omitted]. This prerequisite is not fulfilled in this case. . . .

The appeal court has admittedly allowed the claim in its decision, which was issued before the two last quoted judgments of the Bundesgerichtshof. But its deliberations, which ultimately only take account of considerations of fairness, allow no doubt about the fact that, on the basis of the claimant’s submissions and of the documents to which he referred, it likewise could not convince itself that the defendant as well as the claimant had been mistaken about the obligation to pay VAT on the shares of the proceeds paid out by her to the claimant. The appeal court has therefore assumed from a factual angle, in the same way as the Landgericht, a so-called internal or hidden calculation mistake [references omitted]. But a mistake of this kind represents a mere mistake of motive which, as such, is legally insignificant.

It can be left undecided whether a different assessment would ensue if, as the claimant has claimed in the oral proceedings in the appeal in law, both the parties had not thought about the question of the duty to pay VAT. For one thing, the claimant’s subsidiary submission, to which he has referred in this connection, is in irreconcilable conflict with his main submission that he was mistaken in relation to the obligation to pay turnover tax on the payments which had been made to him. Furthermore, in the legal action the defendant has always denied being under a misapprehension—even only an unconscious one—in respect of the VAT liability on these payments; and the claimant has not produced proof for his assertion to the contrary.

3.Furthermore, the claim does not appear to be well founded according to the rules about the absence of a foundation for the transaction either (§ 242 BGB). The foundation for the transaction assumes a common conception on the part of the parties to it. This can admittedly also be found if there is a unilateral conception of the foundation of the transaction, and the other party has recognised it and has not objected to it [references omitted]. But it is not possible to assume this merely because one party has revealed his calculation principles to the other party to the transaction [references omitted]. Accordingly, even in such a case, the risk of a defective evaluation in relation to the tax liability on turnover remains with the person making performance and cannot on the basis of good faith be shifted to the other contracting party [references omitted]. Moreover, since in this case, according to the claimant’s own (supplementary) submission, the defendant had no ideas about the tax side of the matter, the idea that the purchase price should still be received by the claimant undiminished is ruled out as a foundation of the transaction [references omitted]. Accordingly the claimant has no claim on principle from the legal angle of absence of a foundation for the transaction either. . . .

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Case 88

OBERLANDESGERICHT HAMM 8 JANUARY 1993

NJW 1993, 2321

Facts

The claimant’s husband concluded a life annuity insurance with the defendant in August 1984. It provided for a yearly premium of DM1454.20 to be paid for seven years. That produced an agreed yearly annuity of DM800 or a capital settlement of DM10797 . The due date was 1 August 1991. In September 1985 the claimant’s husband, who had paid two yearly premiums, died. The contract was converted to a non-contributory one in the ensuing period at the claimant’s wish. On 30 September 1986 the defendant announced that because of the non-contributory nature of the contract, the minimum annuity had not been reached and that the life annuity insurance was therefore converted, in accordance with the agreed insurance conditions, into a non-contributory endowment insurance. The endowment sum amounted to DM3098 and was due on 1 August 1991. Because of a change in rates, the claimant received, with a covering letter of 14 December 1990, a new insurance certificate dated 31 December 1990 which showed a yearly annuity of DM3099 instead of DM800. According to the defendant, the changes caused by the resetting of the rates were entered into the main frame installation via a special application which showed about 240 data fields in 49 screen pages. On manual input of the individual items of information from the separate contracts, in this case the final lump sum of DM3098 was accidentally entered into the data field for the yearly life annuities. The defendant informed the claimant by a letter of 18 July 1991 that the capital settlement amounted to DM47,433.45 . Actually however the defendant calculates that the capital settlement should only be DM4225.54, and it paid out this sum to the claimant. The claimant claims the remaining sum of DM43,207.91 in the action.

The Landgericht allowed the claim in full. The defendant’s appeal, which claims that there had been a declaration mistake and in any event a relevant calculation mistake, is directed against this decision. The defendant’s appeal was successful.

Reasons

The claimant is not entitled to the claim made in the action, as the defendant has effectively avoided its declaration of will, which led to the conclusion of the contract, in accordance with § 119 (1) alternative 2 of the BGB.

1. The defendant by its letter of 14 December 1990 submitted a contractual offer which in accordance with the enclosed insurance certificate involved a yearly life annuity of DM3099. However, the defendant did not intend to submit a declaration with these contents.

(a) According to the defendant’s version of events, which the senate is following in accordance with § 286 of the Civil Proceedings Order (ZPO), on the manual input of the data and the entries into the main frame installation, the amount of the endowment sum was accidentally entered into the space for the yearly annuity. On the basis of these data, the insurance certificate was then drawn up Such a mistake cannot be assessed any differently from the case where the person responsible types something

APPENDIX I: CASES 777

incorrectly when drawing up the insurance certificate. Such a mistake is subject to the rules about declaration mistake [references omitted].

Contrary to the claimant’s view, the mistake does not relate to action merely preparatory to a declaration of will which is then individually drawn up It is true that the insurance certificate has been separately drawn up in accordance with the previously altered data. But the mistake in the input of data did not only continue to have an effect in the drawing up of the insurance certificate, but went into this document unaltered. The incorrect annual life annuity was reproduced in the insurance certificate in the sum of DM3099 unchanged. The case is not therefore different from when the declarant writes his offer incorrectly or makes a typing mistake. But that would be a declaration mistake [reference omitted]. It is therefore not a case here of an internal calculation mistake in which the declarant works internally with incorrect data and then submits a contractual offer based on it in error, which does not however repeat these defective calculation data.

The decisive factors for the assessment of a mistake are the ideas and intentions of the person acting in the last ‘human decision’. This took place when the manual entries into the approximately 240 data fields were made. The person responsible made a mistake—he recorded something incorrectly—which then had an effect on the factually incorrect communication without further human involvement.

(b) If the declaration of will leading to conclusion of the contract is therefore effectively avoided, there is no claim by the claimant because there is no contract. The defendant’s letter of 18 July 1991 does not on the other hand form the basis of any claim by the claimant and in particular it does not amount to an acknowledgement. It is merely concerned with the notification of the level and due date of the capital settlement.

This letter is not confirmation of the legal transaction avoided (§ 144 (1) BGB). That would assume that it could be deduced from the letter that the sender wanted to adhere to the legal transaction in spite of its voidability [reference omitted]. That is not the case here. This letter is recognisably based on the insurance certificate of 31 December 1990. There is no evidence to indicate that the defendant would already have recognised the incorrectness of the annuity sum which was stated at

too high a figure.

2. As in the present case a declaration mistake is present, it can remain open whether on a different legal assessment the same result would have had to be reached because of an extended mistake as to content, because of § 119 (2) BGB or because of § 242 BGB [reference omitted].

Case 89

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 8 JUNE 1988 BGH NJW 1988, 2597

Facts

The claimant demands from the defendant primarily delivery of the oil painting ‘Portrait of a young man’ by a claim submitted in July 1985. On 19 March 1984, the claimant sold the picture belonging to him to the defendant for the price of DM6000.

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A receipt on the same day contains a declaration by the claimant that the ‘Oil painting, Man’s head by Frank Duveneck’ had been examined by Dr S and reported as a definite original by Frank Duveneck. The picture was given to the defendant, and the purchase price paid. The defendant had the painting investigated by the curator Dr R in August 1984, who attributed it to the painter Wilhelm Leibl. The defendant transferred the picture, according to his account, on 2 August 1984 together with a number of other objets d’arte and antiques to a gallery A-GmbH at a total price of DM6,220,000. DM25,000 of this was allotted to the painting which was the subject of the dispute, which was described in a ‘list for the purchase contract of 2 August 1984’ as ‘attributed to Frank Duveneck (1848–1919) (Wilhelm Leibl or Leibl’s circle).’ On 19 June 1985, the claimant discovered the picture in an exhibition on Wilhelm Leibl and his artist’s circle at the City Gallery R. It was exhibited there as a work by Wilhelm Leibl. The claimant avoided the purchase contract and the transfer declaration of 19 March 1984 for mistake, by a lawyer’s letter of 26 June 1985. By this letter he also demanded return of the picture with simultaneously repayment of the DM6000 paid. The defendant refused this.

The claim for handing over was allowed at the previous instances. The defendant’s appeal in law led to quashing and reference back.

Reasons

I. The appeal court has explained: . . .

II. These observations of the appeal court do not stand up to the challenges by the appeal in law in all respects.

1. The appeal in law is certainly incorrect in objecting to the appeal court’s opinion that the claimant had effectively avoided the purchase contract.

(a)The claimant’s right to avoidance is not excluded, as the appeal in law considers it to be, by the provisions of §§ 459 ff BGB [now § 437 BGB].

(aa)Admittedly, according to the case law of the Bundesgerichtshof, the guarantee provisions under the law of sale exclude avoidance by the purchaser for mistake about such characteristics of the item sold as can be the basis of guarantee claims [references omitted]. On the other hand, there can be no question of a ‘competition’ between claims relating to defects and a right of avoidance by the seller in accordance with

§119 (2) BGB, because the seller never has any guarantee rights [references omitted]. Contrary to a minority opinion [references omitted], this does not however mean that the seller could always make use of a right of avoidance under § 119 (2) BGB. If that were so, the seller who erroneously assumes the thing to be free from defects, could by avoidance for mistake free himself from his duty of guarantee, by accepting the duty to compensate under § 122 BGB which is directed at the negative interest. It should instead be assumed, along with the view overwhelmingly held in the academic literature, that the seller is prevented, in accordance with the concept of abuse of rights, from making use of the right of avoidance, if the consequence would be that he would evade statutorily prescribed attributions, ie his duty of guarantee [references omitted].

(bb)It follows from this that the claimant’s right of avoidance is not excluded in the present case. This is because the defendant has no intention of seeking the legal consequences of a guarantee claim which would be capable of being prevented by avoidance.

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(i)The appeal court has established as a judge of fact that the painting originates not from Duveneck but from Leibl. This is not disputed by the appeal in law, and does not reveal any legal errors. Where there is a purchase of specific goods, as here, the fact that the picture, contrary to the content of the contract, does not originate from the painter Duveneck does not lead to the assumption of a false delivery, but represents a defect in the sense of § 459 (1) BGB [see now § 434 BGB] [references omitted]. Nothing is changed here, according to the view of the Reichsgericht (RGZ 135, 339 (342 f)) by the fact that the ‘Leibl’ is—as the claimant asserts—worth substantially more than a ‘Duveneck’ would have been. If the defendant therefore had a claim to rescission, that would not prevent the claimant from avoiding. This is because the defendant is not in agreement with the dismantling of the purchase contract, which is a pre-action issue for him offered by the main application in the action and would also be the legal consequence of a rescission (§§ 467, 346 ff [323] BGB). The seller’s prevention of something cannot be contrary to good faith if the buyer does not want it. . . .

(cc)It is true that the view is held in the academic literature that the seller only has a right of avoidance in accordance with § 119 (2) BGB in the case of delivery of a thing which is better than that which is the subject of the obligation [references omitted], or in the case of a special subjective interest on the part of the seller in the subject matter [references omitted].

(i). . .

(ii)The question does not however need a conclusive decision. This is because the claimant is not prevented from avoiding, even if the value relationship asserted by the defendant existed. The view set out above (at cc) is admittedly suitable as a rule of thumb for the normal case—because it is then, when the thing, as a result of its ‘being different,’ is of no more value than if it had the characteristic presupposed by the contract, that the seller will, by avoiding, only as a rule be pursuing the purpose of releasing himself from the buyer’s guarantee claims. But the view needs limiting in cases like the present one, where this result excludes the seller’s avoidance (see on this II 1 (a)

(bb)above). The only thing which can in the end be decisive is whether the seller has delivered a thing with different characteristics than were presupposed in the contract. It cannot—subject to the limits of the prohibition on abuse of rights—be crucial whether the performance produced is of a value higher than or equal to the contractually assumed one. There is no evident reason why, over and above this, the seller’s statutory right of avoidance under § 119 (2) BGB should be denied to him.

(dd). . .

(ee)Finally it can be left undecided whether the claimant, had he recognised the authorship of the picture, would still have sold it—but merely at the higher price corresponding to a work by Leibl. Whether the buyer should be given the right to contradict avoidance by the seller in accordance with § 242 BGB and to offer to pay the increase in price [references omitted] does not need any decision, because the defendant claims no such right and has not stated that he wants to pay the real value of the picture.

(d)The prerequisites of a mistake about a characteristic in accordance with § 119

(2) BGB are present.

(aa)The authorship of the painting is a characteristic which is significant in human affairs (verkehrswesentlich) [references omitted]. The fact that a picture by Duveneck

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can, according to the defendant’s submission, be worth as much as a picture by Leibl changes nothing here. . . .

(bb) The appeal in law is incorrect in claiming that the claimant’s right to avoid was excluded because he had suffered no disadvantage economically by the avoided declaration [references omitted]. It is true that this applies for the usual case [references omitted], and serves as a criterion [references omitted] for the boundary between a significant mistake and mere ‘obstinacy, subjective moods and foolish views’ (RGZ 62, 201 (206)) where ‘on a sensible assessment of the case’ (§ 119 (1) BGB) the mistake had no influence on the giving of the declaration. In sales of objets d’arte however it is not only the economic value which is crucial. The appeal court has said in this connection that in Munich a picture by Leibl acquires a greater esteem—and this means publicly: for the claimant as well, as his actions and the witness statement by his wife demonstrate—than a painting by Duveneck, even independently of the pure financial value. This cannot be objected to as legally incorrect.

2. Following all this, the defendant was in principle under an obligation, after effective avoidance of the purchase contract by the claimant, to give back the picture which he had acquired from him (§ 812 (1) BGB). . . .

3. . . .

Case 90

BUNDESARBEITSGERICHT (SECOND SENATE) 6 FEBRUARY 2001 BAG NZA 2003, 848

Facts

The parties are in dispute about an avoidance of an employment contract declared by the defendant for deceit about an existing pregnancy. The parties concluded an employment contract of indefinite length on 3 May 2000, which provided for the employment of the claimant as a worker in a laundry. Under the contract, the claimant was to perform all the usual work of a laundry assistant. Under § 8 of the contract it says, among other things:

§ 8 The employee affirms . . . that there is no pregnancy.

According to the certificate of the claimant’s gynaecologist produced by the claimant, it had already been established on 8 June 2000 that the claimant was pregnant. The defendant avoided the employment contract for deceit by a letter of 11 April 2000. . . . The defendant has submitted that it has no work suitable for pregnant women. In such a case, it had to have the right to ask about the existence of a pregnancy, and to avoid the employment contract if the question was incorrectly answered.

The Arbeitsgericht (labour court) and the Landesarbeitsgericht (state labour court) have decided in favour of the claim. In its appeal in law, the defendant seeks rejection of the claim. The appeal in law was unsuccessful.

Reasons

A. The Landesarbeitsgericht has assumed the following: . . .

APPENDIX I: CASES 781

B. The senate has followed this in the end result and, in substantial parts, in the reasoning. In so far as the senate has until now held a contrary view, it no longer adheres to it.

I.

1.The employment relationship of the parties still exists. The avoidance for deceit declared by the defendant is ineffective. The question about the pregnancy addressed to the claimant before she was hired violated § 611a (1) sentence 1 BGB. This provision should be interpreted in conformity with European law, to the effect that a question about pregnancy is as a rule impermissible, even if the applicant is applying for a post of indefinite length which she cannot for the time being take up because of the intervention of statutory prohibitions on employment.

2.Only an answer which is contrary to the truth to a question which is put in a permissible manner will give the right to avoidance under § 123 (1) BGB. Such a question assumes a legitimate interest, which is worthy of approval and protection, in the answer. If this is not present, then an answer which is contrary to the truth is not unlawful [reference omitted]. The Landesarbeitsgericht has also assumed this and has correctly decided that a question about pregnancy in this case was impermissible, because it violated the statutory prohibition of § 611a BGB.

(a)According to § 611a (1) sentence 1 BGB, the employer may not disadvantage an employee on account of his sex in the formation of an employment relationship.

(b)Admittedly the senate has assumed so far—as the appeal in law correctly claims—that a question about pregnancy was permissible, if a statutory prohibition on employment (§ 4 of the MuSchG (Protection of Mothers Act)) by the employer would have intervened from the start (BAG [1. 7. 1993], NZA 1993, 933 = AP BGB § 123 no 36 = EzA BGB § 123 no 39).

(c)But the senate does not adhere to this view.

(aa)The provisions of § 611a of the BGB are based on the implementation of Directive 76/207/EC (ABl no L 39/40) by the German legislature. A national court must as far as possible orientate the interpretation of the internal law of the state to the wording and purpose of the relevant Directives, in order to attain the goal pursued by them (BAG [2. 4. 1996], BAGE 82, 349 = NZA 1996, 998). This principle follows from the priority of community law over national law. The case law of the ECJ acquires special importance here.

(bb)According to the case law of the ECJ, disadvantage to a pregnant applicant on hiring under an employment relationship of indefinite length is impermissible because of violation of Directive 76/207/EC if the applicant can take up her work again after expiry of the statutory protected periods. This applies even if she cannot be employed at the start of the employment relationship because of a statutory prohibition on employment. The disadvantage would in these cases be based on sex.

According to the ECJ’s decision of 5 May 1994 (ECR [1994] I-1657 = NZA 1994, 609 = AP EC Directive 76/207 Art 2 no 3—Habermann-Beltermann), Art 2 para 1 in combination with Art 3 para 1, Art 5 para 1 of Directive 76/207/EC excludes avoidance of an employment contract by the employer under § 119 (2) BGB if an employee who is hired for an indefinite period cannot pursue her activity for part of the time because of a prohibition on night working applying during pregnancy and breastfeeding. The ECJ has regarded it as crucial here that it was a question of a contract of indefinite length, and that the prohibition on night working for pregnant women only

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took effect for a period which as against the total length of the contract was limited. A different way of looking at the matter would, according to the case law of the ECJ, run counter to the protective purpose of the Directive, and would take away its practical effectiveness.

Besides this, Art 2 para 1 in combination with Art 5 para 1 of Directive 76/207/EC excludes the dismissal of a employee who was hired for an indefinite period to stand in for another employee for the time being during her maternity leave, and who cannot guarantee this deputisation because she herself becomes pregnant shortly after being hired (ECJ [14. 7. 1994], ECR [1994] I-3567 = NZA 1994, 783 = AP MuSchG 1968 § 9 no 21—Webb). Dismissal cannot, according to the case law of the ECJ, be based on the woman’s incapacity to take up her work (ECR [1994] I-3567; NZA 1994, 783 marginal no 26—Webb). The termination of the contract can also not be justified by the fact that the employee is only temporarily prevented from doing the work for which she had been hired (ECR [1994] I-3567; NZA 1994, 783).

According to the ECJ’s decision of 3 February 2000 (ECR [2000] I-549 = NZA 2000, 255 = AP BGB § 611a no 18—Mahlburg), Art 2 paras 1 and 3 of Directive 76/207/EC does not prohibit hiring a pregnant woman for a post of indefinite length just because she cannot be employed in this post from the commencement onwards for the length of her pregnancy due to a statutory prohibition on employment resulting from her condition (see also ECJ [4 October 2001] AP EC Directive 76/207 no 27). In agreement with this established case law of the ECJ, the senate assumes that in the case of (planned) employment relationships of indefinite length, a question about pregnancy as a rule violates Directive 75/207 (see APS/Linck, § 611a BGB marginal no 54; Pfeifer, in: KR 6th edit, § 611a BGB marginal no 33; Kamanabrou, comments on ECJ [4. 10. 2001], NZA 2001, 1241 = EzA BGB § 611a no 17—Brandt-Nielsen). The decisive factor is that the applicant in the case of an employment relationship of indefinite length, is in a position after expiry of maternity protection to pursue the activity contractually provided for. The transitory hindrance to employment takes second place, taking into account and evaluating the Directive’s protective purpose. A particular sex is not an ‘indispensable prerequisite’ (§ 611a (1) sentence 2 BGB) for the activity to be carried out. This is because after expiry of the protective periods, the woman can perform the agreed work. The long-term equilibrium assumed under an employment contract of indefinite length is not crucially disturbed by the prohibition on employment, which is in any case time limited. The recognisable objective of a question about pregnancy is that the applicant will not be hired if the question is answered in the affirmative, simply because of the pregnancy, and therefore because of sex. It is precisely this which § 611a (1) sentence 1 BGB seeks to prevent.

Case 91

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 6 DECEMBER 1996 BGH NJW-RR 1996, 429

Facts

The claimant sells computer goods through local branches, and provides services. At the end of January 1990, it sold its R base to the first defendant, which was at that time

APPENDIX I: CASES 783

still in the formation stage, but has in the meantime been entered in the trade register. The founding members at that time, the second to fourth defendants, took up a guarantee which was unconditionally enforceable (ie, the person granting it could not raise the objection that there had not yet been an unsuccessful execution against the main debtor) for a part of the purchase price amounting to DM891,200 (plus VAT) in each case. The first defendant paid off the purchase price of DM1,300,968, leaving a residue of DM433,796.56. It refused to make further payments on the ground that it had been deceived by the claimant when concluding the purchase contract. The defendants were ordered by the earlier instances to pay the remainder still outstanding of the purchase price as joint debtors. The appeal in law by the first to fourth defendants led to quashing and reference back.

Reasons

I. The appeal court has in substance explained: . . .

II. These observations do not stand up to examination by the appeal in law in every respect.

1.The appeal court has correctly found that there are no claims by the defendants in guarantee law. Incorrect information about turnovers and profits of the undertaking sold cannot as a rule form the basis of a defect in a thing, nor do they represent a promised characteristic (note that the issue is controversial in relation to the reformed § 434 BGB).

2.The appeal court assumes, without any legal error, in the context of the discussion of fault on conclusion of the contract, that a duty to provide information applies to the seller of an undertaking, if shortly before the conclusion of the contract, more than 40 per cent of the service turnover which was previously normal was lost due to the giving of notices of termination. This corresponds with the case law of the Bundesgerichtshof. According to this, there is admittedly no duty on the part of the seller to provide the buyer with information about all the circumstances which are important for him. The decisive factor is instead whether such provision of information might be expected in the individual case, according to good faith and taking into consideration perceptions in human affairs (Verkehrsanschauung). In particular information must be given about those circumstances which could frustrate the purpose of the contract, and which therefore are of substantial importance for the other party [references omitted].

In this case, the decline in the level of service contracts by more than 40 per cent within half a year was of substantial importance for the buyer. That follows simply from the fact that a substantial loss of gross yield accompanied it. If the gross yield amounted to about 43 per cent of the turnover, as the parties have agreed, the defendant could, in the case of a turnover of only DM299,000 instead of the assumed DM580,000, merely obtain a gross yield of DM129,000 instead of the expected DM252,000. An annual gross yield of DM252,000 had formed the basis for the determination of the purchase price, as the witness B has stated in accordance with the findings at the previous instance. . . .

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Case 92

BUNDESGERICHTSHOF (FIRST CIVIL SENATE) 31 JANUARY 1979

LM § 123 BGB Nr. 52

Facts

The claimants are film companies and are concerned, among other things, with the sale of serialised films to television organisations. The defendant’s business is in the area of negotiating licences for American television films and serialised films. From 1965 to 1967, and in 1969, the first claimant and the defendant concluded contracts about the acquisition of television rights in the American serialised films ‘Daktari’ and ‘F’. The licence period for both serialised films was five years, running in each case from the delivery of the dubbing material for each individual episode. The licences permitted three broadcasts in Austria and the Federal Republic in each case. On 16 January 1969, the first claimant and the defendant agreed in two contracts that the licence periods would be lengthened by a further five years for the two serialised films mentioned. At the same time, the defendant was granted a 50 per cent share in the net income which would be obtained in the case of a sale within the second licences, ie on a further sale to a television organisation in the Federal Republic. The first claimant committed itself to account half yearly for the net income acquired. On 17 November 1969, the first claimant and the defendant agreed to settle the defendant’s 50 per cent share in the proceeds in these second licences by a lump sum payment of US$10,000. In order to facilitate a sale of the serials beyond 1979, the second claimant acquired from the defendant the rights in both serialised films up until 1 January 1988 by a contract of 10 March 1970. The defendant avoided the ‘agreement to extend’ the licences for ‘deceit and, as a precaution, for mistake as well’ on 10 June 1974. This was on the basis of publication in a magazine of the sale of the second licences in the television serials ‘Daktari’ and ‘F’ to ZDF at a price of DM 8.3 million. The claimants regard the agreements as legally effective, and are applying for a declaration to this effect.

The Landgericht allowed the claim. The defendant’s appeal was unsuccessful. . . .

The defendant’s appeal in law results in quashing and reference back.

Reasons

According to the appeal court’s opinion, the avoidance of the ‘licence extensions’ declared by the defendant is ineffective. The appeal in law is successful in so far as it is directed against the decision about avoidance for deceit.

1.The Landgericht regarded the avoidance of the ‘licence extensions’ of 10 June 1974 as avoidance of the agreements of 17 November 1969 and 10 March 1970. The appeal court, which has referred to the observations of the Landgericht on avoidance, has followed this view, which cannot be objected to on legal grounds.

2.The appeal court has, without violating the law, not allowed the avoidance of these agreements for mistake to take effect on the ground that, at the most, it is a mistake

about the appropriateness of the price, which is not for consideration under § 119 BGB. Contrary to the view of the appeal in law, the presence of an actual offer of purchase by ZDF cannot be regarded as a characteristic of the film exploitation rights in question which is significant in human affairs. Admittedly factual and legal

APPENDIX I: CASES 785

circumstances which influence the usefulness and value of a thing or a right also fall to be considered as characteristics of the thing or right which are significant in human affairs in the sense of § 119 (2) BGB. But they must always be circumstances which characterise the thing or the right itself, and not circumstances which may only exercise an indirect influence on the valuation of the thing or right (RGZ 149, 235 [238]). The mere possibility of economic exploitation by the contracting partner is not a characteristic of significance in human affairs (see BGHZ 16, 54 [57] = NJW 1955, 340), because it does not confer a value characteristic which adheres to the right itself. 3. On the other hand, the appeal court could not consider the avoidance for deceit to be unfounded simply because the claimants had not been obliged to inform to the defendant before the conclusion of the agreements of 17 November 1969 and 10 March 1970 that, at these points in time, actual offers by ZDF to acquire the exploitation rights in the serialised films had already been made. The appeal court was admittedly correct in assuming that deceit by silence can only come into consideration if the claimants had been obliged to provide such information to the defendant. A general duty to inform does not generally exist in individual transactions in which the contracting partners pursue opposing interests. It cannot simply be expected that the better-informed contracting partner will reveal unasked all the facts known to him which can be of significance for the actual contract concluded. Nevertheless the principle of good faith, which also governs the law of purchase, can give rise to a duty on the part of one contracting partner (usually the seller) in the individual case to communicate facts to the other (usually the purchaser) which are obviously of significance for his decision (see BGH NJW 1971, 1795 [1799] with comment by Giesen on commercial purchase; BGH NJW 1970, 653 [655] with comment by Putzo on purchase by undertakings; BGH LM § 123 BGB no 45 on land purchase, all with further references). It is of particular importance here, as is recognised in the case law quoted (see also BGH LM § 276 [Fb] BGB no 1), whether a special relationship of trust existed between the contracting parties, and the less well-informed contracting partner recognisably trusted the specialist knowledge of the other. The appeal court has not sufficiently taken account of these aspects. On the one hand, it established that the parties had been in intensive long-standing business relationships, and besides this in relationships of personal friendliness; and, until the conclusion of the agreements of 17 November 1969, had pursued the exploitation of the serialised films in the common interest. But then, on the other hand, the appeal court considers that, following the conclusion of the agreement of 17 November 1969 only opposing interests had been pursued, so that there had no longer been room for a duty by the claimants to provide information. The appeal court thereby overlooks the fact that the principles quoted have been developed precisely for those cases in which the contracting parties, by concluding the contract, pursue interests which are opposed to each other. The mere fact that the parties pursue opposing interests can therefore not exclude the duty by one contracting party to give information arising from a special situation of trust. A special situation of trust of this kind, leading here to a duty by the claimants to give information, arises from the appeal court findings which have already been quoted, that the parties had been in intensive long-standing business relationships, and besides this in relationships of personal friendliness, and had pursued the exploitation of the serialised films in the common interest on the basis of the participation of both sides in the proceeds, even though this film exploitation was exclusively in the claimants’

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hands. The defendant could thus neither influence the exploitation, nor have knowledge of the exploitation measures or actual offers already received. Whether in this respect it is possible to assume a partnership (Gesellschaft) relationship, or a relationship, similar to a partnership can be left open. In any case, according to the findings of the appeal court, there was such a close relationship between the parties in respect of the serialised films in dispute here, that the defendant (who, according to the contract formulation so far, already had to rely on information from the claimant about the film exploitation) could on conclusion of the agreement of 17 November 1969 place trust in being informed of those essential facts which were obviously of significance for his decision. It was obviously of decisive importance in relation to the conclusion of this agreement (by which the defendant’s share in the proceeds of the exploitation—which had so far been 50 per cent—was to be satisfied by a lump sum settlement of US$10,000) that, at this point in time, actual offers by ZDF existed about acquisition of the exploitation rights at a price of 8.3 million DM . . .

The appeal court judgment could not therefore stand. The case had to be referred back for a different hearing and decision. The appeal court will now have to look into the applications for evidence. In this connection, having regard to the fact that, according to the contract formulation, details of the film exploitation which were in the claimant’s hands had to remain unknown to the defendant, the appeal court will not be able to place demands which are too excessive on the necessary substantiating of the evidence offered.

Case 93

BUNDESGERICHTSHOF (EIGHTH CIVIL DIVISION) 25 MAY 1977 BGHZ 69, 53

Facts

When in 1961 the construction engineering firm of B was in financial difficulties the defendant came to its rescue financially and by participating in the management. The firm took the new form of a limited partnership consisting of a private company (Gesellschaft mit Beschränkter Hasftung) and of limited partners. The defendant subscribed to 51 per cent of the capital contributed by each. In 1962 the defendant wished to dispose of his participation in the limited partnership and made an offer to this effect to the plaintiff. In the course of the negotiations he supplied a consolidated balance sheet which showed a profit of DM10,444 on 31 August 1962, bought the greater part of the defendant’s holding for DM1,090,500.

The plaintiff alleged that the defendant had fraudulently alleged, by falsifying the balance sheet sent on 31 August 1961, that the partnership had made a profit, however modest, and was on the way to recovery while in fact it was experiencing serious and ever-increasing losses. He added that he had been forced, inter alia, to inject nearly DM8,000,000 of his own. The defendant had assured him—a fact which was uncon- troversial—shortly before the conclusion of the contract that the situation as set out in the balance sheet of 31 August 1961 had not changed. The plaintiff stated that, had he known the true position of the finances and the revenues of the partnership, he would not have participated in it. He claimed DM1,750,000 as part of his damage.

APPENDIX I: CASES 787

The District Court of Munich dismissed the claim. The Court of Appeal of Munich condemned the defendant to pay DM705,018,32. On appeal by both parties the judgment of the Court of Appeal was quashed and the case referred back for the following reasons.

Reasons

I.

1.According to the Court of Appeal the evidence was insufficient to show that the defendant had fraudulently deceived the plaintiff. It held however that the plaintiff was entitled in principle to damages on the ground of blameworthy conduct in concluding the contract.

2.These conclusions of the Court of Appeal cannot be faulted—as the defendant seeks to argue—at least in the result.

II.

1.As regards the amount of damages the Court of Appeal has allowed the claim to an amount of DM705,018,32 only.

2.In coming to this conclusion the Court of Appeal has erred in law.

(a)The Court of Appeal is correct in holding that a person who has suffered damage in consequence of blameworthy conduct in the course of negotiations for a contract is entitled to reliance damages; the upper limit is not set by the value of damages for non-performance but may even exceed it in a particular case [references]. The party which suffered the damages may therefore demand compensation to be restored to the position in which he would have been, but for the blameworthy conduct [references]. The question as to what kind of damage is to be compensated is determined by the criterion [reference] . . . whether the damaging conduct was the cause of the damage in the individual case having regard to the great variety of forms of blameworthiness in concluding a contract [references].

(b)The present situation represents the typical case in which no contract would have come into being without the injurious conduct . . . namely the incorrect information concerning the loss at the time of the conclusion of the contract . . . In these circumstances the damages must be assessed as a rule by reference to the expenses—assuming that the mutual performances had to be returned—the injured party had incurred needlessly in reliance on the information supplied by the injuring party [reference].

(c)The present case is special inasmuch as the buyer now adheres to the contract, as he may, although he would not have entered in the contract of sale, had he know the real position initially. It may be that he regards this course as indicated for economic reasons, or it may be, as is the case here, that at the time when he became aware of the inaccuracy of the seller’s information, the enterprise which he had acquired had been integrated into his own choice of businesses to such an extent that to restore the original situation could only have been effected with very great difficulty. In such a case the calculation of damages set out above cannot lead to an appropriate assessment of the damage to be compensated, for the obvious reason that the mutual performances are not being returned . . .

(d)If the damage is to be assessed at all realistically in such a case, the purchaser who adheres to the contract must be treated as if he had succeeded in concluding the contract of sale at a more favourable price in the knowledge of the true facts

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[reference]. No evidence—hypothetical and factually almost impossible—is required to show that at the time the seller would have agreed to the conclusion of a contract under those conditions. Here, too, the damage consists of the amount representing the excess of the purchase price which the plaintiff paid in the mistaken faith in the accuracy of the defendant’s account of the balance sheet . . .

Case 94

BUNDESARBEITSGERICHT (EIGHTH SENATE) 22 OCTOBER 1998 BAG NJW 1999, 2059

Facts

The defendant demands compensation from the claimant. The parties are in dispute about, in particular, whether the claimant has effectively avoided a corresponding acknowledgement of a debt because of an unlawful threat. The defendant is a retail grocery undertaking with numerous branches. The claimant, who was born in 1952, was employed by it from September 1987 to 18 December 1995 as a salesperson and cashier in the K branch. According to a cash till instruction which was contained in the claimant’s employment contract, purchases by relatives should not to be deducted. On 18 December 1995, at about 10.10, the deputy marketing manager B observed the claimant serving her husband at the cash till. She immediately informed her superior, the district sales manager S, and informed him that the claimant had not charged her husband for two packets of cigarettes at DM4.85 each and a packet of coffee at DM5.99. The claimant had already deducted items for her husband frequently in the past, and even then the suspicion had arisen that she had only charged for a part of the goods. At 11 o’clock the district sales manager had a conversation with the claimant at the branch, which the parties have reported in different ways. At any rate, Herr S finally put before the claimant the alternatives of either agreeing to a cancellation contract and giving an acknowledgement of debt, or allowing the police to be called. At this point, the claimant said she did not want the police involved, but she wanted in the first instance to confer with her husband. After he had been consulted, he said he would now take his wife away with him. Herr S replied that he could do so, but that the matter would then in his opinion have to be cleared up in another way. The claimant then asked that the police should not be sent for, and gave her husband to understand that she wanted to stay. Shortly afterwards, Herr S sent the claimant’s husband off the premises on the ground that he had behaved vociferously and improperly. The claimant then signed the following debt acknowledgement: ‘I admit the following facts: In the period from: 1. 7. 1993 to 18. 12. 1995 in the branch: K where I was employed as: cashier I have caused the firm P loss in the sum of DM5750 by not having rung up goods for my husband and my sister at the cash till (1 x DM50 per week). I hereby acknowledge of my own free will that I owe the firm P a sum of DM5750 (in words: five thousand seven hundred and fifty) + 7.25 per cent interest. I undertake also to give to the firm P a notarised acknowledgement of debt for the amount of this loss. If a precise scrutiny should reveal that the amount of loss is higher than the sum acknowledged by me, I undertake to give an additional acknowledgement of debt for the excess sum. On the basis of the facts under consid-

APPENDIX I: CASES 789

eration I must expect instant dismissal. Repayment of the sum is agreed as follows: The sum will be paid back in 11 instalments of DM480 and one instalment of DM470. Interest at the rate of 7.25 per cent = DM416.88 will be paid in addition with the first instalment. If this agreement is not observed, I must expect court proceedings . . .’

The claimant waited while Herr S tried in vain for about an hour and half to obtain an immediate appointment with a notary for the notarial authentication of the debt acknowledgement. The parties then signed a cancellation contract, by which the employment relationship ‘was dissolved with effect from the 18. 12. 1995, with the agreement of both side.’ By a lawyer’s letter of 22 December 1995, the claimant declared avoidance of the debt acknowledgement and the cancellation contract because of threat. She started a claim on 22 January 1996 for a declaration that the employment relationship was still existing, but later withdrew this claim. . . .

The Arbeitsgericht (labour court) and the Landesarbeitsgericht (state labour court) allowed the counterclaim. The claimant’s appeal in law, which was admitted by the Landesarbeitsgericht, was unsuccessful.

Reasons

The defendant has a claim against the claimant for compensation corresponding to the acknowledgement which has been given.

I. The basis of the claim is positive violation of a demand (now §§ 280 (1), 611 BGB). 1. The claimant was obliged as a cashier by her contract of employment to deduct completely the goods which customers placed before her. She was not allowed to let customers have goods without deduction and payment. An intentional violation of this contractual duty gives the defendant a claim to compensation. That also applies to purchases by relatives which the claimant should definitely not have deducted. The loss corresponds to the purchase price for the goods which the defendant lost. It is not a question of whether or not a purchase contract has come into existence, and whether the customer would have bought the goods in a proper manner.

2. . . .

3. . . .

4. The claimant is, on the basis of her debt acknowledgement of 18 December 1995, excluded from making the objection she has raised.

(a)The Landesarbeitsgericht, by merely discussing the question of avoidance, has assumed the existence of a legally effective declaration. This assessment is correct. The claimant has not merely given a declaration of knowledge (Wissenserklärung) which is not legally binding (reference omitted). . . .

(b)The parties have concluded a contract confirming a debt (a so-called declaratory, causal or confirmatory debt acknowledgement). A so-called constitutive (abstract or independent) debt acknowledgement in the sense of § 781 BGB is not however present. The claimant evidently did not in any case intend to acknowledge a debt as existing independently of its basis. It was instead a confirmation of a demand for compensation. The recital of the factual foundations for the demand is the principal argument in favour of this. The parties were pursuing the purpose of determining the actions which inflicted the loss, and the loss itself, in order to establish clarity about these. The purpose could only be to remove doubt about the length of time during which the loss was inflicted, and the weekly level of the loss, and to establish the

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total demand in this respect in a binding manner. No doubt could exist for the claimant about this content of the declaration. The defendant also saw it in this way.

(c)The interpretation of the debt acknowledgement therefore shows that, in so far as the claimant now raises objections, the parties reached a binding agreement. The causal debt acknowledgement excludes all objections which were known to the claimant at this point in time, or which she reckoned for [see only BGH NJW 1995, 961 with further references]. The claimant knew that, in the given situation, the frequency of her actions and the respective individual sums needed elucidation and ought to be explained. The debt acknowledgement extends precisely to this (see only Staudinger/Marburger, § 781 marginal nos 11 ff).

(d)The claimant has not effectively avoided the debt acknowledgement. The only ground for avoidance which falls to be considered is unlawful threat under § 123

(1)BGB, which is not present.

(aa)A person who has been induced unlawfully to give a declaration of will by threat can avoid the declaration (§ 123 (1) BGB). Threat is a warning of a future evil which is taken seriously by the other party, and which can be, and is to be brought about by the person making the threat according to his statement and in the other party’s view, if the person threatened does not give the expected declaration of will [references omitted]. The claimant has been induced to give a debt acknowledgement by a threat by the district sales manager S. He indisputably warned that the police would be called in, and, at least impliedly (konkludent), a criminal charge laid if the claimant did not give the debt acknowledgement. Without this warning the claimant would not have signed the debt acknowledgement.

(bb)A threat is unlawful according to the general view if the means, ie the threatened behaviour, or the purpose, ie the declaration of will extorted, or in any case the combination of both, is unlawful [references omitted].

(cc)In this case the threaten to call in the police for explanation, as well as the threat of laying a criminal charge, was permitted, and therefore not unlawful. The defendant—if its submissions are taken as a basis—had sufficient grounds to accuse the claimant of suspected long-term manipulations. This clearly follows from the claimant’s answers in the conversation with the district sales manager on 18 December 1995. The legal order simply provides for the threatened means in appropriate cases. No other conclusion can be drawn on the basis of the allegations in the claim. It is not only the undisputed statements of the deputy marketing manager to the district sales manager on 18 December 1995 which argue in favour of this. The claimant’s answers about the content of her conversation with Herr S demonstrate that sufficient suspicion existed that the claimant had committed criminal acts over a long period, and not just on one occasion. The calling in of the police is the appropriate means here. The defendant did not in any sense threaten haphazardly. The claimant also gave no later answer to the effect that she had insisted on the day in question that it was a question of a ‘one-off’ event, and that she had nevertheless been compelled to give an acknowledgement which went beyond this.

(dd)The goal sought to be attained, ie the giving of the debt acknowledgement, was likewise lawful. A debt acknowledgement is in any case not forbidden, or contrary to good morals, if the recipient of the declaration may assume the existence of the debt. The defendant was allowed to assume here from the circumstances as a whole that the claimant had behaved as in her acknowledgement, and the demand for DM5750 was

APPENDIX I: CASES 791

justified. It was not merely a question of a preliminary suspicion. The statement of claim is insufficiently substantiated in the light of the precise description of the course of events by the defendant. The claimant should have taken a detailed position about the course of the conversation. Her view that an explanatory conversation had not taken place is not comprehensible without more exact explanation. There is also no offer of evidence. Contrary to the assumption in the appeal in law, the level of the loss has not been assessed arbitrarily. It was instead based on the content of the conversation of 18 December 1995 about which the claimant has made no substantiated submissions. The agreed level of loss laid down cannot be objected to in the given circumstances. Doubts do not arise either in respect of the weekly level of loss of DM50, or in respect of the calculation of a lump sum in the context of the long period of infliction of loss. It is not of importance that the defendant had no legal right to the giving of a debt acknowledgement. The existence of a legal right directed towards the result sought after is not a prerequisite for the lawfulness of this result [BGH NJW 1997, 1980 (at II 2b) with further references].

(ee) The combination of means and purpose (the so-called purpose-means relationship) was not inappropriate (unangemessen) and therefore does not make the defendant’s conduct unlawful. The threat of a criminal charge only served the purpose of causing the claimant to make good the defendant’s loss. The defendant was not, for instance, exploiting a crime by the claimant which had become known coincidentally in order to pursue civil law claims of a different kind against her. There was an internal connection between the crime to be prosecuted and the loss to be made good, because the loss arose from the crime. The defendant could consider the compensation sum allowed as accurate. In these cases, employment of the means of threat of a criminal charge for the purpose of settlement of loss in civil law is overwhelmingly regarded as appropriate (angemessen) [references omitted]. This should be approved. The person making the threat cannot be denied a justified interest in settlement of the loss. If it is only a question of settlement of the loss arising from the crime, and if no advantage is taken of the debtor, the threat of a criminal charge does not violate the principle of good faith. The fact that the police called in would hardly have been in a position to establish the real loss does not mean that any advantage has been taken here. The objections of the Landesarbeitsgericht to this in principle are ineffective. The criminal proceedings are not being instituted in a manner contrary to their function. Police and state prosecution inquiries definitely also serve the interest of the victim of the crime in obtaining a settlement [references omitted]. Thus, for instance, criminal files can be used in the civil proceedings (§§ 273, 432 of the ZPO (Civil Procedure Order)) and suspension of civil proceedings must be considered until the completion of criminal proceedings (§ 149 of the ZPO) or adhesion proceedings (where a civil claim by the victim is added to criminal proceedings) (§§ 403 ff of the StPO (Criminal Procedure Order)). From the point of view of the victim, a criminal prosecution can be made completely superfluous by provision of compensation in civil law. The latter will often be more important to him than the punishment of the perpetrator. The fact that a criminal prosecution can take place independently of a charge by the person making the threat will not as a rule make that person’s conduct inappropriate (unangemessen). This is because criminal prosecution in practice nevertheless depends on his making a criminal charge. On the other hand, violation of the principle of good faith, which has the consequence of unlawfulness would fall to be considered if the

792 APPENDIX I: CASES

person making the threat expected action of the part of the criminal prosecution organisations anyway. But there are no grounds for saying that in this case. Contrary to the view of the Landesarbeitsgericht, the principles about avoidance of a cancellation contract for threat of an immediate notice of termination [references omitted] should not be transferred to cases of the present kind. Instead it should be determined in both groups of cases what can be assessed as suitable and socially appropriate conduct.

(e) Finally the debt acknowledgement is not void because of violation of good morals (§ 138 BGB). A debt acknowledgement can be contrary to good morals because of the circumstances as a whole at the conclusion of the contract, in particular the content, motive and purpose of the legal transaction. It is partially accepted that the threat of a criminal charge ought not to force the perpetrator into making a precipitate decision. Above all, he ought not to be deprived of any period for consideration if the level of the loss to be made good is first to be fixed by a comparison [references omitted]. In the case of an obligation which far exceeds income and assets, immorality must be considered if additional circumstances attributable to the creditor lead to a intolerable disequilibrium of the contracting parties. Such burdens can in particular arise from the fact that the creditor exploits the debtor’s inexperience in business matters, or his emotional predicament, or impermissibly violates his freedom of decision in some other way [BGH NJW 1997, 1980 (at II 3) with further references].

The claimant has admittedly asserted that she was ‘put under massive pressure.’ But her actual submission as to the facts does not justify the assumption that she had no suitable period for consideration, that there was an intolerable disequilibrium between the parties when the contract was concluded, or that the defendant had impermissibly violated the claimant’s freedom of decision. The defendant in particular complied with the claimant’s wish to call in her husband for the purpose of a discussion.

II. . . .

Chapter 7

Case 95

REICHSGERICHT (THIRD CIVIL DIVISION) 4 MAY 1915 RGZ 86, 397

Facts

By a contract dated 28/31 October 1913 the defendant gave the plaintiff the option to hire the defendant’s circus building for the year from 6 September 1914 to 31 August 1915 and for any of the following four years subject to certain conditions. It was agreed that the tenant would also assume the lessor’s obligations towards the catering and cloakroom concessionaries, to arrange for performances or other events on at least 150 days or nights during a year, so as to enable them to exploit their concessions or to pay for each day less M300 to the catering concessionaire and M60 to the cloakroom concessionaire. The plaintiff, by a declaration made in time, exercised the

APPENDIX I: CASES 793

option for the year running from 1 September 1914 to 31 August 1915. He believes, however, that he is not bound by the lease thus created, seeing that which has broken out. He brought an action for a declaration . . . that his withdrawal from the contract was justified.

The Landgericht Berlin and the Kammergericht rejected the claim. On the plaintiff’s second appeal the judgment below was confirmed for the following reasons.

Reasons

Since according to the provisions of the present law the judge is not empowered to adjust the relations between the parties to a contract in order to mitigate the hardships of war, the only question is whether the plaintiff has a right to withdraw from the contract for the lease of the defendant’s circus building because war has broken out. The answer must be in the negative.

The plaintiff argues in the first place that, as a result of the war he is precluded from the exercise of his contractual right of use for reasons which are not attributable to his person and is therefore relieved from the payment of rent in accordance with the principle expressed in s 552 BGB. This argument fails, apart from other objections, because both courts below have found as a fact that the operation of the circus had not been rendered impossible by war. This finding does not disclose any error of law

. . . The assertion of the plaintiff in the pleadings relied on in the second appeal actually disclose only, as the court of appeal assumes, that it is doubtful whether the circus can be run for a profit or that it is impossible to do so. That this conclusion is factually correct follows also from the fact, which the plaintiff now admits, that at present circus performances are being staged in his own circus either by himself or by his brother.

A right to withdraw from a contract because of changed circumstances is . . . not granted generally by the Civil Code and could only be allowed in the present circumstances, if it could be regarded as tacitly agreed [reference]. The court below was right in holding that even by applying the principles of ss 133, 157 most extensively the contract cannot be interpreted to allow the plaintiff to withdraw from it, if he can no longer use the circus building with profit because of the war. Good faith and common practice do not justify in any circumstances that the plaintiff should shift to the defendant the loss which the war has caused to the plaintiff.

Case 96

REICHSGERICHT (THIRD CIVIL DIVISION) 21 SEPTEMBER 1920 RGZ 100, 129

Facts

In 1912 the plaintiff let business premises to the defendant for a period ending on 1 April 1915 in a building in Berlin belonging to the plaintiff. The lease was however extended to the end of March 1920 since the defendant has availed himself of an option to renew the tenancy. Under para 20 of the contract the defendant was entitled to the supply of steam for industrial purposes. The plaintiff considers that he is

794 APPENDIX I: CASES

entitled to demand payments, in addition to that made under para 20 of the contract, for the steam supplied between 6 September 1917 and the end of July 1919 because the market conditions for coal and labour have changed substantially. By way of a subsidiary plea the plaintiff asks for a declaration that the contract for the delivery of steam is invalid or that henceforth he is only bound to supply steam at a reasonable price. The claim was rejected by the Landgericht Berlin and by the Kammergericht. On a second appeal by the plaintiff the judgment of the Kammergericht was reversed for the following reasons.

Reasons

The Court of Appeal was right in rejecting the plaintiff’s contention that properly interpreted, the words in para 420 number 6 of the contract ‘the prices for industrial steam are as follows’ as well as the additional contents of this arrangement disclose a contractual agreement to the effect that a fundamental change in conditions will also result in a change in the price of steam. The relevant observations of the Court of Appeal are mainly of a factual nature and do not disclose any error in law. Nor can objections be raised against the arguments of the Court of Appeal rejecting the attempt of the plaintiff to base his claim on the ground that the obstinate insistence of the defendant on the contract price constituted a violation of good morals (boni mores) according to para 138 BGB with the result that the contractual clause concerning the price of steam was void at the present time, thus opening up the possibility of fixing an adequate price for the steam in accordance with paras 632 or 812 BGB. However, the plaintiff’s demand appears justified from the point of view of the so-called clausula rebus sic stantibus. The Civil Code recognises this principle only in a limited number of special cases, and the Reichsgericht, as this Division said recently in a decision of 8 July 1920 [references], has not recognised it as a general principle. On the other hand, the Reichsgericht has recognised in a series of decisions of this and other Divisions delivered during the last few years, that the unexpected course and result of the War, leading to a collapse and radical change of economic conditions, may exceptionally have had such an effect on existing contracts as to justify the request of a contracting party for a dissolution of the contractual relationship, if that party cannot any longer be expected for economic reasons to adhere to the contract given the new, completely changed conditions. The principle was and is based on positive law as expressed in para 242 and 325 BGB. If, according to the first of these provisions, good faith governs the debtor’s duty to perform as also the creditor’s right of performance—his right to performance—then having regard to this aspect, performance of a contract can no longer be owed or demanded if, as a result of a complete change of conditions, the contractual performance has become completely different from that originally contemplated or intended by both parties. And if in para 325 BGB impossibility means not only factual but also economic impossibility the clausula rebus sic stantibus features clearly in the Code. In the cases decided earlier, the situation was such that one party to the contract demanded a dissolution of the entire contractual relationship on the ground that the conditions had changed completely. In the present case both parties continue the contract intentionally or have continued it. Now one of them, in the present case the plaintiff, demands an increase in the counter performance while the contract continues. The plaintiff asserts that, from an economic point of view, his own

APPENDIX I: CASES 795

performance has become different from what it was at the time of the conclusion of the contract to such an extent that the substance of the counter-performance, if not changed, would be unbearably disproportionate in economic terms compared with his performance to such a degree as to require a modification of the counter-performance according to good faith. This Division cannot refuse to recognise that the plaintiff’s demand is justified, assuming that his assertion is correct. In the decision of 8 July of this year (referred to above), this Division held that in such a case fairness requires a corresponding modification of the contractual performance of the other party [references]. It is true that in its decision of 4 May 1915 [references], reiterated subsequently on 3 July 1917 [reference], this Division stated that the judge cannot adjust relations between the parties in order to mitigate the hardships of war. The first and noblest task of the judge is, however, to satisfy in his decisions the imperative demands of life and to allow himself in this respect to be guided by the experiences of life. The statement (quoted above) of this Division, as this Division believes now, cannot be maintained in its strict generality. It has been superseded by the experience of this Division during the subsequent course of the war, and especially as a result of its unexpected outcome and the ensuing, equally unexpected turbulent changes of all economic conditions. These conditions require imperatively that the judge should intervene in existing contractual relations if otherwise a manifestly unbearable situation would arise which would be an insult to good faith and to every principle of fairness and justice. The foundation in positive law, regarded as desirable and necessary, is provided by the provisions of the Civil Code cited above. If these provisions support even the dissolution of the entire contractual relationship at the request of one of the parties, it appears all the more admissible to modify an individual contractual clause forming part of a contractual relationship which the parties wish to continue, if good faith, fairness and justice so require. Moreover, it may also be possible to rely on the idea that when a contractual performance has become impossible as a result of changed conditions, a gap arises in the contract which the judge must fill in by his own determination, as in the case of other contractual gaps.

In order however to prevent at the outset any misuse of the above mentioned principle, three factors must exist if it is to apply.

First, as has already been said repeatedly, both parties must wish to continue the contractual relationship cases where the continuation is compulsory are not to be considered for this purpose.

Secondly, only very special and quite exceptional transformation and change of circumstances, as it has been brought about by the war, can bring about the result outlined above. The fact alone that a subsequent change in the conditions is not foreseeable and could not be foreseen does not suffice.

Thirdly, in a case such as the present, an adjustment of the interests of both parties must take place. A change cannot only take place in favour of that party which suffers or has suffered as a result of the new conditions if the contract continues. The interests of the other party, whose duty of performance will be increased or altered, will also have to be considered. The whole disadvantage must not be placed on him, with the result that his situation would become unbearable and would offend against fairness and justice. Instead the loss must be fairly apportioned between them. How to make the proper adjustment depends on the experience of the judge and his sensitive appreciation of both sides.

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If the present case is considered from this point of view little supports the reasons of the decision by the court below. The plaintiff has pleaded that having regard to the contractual price paid to the defendant for the supply of steam he had to pay an additional sum of M89,000 during the period between 1 September 1917 and the end of July 1919, due to the immense increase in the price of coal etc. In other words he has clearly made a loss of this amount. In this connection it must be noted that the yearly rental for the premises let to the defendant amounted only to M9362. The situation in question is illustrated glaringly by the fact that the Rent Control Officer in Berlin, on 21 February 1920 raised by more than ten times of the contract price the price of the steam to be supplied by the plaintiff to the defendant during the period from 31 March 1920, the end of the contract, until 31 March 1921, the time up to which the Rent Control Officer had extended the lease, which the plaintiff had terminated. In view of this fact and the other clearly apparent conditions, the statement of the Court of Appeal that the plaintiff merely miscalculated when he concluded the contract inasmuch as he did not take the consequences of a war into consideration, does not agree at all with reality. Wrong calculations at the time when the contract was concluded cannot, naturally, constitute a basis for modifying agreed prices. Even if the train of thought of the Court of Appeal were to be followed to this extent, that the plaintiff should perhaps have taken the effects of a possible war into consideration, it is out of the question that the plaintiff, when he concluded the contract in 1912 should have envisaged even remotely, in view of the state of the German Reich at that time, a war of such a size, such an outcome and such consequences, and could have included such a war in his calculations. Nobody in Germany foresaw such an event or could have foreseen it; what happened was beyond any human imagination. The Court of Appeal, therefore, clearly wronged the plaintiff in placing the burden of the consequences of this war on him alone, as against the defendant, on the grounds that the plaintiff did not consider the consequences of a possible war. Obviously the fact that no war clause was included in the contract must not be held against the plaintiff.

In conclusion the following observations must be made. In a decision of the First Division of the Court dated 9 March 1918 [references] the following statement occurs: ‘The plaintiff does not wish to be released from the contract but wants instead the contract to continue, though with the changed content in that either the price be raised or that the plaintiff be relieved of the duty to perform until peace is concluded. This result cannot be achieved having regard to the reasons set out here.’ Clearly this statement was intended to apply only to the contractual relationship and the situation at that time (1918). There is thus no reason for applying para 137 BGB, all the more so because the First Division in a decision of 18 February 1920 [references] expressed an opinion which, in its general tendency, agrees with the present decision.

APPENDIX I: CASES 797

Case 97

REICHSGERICHT (SECOND CIVIL DIVISION) 3 FEBRUARY 1922 RGZ 103, 328

Facts

The defendant W and E were partners owning a spinning mill. The defendant terminated the partnership agreement with effect from 31 May l919 and entered into negotiation with the plaintiff K in order to safeguard his share in the partnership assets. On 21 May 1919 a notarial contract was concluded between the plaintiff and the defendant which contained the following stipulations by the defendant:

1.‘If in the course of a dissolution of a partnership I acquire the land, buildings and other fixtures and appurtenances owned at present by the firm B & W for a price up to 600,000 M, I assign to Mr K the entire complex at the same price at which I acquired it. Between us the account will be settled on the basis of M600,000 so that Mr K must pay me the price at which I acquired the complex and, in addition, half of the sum by which the purchase price exceeds M600,000.

2.If, in agreement with Mr X I acquire the land, buildings and fixtures owned at present by the firm of B & W for a price exceeding M600,000 I assign the entire complex to Mr X for the price of M600,000. In this case Mr K pays the price of M600,000 and promises, in respect of the excess over M600,000, to pay in addition the half share due to Mr B.

3.If Mr B. acquires the land with all fixtures and appurtenances at a price exceeding M600,000 I receive out of the purchase price to be paid by him the share due me up to M600,000; the excess between M600,000 and the highest bid payable to me by Mr B is to be paid to Mr K.’

The agent of the plaintiff promised to pay the price at the time of the conveyance, as to one third in 5 per cent war loans at a price of 98 per cent. The plaintiff was also to take over the existing raw materials at the fixed maximum prices to be assessed at the time of payment. In addition it was provided:

‘If Mr K thereby acquires the assets of the firm of B & W he will be prepared to employ Mr W as manager of the factory for a salary to be agreed on later on, to be fixed by a contract of employment. Mr X will regard himself as bound by the contract until 31 December 1919.’

On 12 January 1920 the plaintiff’s agent wrote that the plaintiff regarded himself as bound by the agreement beyond 31 December 1919 and that he insisted on his contractual rights. The defendant replied that he regarded the matter as closed. Thereon the plaintiff brought an action for a declaration, inter alia, that the contract of 21 May 1919 remained lawfully in existence and that the defendant continued to be bound by it:

The Landgericht, Zwickau rejected the claim but the Oberlandesgericht Dresden allowed it. On a second appeal the case was referred back to the Court of Appeal for the following reasons.

Reasons

. . . The appellant objects rightly that the defence of the so-called clausula rebus sic stantibus has not been taken into account sufficiently. The Court of Appeal contented

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itself with the observation that it would lead to complete lawlessness in the realm of contracts if the defendant were to be accorded the right to rescind the contract because the economic conditions had changed. This fear is unfounded; it is only necessary to delimit the boundaries within which the defence deserves to be noted. The pleadings of the defendant in this respect can be regarded as correct without further proof to the following extent the sum of M600,000 which recurs in clauses 1–3 of the contract was chosen because the price of the factory undertaking was estimated at approximately this sum, with the result that the appropriate price of the defendant’s share amounted to 300,000 M.

The Court takes official notice of the depreciation of money which began in the autumn of 1919 and multiplied the price of land, machinery and shares. The plaintiff insisted already in the courts below that according to the contract the defendant was not bound to purchase anything which might cost him more later on: the performance of neither party had become more onerous; only the relative value of the mutual obligations had been altered. However, this argument does not refute the defendant’s objection. It is true that the Civil Division of the Reichsgericht [references] still held in April 1921 that the offer of sale by the owner of a house, made in 1912 with binding effect until 1922, was valid despite the depreciation of the currency. This decision— which, it should be noted, was criticised by writers [references]—must not be interpreted to mean that a fundamental change of prices of itself, which does not simultaneously render the performance more onerous, never suffices to justify the defence according to para 242 BGB of the disadvantaged party. The decision is formulated entirely with regard to the special circumstances of the particular case, which may have shown speculative features; no general principle was established, nor could it be established. In general, to use the words of Oertmann’s Geschuftsgrundlage (1921) it is relevant whether the basis of the transaction, understood as the assumption at the time of the conclusion of the transaction by the parties, of the existence of certain determining circumstances, has ceased to exist. This may also happen if the balance of values is disturbed, provided that the continued equivalence of performance and counter performance was assumed. The question as to whether this occurred in the present case must be examined, and it must be done by the Court of Appeal, since in the absence of findings of fact the Reichsgericht itself is unable to decide the question. Even if the consideration will suffice normally that a depreciation of money, such as it occurred in 1919, came as a surprise for the world of commerce and could not be foreseen, it must be note that plaintiff’s counsel has claimed once more in the course of the second appeal that the contract was of a gambling nature and that each party had accepted the danger of an unfavourable change of values, no matter what its causes may be.

The judgment under appeal must therefore be quashed and the case must be referred back to the Court of Appeal. For the purposes of the renewed proceedings attention must be drawn to the fact that even the Court of Appeal should hold, after a renewed examination of the facts, that the basis of the transaction had ceased to exist, it does not follow necessarily that the defendant is entitled to be released from the contract as a whole.

The first question must be whether or not the plaintiff has already performed a part of his obligation. According to the defendant, the performance of the contract by the execution of the mutual obligations is to take place in the future.

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At present no more has happened than the conclusion of the contract itself; only when the partners dissolve the partnership, the plaintiff was to provide the defendant with 300,000 M, and the defendant was to assist the plaintiff to acquire the business or to give to him the excess above M300,000 of the sale price of his share in the partnership This point of view does not tally with the facts as the plaintiff sees them. He contends that on 21 May 1919, when the parties concluded the contract, it was uncertain whether as a result of the dissolution of the partnership, either by a private sale of the business to one or the other of the partners or by public auction, the share of the defendant would reach an adequate price. The fear that it might not be reached had been the motive for the defendant to enter into the contract, which had protected the defendant against this danger. If this is correct, the plaintiff, even if he should adhere definitely to a sum of M300,000 as the upper limit between himself and the defendant, and if as the result of the subsequent depreciation of money, perhaps already since the autumn of 1919, a purchase price of less than M300,000 was not to be envisaged any longer, would certainly have protected the defendant, for a time at least, against a dissipation of his fortune. It cannot be doubted that this is a performance. Regarded from this point of view the obligation of the plaintiff would constitute a continued obligation, which he had performed in part. If the defendant were to be released in consequence of a change of circumstances, he could not be allowed a right to rescind ex tunc but only a right to terminate the agreement for the future. He would remain contractually bound to pay an adequate remuneration in return for the performance which he received in fact.

Moreover, even if it should be held that the basis of the transaction had ceased to exist, an attempt must be made to maintain the contract with the necessary modification. This Division does not share the view that the court is empowered to interfere with the content of a transaction by means of a constitutative judgment in cases other than those in which the statute allows it exceptionally. However, before the debtor resiles from the contract or terminates it by notice because a fundamental shift has taken place of the value between performance and counter performance, he must invite the creditor to increase his performance; the debtor is only free, if the creditor refuses. This follows from the provision of para 242 BGB, according to which the consideration of good faith is the principle yardstick of a contractual debtor. A step as serious as that of resiling from a contract of long duration on the occasion of a change of circumstances which occurred independently of the intention of both parties must not take place without giving the other party an opportunity to adapt himself to the new situation. Naturally, no such invitation need be issued, if the other party declares unequivocally that he declines to increase his performance. However, this is not yet established in the present case . . . If the contract should be modified the price would have to be increased corresponding to the present depreciation of money, if a resilation of the defendant is to be avoided. Any increase in the value of the business due to any other reasons (increased demand) would constitute an advantage for the plaintiff and need not be compensated by him.

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Case 98

REICHSGERICHT (SIXTH CIVIL DIVISION) 30 NOVEMBER 1922 RGZ 105, 406

Facts

The parties, both German nationals, met in Moscow in 1920. The plaintiff lent the defendant, a former prisoner of war, 30,000 Soviet rubles in return for two promissory notes dated 16 and 17 May 1920, whereby the defendant undertook to pay the plaintiff M5000 and M2500 within two months of his return to Germany. When the plaintiff claimed M7500 the defendant contended and the plaintiff admitted that at the time when the loan was made the equivalent of 30,000 Soviet rubles was only 300 M.

The District Court found that at the time when the loan was made, the parties assumed that a Soviet ruble was equivalent to 25 pf and that neither party was aware at the time that the value of the ruble was much lower. Accordingly it gave judgment for the plaintiff, which was upheld by the Court of Appeal. On further appeal the judgment of the Court of Appeal was quashed for the following reasons.

Reasons

The approach of the Court of Appeal is open to doubt as to whether the defendant may claim to annul his two promissory notes on the ground of mistake . . . had in fact sought to avoid them, his attempt was ineffective in law seeing that according to his own pleadings he had not been in error in respect of the substance of his own declaration and had not intended to make a declaration different from that which he had made; instead his error concerned the value of the Soviet ruble and therefore constituted a motive for his declaration.

The appellant rightly objects that this view cannot be sustained in law . . . The loan was made in Soviet rubles; therefore, according to para 607 s 1 BGB it must as a rule be repaid in the same currency. By a special agreement, embodied in the promissory notes, the defendant undertook however to repay M7500 . In making this agreement

. . . the parties assumed that in Germany a Soviet ruble was worth 25 pf. Consequently the declaration of the defendant that he intended to owe the plaintiff M7500 in lieu of the original sum of money lent represents a manifestation of intent, clearly apparent to the plaintiff, that he proposed to convert the money lent into German currency at this rate of exchange. It is true that this intention, which was directly influenced by the mistaken belief that the ruble was worth not 1 pf but 15 pf determined the decision of the defendant. However, it did not refer to those circumstances which preceded his declaration forming part of the transaction and did not merely represent subjective considerations. Instead, this intention was part of the declaration itself and was communicated to the other party in the course of the negotiations for a contract. It was not necessary to incorporate it in the documents or to make an express oral statement. The intention to apply the rule of conversion, assumed to be correct, was expressed as such in the declarations exchanged in connection with the special agreement . . .

Accordingly, the mistake was not one of motive, which is irrelevant in law, but constituted a mistake concerning the basis of the legal transaction. It must be regarded as a mistake affecting the declaration which may be annulled in accordance with para 119 s 1 BGB.

APPENDIX I: CASES 801

Case 99

REICHSGERICHT (FIFTH CIVIL DIVISION) 28 NOVEMBER 1923 RGZ 107, 78

Facts

The plaintiff is the owner of land entered on the land register of the former German District Court in Luderitzbucht (former German South-West Africa). The defendant has been, since 1913, the holder of a mortgage of this property for M13,000 which was noted on the land register. The debt fell due on 1 April 1920. The plaintiff paid to the defendant by bank transfer the sum of M18,980 in discharge of the principle obligation and of overdue interest. The plaintiff therefore asks that the defendant be condemned to hand over the document representing the mortgage and to agree that the entry in the land register be expunged. The defendant refused to comply on the ground that the debt must be paid either in the hard currency which was formerly in force in what was then the German Protectorate of South-West Africa or moneys of corresponding value. The Landgericht Berlin gave judgment for the plaintiff, which was upheld on appeal by the Kammergericht. On the defendant’s second appeal the judgment below was reversed for the following reasons.

Reasons

‘. . . In this case it was necessary to determine the question as to whether according to this (ie, German) law the defendant as holder of the mortgage can demand a revaluation of his claim which is secured by a mortgage, having regard to the extensive devaluation of the German paper currency.

It is true that in the present case the defendant did not expressly raise in the courts below the question of revalorisation. But in his reply to the claim he stated already that the could not be expected to accept payment in depreciated German paper currency since this would mean that he would have to renounce a considerable part of the value of his claim. The defendant added: it would be pure mockery if the owners of the land in South-West Africa were entitled to satisfy their mortgage creditors in almost worthless German paper currency and to reserve for themselves the accrued value resulting from the change of political circumstances. He has indicated clearly thereby that he regarded himself as entitled according to the law in force at present, to demand payment of a larger sum than the nominal value of his claim, if payment were made in paper currency. The court was bound, accordingly, to examine this demand in the light of all relevant legal considerations . . .

It cannot be . . . assumed that the depreciation of the currency was so insignificant when the mortgage fell due (on 1 August 1920) as to exclude from the outset the legal possibility of a revalorisation of the claim. The cost of living index had at that time already increased ten fold . . . The purchasing power had therefore already diminished considerably on 1 April 1920. It will be for the Court of Appeal to determine first of all, whether the factual conditions for a revalorisation of mortgage debts . . . were present at that time . . .

If the Court of Appeal should reach the conclusion that the factual conditions for a revalorisation of the claim were not present in the spring of 1920 and that the

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defendant defaulted in his duty to accept payment by refusing to accept the proffered amount in paper money, it will then have to examine whether the defendant has thereby lost the right to demand the revalorisation of his claim, having regard to the subsequent, very severe depreciation of the German currency [references].

The legal possibility of a revalorisation of mortgage debts is to be recognised according to present German law, especially according to para 242 BGB. In the case of mortgage debts in particular it must be taken into account that normally the debtor has received a corresponding compensation having regard to the much increased value of the land—at least when paper money is made the unit of account . . .

It is irrelevant, as the plaintiff emphasises, whether it was recognised in legal theory and practice as early as 1920 that it was admissible to revalorise mortgage or whether this realisation only prevailed later on under the influence of constantly growing depreciation of money. Incorrect legal notions in the year 1920 can no longer be decisive today.

According to para 242 BGB it must be considered what good faith (Treu und Glauben) requires, having regard to current practice. A fair consideration of the interests of both parties is called for. It follows that no general principles can be established requiring the revalorisation of every mortgage claim as such, nor that they must all be revalorised to the same extent . . . Instead, it will be necessary to take into account not only the increase in the value of the land—measured according to paper marks—which will be the principal factor, but also the other circumstances of the case, such . . . the economic strength of the debtor, whether agricultural, industrial or urban land is involved. Also the charges, especially of a public character which burden the land must be taken into account; in the case of land let on tenancies the reduction of income as a result of measures for the protection of tenants also deserve consideration.

The provisions of German currency law do not preclude a revalorisation. It is true that the Law modifying the Banking Act of 1 June 1909 [references] declares that the notes of the Reichsbank are legal tender [references] . . . But all these provisions rested at the time of their promulgation . . . on the justified assumption that the notes . . . had a value equal to hard money . . . The legislator, in enacting these provisions, had not envisaged the possibility of a considerable depreciation of the value of paper currency, let alone of the extent . . . that has occurred increasingly. After the paper mark had collapsed, a conflict arose between these currency provisions, on the one hand, and the various other statutory provisions on the other hand, designed to prevent a debtor from discharging his obligations in a manner inconsistent with the requirements of good faith and common practice. The principal provision to this effect is para 242 BGB which applies to all legal relationships. In such a conflict the latter provision must take precedence over the provisions dealing with currency because, as has been shows, at the time of their promulgation the possibility had not been envisaged of a collapse of the currency to such an extent, as a result of which the consequences of the currency legislation are no longer compatible with the principles of good faith and with equity. Consequently rigid adherence to the currency legislation in this case was not foreseen. In fact legislation by the Reich in recent times has shown increasingly that the principle ‘mark equals mark’ is no longer maintained without some exceptions. The reason is that, faced with requirements of commercial life and the effect of the changed economic conditions, it is no longer possible to adhere to the currency legislation in so far as it placed the paper mark on an equal footing with the gold mark

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. . . [references]. The great number of these adjusting provisions [references] indicates clearly that they were not intended to establish special regulations, deviating from the general law, to govern special situations. Thus it cannot be concluded therefrom that in other cases revalorisation is inadmissible. On the contrary, these regulations show clearly that the legislator has undermined the principle that the paper mark can be used at its nominal value to pay off a debt effectively. The principle had to be abandoned in face of the actual economic conditions. The practice of the Reichsgericht has moved in the same direction to an ever-increasing extent [references].

It is true that the above-mentioned decisions of the Civil Divisions of the Reichsgericht deal with claims arising from bilateral contracts while the present case involves a loan secured by a mortgage. However, following the observations made above, there can be no serious doubt in holding that according to para 242 BGB the admissibility of revalorisation of contractual claims, recognised by these decisions, extends also to loans secured by mortgages. In the case of loans, too, their nature presupposes an equivalence between performance and counter-performance; here too, the substance is to be preserved for the creditor . . . In the case of loans of money, too, the debtor is bound (usually it is also the intention of the parties) not only to repay the same amount of money, but also to repay it in money of the same value. When the parties stipulate that the repayment is to be made in their national currency, they do so in the belief that this currency constitutes a firm and constant standard, within the limits of some normal variations. Accordingly the principle that the recipient of a loan of money must return an equivalent amount has been breached by currency legislation . . . For the legislator, in conferring on legal tender a nominal value, has indicated that, at least in normal economic conditions, a payment by means of legal tender is to be treated as payment of the ‘same value.’ But this principle must be disregarded for the reasons given above, if as a result of an especially heavy depreciation of legal tender, not foreseen at the time when the currency legislation was passed, it would lead to results which can no longer be reconciled with para 242 BGB. It will be necessary to determine in each case in accordance with the principle of good faith what degree of monetary depreciation is necessary before a creditor’s claim must be revalorised.

The conclusion that revalorisation is permissible can also be reached by way of the supplementary interpretation of the contract, if the court examines what the parties, acting according to the precept of god faith (para 157 BGB), would have agreed in view of the purpose of the contract as a whole, if they had foreseen the possibility of an especially severe depreciation of money . . . The provisions of the currency legislation do not prohibit an agreement by which the effect of the statutory value of paper money is excluded by the parties and that this can be done tacitly.

In view of these considerations it can be stated affirmatively that a revalorisation of a loan secured by a mortgage is legally admissible having regard to the heavy depreciation of German paper money.

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Case 100

OBERLANDESGERICHT BREMEN 18 MARCH 1952

NJW 1953, 1393

Facts

The defendant by a contract dated 22 May 1950 let to the plaintiff a sports hall for the period from 30 May 1950 until and including 6 June 1950 for the express purpose of staging a guest performance of the play ‘Two Hours for You’ featuring Marika Rökk in accordance with the annexed programme. The rent was to be 15 per cent of the gross profit but not less than DM1500, which were to be paid and were paid at the time when the contract was concluded. The guest performance could not take place since Mrs Rökk had suffered an injury. The plaintiff demanded the return of DM1500, which had been paid when the contract was concluded and 5 per cent interest.

The Court of Appeal of Bremen gave judgment for the plaintiff for the following reasons.

Reasons

The claim is justified in view of para 323 ss 1 and 3 in conjunction with paras 812 ff BGB. The district court proceeded correctly from the principle that—leaving aside the special rule embodied in paras 552 BGB—the tenant need not pay rent, if circumstances for which neither party is responsible render impossible the contractual use of the object which has been let: para 323 s 1 BGB. According to a constant practice of the Reichsgericht [reference] the general principles of para 275, 323 BGB can also be applied in the law relating to tenancies.

In order that para 323 s 1 can apply, the performance due by the defendant must have become impossible. The obligation of a landlord of commercial premises may be of very different kinds. A shop, for instance, can be let for carrying out all kinds of businesses, or for a strictly defined branch of business. To the extent that the use of the rented premises is limited, the danger increases that the performance of the contract may become impossible because the contract does not permit a switch to another use. The question as to whether the obligation of the landlord has become impossible must therefore depend on the respective purpose of the contract.

In the case decided by the Reichsgericht [references] the plaintiff had let a shop for the exploitation by a certain sales outlet in return for a rent geared to the turnover, with provision for a minimum rental. The Reichsgericht held that it was a purpose of the contract that this sale outlet should operate in the rented premises. The tenant was only permitted to use the premises for running this sales outlet, while on his part the landlord was only bound to make the premises available for running this sales outlet. This followed from the manner in which the rent was fixed. In the decision of the Reichsgericht relied on by the district court [references], the content of the contract led to the conclusion, on the other hand, that the tenant was completely free as to the use of the premises and was not precluded from employing them for purposes other than a multiple store. The right of the tenant to sublet and to alter and extend the premises, to assign his contractual rights and the landlord’s own statement all supported it. Consequently it is necessary to ascertain the purpose of the contract in each individ-

APPENDIX I: CASES 805

ual case, what type of use of the rented premises was agreed on and whether the obligation of the landlord so found became impossible to perform as a result of subsequent circumstances. If the subsequent circumstances do not impede the use of the premises as envisaged by the contract, the claim would have to be rejected clearly for the reason that the prerequisites for applying para 323 BGB are absent. In finding that the appearance of Mrs Marika Rökk at the first performance was not included in the contract, the District Court should have dismissed the claim on the ground that the contractual use had not become impossible, and it would have been unnecessary to consider the special provisions of para 552 BGB.

Contrary to the opinion of the District Court the substance and the purpose of the contract in issue lead to the conclusion that the appearance of Mrs Rökk at the guest performance was part of the contract . . .

If, therefore, the guest performance of ‘Two Hours for You’ with the appearance of Marika Rökk had become part of the contract, the performance owed by the defendant according to the lease to the effect that the sports hall was to be made available for producing the said guest performance has become impossible as a result of the illness of Mrs Marika Rökk. Thus the prerequisites exist for applying para 323 s 1 BGB . . .

Case 101

BUNDESGERICHTSHOF (FIRST CIVIL DIVISION) 16 JANUARY 1953 MDR 1953, 282

Facts

The defendant in West Berlin, who had been doing business with the plaintiff for some time, ordered from the latter 600 drill hammers by a letter dated 31 May 1948. In it the defendant stated ‘delivery as quickly as possible’ ‘we will fetch it ourselves by long distance lorry’ and ‘payment through our office in West Germany.’ As the plaintiff knew, the drill hammers had been ordered from the defendant by the office for Foreign Trade of the Eastern Zone of Germany and were intended for the mines in that zone. The order reached the plaintiff only on 18 April 1948, since it had first to be passed by the authorities in the Eastern Zone.

In the meantime the so-called ‘Berlin Blockade’ had begun, which lasted from 24 June 1948 until 21 May 1949. The plaintiff, replying on the order, manufactured first 200 hammers and, by an invoice dated 30 November 1948, invited the defendant to take delivery. Subsequently he produced 74 more hammers and prepared the remaining 326 hammers up to a semi-finished state. The defendant did not fetch the hammers and did not pay for them either.

The plaintiff sued for payment of the order. The Court of Appeal gave judgment for the plaintiff against delivery of the hammers. The defendant’s second appeal was rejected for the following reasons.

Reasons

The Court of Appeal was correct in holding that the purpose of the contract for the production and sale in dispute, namely to forward the drill hammers to the Eastern

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Zone, never became part of the contract as a real condition in the meaning of para 158 BGB. Neither the wording of the defendant’s written order nor the plaintiff’s letter of acceptance disclose that the validity of the contract was to ‘depend on the possibility of delivery to the Eastern Zone.’ As the defendant himself states, the drill hammers which have been ordered represented a type which was no longer sufficiently modern for the advanced mining technology in the Western Zone. When the plaintiff received the written order, the Berlin Blockade was already in force and it was completely uncertain whether and when it would be lifted. It would have been of extreme consequence for the plaintiff, who had to incur considerable costs for the manufacture of the hammers, the object of the order, if the validity of the contract had been made to depend on the condition, completely outside his control, that the delivery of the hammers to the Eastern Zone could be carried out . . . the plaintiff had no personal interest as to the manner in which the defendant intended to deal with the drill hammers. The plaintiff’s own interest was only that the defendant should take delivery and make payment in accordance with the contract. With these interests in mind, it would only have been justified to regard the intended use of the hammers as a genuine condition of the contract, if an intention to this effect by the parties had been clearly expressed in the terms of the contract. This was not done.

The performance of the contractual obligations is also not contrary to the legal provisions which forbid exports into the Eastern Zone or require a permit. Since there is no doubt that the parties did not intend to evade the prohibitions of export when they concluded the contract and would not have achieved it by a delivery of the hammers to the defendant at the contractual place of delivery . . . the appeal fails in so far as it alleges that the contract is contrary to para 134 BGB.

At the same time the performance by the defendant has not become impossible in law. It is true that the payment of the contract price would mean a financial sacrifice for the defendant, resulting from the supervening difficulties of disposing of the goods, which the defendant has not foreseen at the time when the contract was concluded. It need not be decided here whether to this extent an economic impossibility exists in the meaning of the previous practice of the Reichsgericht [references]. At a time when the doctrine of the fundamental basis of transactions (Geschäftsgrundlage) had not yet been developed, the Reichsgericht formulated the concept of economic impossibility and equated it to true impossibility in the meaning of para 275 ff, 323 ff, BGB. The purpose was to facilitate a release from contractual obligations in case of an increase in the burden of the performance appearing after the conclusion of the contract which exceeds the limit of financial loss which the debtor can be expected to bear. In its later decisions the problem of the economic impossibility of contractual performance was treated by the Reichsgericht, not on the basis of an analogous application of the rigid legal consequences of true impossibility but of a concept of a fundamental basis of transactions viewed within the wide and loose framework of para 242 BGB [references]. The questions which are raised by the concept of economic impossibility also concern in reality the problem as to whether the performance of a contract can be expected of the debtor. This is a problem which, having regard to the usually opposing interests of the parties, can only be solved in reliance on para 242 BGB which makes it possible to adopt the substance of the contract to present circumstances by balancing the opposing interests of the parties from the point of view of what can be expected

APPENDIX I: CASES 807

from them [references]. The Court of Appeal has correctly examined the question as to the extent of the performance of the contract which can be expected of the defendant by relying on para 242 BGB, though it did so from the legal aspect of the failure of the fundamental basis of the transaction and not of economic impossibility.

The Court of Appeal agrees with the District Court that the delivery of the drill hammers into the Eastern Zone and its sale to the users had become a basis of the transaction. This cannot be challenged on legal grounds. It is true that as far as a rule in a contract for the production and sale of goods the intention of the person placing the order to forward the semi-finished or finished products to a particular client does not render this purpose of concluding the contract a basis of the transaction which affects both parties. Reasons of contractual certainty require that in principle each party must bear the risk that the purposes intended by him in concluding the contract cannot be achieved. However, both parties proceeded from the assumption that the delivery of the drill hammers into the Eastern Zone would become possible within the foreseeable future, despite the blockade existing at the time of the conclusion of the contract. This hope of the parties did not materialise, however . . . It need not be determined . . . whether the basis of the transaction has disappeared after the conclusion of the contract or . . . whether it did not exist at the time when the contract was concluded, because it is undisputed that even at that time the hammers could not be sent to the Eastern Zone. For even if the basis of the transaction was absent from the beginning, though its absence was only realised afterwards, the legal consequence is not that the transaction is invalid, but that it must be adapted to the actual situation, having regard to para 242 BGB; it is true that good faith may also require a total release from the contactual liabilities [references]. Thus, also from the point of view of an initial failure of the basis of the transaction, it is correct in law when the Court of Appeal held that the impossibility of disposing of the drill hammers in the Eastern Zone did not result in a complete release of the defendant from his contractual duties, but—in so far as the entire contract is in issue—proceeded from the need to adopt the contractual duties to the real situation, having regard to the circumstances in the light of good faith.

If the basis of the transaction has failed and if having regard to the purpose of the transaction a party cannot be expected to remain bound by the contract, it must be examined first whether it is possible to adapt the contract to the real situation [references]. This examination must cover in each case the individual content of the particular contractual relationship, including all accompanying circumstances; the interference with the contractual relationship must be limited to such modifications as are necessary to avert unbearable consequences according to the demand of justice [references].

If in a contract for the delivery and payment of a series of objects, all the individual claims arising out of the contractual relationship are in issue, the court must adapt the entire contractual relationship as a unit to the factual situation, unless a complete release from all obligations is indicated. This adaptation may lead to a modification, especially a reduction, of the individual claims, or to a partial maintenance of the contract in accordance with the existing terms of the contract coupled with the elimination of far-reaching obligations. The decision of the Court of Appeal is not open to legal challenge when in the present case, having balanced the interests and the risks involved of both parties, it held in the exercise of its judicial powers of adjustment

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flowing from para 242 BGB that the defendant could be expected to be bound by the contract in issue at least up to the amount of the payment for work done, equal approximately to one quarter of the total sum due under the contract. It cannot be overlooked that this decision leaves the fate of all other contractual duties of the defendant completely open. Since, however, the Court of Appeal . . . believes that it is in accordance with good faith to hold the defendant to a part of the contract and since this part of the contract exceeds what is demanded in the claim and the counter- claim—it is only the consequence of the fact that in their statements of claim they have merely submitted a segment of the entire legal relationship to the contract of the courts.

Case 102

BUNDESGERICHTSHOF (FIFTH CIVIL SENATE) 14 OCTOBER 1959 NJW 1959, 2203

Facts

A claim for an increase in the amount of the dead rent fixed in a contract for the extraction of saltpetre at the turn of the century cannot be upheld on the ground that the intervening decline in the purchasing power of money has caused the collapse of the basis of the transaction.

Reasons

1. . . .

2. . . .

3. The court below held that the landowners had no claim for any increase in the amount of the dead rent, and did so on the ground that the ‘equivalence’ between performance and counter-performance had not really been disturbed by intervening events. The court held that although the contract of 1898 for the extraction of saltpetre was a reciprocal contract, and the agreed dead rent was the mining company’s counter-performance for the right of extraction granted to it by the landowner and the agreement of the latter not to dispose otherwise of the minerals during the period of the contract, it was impossible to say why the dead rent was set at M1200 per annum: that sum was not related to the current price of saltpetre, since the parties in 1898 did not refer to it, and indeed did not know, because there was technically no means of finding out, whether there were any extractable saltpetre at all in the area covered by the contract or if so, how much of it there might be. Nor could the landowners’ claim for an increase in the amount of the dead rent be based on the view that revaluation was justified because the original basis of the transaction had collapsed owing to general changes in the economy. According to the jurisprudence of the supreme court, it was only in very exceptional cases that there was any scope for adapting a long-term contract to altered circumstances, ie when the relationship between performance and counter-performance had shifted so fundamentally that it would be inconsistent with the requirements of good faith and fair dealing and the principle of fidelity to contracts to maintain the original allocation of rights and duties. That was not the

APPENDIX I: CASES 809

situation in the present case. The dead rent was not part of a direct exchange, and cannot be seen as a sufficient counterpart for the landowners’ contractual duty. To grant the requested increase in the agreed amount would be to make an impermissible revaluation of a debt in marks; the mark was set at par by the Aufwertungsgesetz of 1925 and again at par for DM by UmstG para 18 par 1 no 1, and the official indexes and other publications show that there has been no revolutionary change in the general economy since that currency reform.

The appellant claims that these views are wrong in law.

(a)To a certain extent the appellant is right. We cannot agree with the court below on all the points related to collapse of the basis of the transaction on which it rejected the landowners’ claim for an increase in the dead rent. It is indeed possible that in the course of a long-term contractual relationship the balance between performance and counter-performance may become so upset that it would no longer be fair to keep the disadvantaged party to what was originally agreed. If that be so, then the principle of good faith and fair dealing which dominates the whole of our law (para 242 BGB) requires either that the reciprocal obligations be adapted to the changed situation, supposing that the maintenance of the contract is in the interests of the parties as properly conceived, or that the contract be completely cancelled. Actually, this was the position from which the court below started. It first asked whether there was a relationship of equivalence between the obligation the landowners undertook in the contract of 1898 and the agreed dead rent. They held that there was. This was correct, since the question is not whether performance and counter-performance were objectively equivalent in value, but whether the parties treated them as being so. But the court went on to say that no disturbance of this relationship of equivalence could be found because the agreed annual sum of M1200 was an ‘arbitrary figure’ which bore no relation to the current price of saltpetre or the amount extractable from the land in question. This is very dubious, and the appellant is right to argue that even an arbitrary sum may in the minds of the contractors have been geared to the general condition of the economy and the current purchasing power of money. If such circumstances have changed very materially in the intervening period one could no more exclude the possibility of a shift in the relationship of equivalence in the case of an ‘arbitrary’ sum than in the case of a sum fixed in relation to concrete factors in the situation.

Again, the lower court’s reasoning is dubious in that it first asked whether the plaintiff had a claim for the ‘reinstatement of the relationship of equivalence’ as such, that is, as an independent ground of claim, and only then asked as a subsidiary question whether ‘the change in the basis of the transaction’ entitled the landowners to demand an increase in the dead rent under para 242 BGB on the ground of the alteration in the economic situation. In reality, though the court below does not seem to have seen this, these are one and the same question: the shift in the balance between performance and counte-rperformance (‘disturbance of the relationship of equivalence’) is simply an instance of the destruction or collapse of the basis of the transaction, that is, of a situation which may lead to a cancellation of the contract or its adaptation to the new situation, under the very narrowly defined conditions laid down in the jurisprudence of the Reichsgericht and Bundesgerichtshof.

(b)Despite these defects in the decision of the court below, the outcome is correct. One of the stated requirements for the application of the theory of the collapse of the

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basis of the transaction, and one which is especially important in cases of this kind, is that the intervening change be of a critical nature and affect the interests of the parties to a significant degree. Not every adverse modification of the prior relationship of equivalence, unforeseen by the parties at the time of the contract, justifies a departure from the principle that contracts must be adhered to (‘pacta sunt servanda’).

What is really required is such a fundamental and radical change in the relevant circumstances that it would be an intolerable result quite inconsistent with law and justice to hold the party to the contract [references]. This test is crucial in this case. The court below recognised this and was right to apply this test. In doing so it went thoroughly into the facts and after considering the interests of both parties came to the conclusion that the stated preconditions for breaking with the principle that contracts must be kept were not satisfied.

This court is in entire agreement. The imbalance between the duties of the parties which is in issue in this case is the result of the fall in the purchasing power of money since the contract was formed. According to the calculations in the expert opinion of Larenz, which we can unhesitatingly accept, the value of money diminished by twothirds during the period in question; thus the sum agreed as dead rent in the contract has only about one third of the purchasing power today it had in 1898. But the plaintiff is quite wrong to say that the landowners are now entitled to claim three times the original sum, namely DM3600. Simple arithmetic does not answer the question whether a reduction in purchasing power produces a situation which is intolerable by the test of good faith and fair dealing. The expert opinion just mentioned, which itself proposes a rise of only 75 per cent rather than 200 per cent, pays too much attention to the figures in stating that if in 1898 M1200 was fair compensation to the owners for their performance (ie, agreeing not to exploit the minerals) the fall in the value of money in the ensuing sixty years was so great that it would be inequitable not to increase that sum.

The very writer of the opinion in his book Geschäftsgrundlage und Vertragserfüllung

(2nd edn, 1957) is right to emphasise the basic principle that contracts must be adhered to, and states that the law should only intervene under para 242 BGB in cases where holding the party to his contract would be manifestly and grossly contrary to its spirit (p 165), and that a rigorous standard should be applied: it is not every serious shift in equivalence that justifies departing from the contract, but only such a shift as a reasonable person would see as going far beyond the risk assumed and as negating nearly the entire interest which the affected party had in the transaction [references]. We agree with these principles, and if one keeps them in mind it is clear that the claim in the instant case is unjustified. The court below rightly saw the critical question as being whether the dead rent as originally fixed ‘must now be regarded as a wholly inadequate return’, and did not fall into any legal error in concluding that it could not. This finding alone justified the court in dismissing the claim.

Whether it would make any difference to the decision if the landowners, contrary to the actual fact, were in urgent need of the money and would face economic ruin if the payments of dead rent were suppressed or seriously reduced is a question we need not answer. Nor need we take a position on the question whether it falls within the so-called ‘normal risk of contracting’ when recurrent payments under a long-term contract or a contract of indefinite duration, such as this one, which the court below held contained no ‘speculative element’, lose two-thirds of their value because of the

APPENDIX I: CASES 811

ever-increasing cost of living [references]. For even on a very generous view of Treu und Glauben it would be impossible to justify granting the plaintiffs another increase in the dead rent when the contractual sum was fully revalued at the end of the First World War and then in 1948 converted at par into the present currency. Otherwise the effect of the doctrine of the foundation of the transaction would be to imply into longterm contracts a sort of ‘gold clause,’ and this, as the court below was right to observe, would be contrary to the currency legislation and would be apt to impair faith in the currency. The courts are not free to depart from the law on grounds of equity; only the legislator can effect any further adjustment of long-term contracts to situations produced by inflation.

(c) The appellant invokes para 7 d of the Law on Agricultural Leases which permits the courts to adjust a contract when radical changes occurring in the surrounding circumstances have produced a gross imbalance between reciprocal obligations, and argues that it can be applied by analogy to the present case. That is not so. The court below explained that this legislation is very specific and not to be extended to contracts of other types. That is right. It is true that contracts for the extraction of soda are in many respects similar to long-term leases of land [reference], but at any rate as regards the dead rent they do not have those features of long leases of land which led the legislature to enact para 7 LPG.

This provision is just the most recent example of special legislation on long-term leases of farms, going back now for many years, passed in the public interest for reasons having to do with agriculture, and it cannot be extended by analogy or construed by the courts as applying to contracts of types other than long-term farming leases, which are distinctive, especially because the effect of their terms alters over time [references]. The legislation applies only to such leases. The aim of the legislator is to see that the return of agricultural land is fairly divided between owner and tenant farmer despite changes in economic circumstances, so that both may make their contribution to the maintenance and increase of its productivity—the tenant-farmer by good farm management and the owner by performing his contractual duties to keep the buildings in good repair and improve the land. If either party lacked the means to perform his part, the harvest would suffer, and if the owner were not properly protected against economic changes he would be reluctant to enter into long-term leases of his farmland, although they conduce to its optimal use [references]. Such considerations are not central to contracts for the extraction of minerals: they were mainly entered into half a century ago; if new contracts are entered into today the parties are free to adopt appropriate terms whereby their obligations will be adjusted to future developments. At any rate there appears to be no public interest beyond that of the parties to mineral extraction contracts such as to call for special legislation.

A further reason for not applying this statute in the present case, whether directly or by analogy, is that that enactment empowers the courts to make law for the parties, whereas when a court applies para 242 BGB, as is suggested in this case, it is simply finding the law, not making it; the judge does not reconstruct the legal relation of the parties but simply declares what alterations in the legal relationship have already been produced, according to good faith and fair dealing, by changes in the surrounding circumstances [references].

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Case 103

BUNDESGERICHTSHOF (FIFTH CIVIL DIVISION) 31 JANUARY 1967 BGHZ 37, 44

Facts

By a contract dated 13 February 1959 the plaintiff purported to sell to the defendants three plots of land amounting to 13766 square metres as well as a part measuring 500 square metres of a fourth plot of land. In return the defendant was to build, within eight weeks of receiving the official building permit, on a plot of the plaintiff an apartment house of 2,700 cubic metres containing twelve flats or, if permission for the project should not be forthcoming, two houses of corresponding size. If no permission at all should be obtainable, the defendant was to erect the building or buildings on one of the plots purchased by himself and to re-transfer the plot so built on to the seller.

The three plots so sold were registered in the name of the defendant, and a caution was registered for the benefit of the defendant in respect of the portions of the fourth plot. The defendant had not obtained the necessary permission to build when the action was brought, nor had he erected a building.

The plaintiff demanded that the three plots should be reconveyed to him and that the caution should be cancelled; in addition he asked for a declaration that the contract was invalid, either because it had been impossible from the beginning since neither the plot sold by him nor those remaining to him could be built on as intended, seeing that no such official permission could possible be forthcoming. Moreover, the plots could not be built on in the absence of a proper sewage connection, nor was such a connection to be forthcoming in the foreseeable future.

The District Court of Munich rejected the claim; the Court of Appeal of Munich allowed it. On a second appeal the decision of the Court of Appeal was quashed and the case was referred back for the following reasons.

Reasons

The Court of Appeal believes that the contract is void because, so far as the defendant’s duty to build on the land was concerned, its performance was impossible from the beginning. As the court below found, the plots in question—both those still owned by the plaintiff as well as those which he sold to the defendant—can only be built on when it becomes possible to connect them with the sewerage system; this situation, in the absence of which no building permit could be obtained, would probably not materialise before 1968; possible this uncertainty might remain even longer. At least until 1964 no general building plan had been in existence and it was therefore impossible to predict what kinds of building would be permitted, once the land had become ready for development and open to building operations; in particular it was not possible to forecast whether the future building plan would allow houses of the size agreed on in the contract or perhaps only single family houses. In assessing these facts as found, the Court of Appeal held that the contractual performance in question was not permanently impossible; instead the impossibility was tempered only. At the time when the contract was concluded it was reasonable to assume that, one day, the plots would become open to building, and it was still reasonable to assume it today. The Court of

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Appeal held however that the case before it was one where a temporary impediment of performance must be treated as if it were permanent, because it was doubtful whether the purpose of the contract could be achieved. For this reason the plaintiff was entitled according to good faith to regard himself as no longer bound by the contract [reference].

. . . the point of departure of the Court of Appeal is open to far-reaching legal objections . . .

Para 306 BGB [old version] regulates the legal consequences of an initial impossibility of a contractual performance, ie of an objective impossibility existing already at the time when the contract was concluded; in such a case the contract is void. The judgment under appeal states that this rule applies not only if the impossibility is permanent, but when an impediment which rendered performance impossible for the time being can again be removed later on. In so holding it proceeds from the principles which the practice of this court has developed for the case where the performance which is owed becomes impossible as a result of an event which occurred after the obligation came into being para 275 BGB. It is true that in this connection ‘impossibility’ must be understood, as a rule, to indicate a situation where the performance of the obligation it precluded for ever [references]. Exceptionally, however, also a merely temporary impediment is equated to a permanent impossibility, especially in the case of obligations of long duration—namely if it puts in doubt the achievement of the purpose of the contract and if the other contracting partner cannot be expected, according to good faith, to comply with the agreement [references]. The fact that a performance which is owed becomes impossible subsequently does not destroy the contract as such. Instead the legal relationship between the parties is determined by the loss of far-reaching provisions of para 275 ff, 323 ff BGB [references]. It is doubtful whether the identical treatment of temporary and permanent impossibility, which is permissible in the case of subsequent impediments to performance, can be extended to para 305 BGB—which alone sanctions to the serious consequence that the contract is void.

In this general formulation the question need not be decided here. Even if in the case of an initial impossibility in the meaning of para 306 BGB it should not be excluded in principle also treat an impediment which impedes performance temporarily on the same footing as one which is permanent, nevertheless it is not possible to do so where the contracting parties know of the existence of the present impediment but assumed mistakenly that it could be removed. In such cases, if it turns out later on that it will take considerably more time before the impediment is got out of the way than all the parties assumed when they concluded the contract, a mutual mistake has occurred, the legal consequences of which are not determined by para 306 BGB. Instead they must be considered from the aspect as to whether the basis of the transaction has disappeared (para 242 BGB); it is necessary to examine whether and to what extent as a result of the unforeseen delay in fixing the date of performance the situation as seen originally by the contracting parties has been changed so fundamentally that according to good faith the contract can no longer be executed in the manner envisaged at the beginning [references]. The application of the principles concerning the failure of the basis of a transaction results only exceptionally in the total destruction of the contractual relationship; normally reasons of contractual fidelity and commercial security demand that the contract be maintained as far as

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possible and that it is to be adjusted in a form which takes into account the legitimate interests of both parties [references].

In the present case a mutual mistake has occurred concerning the basis of the transaction. Both parties in concluding the contract . . . assumed that the contract would be carried out within a foreseeable time and, in particular, that the apartment house to be erected by the defendant would be built soon; certainly the construction was not to take place in the distant future. The parties were aware of the planning difficulties, but hoped nevertheless to obtain a building permit soon, even before a connection could be established with the sewerage system. The parties only realised later on that their hopes were unfounded. At the moment when the original hope that the plots could be built on within a comparatively short period was disappointed, the legal relationship between the parties entered a new phase; henceforth it became uncertain what the waiting period would be before building could begin. This state of uncertainty remained in the ensuing period and persisted still at the time of the last hearing in the Court of Appeal. At that time, at least, it could seem doubtful whether the time which had elapsed as well as that which was likely to pass in the future before the plots would be right for development constituted such an important factor that the parties could no longer be expected to adhere to the substance of their previous agreement [reference]. The Court of Appeal has failed hitherto to examine this question.

Case 104

BUNDESGERICHTSHOF (SECOND CIVIL DIVISION) 28 MAY 1973 BGHZ 61, 31

Facts

The plaintiff became a director of the defendant company in 1926. By a contract of employment dated 18 February 1935 he received a fixed salary of RM50,000 and a percentage of the profits. The contract provided further that his pension was to be calculated as follows: after ten years’ service 25 per cent of DM40,000 with annual increase of 1 per cent with a maximum of 60 per cent after 35 years. After 20 years’ service the basic standard was to be increased to 50,000 REM.

The plaintiff retired in 1951 and received from then onwards an annual pension of DM15,000 equal to monthly payments of DM3,083.33. In the 1969 plaintiff asked for an increase, which was refused. He claimed an additional pension at the monthly rate of DM804.17 on the ground that wages and salaries and the general cost of living had increased considerably.

The District Court of Hanover dismissed the claim. The Court of Appeal of Celle allowed it. The defendant’s second appeal was dismissed for the following reasons.

Reasons

I. The Court of Appeal regards the claim as justified because para 242 BGB requires the adjustment of the pension to the changed condition, especially because the cost of living rose by 45.2 points between 1950 and 1970 [references]. This division agrees as to the result.

APPENDIX I: CASES 815

II. It is true that in its previous practice this Division has refused to increase a pension on the grounds of the depreciation of money in the absence of a contractual adaptation clause, at least in cases in which the agreed pension could still be regarded as a performance in accordance with the contract [references]. This practice was identical with that of the Federal Supreme Labour Court which held on 12 March 1965 [reference] that, while contrary to earlier decision [references] the adjustment of contactual pension payments to the increased cost of living was no longer excluded in principle, it could only be considered if, as a result of the rise in prices, the agreed payments can no longer be regarded as a performance which provides a living in accordance with the purpose of the contract [reference].

III. Meanwhile the development has continued. The constant increase in the cost of living in the Federal Republic which . . . up to 1960 amounted on average to little more than 1 per cent per year, has since gained momentum . . . All in all the cost of living has increased between 1958 . . . and 1971 . . . by approximately 53.6 per cent. This corresponds to an internal devaluation of approximately 34.9 per cent.

IV. In the light of this recent development the Federal Supreme Labour Court in two decisions of 30 March 1973 [references] abandoned the practice of restricting the adjustment of pensions to cases in which as a result of increase prices the purpose of the agreed performance to provide a living has been frustrated altogether. The Federal Supreme Labour Court now holds that, at least when the cost of living has risen by more than 40 per cent, the value of a pension no longer corresponds to what was promised originally to such an extent that the limit has been reached where the pensioner can be expected according to good faith to observe a standstill and where to deny any adjustment would offend the sense of justice intolerably. In so holding the Federal Supreme Labour Court distinguished between other contractual obligations and promises of maintenance, the special characteristic of which are to assure the livelihood of the beneficiary, or at least to make a contribution thereto. The payments are made out of the profits of the enterprise, the foundations of which the pensioner has helped to create during his activity on behalf of the enterprise. The Federal Supreme Labour Court takes into account, in addition, that the provision of maintenance by the enterprise is also a remuneration for the pensioner’s loyalty towards it and for the sum total of his services. These services had been rendered by the pensioner in advance, trusting that he could plan the later stages of his life on the basis of a maintenance promised to him. If this expectation should be disappointed as a result of the depreciation of the currency, a pensioner would have no longer the means of bargaining for an adjustment, contrary to other sections of the population whose income would have kept up with the increase in prices.

The Federal Supreme Court observes that in these circumstances it was first of all a matter for the enterprise to examine the question of such a compensation by adjusting the maintenance payments to the economic development, and to offer an equitable and legal settlement, having regard to the existing situation. Many enterprises had done so already and were doing so continuously. In the case of provision for old age by enterprises, considerable differences existed in the size of the payments, in the gradations among the individual groups of employees and in the conditions for payment as well as in the ability of enterprises to afford payments. Moreover, the reflex effect on other duties of support owed by the enterprise and the total cost arising from each of these could not be established easily. Consequently, the courts could not prescribe

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in advance the measure and the form of any adjustment. No automatic increase of pension payments without a contractual promise to this effect could be based on para 242 BGB.

If the party owing the pension had not yet met the creeping inflation by an adequate increase of the pension, he should first of all negotiate with the pensioner or pensioners. If no agreement could be reached, the debtor would have to decide on his own in his reasonable discretion in accordance with para 315 BGB. If he failed to do so, or if his decision was not reasonable, the courts would have to determine the performance due in accordance with para 315 (3). In this connection the facts put forward by the parties for and against an adjustment of a retirement pension were particularly relevant. The extent of the rise in prices must be the standard for fixing the extent of the adjustment. No attention should be given in principle to any other aspects of the pensioner’s assets or income, except possibly any increase in income arising from any statutory insurance. Equally, the question of need should not be taken into account as a rule. On the other hand, the profitability of the enterprise and the principle of equality of treatment might be relevant.

V. This Division agrees in all matters of principle. In so far the special circumstances of cases coming before it should make it necessary to deviate in certain respects, each individual case will have to be decided on its own.

1.The fact that this Division is not concerned with pension claims by employees in the meaning of labour law, but only by organs of enterprises—namely directors and managers—does not in principle call for a different decision from that of the Federal Supreme Labour Court. Normally both contracting parties envisage that the pension provided to a director or manager will serve, either alone or with other revenues, to assure for the beneficiary a standard of living commensurate to his position hitherto in case of old age, premature incapacity to work or of dismissal without any expectation of an equivalent means of livelihood of another kind. Here, too, the pension can be regarded as part of the remuneration for services which the beneficiary has given before he retired and which contributes to the prosperity of the enterprise, the profits of which now feed the pension. This balance, assumed to exist when the obligation to pay a pension is incurred, is seriously disturbed if, as a result of a fall in the purchasing power as compared with that outlined previously, the pension can no longer fulfil by its agreed amount its intended function which is to guarantee the previous standard of living completely or in part. The enterprise, on the other hand, is not affected in the result by the depreciation of money, for generally the revenues have at least kept up with the increase in prices or they have even overtaken it as a result of economic growth. It is true that costs, especially wages and salaries, have increased as well. The proportion of the individual pension obligations, however, the nominal value of which has remained the same, has decreased correspondingly.

The special features set out here preclude a comparison with other obligations of long duration which are not concerned with maintenance (eg, for the production of potash) as the practice of this court cited by the appellant has underlined expressly [references].

2.The pensions for directors and managers which have been in issue before this Division exceed in most instances the average amount paid by enterprises. This Division, agreeing with the Federal Supreme Labour Court and rejecting the opinion of the appellant, does not, however, regard this fact as decisive, at least given the

APPENDIX I: CASES 817

extent of the increase in costs as it has occurred at present. A pension is intended as a rule not only to guarantee a minimum of subsistence in old age, but to enable the beneficiary to maintain the standard of living reached in his professional life, either completely or in part.

Different considerations may apply however if the promise of a pension is made, not in order to provide for the future but for other reasons (for instance as a cloak for a payment of profits to a managing partner).

3. . . .

4. This Division, like the Federal Constitutional Court [reference], The Federal Supreme Court [reference], and the Federal Supreme Labour Court [reference] regards the principle of nominalism (Mark equals Mark) as one of the fundamental bases of our legal and economic organisation. In the light of the facts before it, this Division does not however attribute decisive importance to the objection that this principle would be undermined or lead to a further devaluation by an adjustment of contractual claims, in accordance with the prerequisites of para 242 BGB, with reference to the greatly increased cost of living, even if limited to pensions arising out of contracts of employment [references]. The pensions provided by the Statutory Insurance Scheme have been increased about two and a half times . . . between 1957 and 1970 [references]. The salaries of employees in commerce and in the service of public authorities; based on collective agreements, rose . . . by 120.4 per cent between 1958 and 1971, that is to say by more than doubt. The increase in the wages of industrial workers is even higher

. . . old age pensioners paid by enterprises which do not contain an index clause are frequently adjusted from time to time on a voluntary basis [reference].

Considering, finally, that ordinary contracts for the exchange of goods, not involving any personal element also contain not infrequently clauses about the price, whereby the debtor of the industrial or commercial product safeguards himself against any increase in the cost of materials and wages, the argument does not convince that the protection of the currency requires strict adherence to an amount of a pension which no longer suffices to provide maintenance as envisaged by the contract owing to the increase in prices. Instead, the adjustment of such pensions intended to provide a living is to be regarded only as a late and inevitable consequence of a development which the State and the economy have taken in to account long ago, but to which pensioners of enterprises as distinct from other sectors of the population, were exposed without protection, unless they had been astute enough to safeguard themselves by index clauses.

VI.

1.

2. The appellant’s view cannot be accepted that the plaintiff, while working for the defendants, had received a very high salary and that such a salary was also intended to enable the recipient to a accumulate capital or to provide otherwise for his retirement. Although the plaintiff received a salary and a share of the profits which were high in the circumstances, the parties agreed in 1935 on a pension which was appropriate at that time in order to assure the plaintiff in any event of maintenance corresponding to his standard of living at that time. The parties assumed that in his old age the plaintiff should not have to rely on his savings alone. Conversely nothing suggests that they regarded the pension as the sole resource of maintenance for the plaintiff.

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It follows that the present economic situation of the plaintiff is irrelevant. Clearly the holder must not suffer disadvantage because by his own effort he has built up a multiple and particularly good nest egg for his old age. All the more it is not the intention of a promise of a pension that in his old age the beneficiary must have recourse for his maintenance to the substance of any capital he may have saved.

VII. . . .

Case 105

BUNDESGERICHTSHOF (THIRD CIVIL DIVISION) 13 NOVEMBER 1975 NJW 1976, 565

Facts

On 24 June 1971 the defendant, a football club and a member of the German Football League transferred W, one of the players, to the plaintiff for the fee of DM40,000. Both parties were unaware of the fact when he appeared for the defendant that in a League match against Arminia Bielefeld on 29 May 1971 he had accepted a bribe. After having played three times for the plaintiff W confessed. The plaintiff dismissed W with immediate effect and he was barred from playing by the German football league.

The plaintiff contended that the contract of transfer was void and demanded repayment of the transfer fee. The courts below gave judgment for the plaintiff. A second appeal by the defendant was rejected for the following reasons.

Reasons

I. The Court of Appeal has allowed the claim for the repayment of the transfer fee on the ground of a mutual mistake of the parties concerning the basis of the transaction when they concluded the transfer contract on 24 June 1971 and that the plaintiff had validly rescinded the contract because the basis of the transaction was absent.

II. The Court of Appeal started from the proposition that both parties were mistaken about the basis of the transaction when they concluded the contract of transfer and therefore applied to the present case the principles concerning the legal consequences of the absence of the basis of a transaction. This means that in the case of a mutual mistake of the contracting parties concerning the basis of the contract the legal consequences are governed by para 242 BGB [references]. In such a case it may be contrary to good faith, if one party seeks to hold the other party to the contract [references].

1. The view of the Court of Appeal that a mutual mistake concerning the basis of the transaction had occurred in the present case cannot be questioned, contrary to the opinion of the appellant.

(a) The basis of a transaction consists of the common notions of the parties, which did not become part of the contract as such but had manifested themselves at the conclusion of the contract, or it consists of the notions of one of the parties which the other parties could recognise and did not question concerning the existence or future emergence of certain circumstances on which the intention of the parties to transact business is founded [references]. The Court of Appeal started from this rule.

APPENDIX I: CASES 819

(b) The Court of Appeal found that the plaintiff wishes, by concluding the contract of transfer, to be able to engage the player W and to employ him during the coming seasons as a member of its team in a regional league. The court found also that it was a matter of course for the parties to assume that the player was not subject to a charge which might endanger his licence to play for the club of his transfer. These findings

. . . of a factual kind bind the court and also support the view of the Court of Appeal

. . .

2.If . . . two football clubs, such as the plaintiff and the defendant, agree on the payment of a transfer fee in order to create the condition, required by the statutes of the German Football League, to enable a player to receive permission to apply for the club to which he is transferred, the parties in making a reasonable assessment of their mutual interests assume as a basis of their contractual intention that the player does not possess any personal characteristics which render him objectively unfit to receive a player’s licence.

3.The Court of Appeal has not overlooked that not very disturbance of the basis of a transaction is significant. In view of the paramount importance in the law of contracts of the principle that contracts must be carried out, reliance on the fundamental disturbance of the basis of a transaction is only admissible in exceptional cases, if it appears imperative in order to avoid an unbearable result which cannot be reconciled with law and justice and which the party concerned cannot be expected to accept according to good faith [references] . . . If a football player accepts bribes in order to tamper with the results of a game, he offends severely against the recognised rules of the sport and against the principles of decency in sport. As a rule he is no longer suitable to receive a licence to play for clubs of the German Football League. To pay a transfer fee for such a player is to make payment in a legal vacuum. As shown above

(2) the agreement concerning a transfer fee only makes sense if the player fulfils the personal prerequisites that he can receive a player’s licence according to the statutes of the German Football League. These prerequisites are lacking, as a rule, if a player has been prepared to accept money in order to influence the results of competition in sport through fraudulent activities.

Thereby a financial obligation between the clubs engaged in the contract of transfer loses its material justification. A player who is subject to such a serious charge has, objectively, also lost his value for his previous club because, after his defect has become known, he cannot play for any club at all. It does not appear justified to grant compensation to the transferring club for a loss which it would have suffered also if the player had not moved to another club, and to burden the club to which the player was transferred with a corresponding duty to pay compensation, although it cannot derive any benefit from the player, either financially or in sport. In these circumstances the basis of the transaction has been undermined to such an extent that the club which owes the money cannot be expected to adhere to the contract of transfer which was concluded in ignorance of the bribery. Nor can it be doubted that not only the plaintiff, but also every other club, would have refrained from concluding a contract, if informed of the situation.

4.The Court of Appeal has also delimited correctly the respective spheres of risk. As the appellant points out correctly, the distribution of the risk is especially important for determining the question of the legal consequences of the disappearance of the basis of the transaction. It is established by the practice of the courts that

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circumstances which according to the purpose of the contract clearly fall within the sphere of risk of one of the parties do not as a rule entitle that party to rely on the collapse of the basis of the transaction [references]. This is not, however, the case here

. . .

(c)In the present case it is decisive that player W, having been involved in an act of bribery at the time when he changed clubs, could no longer be considered a licensed or contractual player for personal reasons in accordance with the rules established by the German Football League and recognised as binding by the parties. In consequence of his entanglement in the scandal in the Federal League he was afflicted with a personal defect which excluded him altogether as a player, for any club, as the legal outcome of the matter in the German Football League shows. It is irrelevant that the parties were ignorant of this when they concluded the contract. What matters is the objective situation, not the subjective knowledge of the parties. W lost his personal qualification as a football player within the area of the German Football League when he acted contrary to the rules of sport and not only when this became known to the public. Consequently already at the time when he changed clubs he lacked the legal pre-requisites for being used by a club belonging to the German Football League. Such a player also loses his objective ‘value’ for his original club as a result of an act contrary to the rules of sport. If the defect adhering to the player is only discovered after the contract for a transfer has been concluded, this only discloses that the player had already lost the qualities which rendered him valuable for a club in the German Football League. Such a defect is to be attributed, as a rule, to his old club, for it originated in the latter’s sphere.

(d)The Court of Appeal regarded as decisive for the distribution of the risk to what extent the misconduct with which the player must be charged touches in essence his internal relations with the club which employs him. It held that the nature of the obligation of a licensed player towards his club consisted in playing for and not against his club; accordingly it has placed the burden of the risk of any violation of this obligation on the club that employed him, even if the player migrates to another club later on. The Court of appeal has rightly placed the risk on the defendant as being the club which is ‘more closely involved’, having regard to the circumstances of the case, than the plaintiff. The fact that the player W was bribed in connection with the league match of the defendant in Bielefeld on 29 May 1971, which constitutes the cause of the disruption of the basis of the transaction represented by the contract of transfer, belongs to the ‘sphere of risk’ of the defendant not only from the point of view of time. The misconduct of the player is also directly connected with his activity for the plaintiff in sport and as an employee. In the light of such a situation it cannot be assumed according to good faith that the plaintiff assumed the risk.

5.The Court of Appeal held that as a result of the absence of the basis of the transaction the plaintiff is entitled to withdraw from the contract and has allowed the claim for the full repayment of the transfer fee. This too cannot be faulted on legal grounds.

(a)The absence or the failure of the basis of a transaction does not, of course, result in the complete elimination of the contractual relationship The release of one or of both parties to a contract from their contractual obligations must only be allowed in so far as good faith so requires. The first question is, therefore, whether the contract cannot be modified so as to accord with reality in a manner which takes into account the legitimate interests of both parties [references]. The Court of Appeal has observed

APPENDIX I: CASES 821

these principles. It has held that a modification of the contract is excluded because the counter-performance of the defendant in releasing the player W prematurely was worthless in practice and, in particular, because an apportionment of the financial damage among both parties was ruled out in view of the obvious distribution of the risk. This conclusion, too, cannot be faulted . . .

Case 106

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 8 FEBRUARY 1984 NJW 1984, 1746

Facts

In 1977 the plaintiff, an Iranian importer, ordered from the defendant, a German brewery, 12,000 cases of export beer, 24 cans per case, at a price of DM15.36 per case. The price of DM184,320 was paid by draft on a bank in Teheran in July 1977. The goods were to be delivered c.i.f. Teheran, and were shipped in August 1977 from Bremen to a port in Iran, whence they were largely distributed inland. Investigations disclosed that about 40 per cent of the goods were damaged and unusable, and on 7 November 1978 the parties reached the following compromise: ‘Until 31 May 1980 the plaintiff may buy cases of beer at a reduced price of DM9.30 . . . Payment of DM20,000 will shortly be made to the plaintiff’s account in Teheran. The balance of the sum demanded as damages, a further DM20,000, will be paid on receipt of a draft in respect of 20,000 cases of beer . . .’ The first DM20,000 was paid to the plaintiff by the defendant, but no more deliveries of beer were made nor was the further DM20,000 paid to the plaintiff. In January 1979 the Shah fled and Ayatollah Khomeini seized power in Iran. Since then, according to the plaintiff, the Islamic Republic has a total prohibition, on pain of death, of trade in alcoholic products and the importation of alcohol into Iran. The plaintiff wished to negotiate a further extrajudicial settlement, but the defendant would not consent, so the plaintiff in the present litigation claimed damages in respect of the useless beer in the amount of DM53,728 (ie, 40 per cent of DM184,320 = DM73,728 less DM20,000 already received).

The Landgericht gave judgment for the full amount, the Oberlandesgericht only in the sum of DM37,000. The [defendant’s] appeal was dismissed.

Reasons

II.

1. . . .

(c) According to the court below, this was not a case of impossibility of performance, since the prohibition of importing alcohol into Iran did not affect the defendant’s duty to make compensation for the harm it had caused. The parties do not challenge this, and the court was correct so to hold, at any rate in the result, since the plaintiff’s obligations under the compromise were performed by the very act of making it (partial release, granting of delay, modification of the debt) and the defendant’s obligations thereunder, namely to pay the further DM20,000 and to deliver discounted beer f.o.b. German ports as agreed in 1977, were perfectly capable of being

822 APPENDIX I: CASES

performed. The plaintiff was not bound to order any beer or to set up a credit line; these were options of the plaintiff and preconditions of the defendant’s obligations.

(d)The court below was right—as the parties accept—to deny that the compromise was invalidated by para 779 BGB. Under this provision a compromise is invalid only when the actual underlying facts differed from those supposed by the parties. If, by contrast, expectations as to future events which the parties entertained at the time of the compromise are falsified by subsequent occurrences—such as here the political developments in Iran and their effect on the contract—para 779 BGB cannot invalidate the compromise [references].

(e)The court below was correct to start from the position that the basis of the transaction [Geschäftsgrundlage] of 7 November 1978 subsequently collapsed.

(aa)Even the appellant admits that, quite apart from para 779 BGB, para 242 BGB is applicable to a compromise. [reference].

(bb)The basis of a transaction consists of the common assumptions entertained by the parties at the time of the contract, or of an assumption of one of the parties, ascertainable by the other and not objected to by him, regarding the existence or future occurrence of circumstances, to the extent that the parties’ intention to make the transaction is based on such assumptions [reference]. The court below held that the possibility of further deals between the parties was the basis of the transaction. The appellant’s objection to this is misconceived. This was not simply a wish of the parties, even though it was frequently expressed, for only further dealings could achieve the economic purpose of the compromise, to make good the losses suffered by the plaintiff. The discount on the price of the beer could make sense only if the plaintiff could dispose of any beer it ordered. The finding that this assumption by the parties formed the basis of the compromise is not in conflict with the principle that a party may not, by invoking matters which fall within his own area of risk, claim that the basis of the transaction has collapsed [reference]. It is true that in commercial matters the risk of being unable to dispose of the goods normally falls within the purchaser’s area of risk [reference], but the court below was right to point out that this was not a contract of sale but a transaction by which the defendant was to compensate the plaintiff for its losses. There is nothing to suggest that if the compensation envisaged by the compromise failed to materialise, the parties intended the loss to be borne by the plaintiff alone.

(cc)The basis of the compromise has collapsed. The court below found that trade in alcoholic drinks in Iran is forbidden. The appellant’s objections are without merit

. . .

(dd)This court has always held that the collapse of the basis of a transaction can only be invoked when otherwise there would be manifestly intolerable consequences inconsistent with law and justice and such as cannot be imputed to the party affected [references]. Nevertheless, the basis of a transaction may be held to have collapsed if the balance of the reciprocal obligations has been gravely disturbed by some intervening event [reference]. In this compromise the plaintiff, in return for waiving its right to sue in respect of the delivery of defective beer in August 1977, was to receive a given benefit in exchange, and is entitled to more than a fraction of that benefit.

The appellant objects in vain that the plaintiff should have foreseen the political developments in Iran. The parties’ expectations—here of their future cooperation— may constitute the basis of a transaction even if they are aware that their expectations

APPENDIX I: CASES 823

may not be answered. According to the findings of the court below, to which the appellant makes no procedural objections, the possibility that these expectations might be frustrated was not so manifest as to prevent the plaintiff from invoking the collapse of the basis of the transaction.

(ee)Notwithstanding the collapse of the basis of the transaction, the court below upheld the compromise, but altered its terms. It was right to do so [references]. Only exceptionally do the rules of collapse of the basis of the transaction make the contract disappear in toto; the general rule is that the contract should be maintained so far as possible and simply adjusted to the changed situation so as to do justice to the justified interests of both parties [references]. The evidence does not suggest that if they had known how matters would develop, the parties would have refused to enter any compromise at all. After all, when the plaintiff notified him that the goods were defective, the defendant originally proposed a deal which made no reference whatever to further deliveries of beer. If the compromise is to be upheld, the prior legal situation is irrelevant, so it is immaterial how seriously the defendant questioned the size of the plaintiff’s claim or whether the compromise was a very generous one on his part.

The way the court below set about adapting the contractual duties of the parties to the altered circumstances represents an exercise of an ex officio discretion of the judge of fact [reference]. The court divided the loss resulting from the collapse of the basis of the transaction equally between the parties. Such a division is quite in order when there is no reason to adopt a different division, and when the loss due to the disturbance cannot be loaded on to one of the parties only [references]. Nothing in the procedure suggests that either party has been burdened with more than half of the risk that the compromise might not be executed. Given the inadequacy of the evidence, the court below had to make a lump-sum estimate of some matters, such as the profit to be made from further sales of beer, but this lies within the area of the fact-finders and certainly does not suggest that adaptation of the contract is impermissible.

(ff)The precise way the court adapted the contract is also legally acceptable.

(gg)In order to work out the profit the plaintiff would probably have made had the compromise been executed, the court assumed that during the period when a discounted price was on offer it would have ordered 60,000 cases and made a profit of DM0.90 per case. Neither finding is irrational, as the appellant asserts. para 287 I ZPO, possibly by analogy, provides a basis for the court’s estimate of the amount that might well have been ordered. In estimating the gain the plaintiff would have made had the compromise been carried out, the court arrived at an estimate of the amount of the plaintiff’s loss. Since in fact the compromise was not carried out and no exact proof of the amount is available, para 287 I ZPO permits an estimate to be made [reference]. There is no reason not to allow a similar estimate when a contract is being adjusted after its basis has collapsed. The courts have constantly held that estimates made by judges of fact under para 287 I ZPO may be reviewed on appeal only to the extent that the evaluation has been made on obviously false or fundamentally irrelevant grounds or if facts with a critical bearing on the decision have been ignored. The estimate made by the court below survives such a review: . . .

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Case 107

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 14 OCTOBER 1992 NJW 1993, 259

Facts

The parties were ‘people’s enterprises’ in the former German Democratic Republic (DDR), now transformed into limited liability companies. Under the DDR’s Economic Plan for 1990 the plaintiff was required to buy a large piece of machinery from an Austrian supplier, and the defendant was to pay the plaintiff the sum of 1,706,000 DDR M, half of which the defendant was to receive from general state revenues and the other half through a bank credit. Nothing was forthcoming from the general state revenues, and the bank credit, which the defendant transferred to the plaintiff, amounted to only DDR M376,806.90. The Contract Law of the DDR which was applicable to the contract at the time of its formation was repealed on 1 July 1990, but, according to the Bundesgerichtshof, remained applicable in so far as consistent with the new market economy. When the DDR was absorbed into re-united Germany, DDR-M were converted into DM at the rate of two for one.

The plaintiff claimed the unpaid balance. The Kammergericht ordered the defendant to pay DM451,346.55 with interest. Both parties appealed, and the case was remanded to the Kammergericht.

Reasons

The defendant’s appeal:

The parties are agreed that under the contract of January 1990 the plaintiff had a claim against the defendant for 1,706,000 DDR-M, which was reduced in amount by the 376,806.90 DDR-M paid on 26 June 1990. The plaintiff accordingly had a claim against the defendant in the amount of 1,329,193.10 DDR-M.

This outstanding claim has been neither met by payment nor extinguished by statute, but must be adapted in accordance with the principles of the collapse of the basis of the transaction, given that the state failed to provide the envisaged finance . . .

2. The Contract Law of the DDR gives the defendant no claim for cancellation or modification of its duty to pay. The wording and purpose of para 78 of the law, which might be thought applicable, make it clear that an economic contract can only be affected by reason of overwhelming social interests, which neither existed nor were suggested in this case . . .

5. The Kammergericht was of the following view. The defendant could claim a reduction in the price under para 242 BGB, for the maxim of good faith and fair dealing was an ethical principle of law which is applicable throughout the whole system. It is therefore applicable even to contracts formed in the DDR prior to the entry into force there of the BGB, to the extent that novel circumstances external to the contract and not arising from its own terms are involved. The change of the currency from DDR-M to DM was irrelevant . . . It was also irrelevant that the defendant had not received the full amount of the credit envisaged by the plan. It may have been true that on forming the contract the parties counted on the sale being financed as to 50 per cent by the bank credit, but a debtor cannot successfully invoke the occurrence of

APPENDIX I: CASES 825

unexpected difficulties in obtaining finance or the failure of a planned credit to materialise. However, it was relevant under para 242 BGB that the defendant did not receive the promised amount from the DDR’s general revenues. When the sale contract was entered into, both parties operated on the basis that the state plan provided for 50 per cent of the finance. The intervening collapse of the state plan and the consequent impossibility of obtaining payment from the state amounted to a collapse of the basis of the transaction. After the parties were transformed into stock companies it would not be consistent with good faith and fair dealing for the defendant alone to be burdened with the loss. Thus the contract had to be modified, so that each party bore half of the loss due to the failure of the state to provided the promised moneys.

(a) These observations are not in every respect correct in law.

Certainly the Kammergericht was right to hold that the rules relating to the collapse of the basis of the transaction, which follow from the principle of good faith and fair dealing, were applicable in this case. This principle is a legal principle transcending statute and immanent in all legal systems; for example, its effect may be seen in A 1 no 2, sentence 2 of the common Protocol on the leading principles of the Treaty between the DDR and the Federal Republic for the Creation of a Monetary, Economic and Social Union, which is binding by reason of Art 4 I 1.

(b)The basis of a transaction is constituted by the common assumptions entertained by the parties at the time of the contract, or by an assumption of one of the parties, ascertainable by the other and not objected to by him, regarding the existence or future occurrence of circumstances, to the extent that the parties’ intention to make the transaction is based on such assumptions [references].

(aa)We need not decide whether the court below was right to hold that the change of currency in itself or the abandonment on 1 July 1990 of the provisions regarding prices in the DDR were not events such as to justify adaptation of the contract, for the court rightly held that the leading occurrence which justifies such modification is the failure of the state to provide the allocated finance, that is, an event prior to the change of currency and the repeal of the price regulations.

(bb)The court below held that at the time the contract was formed the parties assumed that the ‘Reconstruction A’ plan was a state plan which was to be financed, in accordance with the provisions of the state, as to 50 per cent from state revenues

. . . It is uncontested and decisive that the plaintiff as well as the defendant assumed at the time of the contract that the financial needs would be fully met from state sources. In this sense the contractual will of the parties (in so far as one can speak of such a thing when a planned economy is in force) rested on this common assumption.

(c)The court below was also right to hold that the parties’ common expectations were also frustrated in regard to the provision of the bank credit, but it proceeded to deny the defendant’s invocation of the rules of collapse of the basis of the transaction, on the ground that a debtor is in principle not allowed to found on unexpected difficulties in obtaining finance when a source on which he had counted fails to materialise, this being a risk which falls within the debtor’s area of risk.

On the special facts of this case this court cannot agree.

(aa)The case law certainly recognises that circumstances which clearly fall within the area of risk of one or other party, given the contractual purpose, do not entitle that party to claim that the basis of the transaction has disappeared [reference]. Thus the Bundesgerichtshof has decided that the failure of expected finance to materialise is

826 APPENDIX I: CASES

not normally to be seen as a collapse of the basis of the transaction, since this falls within the debtor’s sphere [reference]. But it must not be overlooked that these decisions were rendered against the background of a functioning market economy. In the context of a socialist planned economy matters are different. The economic units of the DDR ran no financial risk if they adhered to the plan, as it was guaranteed by the total state direction of the economy, including control of the banks. The defendant had no choice: it had to adhere to the stipulations of the plan, buy the machine and rely on the provision of the finance allocated by the plan. This was the situation at any rate at the end of 1989 and the beginning of 1990, when the contract was formed, and at that time the very quick succession of events, the collapse (mid-1990) and the speedy unification (October 1990), was not to be foreseen. Thus the defendant cannot be charged with having taken any risk at the time of the contract even with regard to the provision of credit envisaged by the plan. It had no power to influence the allocation between general revenues and credit. To refuse to adapt the contract in relation to the part that was to come from the credit, as the court below has done, would be to make the individual business’s ability to claim adaptation depend on a capricious distinction drawn in the state’s financing plan.

(bb) The facts here, where the claimant took no risk, distinguish this case from those decided by the Bundesgerichtshof after the collapse of 1945 [references]. The appellant overstates the effect of those cases in saying that no account may be taken of the collapse of the basis of the transaction when fundamental political, economic or social changes have occurred . . .

(d)The defendant cannot be expected to continue to adhere to the contract with the plaintiff on the existing terms. In respect of machinery costing DM376,806 the defendant, who already paid 376,806.90 in DDR-M in June 1990, is now being sued for a further DM664,597. It would be inconsistent with law and justice to grant the claim, and contrary to good faith and fair dealing to insist on it.

(e)In effecting the necessary modification of the contract it must be borne in mind that it is only exceptionally that the doctrine of the collapse of the basis of the transaction leads to a total cancellation of the contractual duty; generally the contract is to be maintained so far as possible and simply adapted until it accords with the justified interests of the parties [references]. In the case of a contract formed by autonomous parties it may be right to ordain a disposition which reasonable parties would have adopted had they foreseen the eventual situation [reference], but that does not apply where the contract was imposed by the state [reference]. In cases like the present the only consideration is to effect a fair resolution of the respective losses of the parties.

The modification must take place as of the time when the basis of the transaction collapsed, that is, as of the time when it was clear that the finance was not going to be forthcoming. That was in June 1990. . .

We agree with the court below that it accords with the facts and the interests of the parties to effect an equal split of the loss resulting to the defendant from the collapse of the basis of the transaction. Any other modification more favourable to the defendant would be unfair to the plaintiff, for it had to obtain credit for the requisite import of the machinery in the full amount of the stipulated price . . .

APPENDIX I: CASES 827

Chapters 8–10

Case 108

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 8 JULY 1982 NJW 1982, 2494

Facts

On 10 February 1977 the defendant commissioned the claimant to carry out clinker brick-cladding work on 60 houses at a price of DM70.80 per square metre. Work came up on further houses. The parties agreed that the VOB/B (1973) (General Conditions on Building Contracts) would apply. A formal approval on inspection did not take place. On 16 August 1978 the claimant submitted a final invoice of DM692, 397.04, minus sums already paid totalling DM544, 059.11. The defendant made deductions in respect of certain items, alleged higher interim payments than stated and deducted an agreed security figure of 5 per cent = DM31, 890. The defendant also retained the outstanding amount of DM46, 474.77 on grounds of defective work on four houses (F,G, L, and B). He estimated the costs of correcting the defects at DM32,742. In reply, the claimant alleged that these costs were sufficiently covered by the security sum retained for the five-year term of warranty. By court action the claimant now demands DM148,337.93 residual payments for wages plus interest.

By partial judgment, the lower instance courts granted the claimant the mathematically undisputed outstanding amount of DM46, 474.77 plus interest. The defendant’s further appeal was admitted and resulted in the quashing of the judgment and a referral back to the Landgericht.

Reasons

I. The Appeal Court, like the Landgericht, holds that the retained security sum must be included when assessing the defendant’s right to refuse performance of the contract because of proven claims for improvements.

There is no reason to grant the defendant further security. The security retained is also not to be divided into partial amounts attached to each house; the period of warranty commenced with the approval of the work as a whole, for which reason the calculation is to be based on the entire amount retained, ie DM31,890. This sum covers the assessed costs for the removal of the defects found in houses F and G in respect of which the claimant intends to retain at least DM23,000. Insofar as the defendant, in appeal proceedings, for the first time bases his right to refuse payment amounting to a further DM26,000 on defects in the houses stemming from damp, his counterclaims must be rejected for being belatedly submitted.

The further appeal successfully refutes these arguments.

1. According to the contract of 10 February 1977, in the final accounts ‘5 per cent of the net building costs will be retained for the duration of the term of warranty, ie for five years from the date of approval’. Such an agreement on a security sum to be retained will basically not prevent the principal from refusing payments due because of defective workmanship While the security is intended to ensure a contractually correct performance and the preservation of the warranty rights (para 17 No1 II VOB/B

828 APPENDIX I: CASES

[1973]), the refusal to perform contractual duties under para 320 BGB is intended, apart from safeguarding claims, to put pressure on the contractor to perform his duties immediately (Senat, NJW [1958] 706 No4; [1981] 2801; BauR [1978] 398 [400] = ZfBR [1978] 25 [26]). The defence based on para 320 BGB can thus not be averted by granting a security (para 320 I 3 BGB). The retention after approval of residual wage payments already due aims to induce the contractor immediately to rectify the defects as set out in para 13 No5 VOB/B. As long as there is a right to claim removal of defects, and the parties are thus not obliged to make final settlements after the term of warranty has expired and the sums retained as security have become due, the defendant is in principle entitled, over and above his right to the security, to refuse payment for reasons of defective work (italics as per original).

2.Fixing a quite considerable sum as security may have an impact on the amount to which performance can justifiably be refused; but the principal is not solely restricted by that amount when he alleges faulty workmanship and the costs for repairs are covered by the security sum. Instead, he can retain a further considerable amount which he deems necessary to pressurize the contractor into a speedy correction of the defects. The latter may not plead that the principal can only exercise his right to refuse performance insofar as he has a claim to have defects repaired which in monetary terms exceed the security (BGH, NJW [1981] 2801). The amount of the sum which the principal may retain under para 320 BGB depends on the actual circumstances and the principle of good faith. This Division of the Court has already pronounced that two or three times the sum of expected costs for repairs are adequate [BGH, NJW [1981] 2801 with further references]. Thus the appeal court’s reasoning can only be followed insofar that the security should be taken into consideration and must be included when calculating the amount up to which payments can be validly refused. Nonetheless, the fact that the expected costs for repair are or are not covered by the security cannot be decisive. The point is not ‘to grant the defendant a further safeguard’, as the appeal court holds. Refusal to perform the contractual duties is, rather, intended to put adequate pressure on the claimant speedily to repair the defects in the work done.

3.Although it cannot be right to allot the retained security schematically in equal amounts of DM362 to each of the 88 houses, it nonetheless cannot be forgotten that the defendant exercises his right to refuse performance for reasons of defects which occurred in four houses and as early as during the first year of the warranty period. But the retained sums are meant to safeguard the claimant’s rights in respect of all houses and for a period of up to five years. In the case of large-scale building projects such as this one further defects and damage resulting from such defects are to be expected. Moreover, the term of warranty has not expired. Thus the sums retained as security can only be included to a very limited degree in the calculation of the amount up to which performance of contractual duties may be refused.

According to the substantiated facts on which the further appeal is to be based, the right to refuse payments up to the sum of DM23,000 for alleged costs for repair amounting to DM15,114 for the houses F and G is an adequate remedy. The same is true in respect of a further and subsequently substantiated right to refuse payment up to the sum of DM26,000 because of alleged costs for repairs totalling DM17,628 for the houses L and B. In this respect, it is immaterial at which point the defendant became aware of the defects in these houses. The right to refuse performance as set out

APPENDIX I: CASES 829

in para 320 BGB does not depend on the opponent’s knowledge but rather on whether the other party’s performance was not carried out at all, or insufficiently or with defects, so that the debtor’s default is partially or totally excluded (see: BGH, NJW [1966,] 200; WM [1974] 369 [370]). Where the right to refuse performance is asserted during court proceedings, once acceptance of the work has taken place, this will not however lead to a (partial) dismissal of the claim but merely to a judgment ordering simultaneous performance, ie of payment and of repair of defects. [Para 322 I BGB; see BGHZ 61, 42 [45] = NJW [1973] 1792 with further references; BGH BauR [1980] 357; see also BGHZ 73, 140 [144] = NJW [1979] 650].

. . .

Case 109

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 16 JULY 2003 NJW 2003, 3341

Facts

On 6 June 2001 the claimant ordered a Camcorder DV Panasonic NV-DS 38 EG at the price of DM1999 by email from the defendant, who carries on, among other things, a mail order business in electronic equipment in M. The purchase price was paid by the credit bank which was brought in. On 28 June 2001, the defendant gave the properly addressed package to a parcel service for dispatch to the claimant. The claimant alleges that he has not yet received the camera. He had not signed the delivery slip of 29 June 2001 submitted in this legal action by the defendant; the signature (‘M U’) was a forgery.

In his claim, the claimant demands that the defendant be ordered to hand over a camcorder of the type described, and to transfer ownership of this camera. The defendant claims that, by handing over the package to the parcel service, it had done what was necessary on its side for fulfilment, as there was a duty to send, and § 447 of the BGB was to be applied. The claimant had also received the parcel; the signature on the delivery slip was his.

The Amtsgericht has rejected the claim, and the Landgericht has rejected the claimant’s appeal directed against this. The claimant is pursuing his claim to its full extent by his appeal in law which has been admitted by the appeal court.

Reasons

I. In its decision, which satisfied the requirements of § 540 of the ZPO (Civil Procedure Order), the Landgericht has assumed that the present case was concerned with a mail order purchase in the sense of § 447 BGB, and the defendant had therefore complied its obligations arising from the purchase contract by handing over the camcorder to the parcel service on 28 June 2001. The provisions of § 447 BGB were also to be applied to modern forms of sale, as the legislature, in spite of critical opinions in the literature, had not taken the reform of the law of purchase as an opportunity to regulate these forms of sale in a different way.

II. The decision of the Landgericht stands up to legal examination in the end result.

830 APPENDIX I: CASES

1.The appeal court has obviously admitted the appeal in law in accordance with § 543

(2) no 2 of the ZPO because it considered it necessary to settle the legal question of whether, under the reform of the law of purchase, the provisions of § 447 BGB ‘can and should apply to modern forms of sale.’ This question does not however need settlement by the highest courts for cases of the present kind, as the legislature has already answered it by the insertion of § 474 (2) BGB. According to this provision, application of § 447 BGB to contracts for the purchase of consumer goods is—compulsorily— excluded (§ 475 (1) BGB). There is no doubt that, according to the statutory definition in § 474 (1) sentence 1, first half sentence of the BGB, a case of the kind which is present here represents a purchase of consumer goods. Although the admission of the appeal in law formulated by the appeal court accordingly has no valid subject matter, the court dealing with the appeal in law is bound by it (§ 543 (2) sentence 2 of the ZPO).

2.The reasoning for the admission of the appeal in law reveals that the appeal court intended already to apply the law of purchase in its new version which came into force on 1 January 2002. That is certainly legally incorrect, because in the present case the relevant provisions are the version which still applied until 31 December 2001 (Art 229 § 5 sentence 1 of the EGBGB (Introductory Statute to the BGB)). But as § 447 of the BGB remained unamended, and the Landgericht overlooked the new exclusionary provision in § 474 (2) BGB, the legal error has in this respect no consequences as it depends on the provision—subject to the following observations.

3.The appeal court has, in the end result, correctly assumed that the defendant is not obliged to deliver another camcorder of the same type under § 433 (1) BGB, even if the claimant did not receive the camcorder and it disappeared in an unexplained fashion en route after dispatch.

(a)In this respect it certainly does not matter whether, according to the special provisions of § 447 (1) BGB applying to a mail order purchase, the risk had transferred to the claimant. The defendant’s duty of delivery had already lapsed under the general provisions of § 275 BGB, old version, when the camcorder disappeared after it was handed over to the parcel service. According to these provisions, the creditor is released from the duty to perform in so far as performance becomes impossible as a result of a circumstance arising after the commencement of the obligation relationship for which he is not responsible. These prerequisites are fulfilled here; in particular nothing has been alleged or is otherwise evident to suggest that the defendant has violated its duties to show care (Sorgfaltspflichten) in the choice of the parcel service entrusted with the dispatch of the camera. Besides this, it is not inconsistent with release from the duty to perform that an obligation as to class (Gattungsschuld) was agreed when the camera was ordered (§ 279 of the BGB, old version). By the choice of an actual piece of equipment and the delivery of it by the defendant to the parcel service, the obligation relationship was limited under § 243 (2) BGB to the camcorder handed over. By delivery of the piece of equipment to the carrier, the defendant has done what was necessary on its side in the sense of this provision for the effectuation of the performance owed, and this also follows from § 447 (1) BGB. The place for performance for the actions to be undertaken by the defendant to effect performance was its place of business (§ 269 (1) and (3) BGB).

(b)The place for performance of the obligation owed by the seller to hand over the item purchased to the buyer and to transfer ownership in it (§ 433 (1) sentence 1 of the BGB, old version) is, in case of doubt, the seller’s place (of residence). Admittedly this

APPENDIX I: CASES 831

only applies if no (other) place for performance can be deduced, either from a determination by the parties or from the circumstances, in particular from the nature of the obligation relationship (§ 269 (1) BGB). The claimant does not claim, nor is it otherwise discernible, that the parties have expressly or tacitly agreed a place for fulfilment for delivery of the camcorder which is different from the defendant’s address (Sitz). Nor does such a thing follow from the circumstances, for instance from the nature of this purchase contract. The fact that in the mail order business it is typically the task of the seller to effect the sending of the item purchased—at his own cost or that of another—is no basis on its own for the assumption that the place for receipt should also be the place for performance (place for fulfilment) for the seller’s duty of delivery (argument from § 269 (3) BGB). The presumption in § 269 (1) BGB, according to which the defendant’s address (Sitz) was the place for fulfilment of the seller’s duties which it owed, therefore remains (likewise Bamberger/Roth/Grüneberg, § 269 marginal no 10, 33; Soergel/Wolf, 12th edn, § 269 marginal no 16; contra OLG Stuttgart, NJW-RR 1999, 1576; MünchKomm/Krüger, 4th edn, § 269 marginal no 20; Palandt/Heinrichs, 62nd edn, § 269 marginal no 12).

(c)Whether the defendant, as it claims, also makes it possible for its customers to collect goods from its branch businesses can be left undecided (see judgment of the senate of 5 December 1990—VIII ZR 75/90, NJW 1991, 915 on dispatch to another place than the place for fulfilment). Even if the defendant sells goods exclusively by mail order, this does not change the fact that the customer’s order at least contained a conclusive declaration that the item purchased was to be delivered to him at his residential address (Wohnanschrift) or another address given for dispatch.

(d)No different conclusion follows from § 447 BGB. This provision allocates to the buyer the risk, associated with the dispatch, of accidental destruction of or damage to the item, if the seller dispatches the item sold to another place than the place for fulfilment at the request of the buyer. In this case the risk of counter-performance passes to the buyer as soon as the seller hands the thing over to the person entrusted with the dispatch (but see, after the new law for the consumer goods purchase, § 474

(2)BGB). The place for performance to be determined in accordance with § 269 BGB is not affected by the regime in § 447 (1) BGB. The definition in § 447 (1) BGB assumes instead that the place for the action of performance to be undertaken by the seller (place of performance), and the place at which the consequence of performance occurs, are separate (Soergel/Huber, BGB 12th edn, § 447 marginal no 14; Bamberger/Roth/Faust, BGB, § 447 marginal no 5).

4. In the end it no longer matters whether the parcel service actually handed over the package to the claimant and he signed the delivery slip, as the defendant has alleged, The claimant cannot demand the (fresh) delivery of a camcorder of the type purchased. His appeal in law must therefore be rejected.

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Case 110

REICHSGERICHT (SIXTH CIVIL SENATE) 7 JUNE 1915

RGZ 87, 64

Facts

On 20 July 1913, there was a collision between a tram belonging to the plaintiff and a taxi belonging to the first defendant and driven by the second defendant. The passengers in the taxi, Sch, an accountant, and his wife and daughter, were injured. They claimed damages from the plaintiff tram company under the Imperial Law of Liability. The plaintiff now alleges that the accident was entirely due to the fault of the second defendant, for which the first defendant is responsible, and seeks a declaration that the defendants are bound to indemnify it for all loss arising from the accident.

The lower courts granted the claim and the defendant’s appeal is dismissed.

Reasons

1. The court below did not misapply § 278 BGB, as the appellant contends. Doubts may certainly be entertained about the reasoning of the Court of Appeal that in a case like the present the taxi driver may regard all his passengers as contractors, and may look to each of them for the fare. We need not decide this however since in any case there is no doubt that a contract was made with the accountant Sch, who boarded the taxi at the same time as his wife and daughter. But that does not mean that he is the only person with a contractual claim arising out of the contract of carriage. On the contrary, the contract of carriage is a contract in favour of the wife and daughter who were travelling with him; they were ‘third parties’ under § 328 BGB, and acquired a direct right to demand performance, namely proper and safe carriage. There is therefore no reason to doubt the Court of Appeal’s conclusion that the first defendant was liable under the contract of carriage to all three passengers, and the he must answer for the fault of the second defendant, who in this respect was his agent for performance under § 278 BGB.

Case 111

BUNDESGERICHTSHOF (EIGHTH CIVIL DIVISION) 24 OCTOBER 1979 BGHZ 75, 221

Facts

On 2 January 1973, the defendant sold B seven lorries, under retention of title until final payment of the purchase price, and delivered the vehicles to B.

As part of two agreements on the provision of collateral of 14 January 1974 and 24 July 1975, B and the plaintiff concluded agreements on the transfer by way of security of the expectancy, in rem, in respect of five of the vehicles still under retention of title. This transfer was meant to safeguard all other outstanding and future claims the defendant might have against B from existing invoices and other legal titles. The plaintiff and B concluded a concurrent agreement on the loan of the vehicles to B.

APPENDIX I: CASES 833

On 20 November 1975, the defendant and B amended their purchase contract of 2 January 1973 to the effect that the lorries should remain the defendant’s property as security for all current and future main and ancillary claims stemming from the entire existing business relationship Thereafter the defendant granted B several loans.

On 19 December 1975, the defendant demanded that the vehicles be returned, since B had allegedly failed to meet his obligations in respect of payments. On the same day, the defendant fetched the vehicles from B and sold them to third persons.

The plaintiff was of the opinion that he had obtained ownership of five vehicles, since B had paid the full purchase price; He claimed damages from the defendant.

The Landgericht and the Oberlandesgericht ruled in favour of the plaintiff. The further appeal is unsuccessful.

Reasons

I.

1.The appeal court held that by the contract of 2 January 1973, B had acquired an expectant right of ownership in respect of the lorries. As a result of further contracts, concluded between B and the plaintiff on 17 January 1974 and 24 July 1975 regarding five of the vehicles, the defendant could no longer transfer full ownership. The latter contracts must be interpreted to mean that the plaintiff acquired an expectant right, in rem, in respect of the five lorries. The court’s findings are correct and not the subject of this appeal.

2.The appeal court’s assumption can be followed that prior to 20 November 1975 the condition was not met under which the plaintiff, as a person entitled under an expectancy in rem could acquire full ownership of the five vehicles named in the contracts as collateral security. The appeal court found that the purchase price for the vehicles had not been fully paid at that time, ie when B and the defendant amended the purchase contract of 2 January 1973 by agreeing on an extended retention of ownership (. . .)

3.The appeal court found and the further appeal does not dispute that B’s obligation to pay the purchase price for all vehicles had fully been met on 10 December 1975. Any further claim thereafter raised by the defendant was not based on the purchase contract of 2 January 1973.

4.Whether or not on 10 December 1975 the plaintiff became owner of the five vehicles which had been assigned to him as collateral and whether or not, as a result, he can claim damages from the defendant for breach of ownership through the sale of the vehicles depends on whether the defendant and B needed the plaintiff’s approval for their amendment agreement of 20 November 1975 on the suspensive condition of full payment of the purchase price, ie on the condition by which, according to the purchase contract of January 1973, the point in time was determined at which the expectancy in rem developed into a full title. The question had to be answered whether the plaintiff’s approval was needed for the result that, according to the amendment, the change of ownership in the five vehicles could only take place once all other claims which the defendant had against B were met.

II. The appeal court held that B, when reaching the agreement of 20 November 1975, acted without authority when he dealt with the plaintiff’s expectancy in respect of the five vehicles. Extending the retention of title not only amounted to an amendment of

834 APPENDIX I: CASES

the purchase contract but also directly resulted in a change of the agreement between the plaintiff and B (Erfüllungsgeschäft). The provisions made by B in respect of the plaintiff’s expectancy in rem are null and void. Once the purchase price had been fully paid, ie on 10 December 1975, the expectant right transferred to the plaintiff had matured to a full right of ownership

The appeal brought against this result must fail.

1.As correctly held by the appeal court, it is basically possible subsequently to extend a retention of title thereby allowing the vendor of goods sold under retention of title to use his rights in the goods for other claims against the purchaser. When goods are sold under retention of title, as long as the condition for full transfer of title has not yet been met, vendor and purchaser can alter their agreement. They can rescind or change it by adding further conditions. Ownership then transfers once all conditions are met, including the one subsequently added (BGHZ 42, 53, 58).

2.The validity of the claims here brought by the plaintiff against the defendant depend on whether or not such an agreement on the conditions for transfer of ownership is still at the disposition of the transferor, ie the first purchaser, once the latter has transferred his expectancy in rem to a third person (the second purchaser of the expectancy in rem).

(a)The further appeal alleges that this question is to be answered in the affirmative. It thereby follows the opinion held in particular by Serick (Eigentumsvorbehalt und Sicherungsübertragung, 1963, vol I, 251 et seq, 253), according to which the second acquirer of the expectancy obtains a legal position of which he cannot be unilaterally deprived by the vendor who retained ownership in the goods. But he can so be deprived by an arbitrary act of the conditional purchaser who transferred his expectancy to him, since it still depends on the purchaser whether the original condition is met. The original contractual relationship, ie the underlying contract, continues until both parties have fulfilled all obligations under it. The acquisition of the expectancy by a third person does not mean that the acquirer becomes a party to that contractual relationship Thus the conditional purchaser remains entitled, without consent of the second acquirer of the expectancy, to influence the purchase contract. With approval from the vendor who retained ownership in the goods, he can rescind the contract with the result that the condition, ie full payment, can no longer be fulfilled and that the expectancy in rem expires. He is also entitled to agree changes in the methods of payment with the vendor (see also Raiser, Dingliche Anwartschaften, 1961, 31; Schlegelberger/Hefermehl, HGB, 4. ed., § 368, addendum, n 34; Esser, Fälle und Lösungen zum Schuldrecht, 1963, 54, n 14). The further appeal also submits that the second acquirer of the expectancy must accept an agreement between the parties to the purchase contract in respect of an extension of the retention of ownership

(b)This court cannot follow the reasoning submitted in the further appeal. Like the appeal court, it holds that an extension of the retention of ownership as affected by the agreement of 20 November 1975 constitutes an invalid disposition by B in respect of the plaintiff’s expectancy.

(aa)it is correct that even after transfer to a third person, the existence of an expectancy is linked to the underlying purchase contract, the outcome of which is determined by the contractual partners, to whom the second acquirer of an expectancy does not belong. This view was held by the court of appeal. Thus, no expectant right comes into being where the contract under the law of obligations does

APPENDIX I: CASES 835

not exist, is null and void or has no effect. In such cases, even acquisition in good faith is impossible, since good faith in the existence of the claim for the purchase price is not protected (Raiser, above, 38; Serick, above, 271). The second acquirer’s expectant right also directly expires where the vendor retaining title rescinds the contract because the purchaser is in default (BGHZ 35, 85, at 21) or where the contract is successfully rescinded for other reasons. The existence of the expectant right, a precursor to ownership (BGHZ 28, 16, at 27), as a personal right in rem (subjektiv-dingliches Recht) is weakened by its dependancy on the underlying contract which is subject to the law of obligations (schuldrechtlicher Vertrag) (see Serick, above). This dependency affects any second acquirer, who must accept any effects on the existence of his rights stemming from the performance of the purchase contract. He must, for instance accept that the purchaser rescinds the contract which eliminates the condition under which the expectancy turns into a full right. In these instances the purchaser exercises no right to which he is not entitled.

(bb) On the other hand, the appeal court’s reasoning must be followed that the dependency of the expectant right on the underlying contract does not necessarily mean that the second acquirer of the expectancy must tolerate any arbitrary behaviour of the first conditional purchaser which affects his expectancy in rem .

Without approval by the second acquirer of an expectant right, the conditional purchaser cannot arbitrarily make provisions in respect of the expectancy. ‘Making provision’ in this context means any legal transaction by which a person directly affects a right, ie by transfer to a third person, or by encumbering the right or by relinquishing it or changing its contents (BGHZ 1, 294, at 304). Where the retention of title originally agreed on as part of the purchase contract is later on extended in such a way that the agreement on the transfer of ownership, previously merely conditional on full payment of the purchase price, now includes a further condition, ie the performance of additional obligations from an overall pending business relationship whereby the purchased goods act as collateral for financing other claims which are not based on the original purchase contract, this further agreement directly results in a change in the contents of the expectant right, ie the conditional right to acquire ownership in the goods (BGHZ 35, 85, at 93).

The conditional purchaser is no longer capable of altering the contents of the expectancy, for lack of entitlement (§ 185 BGB), after he has transferred this right to a third person. In so far as the further appeal stresses that the third person (second acquirer of the expectancy) has not become part of the original contract and must therefore accept any effects on the condition which originate from a change of the underlying contract, it fails to grasp that the conditional purchaser is not entitled to make any legal provision affecting the expectancy which is not part of the performance of his original purchase contract concluded under the law of obligations. It is not decisive that the conditional purchaser still has rights and obligations from the original purchase contract. The important point is that he, after transfer of the expectancy, can no longer make provision in respect of this right and that he, as a result of the close link (dependency) between the expectancy and the contract under the law of obligations, can no longer arbitrarily affect a change in the agreed conditions for a transfer of ownership which directly affects the contents of the expectancy in rem to the detriment of the second acquirer of this expectancy,unless this change is founded on the conditions of the original purchase contract (see Ermann/Weitnauer,

836 APPENDIX I: CASES

BGB, 6. edn, § 455, n 28; Flume AsP 161, 385, 394).

(cc)The appeal court rightly pointed out that jurisprudence and legal doctrine have given the acquirer of an expectancy in rem a strong legal position, enabling him to use its value for credit purposes, expressed as the opportunity to acquire a full title (BGHZ 20, 88, at 98; 35, 85, at 89). In particular, it is recognised that the holder of an expectancy in rem under paras 929, 930 BGB can transfer it as collateral to a creditor (BGHZ 28, 16, at 18 and 25). It would therefore be inconsistent and contradictory to the justifiable interests of commercial life if the provider of a collateral (conditional purchaser) without the consent of the recipient of his collateral (second acquirer of the expectancy) could re-use that expectancy as personal collateral for a credit agreement with his conditional vendor thereby, for instance, extending the latter’s retention of title. In practice, he thus commercially devalues the right which he transferred to the first recipient of the collateral (see BGHZ 28, 16, as above; 35, 85, as above).

The following considerations also give rise to strong misgivings in respect of the further appeal’s opinion: Under § 267 BGB, the acquirer of an expectancy can pay up the purchase price for and on behalf of the conditional purchaser, thereby acquiring ownership The purchaser, ie his debtor (§ 267 II BGB) cannot raise any objection (decision by this Senate of 31 May 1965—VIII ZR 302/63 = WM 1965, 701, 703), since he has transferred his expectancy and lost his power of disposition even under § 267 II BGB (see BGH decision of 24 May 1954—IV ZR 184/53 = NJW 1954, 1325, 1328). The chance that the acquirer of an expectancy by his payments under § 267 BGB can acquire full ownership, even without consent from the conditional purchaser who lost his power of disposition, could be undermined if the conditional purchaser agrees with the vendor, to the detriment of the acquirer of the expectancy, that this expectancy will now only mature once further claims are met which the vendor who retained his title in the goods has against the conditional purchaser.

(dd)Contrary to the view held by the further appeal, the result, arrived at for doctrinal and commercial considerations, that any later extension of the retention of title, for instance a further use of the retention of ownership as means of safeguarding credits received by the first acquirer of the expectancy in rem over and above what had been agreed in the original purchase contract, requires the consent of the acquirer of the expectancy, does not have the effect that the acquirer is thereby given the position of an owner before the condition is met, thereby curtailing the vendor’s legal position. As before, the vendor can exercise his right of ownership Thus, by rescinding the contract, he can annul the expectancy if the purchase price is not paid (§ 455 BGB). But, as against the conditional purchaser and first acquirer of the expectancy, the vendor cannot unilaterally alter the original conditions for the transfer of ownership, for instance because he later on intends to link his right to retain the tile to further claims. No reason can be found why the vendor should be allowed to extend his legal position as regards the second acquirer of the expectancy, even with the consent of the purchaser who already relinquished his power of disposition. Far less can a justifiable interest of the conditional purchaser be discerned to re-use the transferred expectancy as a means of securing further credit. The second acquirer of the expectancy obtained no stronger position than that of the conditional purchaser since the conditional vendor retains all rights from the purchase contract and from his retention of ownership as set out in the original agreement.

3.(. . .)

APPENDIX I: CASES 837

Case 112

BUNDESGERICHTSHOF (TWELFTH CIVIL DIVISION) 28 NOVEMBER 1990 BGHZ 113, 62

Facts

The plaintiff is a company specialising in professional liability insurance. In a previous court action, its client, an architect, had been held liable for damages. The insurance company had paid out to a shareholder of a limited liability company (W GmbH), the successful claimant of the first action. According to the company’s structure the shareholder was, as against the other shareholders, unreservedly liable for the company’s debts and he had actually made payments for the company which experienced financial difficulties. Now, and by this second action, the claimant (the insurance company) demands repayment of the insurance sum for reasons of unjust enrichment by alleging that (a) the defendant (the shareholder) and the architect had fraudulently led the insurance company to believe that there had indeed been an event insured against, and (b) that the defendant had not been entitled to receive insurance payments, since these could only have been due to the W GmbH, not the defendant, since the W GmbH had not assigned their claim for damages to the defendant, which, in any case, should have been lower.

The Landgericht rejected the claim. According to its findings, the defendant did not know of any reason why the insurance claim should have been lower. The claim for unjust enrichment failed because the plaintiff knew of the circumstances on which the defendant based his right to receive payments. The plaintiff’s appeal was unsuccessful in so far as it was directed against the defendant of the previous action, ie the architect. On appeal, the Oberlandesgericht found in favour of the plaintiff. The defendant’s further appeal is unsuccessful for the following reasons.

Reasons

I. The appeal court rightly held that the plaintiff has a claim for unjust enrichment against the defendant. This claim is based on § 812 I 1 BGB (condictio indebiti).

1. The transfer of the indemnity payments amounting to DM44,456.26 constitutes a performance by the plaintiff to the defendant.

The appeal court held that it was not the plaintiff but rather the former second defendant (the architect) who carried out the obligation. He used the plaintiff merely as ‘recipient of his order.’ This opinion cannot be shared. There was no order to make payments to a third person (see the BGH decision of 20 June 1990, BGHZ 111, 382). According to the appeal court’s correct and unopposed findings, the plaintiff intended, by his payments, to meet an obligation which the architect had to the W GmbH, ie to settle a claim based on his third party liability. The insurer thought that he was bound to indemnify his client because of the valid underlying insurance contract. As is normal for third party liability insurers who pay creditors, the insurance company did not pay its own debt to the recipient but rather paid in respect of the insured person’s obligation. . . .

Contrary to the appeal court’s opinion, this does not mean that the plaintiff made payment as a result of an instruction from the architect, who only informed him that

838 APPENDIX I: CASES

the defendant demanded damages; in other words, he notified his insurance company that an event had occurred for which he had obtained insurance cover. The architect had stated that in his opinion the claim for damages was justified. This does not amount to a formal order, nor even to an instruction. The insured has no right to give such instruction and the insurer would not need to comply. It is up to the insurer, prior to making payments to a third person (the creditor), to check the insurance contract and to investigate the legitimacy of the creditor’s claim against the insured. The insurer meets his client’s obligation only once the investigation of this underlying debt relationship establishes that the creditor has in fact a claim as made. This was the case here. When the architect informed his insurer of the defendant’s claim for damages, the plaintiff investigated the existence of that claim. He had doubts in respect of the defendant’s entitlement. After the defendant had provided additional information, the plaintiff had no further qualms and decided to pay the defendant.

2. The defendant received payments without legal justification . . .

According to the court’s findings, the plaintiff made the payments as a performance of the architect’s own obligation under third party liability. Performance of an obligation could not take place if the architect was in fact under no such obligation towards the W GmbH. But if such obligation in fact existed, the defendant, ie the shareholder would only have a claim against the architect, where the original claim of the W. GmbH had been assigned to him, the shareholder, making him the creditor of the claim for damages. According to the defendant’s own submissions, this was not the case here.

(a) Where a personally liable shareholder of a limited liability company (GmbH) which experiences financial difficulties is called on to provide cover for instance for the company’s banking debts because of his joint liability under the law of obligations, this does not have the effect that company claims against third persons are legally transferred to that shareholder.

The appeal court correctly held that payments made by the plaintiff to the defendant did not bring about the intended result, ie that the claim for damages held by the W GmbH was met, either because no such claim existed or because the claim did not belong to the defendant. The defendant received payments without legal justification.

3. As a result, the preconditions for a claim for unjust enrichment against the defendant under § 812 I 1 BGB are here fulfilled . . .

In the absence of an order (see above under 1), restitution under the rules on unjust enrichment is not subject to the established rules for cases or orders for payment but rather is subject to the rules which apply for other types of payments by third persons. In the case of performance by a recipient of an order for payment, the order to indemnify a third person for a claim which the third person, the creditor, has against the debtor, ie the instructing party, originates from the debtor. In this case, however, it is the third person, the payer, who decides to meet the claim. He alone performs the obligation.

Payment by a third person as set out by § 267 BGB is also made where the person who makes the payments in respect of another person’s liability deems himself to be obliged so to pay the debtor (MünchKomm/Lieb, 2. ed., § 812, n 100). In such a case, payment is made, as here by the third party liability insurer, solvendi causa, ie in respect of the claim for damages (Valutaschuld) (see Staudinger/Lorenz, BGB, 12. ed.,

APPENDIX I: CASES 839

§ 812, n 45). By payment to the creditor, the third party liability insurer normally pays off another person’s debt, although he thereby also performs his own obligation to indemnify the insured person (underlying contractual relationship), he makes payments in respect of a third person’s obligation, ie his insurance client’s duty to pay damages. (On the relationship of third party insurance and claims for damages see the BGH decision of 8 October 1969, IV ZR 633/68—NJW 1970, 134). This is one of the important practical cases of payments made in respect of a third party’s debts (Drittzahlung auf fremde Schuld) (see Lorenz, JuS 1968, 441, 446 et seq).

According to the predominant legal opinion, restitution under the law of unjust enrichment in cases of payments made by third parties is governed by the principle that the person who made the payment has a direct claim for restitution against the supposed creditor, where in fact there was no underlying obligation to pay [extensive references]. This result applies at least where, as here, the prerequisite is met that the supposed debtor did not at all, or not in a way which makes him liable, order the payer to make the payments [references] . . .

A person who performs another person’s obligation has a direct condictio indebtii, ie a claim for unjust enrichment against the recipient, if and in so far as there has been no underlying obligation. The fact that the obligation was met without an order from the ‘debtor’ whose debt did not in fact exist, is insufficient reason for the assumption that payment was made not by the payer but rather by the debtor himself. There is therefore no reason why the debtor should become involved in the restitution.

Case 113

BUNDESGERICHTSHOF (SEVENTH CIVIL SENATE) 11 APRIL 1957 BGHZ 24, 97

Facts

By contract dated 28 April 1952, the defendant’s son-in-law, K, took over the sole proprietorship of a business which he had previously run in commercial partnership with the plaintiff: ‘I personally guarantee payment of the sum still owed by K under the sale contract of 28 April 1952.’

K had paid the plaintiff DM15,000 in May 1952, but the balance remained unpaid. On 1 December 1954 final default judgment was given against K for DM10,000. Execution against him is unavailing.

The plaintiff sues the defendant as guarantor for the balance due and his legal costs. The defence is that K had counterclaims against the plaintiff which K set off after judgment was rendered against him, and that the plaintiff’s claim was thus extinguished.

The Landgericht held the defendant liable. The Oberlandesgericht rejected his appeal. His further appeal is now allowed.

Reasons

The Court of Appeal was of opinion that since any counter-claims which K might have had against the plaintiff arose before 4 May 1952, they could not be set off

840 APPENDIX I: CASES

against the sum claimed. It therefore did not decide whether any such counterclaims were good in law.

The appellant is right to criticise this (. . .)

The fact that there is final judgment against K, the principal debtor, does not mean that the defendant guarantor’s objections need not be investigated. Of course it is true that while § 768 BGB permits a surety to use defences available to the principal debtor, this does not apply to cases falling under §§ 387 ff BGB: a surety may not declare a set-off when the principal debtor might; all he can do is to defer payment under § 770 II BGB for as long as the creditor can satisfy himself by making a set-off against a due claim by the principal debtor. However, the surety is not limited to this defence of his, for once the principal debtor or creditor had duly declared a set-off, this extinguishes the claim for which the surety was liable, and he is thenceforward free.

(a)In the present case the principal debtor did declare a set-off, but only after he had been held liable by final judgment. At that time he no longer had any power to declare a set-off.

§ 767 II Code of Civil Procedure (ZPO) allows K to raise against the claim which had been confirmed by judgment only such defences as arose after the end of the oral proceedings. It is irrelevant that the declaration of set-off was made after this time. What is critical is when the valid counterclaims arose (see, inter alia, RGZ 64, 228); on the defendant’s own testimony they arose before the end of the preliminary oral proceedings.

The significance of § 767 II ZPO is not purely procedural: once a debt has been confirmed by judgment, a purported set-off is substantially invalid unless the counterclaim could be raised in the execution proceedings (RG HRR 1935, 691). Such a purported set-off, being invalid, cannot benefit the defendant surety. There is nothing inconsistent with this in the decision in RGZ 122, 146, 148, for there the principal debtor declared a set-off in the suit brought against him, and did so, even though in vain, before the end of the oral proceedings.

(b)But while the judgment issued in the preliminary trial prevented any subsequent set-off by K, the principal debtor, the plaintiff as creditor remained as free as ever to use this legal remedy. The actual wording of § 770 II BGB is literally satisfied here, since it only refers to the power of set-off vested in the creditor, but some commentators are of the opinion that the surety can only rely on the dilatory exception of § 770 II BGB if the creditor is bound to accept a set-off declared by the principal debtor, and cannot do so if the debtor no longer has a power of set-off [references omitted]. It is not necessary for us to decide whether or not this view is correct, for in the case before us K’s counterclaims, if valid, would give him the principal debtor, a ius retentionis under § 273 BGB (RGZ 137, 34, 38), and this defence is one which the defendant guarantor may use under § 768 BGB, unaffected by the fact that K himself is now prevented from relying on it by the judgment issued against him: to this extent the defendant is not barred by the legal force of the judgment (see, inter alia, RG JW 1909, 419 no 13). On the facts of the case there can be no doubt that the mutual claims here arose from the same legal relationship in the sense of § 273 BGB.

APPENDIX I: CASES 841

Case 114

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 25 NOVEMBER 1970 NJW 1971, 421

Reasons

I. The Court of Appeal found that the parties did indeed enter into contracts of supply, and dismissed as unproved the plaintiff’s contention that these contracts were subsequently cancelled. Since the appellant does not contest this finding, we must proceed on the basis that the plaintiff was bound to perform the contracts.

II. The defendant’s claim for damages thus depends on whether the plaintiff was in default in performing his obligations. The courts below have found, quite correctly, that the terms of the defendant’s letter of 17 October 1960 were sufficient to put the plaintiff in default. The appellant seeks to rebut this by invoking his General Conditions of Business, but we need not decide whether these conditions were incorporated into the relevant contracts, since the plaintiff himself does not claim that the circumstances under which Clause 6 of these Conditions would excuse delay in delivery by the plaintiff had occurred.

III. The Court of Appeal was right to accept that there would have been no default on receipt of the letter of 17 October 1960 if the plaintiff had previously asserted a right to withhold performance under § 273 BGB on the ground of the defendant’s delay in paying sums due under previous contracts, but it was unable to conclude that the plaintiff had done so. The witness A could not recall the proceedings which the plaintiff said had taken place in H, and could not say precisely when the plaintiff had told the defendant in Milan that it would only deliver if the defendant satisfied the claims outstanding against it. It was quite possible, therefore, that the plaintiff’s reservations concerned contracts of supply antedating those in dispute. This finding is legally unassailable. The Court of Appeal was thus right to hold that on receipt of the letter of 17 October 1960 the plaintiff was in default (§ 286 BGB).

The appellant contends that the default was terminated by the plaintiff’s subsequent assertion of a right to withhold performance. This cannot be accepted. For one thing, it is very doubtful whether there is any factual support for the appellant’s view, since in its letter of 12 November 1960 the plaintiff categorically refused to perform the supply contracts of 1959, and such an outright refusal to perform can hardly be construed as an assertion of a defence under § 273 BGB. Nor is there any basis, even on the appellant’s view, for holding that the defence was raised before 12 November 1960. It has already been decided on several occasions that when a debtor who has been put in default subsequently acquires, out of the same legal relationship a counterclaim which gives him the right to withhold performance, neither his acquisition nor his assertion of this right cures the default in which he has been put. In order to terminate his default for the future, the debtor must take steps to cure the delay, in other words, he must, if possible, as it was here, establish a Zug-um-Zug relationship by offering to perform pari passu with counter-performance (RGZ 93, 310; 120, 193, 197; . . .)

It makes no difference if, as here, the claims of the debtor who is in default (here the plaintiff) arose before those of the creditor (here the defendant). Thus it does not help the appellant to suggest that the defendant was also in default, even if there were any

842 APPENDIX I: CASES

findings of fact to substantiate this assertion. The result is the same even on the assumption that the defendant was in default regarding payment of sums due under the 1958 contracts.

The mere fact that the defendant was in breach of contract could not prevent the plaintiff’s being in default, for the obligations arising out of the different contracts were basically independent. The plaintiff could have taken steps to acquire rights from the defendant’s delay just as the defendant later did from the plaintiff’s delay. In particular, he could have asserted a right to withhold performance, a step which would, as has already been stated, have prevented him being in default himself. Furthermore, it may be possible in a case of this sort where the duties arising from one contract are balanced by duties from another contract in the same business relationship, to hold that non-performance of one contract constitutes a breach of the other. On this basis the defendant might be barred by the principle of good faith from relying on the plaintiff’s delay in performance when he himself was in breach. But this would call for special circumstances which the appellant has failed to adduce. The Court of Appeal’s finding that the plaintiff was in default from 17 October 1960 and that this default was not terminated proves unassailable even from the point of view represented by the appellant.

In a case like the present, a subsequent assertion of the right to withhold performance would not terminate the default: default can be ended only by performance or by a real tender of due performance (see OLG Karlsruhe NJW 1955, 504).

This does not mean that a subsequent assertion of the right to withhold performance is without significance. Although it does not put an end to the default, since it is in no way a substitute for performance, yet it does bring about a Zug-um-Zug relationship: it gives the debtor a power to put an end to the default by making an offer to perform Zug-um-Zug against counter-performance. In this indirect manner a debtor who has been put in default may still exact performance from the other party.

Case 115

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 7 MARCH 1972 NJW 1972, 1045

Facts

R, a pensioner, owed money to both parties. The plaintiff’s claims against him were secured by a notarial contract dated 23 October 1961, whereby R pledged to the plaintiff his share of a certain inheritance. The defendant, which had a claim of about DM24,000 against R for costs, obtained a judicial order for security and payment against R on 16 October 1962, which attached R’s share in the same inheritance for payment to the defendant up to that amount. On 12 July 1963, the real property belonging to the inheritance was auctioned with a view to division among the heirs. In the division proceedings a representative of the defendant opposed the payment out to the individual heirs and to the plaintiff, and the net proceeds were put on deposit by order of the execution court. The portion of the estate falling to R remained on deposit thereafter. Both parties applied to the depositee for payment out to them of R’s part, but without success. The plaintiff then raised a claim against the defendant for an order requiring him to give his

APPENDIX I: CASES 843

consent to the payment out to the plaintiff of the sum on deposit. The Landgericht Duisburg gave judgment for the plaintiff, and the defendant appealed. In the appeal proceedings the defendant counter-claimed, and on 13 March 1967 the Oberlandesgericht Dusseldorf ordered the plaintiff to give his consent to payment out to the defendant of the sum on deposit. The plaintiff’s appeal against this judgment resulted in the reinstatement of the judgment at first instance (BGHZ 52, 99), and on 25 July 1969 the depositee finally paid out to the plaintiff the sum which had fallen due to R.

The plaintiff now claims damages for loss of interest, on the basis that the defendant had infringed his security right and had been at fault in doing so.

The Landgericht dismissed the claim and the plaintiff’s appeal was dismissed also. The plaintiff was allowed to appeal further, and that appeal is now dismissed.

Reasons

I. The only basis of claim which the Court of Appeal considered was the claim in tort. In the long run, however, it left unanswered the question whether any delictual injury had occurred, for it was unpersuaded either that the harm was unlawfully caused or that the defendant had been at fault. The Court of appeal found against unlawfulness because it is in principle permissible and entirely lawful to institute legal proceedings in pursuance of supposed rights. Furthermore, there was no fault because the defendant could not be blamed for being wrong in law as he was. Until the final decision of the BGH in the prior proceedings, the defendant was entitled to believe in the correctness of its view of the law, namely that its own charge attached to the proceeds due to R and that the plaintiff’s contractual pledge interest did not, for this was in line with the decisions of the Reichsgericht and the opinion of most commentators.

II. The appellant has not been able to fault this reasoning

1.It is not necessary to determine whether the requirements for tort are present here or not. The prior proceedings have made it clear that it was wrong to deposit the money in issue in favour of the defendant as well as of the plaintiff. This being so, the defendant was enriched without legal ground at the expense of the plaintiff; he was therefore bound under § 812 BGB to make a declaration of release (BGH NJW 1970,

463. . .). If the defendant delayed doing so for a reason for which it is answerable (§§ 284–286 BGB [now §§ 286 et seq]) it must be liable in damages.

In these circumstances the defendant will be responsible for its failure to perform its duty to release the money in good time unless it made an error of law for which it is not to blame. As will be seen, the courts are reluctant to find that an error of law was made without fault; the criteria they apply are very strict, especially when it is a question of seeking to avoid the consequences of delay. If the criteria are satisfied, there can clearly be no finding of fault such as is required for liability in tort. Thus, like the Court of Appeal, we may leave aside the question whether any tort was committed or not, because as will be explained presently, the defendant was not at fault and is not answerable for its failure to fulfil its duty to release the money.

2.The Reichsgericht was originally opposed to treating any non-negligent error of law as an excuse for delay and it only modified its position in RGZ 146, 144. The Bundesgerichtshof, on the other hand, has always accepted this (see BGH NJW 1951, 398) but it has attached very strict preconditions to the excuse; in particular, it insists that the situation be such that a reasonable person exercising the care required in

844 APPENDIX I: CASES

social intercourse would have expected the debtor to win the lawsuit in question. Although its position has attracted some criticism [references omitted], the BGH has adhered to this view. What this court said in its decision on 4 March 1969 (LM to § 276 (Bd) BGB no 2) was concerned with whether the error of law on the actual facts of that case connoted fault or not, and is not in conflict.

But strict though the requirement of care is, one must not treat it as meaning that an unfavourable outcome on the legal question must have been positively inconceivable to the debtor; were this so, there would hardly ever be any room for the excuse. It remains true, nevertheless, that the debtor may not burden the creditor with the risk of a simply doubtful point of law [references omitted].

3.The strict criteria are satisfied in this case by the factors mentioned by the Court of Appeal as excusing the [defendant]. The legal position adopted by the defendant in the prior trial was that a contractual security right in part of a joint inheritance did not, when the community of heirs was divided, attach by way of real subrogation to the objects which replaced the undivided part of the joint inheritance. This was in accord with the wording of § 1258 par 3 BGB, the decisions of the Reichsgericht and also the views generally entertained by commentators then and since (RGZ 84, 395, 397; other references omitted). The court was therefore right to find no want of care in the [defendant’s] conviction that it was entitled to the amount on deposit on the basis of its attachment, it being generally accepted that such a charge does attach by way of real subrogation to the division of an inheritance (BGHZ 52, 99, 105).

Nor was the Court of Appeal wrong in holding that under these circumstances the defendant could not be blamed for adhering to its view of the law although the Landgericht had decided against it and although the plaintiff had referred to a decision of the Oberlandesgericht Saarbrücken. As the Court of Appeal observed, invoking the comments of the Oberlandesgericht Dusseldorf in its judgment in the prior proceedings of this case of 13 March 1967, neither of these decisions is very cogently argued, and while they agree in the result with the Bundesgerichtshof’s eventual decision in the prior suit, the reasoning is not the same.

4.The appellant is right to say that in view of the very low interest which is paid on sums on public deposit, it would have been better had the parties agreed to deposit the sum in issue elsewhere until the legal position was cleared up But the defendant was not obliged to agree to this under any rule of law then in force, much less was it bound to make the sum in issue available to the plaintiff while reserving the right to reclaim it later.

Case 116

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 25 SEPTEMBER 1968 BGH NJW 1968, 2238

Facts

On 7 June 1960 the plaintiff, a civil engineering and demolition firm, ordered 15,000 litres of diesel fuel from the defendant for use in its trucks. The defendant had a chain contract (Streckengeschäft) with its supplier, and procured the supplier to deliver the oil directly to the plaintiff, without passing through the defendant’s depot. After

APPENDIX I: CASES 845

paying the defendant the price of DM6,452.50 the plaintiff discovered that the engines of its vehicles had suffered damage allegedly due to noxious qualities in the diesel fuel. The plaintiff notified the defendant of this on 29 June 1960, and the defendant transmitted the complaints to its supplier, the K Co in H. After interlocutory proceedings to obtain evidence in December 1960, the defendant brought suit against the supplier in November 1961, and this action is still pending before the Landgericht in H.

The plaintiff now sues the defendant for its repair costs of DM18,253 plus further costs and damages for loss of business, a total of DM26,678 plus interest. Both lower courts dismissed the claim: the plaintiff’s appeal was unsuccessful.

Reasons

I. The Court of Appeal made no finding as to the quality of the diesel fuel, or whether it met the minimum requirements of DIN (German Industrial Standard) 51,601. It also left open the question whether the damage in issue was caused by the fuel oil ordered from the defendant. It dismissed the claim on the ground that the defendant had given no assurance that the goods were ‘DIN-standard’ (§ 480 par 2 BGB [now § 276 I]), and that the defendant was not responsible for any noxious qualities the fuel might have. This was because the defendant was not bound to make any chemical or physical inspection of the fuel it had procured to be delivered directly to the plaintiff under a chain contract. The defendant had had no adverse experiences with its supplier, the K Co in H, and was thus entitled to assume that the goods supplied would match the requirements. The court of appeal therefore held that no liability in damages arose under paras 276, 326, 480 par 2 BGB [now §§ 437 Nr. 3, 280 I BGB] or in delict.

II.

1. The appellant first of all criticises the court of appeal’s view that he has no claim for positive breach of contract, and argues that it was wrong to hold that the defendant was under no duty to inspect the goods.

(a)We do not accept the appellant’s view that by making no finding as to the quality of the fuel the court of appeal dealt inadequately with the question of liability. Indeed, since the court assumed that the fuel was defective and caused the harm to the engines, it did not overlook any essential fact on the question whether the defendant was under a duty to inspect the goods.

(b)Contrary to the view of the appellant, the fact that the defendant obtained the fuel not from its producer but from an importer who imported it from Holland, is immaterial to the question of the defendant’s duty to inspect. The defendant acted as an intermediary, and as such, contrary to the view of the appellant, was not as a general rule, that is, in the absence of special circumstances, bound to inspect the goods he sold on to the consumer. The view of the court of appeal to this effect is in line with well-established opinion both in the courts and in the books [references]. In the case of sales of specific goods the rule certainly applies, but it is also applicable to sales of generic goods unless the circumstances indicate otherwise [references]. Admittedly in RGZ 125, 78 the Reichsgericht did find a duty to inspect in the circumstances. There the defendant had supplied the plaintiff steelworks with scrap metal whose chromium content damaged the plaintiff’s Martin furnaces. However, most of the defendant’s stock of scrap metal had been acquired during the period of inflation when he knew that much of the scrap in circulation contained chromium, so the case was a special

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one, and shows that there is normally no presumption that the seller of generic goods is under any duty to inspect them.

A duty to inspect goods for possible damaging features might arise from trade practice, if such a practice were established. Again, the duty of care which attaches to any advice given along with the goods may call for an inspection of the goods prior to the giving of the advice (BGH NJW 1958, 866). In that case the seller of lime had given carelessly false information to the customer about its fitness for a given purpose, so there was a breach—not a positive breach of the contract of sale, but a breach of the contract of advice. The court accepted that in principle the seller of generic goods is under no duty of inspection even if their fitness for a particular purpose has been mentioned in the negotiations. We agree with that view. In the present case no special duty to inform was undertaken, so a duty to inspect the fuel could only arise from a trade practice or from the special circumstances of the case.

Since the plaintiff alleged no such trade practice, that point disappears.

The mere fact that the defendant obtained the goods not from the producer but from their importer, and that they were of foreign origin does not, contrary to the view of the appellant, show that in the absence of a relevant trade practice the middleman was under any duty to inspect, especially when, as here, the customer knew that a chain contract was involved and that the seller had no opportunity to make any inspection.

If the defendant had had reason to doubt the quality of the goods it would be different, but the unassailable findings of the court below show that this was not the case.

If there was no duty to inspect, the plaintiff cannot complain that the defendant should have told him that no inspection had been made. The plaintiff could not expect to receive an analysis from a defendant who was under no duty to inspect, especially as he knew that this was a chain contract.

(c)The court below committed no error in holding that the oil was not contaminated during the carriage, so no fault of the defendant could be based on such an event. Of this the appellant makes no complaint.

(d)Nor can the court below be criticised for holding that the defendant was not liable for any fault committed by his supplier, for according to the general view of courts and writers a seller’s supplier is not to be regarded as one of those whose services he uses in order to fulfil his own obligations (Erfüllungsgehilfen) (BGHZ 48, 119,120). The appellant does not question this.

(e)No extra-contractual liability on the part of the defendant arises on these facts, and no liability in delict. The Court of Appeal was right so to hold, and the appellant does not criticise it.

2.The appellant does maintain that the guarantee which he alleges the defendant received from his supplier, namely a guarantee that the fuel was up to standard, was impliedly passed on to him by the defendant and that the defendant is accordingly liable under § 480 II BGB.

The Court of Appeal, like the appellant himself, accepts that the defendant gave no express assurance in the sense of § 480 II [now § 276 I] BGB that the diesel fuel was at least of the quality stipulated by DIN 51,601. The court was also right to deny that there was any implied assurance.

The appellant does not specify from what circumstances it is to be inferred that the K Co gave this guarantee to the defendant. We can leave aside the question whether

APPENDIX I: CASES 847

the transmission of an analysis entails a guarantee of the appropriate quality, for since it was only the defendant, and not the plaintiff, who received the analysis, the plaintiff cannot complain that he was assured that the goods delivered would match the analysis. In reality the plaintiff is making a quite different case, namely that the defendant impliedly assured him that the goods he was to deliver would match the standard (DIN 51,601), and that he did not keep his word.

We accept the appellant’s contention that an assurance need not be express [references]. It can be inferred from the circumstances of the individual case, so that in the end it is a question of fact for the judge who interprets them. Such a finding is only to a limited extent reviewable on appeal.

On this point the court of appeal stated that the mere use of the term ‘diesel fuel’ did not amount to an assurance that the fuel was at least of the quality called for by DIN 51,601. It was only a term descriptive of the goods. Nor did it hold it relevant that the sale arose because the defendant approached the plaintiff and invited him to obtain supplies for his numerous vehicles from the defendant. No trade practice could be established that the supply of diesel oil entails a guarantee of its freedom from defect. It is true that according to the official report of the Chamber of Commerce and Industry of K it is usual for documents of sale to refer to the goods being marketable and of the quality normal in the trade; but this only means that the fuel meets the minimum standards of DIN 51,601, and it is only an implied precondition of the transaction and not an assurance in the sense of § 480 II [§ 276 I] BGB. The court therefore concluded that while it was indeed part of the contract that the delivery be of diesel fuel of proper quality, this agreement did not amount to an assurance in the sense of § 480 II [§ 276 I] BGB. There in no error of law in the court’s reasoning.

The court was right to distinguish between a mere description of the goods, ie the determination in the contract of what was being sold, and an assurance which evinced the seller’s intention to give a guarantee. We agree that nothing in the facts of the case suggests that the parties impliedly included any such assurance, so at the end of the day the outcome depends on whether there was a trade practice of the kind asserted by the plaintiff or whether the existence of the DIN-standard with its minimum specifications for commercial diesel oil can serve as a substitute for such a trade practice. It is true that in its decision of 9 December 1963 (VersR 64, 541) the Oberlandesgericht of Cologne held that at a pinch one could find an implied assurance, based on trade practice, that heating oil contained no abnormal amount of water, but nothing of the sort applies to diesel oil. The presence of the DIN-standard in the contractual agreement has no such effect on the contract itself, as the court of appeal was right to hold.

There are some special circumstances where the seller of goods is held to have given an assurance in their description. This is so in the case of the sale of seeds. The basis for this is the Seeds Law of 27 June 1953 (BGBl. I 450) which provides:

‘If recognised or permitted seeds are advertised or offered or sold or otherwise brought into commerce, the minimum requirements under § 54 para 1 and any statements about them will be held, in case of doubt, to be guarantees.’

There is a special need to protect the buyer of seed, for he cannot tell till long after the sowing whether the right seed has been delivered. The courts were quick to see this need, and this provision responds to it. This is why the qualities of seeds of a given variety are held to be guaranteed as a trade usage [references]. But the Reichsgericht

848 APPENDIX I: CASES

refused to hold that a seller who described the goods as ‘Cognac-Kirsch’ was giving a guarantee of its qualities, or that the use of the description amounted to an assurance that the goods were pure and free from dye-stuffs. Their reason was that while the statute provided that Cognac must contain no dye-stuffs apart from a small quantity of sugar colouring, there was no prohibition of so describing goods which did not have that quality.

The DIN-standards are recommendations (of the German Committee on Standards) and people are expected to adhere to them voluntarily. They therefore contain no statutory presumption that the seller guarantees that the goods meet the standard. Thus the plaintiff cannot hold the defendant liable under § 480 II ([now § 276 I) simply because standard DIN 51,601 was part of the basis of the contract: the presence of the standard does not have the further effect that the defendant was bound to deliver conforming goods.

This view is not in conflict with the decision of this court on 21 June 1967 [BGHZ 48, 118 f] which said that it might be possible to conclude from the way the producer advertised artificial fibre and the way it was processed in industry that the processing industry had guaranteed its quality. But there are no comparable facts in our case here. In particular the reference to the DIN-standard was unconnected with any advertising or any trade mark or mark of quality, not to mention the fact that the presence of the maker’s trade mark would not normally give rise to any guarantee on the part of the middleman.

Accordingly, there can be no question of the defendant having given any assurance that the diesel fuel had any particular qualities. Since we are concerned only with the liability of the middleman, the rules rendering the producer liable for harm done by his products are irrelevant.

Case 117

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 18 DECEMBER 1952 BGHZ 8, 239

Facts

Corrugated iron was being carried in the defendant’s truck pursuant to a contract of carriage with the plaintiff, who was riding in the passenger’s seat. At a moment on the return journey when it was being overtaken by another lorry, the truck struck a tree standing on the near side of the highway. The plaintiff was seriously injured and now claims damages from the defendant and the driver.

The defendants’ attributed the accident to the fact that the truck was struck on its off-side by the lorry which was overtaking it. The Landgericht and Oberlandesgericht dismissed the claim. The plaintiff’s appeal was allowed, and the case was remanded.

Reasons

I. . . .

II. The court below was correct to hold that when a vehicle on the highway collides with a tree in conditions of good visibility, that is prima facie proof that the driver was

APPENDIX I: CASES 849

in breach of his duty to observe the care requisite in the conduct of his vehicle and that this fault caused the accident. [references]

The courts have always held that prima facie proof of this kind is rebutted only when the defendant proves the existence of facts which counteract a judicial finding that what actually happened was what typically happens [references]. The facts suggesting the possibility of an untypical occurrence have to be fully established [references]. It is true that the decisions which so hold are all cases of damage occurring in marine or river transport, but the principle they enunciate is of general application and applies in the present case. In order to disarm the prima facie proof against him, the defendant must prove the occurrence of facts which bespeak a serious possibility that the truck struck the tree without any fault on his part.

The Aurt of Apeal held that the fact that immediately before the accident the truck was being overtaken by another lorry was sufficient to neutralise the prima facie proof. It was not. The court below approached the question of evaluating the facts with an incorrect view of the principles established by the courts regarding prima facie proof. The prima facie proof could only be neutralised by proof that the overtaking lorry did actually strike the defendant’s truck or obstructed its forward movement by cutting in too sharply after overtaking. The rejection of the claim against the driver therefore cannot stand.

III. The plaintiff’s claim for damages against the contractual carrier is based on both the contract of carriage and on tort (§ 831 BGB).

The courts have constantly held that the contractor who undertakes the carriage of persons (or any similar contract of services such as the accommodation of a guest) has the burden of disproof when the facts at first sight justify the conclusion that he was in breach of the duty of care imposed on him [references]. Indeed in its later decisions the Reichsgericht so held in cases where the cause of the accident fell within the area of risk for which, in case of doubt, the contractor was answerable [references]. In RGZ 148, 148, 150, a case like the present of a positive breach of contract in the execution of the contract, it left aside the question of the proper impact of § 282 (now § 280 I 2) BGB. The question need not be investigated here either, for whether one applies § 282 (now § 280 I 2) BGB or the principles developed by the courts, the result is the same: in either case the contractor in situations like the present is bound to prove that he was free from fault [references]. The carrier’s contractual duty is to see that the passenger is properly transported to the agreed destination. Should the passenger be injured by an event appertaining to the carriage or some feature of the vehicle, one may justifiably conclude that the carrier has not performed his contractual duty. In such a case he must therefore lead evidence to the contrary, that the damaging event was due to a cause for which he is not answerable [references].

The Court of Apeal did proceed, in adherence to the later jurisprudence of the Reichsgericht, to review the facts in order to see whether or not the cause of the accident arose from a risk within the defendant carrier’s area of responsibility, and so whether he must adduce proof of the absence of fault.

But instead of investigating whether the unexplained cause of the accident arose in the area of risk attaching to the operation of a truck in the defendant’s business, the court below required the plaintiff to elucidate the occurrence at least to the extent of making it appear on all the facts that the defendant was guilty of carelessness.

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When dealing with the question of prima facie proof the court below held that a driver who in conditions of good visibility collides with a tree has prima facie fallen short of the care requisite in operating a truck: since it cannot consistently be doubted that in such a case the contractual carrier would be answerable for the cause of the accident, it is therefore somewhat contradictory for the court below to have held that the cause of the accident did not arise from the area of risk for which the defendant carrier is answerable.

If the court below does not hold the carrier liable on the ground of prima facie proof, as discussed earlier, it must again check whether, in relation to his contractual liability, the carrier is bound to prove, and whether he has in fact proved, that no fault attached to himself or to his driver in connection with the accident. Even if it is proved that the other lorry did while overtaking strike or otherwise obstruct the defendant’s truck, it would still be necessary to ask whether that finding alone is sufficient to establish a lack of fault on the part of the carrier or his driver.

2. Given that the defendant driver had been in the service of the defendant carrier for quite a time when he was charged with the journey in question, it would not be enough for the carrier to show that at the time of the driver’s original appointment he took all requisite care: the carrier would need to show that at the time he asked the driver to undertake the journey in question he was so convinced of the driver’s reliability that he could do so without any breach of his duty of care. So in addition to proving care in the original appointment, he must prove care in subsequent supervision of the driver, and absence of reason to doubt his aptitude for the journey in question. [references]

Furthermore, in order to escape liability, the carrier must prove that he took the requisite care to see that the truck was fit for the journey or that even if he had done so, the harm would in any event have occurred.

Case 118

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 15 NOVEMBER 1967 BGHZ 49, 56

Facts

The defendants, a married couple, had had a service tenancy of a house belonging to the plaintiff at a monthly rent of DM100. § 5 of the tenancy agreement ran as follows: ‘2. The tenant must bear the cost of decorating the leased premises and of maintaining them in a decorated state: redecoration includes making good any harm caused to the finish of walls, ceilings and floors by the fault of the tenant. The landlord may require the tenant to execute any appropriate redecoration in a proper manner. 5. Should the tenant fail to execute necessary repairs without delay on the written demand of the landlord, the landlord may have the redecoration done at the tenant’s expense’ § 14 no 1 provided that at the end of the tenancy the premises were to be delivered up in proper condition. The defendants occupied the premises for six years and moved out at the end of December 1962 without having done any redecoration at all.

By contract dated 10 and 14 February 1963 the plaintiff leased the dwelling to another married couple, Mr and Mrs JR, at a monthly rent of DM200; the new

APPENDIX I: CASES 851

tenants contracted to execute the necessary redecoration at their own expense and actually did so. The plaintiff claims the sum of DM1,146.60 damages for breach of § 5 no 2 of the lease contract. Both lower courts gave judgment for the plaintiff, and the defendants’ appeal is now dismissed.

Reasons

I. The Court of Appeal held that the claim must be for damages for non-performance; no claim in debt could be based on the ground that if the plaintiff had made a fruitless written demand for performance, it had the right under § 5 no 5 of the lease to undertake the redecoration and charge the defendants with the cost. He need not decide whether this is right, since the judgment under appeal is correct in the result even if the plaintiff’s claim is one for performance rather than for damages.

II.

1.The defendants argue that they were not in breach of contract, and are therefore not liable in damages. The tenanted premises had been used in a perfectly normal manner, as the experts agreed, so if there was any harm, it was not due to any use which was in breach of the contract (§ 548 BGB), and it followed that the dwelling was in proper condition as required by § 14 no 1 of the contract when it was vacated.

But whether or not the dwelling was used or overused by the defendants in breach of contract is neither here nor there. The Court of Appeal found, and its findings have not been attacked, that the premises urgently required redecoration when the defendants vacated them; in other words, redecoration was necessary to put them in a habitable condition as called for by the contract. This being so, the defendants were under a duty, by § 5 no 2 of the tenancy agreement, to make the necessary redecoration by the time they left, at the latest; when a tenant undertakes to redecorate, this agreement is designed to relieve the landlord not only of the expenses arising during the currency of the lease (in derogation of the rule laid down by § 536 [535 I 2] BGB), but from the necessity of incurring the expense of redecoration when the next tenant is to move in. Simply put, it is the tenant rather than the landlord who has to maintain the premises in a habitable condition (reference omitted), a duty which is neither reduced nor elided by the sitting tenant’s readiness to endure a low standard of comfort. This at any rate is the case when the landlord had a right under the contract to require the tenant to redecorate during the tenancy (§ 5 no 2 sentence 3) and to do the redecoration himself, if necessary, on written notice to the tenant and at the tenant’s expense (§ 5 no 5). Of course the tenant’s duty to redecorate does not mean that the dwelling must be in pristine condition when he moves out. The purpose of the shifting of the cost of redecoration is achieved, and the resulting duty of the tenant fulfilled, if at the end of the tenancy the rooms are such that they can properly be offered to a new tenant. Thus the dwelling does not, at least in principle, have to be completely reinstated. Questions may arise in some cases whether and to what extent the tenant has to redecorate before moving out, but in a case like the present, where it is certain that the premises were in urgent need of redecoration because no decorations at all had been done during the six years of the tenancy, the tenant cannot, by quitting, avoid the duty of redecoration which he has neglected during the currency of the contract: he must at the end of the contract pay the sums he would have spent earlier if he had conducted himself as the contract required.

2.The Landgericht started off by saying that the defendants had refused to perform

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their duties under § 5 no 2 of the tenancy agreement, and the Court of Appeal agreed. (. . .) In a case like the present, it would be sheer formalism to require any such declaration after the defendants’ conclusive refusal to perform had made it clear that there was no chance whatever that contractual performance would be forthcoming. (This result now follows from § 281 II BGB.) (. . .)

3. (a) The harm suffered by the plaintiff as a result of the defendants’ positive breach of contract consists in the fact that when their tenancy ended, redecoration was required in order to make the dwelling lettable at the full market rent it would have commanded had the contractual redecoration been effected, that is, to avoid any reduction in the plaintiff’s chances of obtaining a proper rent from the new tenant, this being the purpose of § 5 of the tenancy agreement. Now the real property market may still be rather tense, but it runs contrary to all experience to suppose that a new tenant would pay a rent appropriate to a dwelling in proper order if the premises required redecoration and he had to bear its cost. The case might be different if the dwelling were subject to rent control and could easily be let at the highest legal rent despite the need for redecoration, but we need not decide that point now, for there is no suggestion that this dwelling was rent-controlled. It is true that the plaintiff was able to let the dwelling to Mr and Mrs R. at twice the rent paid by the defendants but this is no evidence that the loss did not occur, for on the one hand, the defendants’ tenancy, unlike that of Mr and Mrs R, was a service tenancy, where the rent is characteristically affected by the existence of an employment relationship between the parties, and on the other hand, five years had elapsed since the tenancy was granted to the defendant, during which period the market had changed materially. The plaintiff’s claim for damages for non-performance is a money claim so the defendant tenants must bear in full the necessary cost of redecoration.

(b) The appellant argues that the fact that Mr and Mrs R did the redecoration neutralised the harm, and that the plaintiffs therefore have no claim for damages. Some courts and commentators are indeed of the view that the landlord has no claim for damages if the incoming tenant contracts to do the redecoration and actually does it [references omitted], but this view has been criticised by other courts and commentators, and this court finds it unacceptable [references omitted].

Once economic harm has occurred and arguably been offset, the question whether the claim for damages subsists is to be determined on the principle of what is called ‘balance of advantages’ (Vorteilsausgleich), whereby a circumstance is only to be taken into account if it stands in an adequate causal relationship with the cause of the harm. Here it suffices if the advantage which later arises is of a kind which the harmful event was generally apt to trigger. The Court of Appeal in this case found that there was no such causal relationship: the new tenants undertook the work of redecoration not because the defendants had failed to do it but because they themselves had contracted in the tenancy agreement to do it. Whether the reasoning is sufficient to justify the conclusion need not be decided now, for the existence of an adequate causal relationship between the event which causes the harm and the event which neutralises it is not a sufficient, but only a necessary condition of its relevance to the continued existence of the claim for damages. Only if it would not be inequitable to absolve a defendant from his duty to repair the harm he has caused can he be absolved by an event which diminishes or neutralises that harm (BGHZ 10, 107, 108; 30, 29, 33). But the party causing the harm would certainly be receiving an unjustified bonus if one

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credited him with an action which a third party took by reason of a contractual agreement with the victim with which the party causing the harm had nothing to do (BGHZ 7, 30, 49;NJW 1963, 1051). That is the case here. It was the plaintiff, and not the defendants, who found the new tenants. As the Court of Appeal expressly found, Mr and Mrs R undertook the redecoration in their own interests and without any intention of conferring a benefit on the defendants (compare § 267 BGB). The same is true of the plaintiff: in making his agreement with Mr and Mrs R he had no intention of relieving the defendants. Thus the defendants cannot be credited with the contract between the plaintiff and the new tenants whereby the latter undertook to redecorate, even if in economic terms their redecoration made good the loss in value of the dwelling. To decide otherwise would be unfair to the plaintiff, for to make the agreement with Mr and Mrs R regarding the redecoration was an act in reduction of the damage which it was no part of the plaintiff’s duty to do (reference omitted) and it would presuppose that he had exacted a rent from the new tenants which was not warranted by the condition of the dwelling as well as an undertaking to bear the cost of its renovation. We have already said that no tenant can be expected to do this, so if the plaintiff had insisted on an undiminished rent plus an obligation to redecorate, he would have had a very restricted choice of new tenants.

It follows from what we have said that a landlord who succeeds in finding new tenants who are ready to undertake the necessary redecoration at their own expense is not simply performing his duty to mitigate his loss under § 254 II BGB; this provision therefore does not justify his having to account for the new tenants’ act. III. The outcome would be the same on the view, put forward by the plaintiff in oral argument, that § 5 no 5 of the tenancy agreement gave rise to a claim in debt, and that this debt claim had not been changed into a claim for damages. A claim for performance can lapse if its object has been achieved and the creditor’s interest has disappeared [references omitted], but that would not have occurred here. There is some dispute about the circumstances under which a claim lapses by this doctrine of achievement of object, but Lehmann is certainly right to say that the creditor’s claim only lapses if the result achieved is really the same as if the debtor himself had performed properly. Now here the plaintiff had only acquired the right, as against the defendants, to have the property reinstated under the contract at the cost of performing his own contractual obligation, namely maintaining the use of the premises for many years, so there would only have been a true achievement of the object if third parties had gratuitously reinstated the dwelling. But the performance by Mr and Mrs R resulted from a new contract under which the plaintiff assumed new obligations of his own. Thus this is not a case of achievement of the object which makes the claim for performance lapse. Just as in the balancing of advantages in the case of a claim for damages, what is decisive here is that the new tenants which undertook the redecoration were found by the plaintiff. It would be unjustifiable to absolve the defendants just because the plaintiff was lucky in his further contractual negotiations. In view of the fact that the defendants here refused to perform, we need not decide whether the decision would be different if the defendants had been ready to perform and the plaintiff had anticipated their performance by getting the new tenants to redecorate quickly, nor whether the plaintiff’s claim for performance would have lapsed if the new tenants had been introduced by the defendants, especially if they had taken over the old tenancy arrangements and had done the redecoration on the basis of the obligation contained therein.

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Case 119

BUNDESGERICHTSHOF (SIXTH CIVIL SENATE) 24 MARCH 1959 BGHZ 30, 29

Facts

The defendant, a wife who since 1949 had lived with her husband, the co-defendant, under the matrimonial property regime of community of property, on 1 April 1956 intentionally set ablaze the agricultural property of her adjoining neighbours. For this crime she has been bindingly sentenced. The fire caused extensive property damage to buildings and movables.

The parties now only dispute the amount of compensation payable for the buildings partially destroyed and partially damaged in the blaze. The Bavarian Chamber of Insurance has calculated the costs of repair of the buildings at DM27, 120 and fixed the compensation according to the current value at DM21, 463. The claimant demands from the defendant payment of the difference amounting to DM5, 5657.

The Landgericht has awarded the claimants only DM250 for the damage to the buildings and otherwise rejected the claim, reasoning that through the compensation the claimants, ie the victims, should not financially be placed in a better position than they were in before the damaging event occurred; they must therefore allow a deduction under the heading ‘new for old,’ since the reconstructed buildings are more valuable than at the time of the damage. Applying para 287 ZPO (Code of Civil Procedure), the Landgericht has assessed this deduction to be as high as the Bavarian Chamber of Insurance’s calculation of the amount of compensation due. The claimant’s appeal failed as did the further appeal, admitted by the Court of Appeal.

Reasons

1. The appeal court correctly assumes that a deduction is basically to be made for the difference between old and new in cases when compensation is to be calculated for the damage or destruction of goods whose original value has fallen through use and lapse of time or which had even already been damaged, and that this method is to be applied in the case under consideration.

a) According to para 249, first sentence BGB, a person liable to pay damages must restore the situation as it would be if the circumstance making him liable had not occurred. Where damages are to be paid for the injury to a person or, as here, for damage to property, instead of repair the claimant can demand under para 249, sentence 2 BGB payment of funds needed for such repair. Here, the claimants chose to make such claim. In fact, the claim for monetary compensation is a claim for restoration, although not directly through the debtor’s performance but rather by providing satisfaction for the creditor through the debtor’s payments (RGZ 71, 212, 214).

It applies to both alternatives set out in para 249 BGB that the restoration of the previous state of affairs means that the victim whose property has been damaged must be placed in the same position economically as he was in before the event took place which led to the liability for damages (RGZ 91, 104, 106; 126, 401, 403). The law is not guided by the restoration of exactly the same conditions as had existed before the damaging events took place but rather by the victim’s economic situation as it would

APPENDIX I: CASES 855

have been without the damaging event (see RGZ 131, 158, 178; 143, 267, 274). The therefore necessary comparison of the economic situations mirrors the basic principle of the law of damages, ie to ensure that compensation does not render the victim richer or poorer. Although the further appeal is justified in claiming that the Civil Code does not contain provisions on how to make allowances for the difference between old and new when calculating compensation, it is none the less incorrect, as the further appeal alleges, to assume that the Civil Code did not intend to have this difference taken into account. Rather, the legislator did not find it necessary to make legal provisions in this respect since, as is expressed in the motivations for the draft of a Civil Code (Amtliche Ausgabe, vol. II 1888 to s. 218, p 18 et seq). This practice had already found satisfactory solutions to this question and is expected also to do so in future. The relevant passage runs:

The solution to the question whether and to what extent in cases of claims for damages the advantage which the victim has obtained from the damaging event must be deducted from the compensation (compensatio lucri et damni) must be left to jursiprudence and practice. . . . It goes without saying, . . . that where from one and the same action or a complex of actions for which the same person is liable, damaging and profitable consequences arise, these cannot be seperated and the result as a whole must be looked at. Even an attempt to solve this question by express legal provisions would be dubious, particularly in the case of tort. Its solution is intrinsically linked to the determination of the term of ‘damage’, which in any event cannot be done by law for all cases and for all their possible and perhaps dubious differences. . . . Unimpeded by legal provisions, legal practice will continue to find solutions for each particular case.

At that time the decision of the Reichsoberhandelsgericht (ROHG XXIII, No 116) was already available—and cited in the motives to the BGB (above, p 19, note 1) which principally favours a consideration of the difference between old and new where damages are claimed. Where it thus transpires that such offsetting of advantages was already envisaged by the legislator of the Civil Code and is an inherent part of civil law [RGZ 54, 137, 14o et seq; OLG Hamburg MDR [1952] 224 and further references from literature], it can be left undecided whether or not the rules on the consideration of a loss in value resulting from the differences between old and new, as set out in paras 710 (3), 872 HGB (Commercial Code); paras 86, 141 (2) VVG (Act on Insurance Contracts); para 85 BSchG (Act on Shipping on Inland Waterways), contain a general basic principle ( as held by Fischer in respect of paras 710, 872 HGB in his Der Schaden nach dem Bürgerlichen Gesetzbuch, Jena 1903, p 203 ) or whether these sections are special provisions restrictively dealing with their specific matter which cannot elsewhere be applied analoguously.

(b) The further appeal is wrong where it holds that in this case an equalisation of advantages in the form of a deduction ‘old for new’ cannot apply because it was not the same event which lead to the claimants’ advantage and disadvantage, since the loss resulted from the arson and the advantage from the reconstruction of the buildings. The adjustment of advantages is a component in the calculation of the damage (see RGZ 103, 406,408). In this respect it is unnecessary that the damaging action has also directly brought about the advantage; rather, it suffices that damage and advantage stem from several events, which are separate as to their outward appearance as long as, according to the natural flow of affairs, the damaging event was generally

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capable of bringing about such advantages and that the connection is not too tenuous, in which case and according to a reasonable person’s understanding, it no longer merits further consideration (BGHZ 8, 325, 329; RGZ 133, 221, 223; 146, 275, 278; see also Cantzler, AcP [156] 42, who talks of a causal connection between the conditions). Seen in this light, there are no objections against holding that the advantage which the claimant accrued from the reconstruction of the buildings damaged or destroyed in the fire as a result of the change from old to new, was created by and is adequately causally linked to the damaging action, ie the arson.

(c) In its decisions BGHZ 8, 325 and 10, 107 this Senate has already pointed out that the legislator, as stated in detail above under 1 (a), has left it to the case law to decide which advantage to take into account. In these two decisions it was furthermore stated that it must be considered in each case whether or not an allowance is consummate with the meaning and aim of the liability for damages. But this does not mean that this is a question as to the facts of the case, as the claimants allege when they—erroneously—question the appeal court’s admission of the further appeal. The point is rather that when deciding the legal question as to whether or not an advantage can be taken into account, an overall view must be taken of the various interests as they exist between the victim and the tortfeasor as a result of the damaging event. This is because the principle that an advantage, which is adequately causally created by the damaging action, must always be taken into account, cannot be applied in all cases. The limits as to what is reasonable must be observed. On the one hand, damages should in principle not result in a financial improvement of the victim, but on the other hand the tortfeasor should not unjustly be favoured (BGHZ 10, 107, 108; Ennecerus/Lehmann, Recht der Schuldverhältnisse 15. edn 1958, para 17 II 1 a (p 85); see also SchlH OLG MDR [1952] 747). Countrary to the opinion expressed in the further appeal, making an allowance for the advantage resulting from the change from old into new is not already unacceptable in cases where the victim is forced to incur expenditures which he would otherwise not have had, because the repair or reconstruction of the damaged goods can only be done by increasing their value compared with the situation at the time of the damage. The contribution to the costs which the claimant must make in respect of the reconstruction of the buildings damaged by fire is mirrored by the added value of the buildings, their increased life expectancy and the deferment of future necessary repairs to them. There are here no special circumstances and the further appeal has not raised any which could be decisive for the question of reasonability, as for instance that the claimant is financially unable to meet the necessary extra costs.

2. There is apparently no reason why the question as to the taking into account of advantages gained from the change from old to new should be decided on differently for durable economic goods and short-lived goods. First, such distinction of economic goods according to their life span has not found entry in the system of civil law but is rather the result of an economic, though in this context important, point of view and has found its way into tax law. As the appeal court rightly stated, for considerations under civil law the difference is one of degree and not of principle. Insofar as the further appeal alleges that in respect of durable economic goods the owner is more concerned with the value in use than the trade value and thereby perhaps wishes to indicate that in the case of short-lived economic goods the trade value is decisive, it must be counter-argued that even in the case of these goods it is not merely the retail

APPENDIX I: CASES 857

value of the (old) goods as it stood before the damage occurred, from which to proceed but rather their special value to the victim. An exchange of old goods by new ones has an effect both in the case of goods with long or short life spans, ie in the form of added property value, an enrichment of the victim, where an allowance is not made under the auspices of ‘new for old’. Increased costs for material and labour must, however, be attributed to the tortfeasor when the amount of damages is calculated under para 249 (2) BGB (RGZ 98, 55; 102, 143); but this does not alter the fact that the victim’s enrichment which is expressed in the increased economic value of the reconstructed buildings, which are now new instead of old, must be equalised, since otherwise the victim has received a compensation exceeding the damage (differently Oertmann, LZ [1916] 1512, changing his previous opinion).

Whether and to what extent disadvantages arising from the need for the victim to contribute part of the costs for reconstructing the buildings, such as interests for loans taken up, losses in interests for accumulated capital, tax disadvantages and other items are seperately to be taken into account when calculating a discount under the principle ‘new for old’ need not be decided in this case, since no substantiated claims were made in this respect.

3. One can think of circumstances in which the repair of a building after the damage does not result in an increased value and thus not in a financial gain made by the victim. Such a case was admitted by the Oberlandesgericht Oldenburg in its decision published in VersR [1954] 182, on which case the further appeal bases its reasoning. In this context the further appeal criticises the claimant’s specific submission that the restoration of the buildings to the condition in which they were before the damage occurred would have cost DM27, 120, ie the same amount as that which the Bavarian Chamber of Insurance calculated as being necessary for the repair of the buildings and that the appeal court had not dealt with this submission.

However, the Landgericht had already held this submission to be inconclusive, as a restoration to the old state, ie with all the wear and tear from use over the course of years is quite impossible. The appeal court has—as set out in the reasons to its deci- sion—upheld the opinion of the Landgericht and stated that in the case of destruction of or damage to old goods or goods worn from use and thus devalued, the recreation of the same condition as before is impossible. The claimants’ submission in respect of possible ways and means of reconstructing or, respectively of constructing the fire-damaged buildings, for which the further appeal has not requested any further evidence, can be appraised by the judge dealing with the facts of the case, since such appraisal is within the limits of free evaluation of evidence pertaining to the case (para 286 ZPO) and cannot be opposed for legal reasons.

Case 120

BUNDESGERICHTSHOF (EIGHTS CIVIL SENATE) 2 JUNE 2004 NJW 2004, 2299

Facts

On 15 January 2002, the claimant bought an Opel V at a price of 8450 euros for his private use from the defendant, a motor vehicle dealer. The vehicle, which was first

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registered in December 1996, showed at this point in time a kilometre reading of 118,000. In November 2001, when the kilometre reading was 117,950, the defendant had renewed the timing belt. The vehicle was handed over to the claimant on 18 January 2002 in return for payment of the purchase price.

On 12 July 2002, when the kilometre reading was 128,950, the vehicle suffered engine damage, the cause of which is disputed between the parties. The vehicle has been with the defendant since then. The defendant refused to carry out a repair free of charge. The claimant thereon declared his withdrawal from the purchase contract by a letter of 26 July 2002.

In the present legal action, the claimant demands from the defendant repayment of the purchase price, subject to a deduction for benefit enjoyed, which he estimates at 657 euros (0.06 euros x 10,950 km since delivery). Altogether he accordingly seeks payment of 7,793 euros, together with interest for delay, simultaneously with retransfer of the vehicle. Further, the claimant has applied for a finding of delay in acceptance by the defendant. The Landgericht rejected the claim after obtaining an expert’s opinion. On appeal by the claimant, the Oberlandesgericht allowed the claim. By its appeal in law, which has been admitted by the appeal court, the defendant seeks the restoration of the first instance judgment.

Reasons

I. The appeal court has explained:

The claimant was entitled in accordance with § 437 BGB in combination with §§ 440, 323 and 326 (5) BGB to withdraw from the purchase contract. The cause of the engine damage, which occurred on 12 July 2002, according to the findings of the expert employed at first instance, was that a timing belt, which was too loose, disengaged from the camshaft sprocket, which had caused a malfunction of the intake valves in the first cylinder head. The expert had attributed the loosening of the timing belt to defective material, and inappropriately high wear and tear on the timing belt. He was of the opinion that a longer durability should be expected from a timing belt than a mere life of eight months and about 10,000 km. The claimant had thereby proved that the engine damage could not be attributed to normal wear and tear, and had occurred within six months since the passing of the risk on 18 January 2002.

Therefore it was presumed under § 476 BGB in favour of the claimant as buyer that the vehicle was already defective when the risk passed. The defendant as seller had not proved any facts over against this which were irreconcilable with this presumption in relation to the type of vehicle sold, or the type of defect which had occurred. After the expert had also described a defective gear change at high engine speed by the claimant as a possible cause of the loosening of the timing belt and therefore a driving defect as a possible cause of the harm, the defendant had made this part of his case. However, there was no ground or proof whatever for the presence of a driving defect by the claimant, who had contested this. The mere assertion of such a driving defect did not suffice to refute the presumption in § 476 BGB.

Taking as a starting point the undisputed performance of 10,950 km since handing over and a total life to be expected of 250,000 km, compensation for use was calculated to be 0.06 euros per kilometre travelled, and therefore 675 euros altogether (this should be 657 euros). As the defendant refused to carry out a cost-free repair of the

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engine from the outset until today, the claimant did not have to set any period for the defendant.

II. This does not stand up to legal examination.

1.The objection by the appeal in law that the appeal court judgment violated § 540 ZPO (Civil Procedure Order) as it did not reproduce the application in the defendant’s appeal is admittedly unsuccessful (. . . details are given).

2.But the objection by the appeal in law that the appeal court reached the assumption that there was a material defect in the sense of § 434 (1) BGB (which entitles the claimant to withdraw from the purchase contract of 15 January 2002 in accordance with § 437 no 2 BGB) by means of a procedural defect is successful.

(a)The appeal court correctly assumed that the BGB (Civil Code) is to be applied in the version applying since 1 January 2002 because the purchase contract was concluded on 15 January 2002 (Art 229 § 5 sentence 1 EGBGB (Introductory Statute to the Civil Code)). According to § 434 (1) sentence 1 and sentence 2 no 1 BGB, a thing is free from material defects if it has the agreed composition when the risk passes. In so far as composition was not agreed, the thing is free from material defects if it is suitable for the use which is presupposed under the contract. If the buyer claims, as the claimant does here, rights under § 437 BGB, by referring to the presence of a material defect after he has received the item bought, the burden of explanation and proof of the facts which form the basis of the material defect apply to him, even under the new law of obligations (Bamberger/Roth/Faust BGB § 434 marginal no 119; Palandt/Putzo BGB

63rd ed § 434 marginal no 57/59; see also Begründung zum Entwurf eines Gesetzes zur Modernisierung des Schuldrechts [Reasons for Draft Statute for Modernising the Law of Obligations], BT Drucks 14/6040 p 245). In so far as § 476 BGB reverses the burden of proof in favour of the buyer for the consumer goods purchase—as here—that does not affect the question of whether a material defect is present at all. The provisions assume instead that a material defect has arisen within six months since the passing of the risk and contain a presumption taking effect merely from a time angle that this defect was already present at the time the risk passed.

(b)Contrary to the view of the reply to the appeal in law, the appeal court has correctly not taken account of the engine damage to the vehicle which occurred on

12July 2002. The engine damage was not yet present according to the undisputed facts at the time of the risk passed—the determinative time according to § 434 (1) BGB—on 18 January 2002. Accordingly the appeal court has correctly laid emphasis on the question of whether the engine damage which occurred on 12 July 2002 should be attributed to a cause already present at the time the risk passed and based on the composition of the vehicle.

On this subject, the appeal court has first established that the engine damage should be attributed to defective material and unreasonably high wear and tear of the timing belt, which was renewed before the conclusion of the purchase contract in November 2001. In so far as it uses this cause as an established basis, the appeal court is relying on the observations of the expert employed at first instance. The appeal in law is correct in objecting to this. The finding rests on a procedural error. The appeal court has violated the requirement following from § 286 ZPO to assess the results of the evidence completely, because it has ignored a substantial part of the expert’s observations.

(aa)It is true that the expert has stated in summary in his written opinion submitted to the court of first instance that the cause of destruction of the engine was the

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disengaging of the timing belt from the camshaft sprocket, which had caused a malfunction of the intake valves in the first cylinder head, on which the valve disk of the fourth cylinder was broken off, and caused a fracture of the connecting-rod above the pistons. This again could be attributed to a timing belt which was too loose. According to his—the expert’s—opinion, the causes for this loosening were a material defect and unreasonably high wear and tear of the timing belt. According to the position today, a longer durability and functional capacity could be expected from a timing belt than merely eight months in this case where there was a life of about 10,000 km. However, under the previous section ‘Assessment’, the expert has mentioned the engaging of a lower gear at high engine speed as a further possible cause of the loosening of the timing belt. In agreement with this, the expert stated, according to the transcript, when explaining his opinion in the oral proceedings before the Landgericht on 27 March 2003, that he could not say with hindsight exactly how the disengaging of the timing belt had arisen; he could still not rule out the possibility of damage due to a defective gear change. Accordingly, it says in the reasons for the judgment of the Landgericht that the expert had (as had also been shown in the oral proceedings) not meant to make any statement in the written opinion as to whether the engine damage could not also have arisen because of the claimant’s driving. On the basis of the observations of the expert, who could only make presumptions about the cause of the disengaging of the timing belt, it was therefore not possible to assume with sufficient certainty that there was a material defect. A defect in driving causing the damage could not be adequately excluded.

(bb)The appeal court has admittedly mentioned the possibility of a defect in driving in the form of a defective gear change, which could not, according to the expert’s explanation, be ruled out, in its further observations when examining whether a material defect was present which had been left out of consideration. But it only considered this possibility afterwards in the context of an examination of § 476 BGB, and observed there were no grounds or proof for the presence of defect in the claimant’s driving, which he disputed. The mere assertion by the defendant of such a defect in driving did not suffice to rebut the presumption in § 476 BGB. The possibility of a defective gear change causing the damage, in the case of a gearbox functioning properly in other respects, should however already have been included in the assessment of the evidence in the context of examination of a material defect—and it had to be explained and proved by the claimant (see above under II 2 (a)).

(cc)The judgment is based on this procedural error (§ 545 (1) ZPO).

It cannot be ruled out that the appeal court would have regarded a material defect as not proved (§ 286 ZPO) if, when considering the division of the burden of proof under § 434 BGB, it had considered the possibility of a defective gear change which was pointed out by the expert.

(c) When considering this division of the burden of proof, the appeal court also ought not to have ruled out the possibility of defective driving without the taking of further evidence. The appeal court must in any case take evidence from the expert himself in writing or orally (§§ 402, 398 ZPO)—as the appeal in law correctly points out—if it intends to assess his observations in a different way from the court of first instance (BGH judgment of 8 June 1993— VI ZR 192/92, NJW 1993, 2380 under II 2 a; BGH judgment of 12 October 1993—VI ZR 235/92, NJW 1994, 803 under II 1 (b); in relation to the hearing of a witness, see senate, judgment of 17 July 2002—

APPENDIX I: CASES 861

VIII ZR 151/01, NJW-RR 2002, 1649 under II 2 (b)). That is the case here. As already explained above (under II 2 (b) (aa)), the Landgericht has understood the expert, after an oral hearing, to say that defective driving could not be ruled out as a cause of the engine damage. In contrast to this, the appeal court has based its assumption that there was a material defect on the fact that the expert had attributed the loosening of the timing belt exclusively to a material defect and unreasonable wear and tear.

3. Futhermore, the appeal in law correctly objects to the fact that the appeal court, in calculating the value of the benefit enjoyed by the claimant through use of the vehicle (§ 346 (1), (2) sentence 1 no 1 BGB), has violated § 286 ZPO by simply assuming, following the claimant’s submissions, an expected total life of 250,000 km. It cannot be deduced from the judgment whether the appeal court recognised that the defendant, as the appeal in law correctly points out, disputed this assertion by the claimant and why it, if so, nevertheless used the total life mentioned as a basis (on estimating the value of the benefit enjoyed through use of the vehicle, by analogy with § 287 ZPO, see BGHZ 115, 47, 49 ff; senate judgment of 17 May 1995—VIII ZR 70/94, WM 1995, 1145 = NJW 1995, 2159 under III 2: further, Reinking/Eggert, Der Autokauf [The car purchase], 8th ed, marginal no 321, 322).

III. In the end, the disputed judgment cannot stand. The legal action is not ready for a final decision, as it needs further factual findings. Therefore the judgment on appeal must be quashed, and the matter referred back to the appeal court.

Case 121

BUNDESGERICHTSHOF (EIGHTH CIVIL SENATE) 16 JANUARY 1963 NJW 1963, 804

Facts

In December 1959 the first defendant purchased a plot of land on which an apartment block was being built. The basic construction work had been completed, though the building inspectorate had not yet approved it, and a start had been made with the internal decoration. On 22 February 1960 the defendants leased one of the apartments to the plaintiffs, the lease to run from 1 March 1960, or at the latest from 1 April. The plaintiffs moved their furniture into the apartment when it was apparently ready, but they could not move in themselves because on 29 March the building inspectorate having ascertained that, inter alia, the reinforced concrete ceilings were not up to specifications, prohibited further work and declared, under § 79 para 2 of the Hesse Building Regulations, that the building should not be occupied until final approval. In the expectation that the objections could soon be allayed and final approval obtained, the parties agreed that the plaintiffs should temporarily move into a hotel at the defendants’ expense, but by early May 1960 it had become clear that in view of the inadequacy of the foundations, extensive support works would be required before final approval could be granted. On 27 May 1960 the defendants informed the plaintiffs in writing that it was impossible for them to honour the contract of lease, and refunded the building cost premium. The plaintiffs rented another apartment, and moved into it on 18 June 1960. The defendants paid the plaintiffs’ expenses up to this point, but

862 APPENDIX I: CASES

refused to pay anything in respect of the higher building cost premium, extra expenses of moving and so on.

The plaintiffs have put in an itemised claim amounting to DM5,893.92. The Landgericht held that claim justified in principle, and the defendant’s appeal from this holding was dismissed. The defendant’s further appeal is now dismissed.

Reasons

I. The Court of Appeal held that the plaintiffs’ claim for damages for nonperformance could be supported by the meaning, if not by the terms, of § 538 para 1 BGB in connection with § 537 BGB (now §§ 536, 536a BGB).

II.

II. No legal error to the detriment of the defendant was committed by the Court of Appeal. Indeed, it was unnecessary for the Court of Appeal to invoke the principle underlying the decision of the Bundesgerichtshof in BGHZ 9, 320, whereby § 538 BGB can be construed so as to entitle the lessee of property yet to be produced to claim damages for non-performance if defects in the sense of § 537 BGB are present at the time when the property is made ready for delivery, whether or not the lessor was at fault. In our case the defects which rendered the leased property incapable of contractual use were already present at the time when the contract was made. The plaintiffs were to move in on 1 April, if not on 1 March, and the building was essentially ready on 22 February. It is beyond dispute that an apartment is defective in the sense of § 537 BGB if the concrete ceilings in the building are not up to official specifications and if its foundations are so defective that extensive support work is required before the building regulations are satisfied The appellant puts forward far too narrow a conception of ‘defect’ in this connection, especially in its contention that a defect in the foundations of the building does not constitute a defect in the leased apartment. We need not here decide whether every trivial defect in the rest of the building which could have an effect on the apartment actually leased, such as a defective water pipe in an adjacent apartment (reference omitted), should be treated as a defect in the leased property, but it is perfectly evident that an apartment is defective in the sense of §§ 537, 538 BGB if there are defects in the foundations or the roof or other parts of the building which are essential for the leased apartment. It was a certain, or at least a probable, result of the building fault which admittedly existed at the time of the lease that the building inspectorate would prohibit occupation and refuse the approval required for it to be used as a dwelling. That approval had not yet been refused at the time of the lease is immaterial: it is sufficient that the building defects on which the refusal was based were already present. It follows that § 538 BGB can be applied directly. Nor is it necessary that the defendant should have been at fault, for his liability flows from the guarantee, implied by law into the lease, that the property is free from defect.

III. The appellant contends that §§ 275, 323 BGB (see now §§ 275, 326, 283 BGB) are applicable here rather than §§ 537, 538 BGB, and that the claim should therefore be dismissed It is generally agreed that §§ 275, 323 BGB, which deal with subsequent impossibility, are capable of application to a contract of lease, but it is nevertheless the clear intention of the legislator that they should be subordinated to the special provisions of §§ 537, 538 BGB if these provisions are applicable [references omitted]. That is the case here. As we have said, this is a typical instance of the strict liability of the

APPENDIX I: CASES 863

lessor for defects existing in the leased property at the time of the lease, a liability based on §§ 537, 538 BGB, not a case of subsequent impossibility in the sense of §§ 273, 323 BGB, for which the landlord is not responsible.

The appellant’s reference to the jurisprudence of the Reichsgericht is wide of the mark. The cases cited (RGZ 82, 203, 207; 146, 60, 64; 157, 363, 367) involved situations where, after the lease was concluded, reasons for which the lessor was not responsible rendered it impossible for him to fulfil the contract. In RGZ 82, 203, 207, the premises were leased before the First World War for use as a dance hall, a use which was rendered impossible by a wartime ban on dancing in public. In RGZ 146, 60, 64, premises had been leased for use as a retail outlet, and could no longer be used for that purpose after the enactment of the statute for the protection of retail trade on 12 May 1933. In RGZ 157, 363, 367, the restaurateur’s licence which the lessee needed was withdrawn owing to the fault of a sub-lessee for whom he was responsible: here, too, the lessor was held not liable because it was not his fault that the performance of the contract had become legally impossible.

The situation before us is different in that the plaintiffs’ inability to occupy the apartment because of the refusal of building approval was due to defects of construction which already existed at the time the contract was formed. Nor was it, as the appellant contends, legally impossible for the defendants to let the plaintiffs have the leased premises. There was nothing impossible about proceeding with the requisite support works and so on, and thus obtaining official approval. The defendants may not have had the funds to do this, but that does not affect the plaintiffs’ claims under §§ 537, 538 BGB, any more than the fact that the defendants had been deceived by the architect who sold them the property. It is against him that they must seek recourse.

866 APPENDIX II: BGB

§ 104

Lack of legal competence

A person lacks legal competence if he:

1.has not completed the seventh year of his life

2.is in a state of disturbance of mental activity through disease which would exclude free determination of the will, in so far as the state is not by its nature a transitory one.

§ 105

Invalidity of declaration of will

(1)A declaration of will by a person who lacks legal competence is invalid.

(2)A declaration of will is also invalid if it is given in a condition of unconsciousness or a transitory disturbance of mental activity.

[. . .]

§ 106

Limited legal competence of minors

A minor who has completed the seventh year of his life is limited in his legal competence in accordance with §§ 107 to 113.

§ 107

Consent of statutory representative

A minor needs the consent of his statutory representative for a declaration of will by which he does not merely obtain a legal advantage.

§ 108

Conclusion of contract without consent

(1)If a minor concludes a contract without the necessary consent of the statutory representative, the effectiveness of the contract depends on ratification by the representative.

(2)If the other party invites the representative to make a declaration about the ratification, the declaration can only take effect as against him; a ratification or refusal of ratification declared to the minor before the invitation becomes ineffective. The ratification can only be declared up until the expiry of two weeks after the receipt of the invitation; if it is not declared, it is deemed to have been refused.

(3)If the minor has acquired unlimited legal competence, his ratification takes the place of the representative’s ratification.

§ 109

Right of revocation for other party

(1)The other party is entitled to revoke until the contract is ratified. Revocation can also be declared as against the minor.

(2)If the other party knew about the minority, he can only revoke if the minor has claimed that the representative consented when this is untrue; he cannot revoke even in this case if he knew of the absence of consent at the conclusion of the contract.

§ 110

Effecting performance with own means

A contract concluded by a minor without the approval of the statutory representative is deemed to be effective from the start if the minor effects performance in accordance

APPENDIX II: BGB 867

with the contract with means which have been given to him for this purpose or for his free disposition by the representative or, with his approval, by a third party.

§ 111

Unilateral legal transactions

A unilateral legal transaction which a minor undertakes without the necessary consent of the statutory representative is ineffective. If the minor undertakes such a transaction with this consent in favour of another person, the transaction is ineffective if the minor does not produce the consent in written form, and the other person rejects the transaction on this ground without delay. Rejection is excluded if the representative had apprised the other person of the consent.

[. . .]

Second Title

Declaration of will

§ 116

Secret reservation

A declaration of will is not void just because the declarant secretly makes the reservation of not having intended what was declared. The declaration is void if it is to be given as against another person and he knows of the reservation.

§ 117

Sham transaction

(1)If a declaration of will which is to be given as against another is only given as a sham with that person’s agreement, then it is void.

(2)If another legal transaction is concealed by a sham transaction, the provisions effective for the concealed transaction will be applied.

§ 118

Lack of seriousness

A declaration which is not seriously intended and which is given in the expectation that there will be no failure to recognise the absence of seriousness is void.

§ 119

Avoidability for mistake

(1)A person who, when he gave a declaration of will, was mistaken about its content, or did not intend to give a declaration with this content at all, can avoid the declaration if it is to be assumed that he would not have given it if he had known the state of affairs and on a rational assessment of the case.

(2)A mistake about those characteristics of a person or a thing which are regarded as significant in human affairs is deemed to be a mistake about the content of the declaration.

§ 120

Avoidability for incorrect communication

A declaration of will which has been incorrectly communicated by the person or facility used for the communication can be avoided under the same prerequisite as a declaration of will given by mistake according to § 119.

868 APPENDIX II: BGB

§ 121

Period for avoidance

(1)Avoidance must in the cases of §§ 119 and 120 occur without culpable delay (promptly) after the person entitled to avoid has acquired knowledge of the ground for avoidance. Avoidance as against an absent person counts as occurring punctually if the declaration of avoidance has been dispatched promptly.

(2)Avoidance is excluded if ten years have elapsed since the giving of the declaration of will.

§ 122

Duty of person avoiding to compensate for harm

(1)If a declaration of will is void under § 118 or avoided on the basis of §§ 119 or 120, the declarant must, if the declaration had to be given as against another, compensate this other person, or otherwise any third party, for the harm which the other person or the third party suffers as a result of trusting in the validity of the declaration, but not however beyond the amount of the interest which the other person or the third party has in the validity of the declaration.

(2)The duty to compensate for harm does not arise if the party suffering harm knew of the ground of invalidity or avoidability or did not know of it as a result of negligence (ought to have known it).

§ 123

Avoidability because of deception or threat

(1)A person who has been caused to make a declaration of will by fraudulent deception or unlawfully by threat can avoid the declaration.

(2)If a third person has practised the deception, a declaration which was to be given as against another is only avoidable if he knew of the deception or ought to have known of it. In so far as a person other than the one to whom the declaration was to be given has acquired a right directly from the declaration, the declaration is avoidable as against him if he knew of the deception or ought to have known of it.

§ 124

Period for avoidance

(1)Avoidance of a declaration of will which is avoidable under § 123 can only take place within a year.

(2)The period begins in the case of fraudulent deception at the point in time at which the person entitled to avoid discovers the deception and in the case of threat at the point in time at which the state of compulsion ceases. The provisions of §§ 206, 210 and 211 applying to limitation of actions apply correspondingly to the running of the period.

(3)Avoidance is excluded if ten years have elapsed since the giving of the declaration of will.

§ 125

Invalidity because of absence of form

A legal transaction which lacks the form prescribed by statute law is void. The absence of form provided for by a legal transaction likewise results in invalidity in case of doubt.

APPENDIX II: BGB 869

§126

Written form

(1) If written form is prescribed by statute law, the document must be signed by the author with his own hand by the signature of his name or by means of a notarially attested mark.

(2 In the case of a contract, the signatures of the parties must be made on the same document. If several documents in identical terms are drawn up in respect of the contract, it suffices if each party signs the document intended for the other party.

(3) Written form can be replaced by electronic form unless a different conclusion follows from statute law.

(4) Notarial authentication can take the place of written form. [. . .]

§126b

Text form

If text form is prescribed by statute law, the declaration must be given in a document or in another manner appropriate for permanent reproduction in written characters, the declarant must be named and conclusion of the declaration must be made recognisable by reproduction of the signature or otherwise.

§127

Agreed form

(1) The provisions of § 126, § 126a or § 126b also apply in case of doubt for form provided for by a legal transaction.

(2) Transmission by telecommunication and exchange of letters in the case of a contract suffice for the observance of written form provided for by a legal transaction, in so far as a different intention is not to be assumed. If such a form is chosen, an authentication corresponding with § 126 can be demanded afterwards.

(3) [. . .]

§128

Notarial authentication

If notarial authentication of a contract is prescribed by statute law, it is sufficient if first the offer and then the acceptance of the offer is authenticated by a notary.

[. . .]

§ 130

Declaration of will becoming effective as against absent persons

(1)A declaration of will which is to be given as against another is, when it is given in that person’s absence, effective at the point in time at which it reaches him. It is not effective if a revocation reaches the other person previously or at the same time.

(2)It has no influence on the effectiveness of the declaration of will if the declarant dies or becomes legally incompetent after it is given.

(3)These provisions also apply if the declaration of will is to be given as against an authority.

[. . .]

870 APPENDIX II: BGB

§ 133

Interpretation of declaration of will

In the interpretation of a declaration of will the real intention is be ascertained and the literal sense of the statement is not to be followed.

§ 134

Statutory prohibition

A legal transaction which violates a statutory prohibition is void unless a different consequence is to be deduced from the statute.

[. . .]

§ 138

Immoral legal transaction; extortion

(1)A legal transaction which violates good morals is void.

(2)In particular a legal transaction is void by which someone through exploitation of the predicament, inexperience, lack of judgement or significant weakness of will of another person causes to be promised or granted to himself or a third party in return for a performance economic advantages which are conspicuously disproportionate to the performance.

§ 139

Partial invalidity

If part of a legal transaction is void, the whole transaction is void unless it can be assumed that it would have been undertaken even without the void part.

§140

Conversion

If a void legal transaction corresponds to the requirements of another legal transaction, the latter is valid if can be assumed that its validity would have been desired on knowledge of such invalidity.

[. . .]

§142

Effect of avoidance

(1)If an avoidable legal transaction is avoided, it is to be regarded as void from the start.

(2)A person who knew of the avoidability or ought to have known of it will, when the avoidance occurs, be treated as if he had known of the invalidity of the transaction or ought to have known of it.

§ 143

Declaration of avoidance

(1)Avoidance occurs by declaration as against the opposing party.

(2)The opposing party is, in the case of a contract, the other party, and in the case of § 123 paragraph 2 sentence 2 the person who has acquired a right directly from the contract.

(3)In the case of a unilateral legal transaction which was to be undertaken as against another person, the other person is the opposing party. The same applies to a legal transaction which was to be undertaken as against another person or against an authority, even if the transaction has been undertaken as against the authority.

APPENDIX II: BGB 871

(4) In the case of a unilateral legal transaction of a different kind, the opposing party is everyone who has obtained a legal advantage directly on the basis of the transaction. If the declaration of will was to be given as against an authority, the avoidance can however take place by way of a declaration as against the authority; the authority must communicate the avoidance to the person who has been directly affected by the transaction.

§ 144

Confirmation of avoidable legal transaction

(1)Avoidance is excluded if the avoidable legal transaction is confirmed by the person entitled to make the avoidance.

(2)The confirmation does not need the form determined for the legal transaction.

Third Title

Contract

§ 145

Binding effect of offer

A person who offers to another that he will conclude a contract is bound by the offer, unless he has excluded this binding effect.

§ 146

Extinguishment of offer

An offer lapses if it is refused as against the offeror, or if it is not accepted in time as against him under §§ 147 to 149.

§ 147

Time for acceptance

(1)An offer made to a person who is present can only be accepted immediately. This also applies to an offer made by telephone or other technical apparatus from person to person.

(2)An offer made to an absent person can only be accepted up to the point in time at which the offeror may expect arrival of the answer in usual circumstances.

§ 148

Determination of period for acceptance

If the offeror has determined a period for the acceptance of the offer, acceptance can only occur within that period.

§ 149

Declaration of acceptance arriving belatedly

If a declaration of acceptance reaching the offeror belatedly has been sent in such a way that it would have reached him in time on regular dispatch, and if the offeror ought to have recognised this, he must notify the delay to the acceptor promptly after receipt of the declaration in so far as this has not already occurred. If he delays in sending the notification, the acceptance does not count as delayed.

872 APPENDIX II: BGB

§ 150

Delayed and conditional acceptance

(1)Delayed acceptance of an offer counts as a new offer.

(2)An acceptance with extensions, limitations or other amendments counts as a refusal combined with a new offer.

§ 151

Acceptance without declaration as against the offeror

A contract will come into existence by acceptance of an offer without acceptance needing to be declared to the offeror if such a declaration is not to be expected in accordance with custom (Verkehrssitte), or if the offeror has renounced his right to it. The point in time at which the offer lapses is determined by the intention of the offeror which is to be deduced from the offer or the circumstances.

§ 152

Acceptance by notarial authentication

If a contract is notarially authenticated without both parties being present simultaneously, the contract comes into existence by authentication of the acceptance occurring in accordance with § 128, if no other provision is made. The provisions of § 151 sentence 2 apply.

§ 153

Death or legal incompetence of offeror

The formation of the contract is not prevented by the offeror dying or becoming legally incompetent before acceptance, unless a different intention on the part of the offeror must be assumed.

§ 154

Patent lack of agreement; absence of authentication

(1)As long as the parties have not agreed on all points of the contract about which an agreement is to be made according to the declaration of even only one party, the contract is not concluded in case of doubt. An understanding about individual points is not binding even if a record has been made.

(2)If authentication of the intended contract has been arranged, in case of doubt the contract is not concluded until the authentication has occurred.

§ 155

Hidden lack of agreement

If the parties have, in relation to an agreement which they regard as concluded, not in reality agreed about a point as to which agreement should be made, what has been agreed is valid in so far as it is to be assumed that the contract would have been concluded even without a provision about this point.

[. . .]

§ 157

Interpretation of contracts

Contracts are to be interpreted as required by good faith and having regard to custom (Verkehrssitte).

APPENDIX II: BGB 873

Fifth Title

Agency and Power of Attorney

§ 164

Effect of agent’s declaration

(1)A declaration of will which someone, within the agent’s authority which he has, gives in the principal’s name takes effect directly for and against the principal. It makes no difference whether the declaration is made expressly in the name of the principal or whether the circumstances indicate that it is made in his name.

(2)If the intention to act in the name of another is not evident, the absence of an intention to act in one’s own name should not be considered.

(3)The provisions of paragraph 1 apply correspondingly if a declaration of will to be given as against another is made to that person’s agent.

§ 165

Agent with limited legal competence

The effectiveness of a declaration of will given by or to an agent is not impaired by the fact that the agent has limited legal competence.

§ 166

Absence of intention; attribution of knowledge

(1)In so far as the legal consequences of a declaration of will are influenced by absence of intention or by the fact that certain circumstances are known or ought to be known, it is the situation of the agent and not of the principal which should be considered.

(2)If in the case of an agent’s authority (a power of attorney) given by a legal transaction the agent has acted in accordance with certain directions of the donor of the power, the latter cannot in respect of those circumstances which he knew himself rely on the agent’s lack of knowledge. The same applies in respect of circumstances which the donor of the power ought to have known in so far as the fact that he ought to have known can be equated with knowledge.

§ 167

Creation of power of attorney

(1)A power of attorney is created by way of a declaration to the person to be authorised or to the third party against whom the agency is to take place.

(2)The declaration does not need to be in the form which is determined for the legal transaction to which the power of attorney relates.

§ 168

Extinguishment of power of attorney

The extinguishment of the power of attorney is determined in accordance with the legal relationship on which its creation is based. The power of attorney is revocable even if the legal relationship continues to exist, in so far as no different consequence is to be deduced from this relationship The provisions of § 167 paragraph 1 apply correspondingly to the revocation declaration.

874 APPENDIX II: BGB

§ 169

Power of attorney of delegate and executive member of company (Gesellschaft)

In so far as the extinguished power of attorney of a delegate or an executive member of a company is deemed still to be existing under §§ 674, 729, it does not operate in favour of a third party who knows or ought to know of the extinguishment when undertaking a legal transaction.

§ 170

Period of effect of power of attorney

If the power of attorney is created by a declaration as against a third party, it will remain in effect as against this person until the extinguishment is notified to him by the donor of the power attorney.

§ 171

Period of effect in case of announcement

(1)If someone has announced by special communication to a third party or by public advertisement that he has authorised another person, this person has the authority of agency on the basis of the announcement in the former case as against the third party and in the latter case as against every third party.

(2)The agent’s authority continues to exist until the announcement is revoked in the same manner as it was made.

§ 172

Power of attorney

(1)It is equivalent to special communication of an authorisation by the donor of a power of attorney when he has handed over a power of attorney to the agent and the agent produces this to a third party.

(2)The agent’s authority continues in existence until the power of attorney is given back to the donor or is declared to be ineffectual.

§ 173

Period of effect in case of knowledge or negligent lack of knowledge

The provisions of § 170, § 171 paragraph 2 and § 172 paragraph 2 do not apply if the third party knows of the extinguishment of the agent’s authority when the legal transaction is undertaken or if he ought to know of it.

§ 174 Unilateral legal transaction by attorney

A unilateral legal transaction which an attorney undertakes as against another is ineffective if the attorney does not produce a power of attorney, and the other person rejects the legal transaction on this ground without delay. Rejection is excluded if the donor of the power of attorney had apprised the other party of the power of attorney.

§ 175

Return of power of attorney

After the extinguishment of the power of attorney, the attorney must give back the power of attorney to the donor; he does not have a right of retention.

[. . .].

APPENDIX II: BGB 875

§ 177

Conclusion of contract by agent without agent’s authority

(1)If someone concludes a contract in the name of another person without any agent’s authority, the effectiveness of the contract for and against the principal depends on the latter’s ratification.

(2)If the other party invites the principal to make a declaration about ratification, the declaration can only take place as against him; a ratification or refusal of ratification declared as against the agent before the invitation is ineffective. The ratification can only be declared up until the expiry of two weeks after receipt of the invitation; if it is not declared, it is deemed to have been refused.

§ 178

Right of revocation by other party

Until ratification of the contract the other party is entitled to revoke, unless he knew of the lack of agent’s authority on conclusion of the contract. Revocation can also be declared as against the agent.

§ 179

Liability of agent without agent’s authority

(1)A person who has concluded a contract as an agent is, in so far as he does not prove his agent’s authority, obliged to the other party to effect fulfilment or compensate (according to that party’s election), if the principal refuses to ratify the contract.

(2)If the agent did not know of the lack of agent’s authority, he is only obliged to compensate for that harm which the other party suffers as a result of relying on the agent’s authority, but not beyond the amount of the interest which the other party has in the effectiveness of the contract.

(3)The agent is not liable if the other party knew of the absence of agent’s authority or ought to have known of it. The agent is also not liable if he had limited legal competence, unless he acted with the consent of his statutory representative.

§ 180

Unilateral legal transaction

In the case of a unilateral legal transaction, agency without agent’s authority is not permissible. If however the person as against whom such a transaction was to be undertaken has not objected to the agent’s authority asserted by the agent when the transaction was undertaken, or if he was in agreement with the agent acting without agent’s authority, the provisions about contracts apply correspondingly. The same applies if a unilateral legal transaction is undertaken as against an agent without agent’s authority with that person’s agreement.

§ 181

Transactions with oneself

An agent cannot, except in so far as he is permitted to do otherwise, undertake a legal transaction in the name of the principal with himself in his own name or as agent of a third party, unless the transaction is exclusively in fulfilment of a commitment.

876 APPENDIX II: BGB

Sixth Title

Consent and ratification

§182

Approval

(1) If the effectiveness of a contract or of a unilateral legal transaction which is to be undertaken as against another is dependent on the approval of a third party, the giving and the refusal of the approval can be declared as against the one as well as against the other party.

(2) Approval does not need the form determined for the legal transaction.

(3) If a unilateral legal transaction the effectiveness of which depends on the approval of a third party is undertaken with the consent of the third party, the provisions of

§111 sentences 2, 3 apply correspondingly.

[. . .]

§ 184

Retrospective effect of ratification

(1)Subsequent approval (ratification) takes effect retrospectively at the point in time when the legal transaction was undertaken, in so far as no other provision is made.

(2)Retrospective effect does not render dispositions prior to ratification ineffective if they have been made in respect of the subject matter of the legal transaction by the ratifier or have occurred by way of execution or seizure or by the insolvency administrator.

Fifth Section

Limitation

First Title

Subject matter and length of limitation period

§ 194

Subject matter of limitation

(1)The right to demand that another person shall do or refrain from doing something (a claim) is subject to limitation.

(2)Claims from a family law relationship are not subject to limitation in so far as they are aimed at the restoration for the future of the situation corresponding to the relationship.

§ 195

Standard limitation period

The standard limitation period is three years.

§ 196

Limitation period in respect of rights in land

Claims to transfer of property in land as well as to the creation, transfer or termination of a right in land or to the alteration of the content of such a right as well as claims to counterperformance are subject to a limitation period of ten years.

APPENDIX II: BGB 877

§ 197

Three year limitation period

The following are subject to a 30-year limitation period in so far as no other provision is made:

1.Claims to delivery arising from property and other rights in rem,

2.Family and inheritance claims,

3.Claims established in a legally binding way,

4.Claims arising from directly enforceable settlements or directly enforceable documents, and

5.Claims which have become enforceable by a finding which has been made in insolvency proceedings.

(2) In so far as claims under paragraph 1 no 2 have regularly recurring services or support services as their content and claims under paragraph 1 nos 3 to 5 have regularly recurring services becoming due in the future as their content, the standard limitation period takes the place of the limitation period of 30 years.

§ 198

Limitation in case of succession

If a thing in relation to which a claim in rem exists enters the possession of a third party by succession, the successor has the benefit of the limitation period which elapsed during the possession of the legal predecessor.

§ 199

Commencement of standard limitation period and maximum periods

(1)The standard limitation period commences with the end of the year in which 1. the claim arises, and

2. the creditor acquires knowledge of the circumstances forming the basis of the claim and the identity of the debtor, or would have done so had he not been grossly negligent.

(2)Claims to compensation which are based on violation of life, body, health, or freedom have a limitation period (without regard to when they arose and knowledge, or absence of knowledge due to gross negligence) of 30 years from the commission of the act, the violation of duty or the other event giving rise to the harm.

(3)Other claims to compensation

1.without regard to knowledge, or absence of knowledge due to gross negligence, have a limitation period of ten years from when they arise, and

2.without regard to when they arise and knowledge, or absence of knowledge due gross negligence, have a limitation period of 30 years from the commission of the act, the violation of duty or the other event giving rise to the harm,

whichever period ends soonest.

(4) Claims other than claims to compensation have a limitation period of ten years from the date they arise without regard to knowledge, or absence of knowledge due to gross negligence.

(5) If the claim relates to an omission, the contravention takes the place of the arising of the claim.

878 APPENDIX II: BGB

§ 200

Commencement of other limitation periods

The limitation period for claims which are not subject to the standard limitation period begins with the date when the claim arises in so far as no other date for commencement of the limitation period is determined. § 199 paragraph 5 applies correspondingly.

§ 201

Commencement of limitation period for established claims

The limitation period for claims of the kind described in § 197 paragraph 1 nos 3 to 5 begins with the date the decision becomes legally effective, the establishment of the directly enforceable title or the finding in the insolvency proceedings, but not before the date when the claim arose. § 199 paragraph 5 applies correspondingly.

§ 202

Impermissibility of agreements about limitation

(1)Limitation periods cannot be reduced in advance by a legal transaction in the case of liability based on intention.

(2)Limitation periods cannot be increased by a legal transaction beyond a period of 30 years from the statutory commencement of the limitation period.

Second Title

Suspension, expiry of suspension and recommencement of limitation period

§ 203

Suspension of limitation period in case of negotiations

If negotiations about the claim or the circumstances forming the basis of the claim are proceeding between the debtor and the creditor, the limitation period is suspended until one or other of the parties refuses to continue with the negotiations. Expiry of the limitation period occurs no sooner than three months after the end of the suspension.

§ 204

Suspension of limitation period by pursuit of right

(1) A limitation period is suspended by

1.the commencement of an action for performance or for declaration of existence of a claim, for granting of an execution clause or for issue of an execution judgment,

2.the submission of an application in simplified proceedings about the maintenance of minors,

3.the submission of a warning decision in warning proceedings,

4.the instigation of notification of a conciliation petition which is delivered at a conciliation office set up or recognised by the state (Land) justice administration or, if the parties make an attempt to reach an agreement conjointly at another conciliation office which manages conflict settlements, and if the notification is instigated following the delivery of the application, the suspension of the limitation period occurs with the delivery,

5.the assertion of set off to the claim in the proceedings,

6.the submission of an announcement of the dispute,

APPENDIX II: BGB 879

7.the submission of an application for the carrying out of independent evidence proceedings,

8.the commencement of agreed expert opinion proceedings or the commissioning of an expert in the proceedings in accordance with § 641a,

9.the submission of an application for the issue of a detention warrant, of an interim order or an interim injunction or, if the application is not submitted, its delivery, if the order for the detention, the interim order or the interim injunction is submitted to the debtor within a month of announcement or submission to the creditor,

10.the notification of the claim in insolvency proceedings or in shipping law allocation proceedings,

11.the beginning of arbitration proceedings,

12.the delivery of an application to an authority if the permissibility of the action is dependent on a prior decision of this authority and the action is brought within three months after the making of the request; this applies correspondingly for applications to be made to a court or to a conciliation office described in no 4, the permissibility of which depends on the prior decision of an authority,

13.the delivery of an application to the higher court, if this court has to determine the competent court and the action is brought, or the application for which the determination of the place of jurisdiction has to occur is made, within three months after the making of the request, and

14.the instigation of notification of the first application for granting of assistance for the cost of proceedings; if the notification is instigated following the submission of the application, the suspension of the limitation period occurs with the submission.

(2) The suspension under paragraph 1 ends six months after the legally binding decision or other termination of the proceedings initiated. If the proceedings come to a halt as a result of the parties not pursuing them, then the last step in the proceedings by the parties, by the court, or by the other office concerned with the proceedings is substituted for the termination of the proceedings. The suspension begins again when one of the parties pursues the proceedings further.

(3) §§ 206, 210 and 211 have corresponding application to the period under paragraph

1nos 9, 12 and 13.

§ 205

Suspension of limitation period in case of right to refuse performance

The limitation period is suspended as long as the debtor is entitled temporarily to refuse performance on the basis of an agreement with the creditor.

§ 206

Suspension of limitation period in case of supervening force (force majeure)

The limitation period is suspended as long as the creditor within the last six months of the limitation period is prevented from pursuing his rights by supervening force (force majeure).

§ 207

Suspension of limitation period on family and similar grounds

(1) The limitation period in respect of claims between married couples is suspended as long as the marriage exists. The same applies for claims between

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1.life partners as long as the life partnership exists,

2.parents and children and the spouse of a parent and that person’s children during the minority of the children,

3.the guardian and the ward during the period of the guardianship,

4.the person supervised and the supervisor during the length of the supervision relationship, and

5.the charge and the carer during the length of the care relationship

The limitation period for claims of a child against the advisor is suspended during the length of the advisor relationship

(2) § 208 remains unaffected.

§ 208

Suspension of limitation period in relation to claims for violation of sexual selfdetermination

The limitation period in respect of claims for violation of sexual self-determination is suspended until the creditor attains the age of 21 years. If the creditor in respect of claims for violation of sexual self-determination lives with the debtor in the same household at the beginning of the limitation period, the limitation period is also suspended until the termination of these household arrangements.

§ 209

Effect of suspension

The period of time during which the limitation period is suspended is not included when calculating the limitation period.

§ 210

Expiry of suspension in case of persons who are not fully legally competent

(1)If a person who is not legally competent, or who is restricted in his legal competence, is without a statutory representative, a limitation period running for or against that person will not start before the expiry of six months after the point in time at which the person becomes fully legally competent or the lack of representation is removed. If the limitation period is shorter than six months, the period determined for limitation purposes takes the place of six months.

(2)Paragraph 1 does not apply in so far as a person with limited legal capacity is competent in relation to legal proceedings.

§ 211

Expiry of suspension in estate cases

The limitation period in respect of a claim which belongs to an estate or is directed against an estate does not start before the expiry of six months after the point in time at which the inheritance is accepted by the heir, or the insolvency proceedings regarding the estate are opened, or from which the claim can be made by or against a representative. If the limitation period is shorter than six months, the period determined for limitation purposes takes the place of six months.

§ 212

Recommencement of limitation period

(1) The limitation period begins again if

APPENDIX II: BGB 881

1.the debtor acknowledges the claim to the creditor by an interim payment, an interest payment, the giving of security, or in some other way, or

2.an execution by a court or by an authority is undertaken or proposed.

(2)The fresh commencement of the limitation period as a result of an execution does not count as having occurred if the execution is annulled on the application of the debtor or because of absence of the statutory prerequisites.

(3)The fresh commencement of the limitation period through application to carry out an act of execution does not count as having occurred if the application is not granted or the application is withdrawn before the execution or the act of execution obtained is annulled in accordance with paragraph 2.

§ 213

Suspension, expiry of suspension and fresh commencement of limitation period in relation to other claims

Suspension, expiry of suspension and fresh commencement of the limitation period also apply for claims arising from the same ground which exist either in addition to the claim or instead of it, as desired.

Third Title

Legal consequences of limitation

§ 214

Effect of limitation

(1)On expiry of the limitation period the debtor is entitled to refuse performance.

(2)Any performance rendered in satisfaction of a time expired claim cannot be demanded back, even if the performance was rendered in ignorance of the fact that it was time expired. The same applies for a contractual acknowledgement as well as for a giving of security by the debtor.

§ 215

Set off and right of retention after expiry of limitation period

The expiry of a limitation period does not exclude set off and the claiming of a right of retention if the limitation period for the claim had not yet expired at the point in time at which there could first be set off or the performance could be refused.

§ 216

Effect of limitation on secured claims

(1)The expiry of the limitation period in respect of a claim for which a mortgage, a ship mortgage, or a right of pledge exists does not prevent the creditor from seeking his satisfaction from the encumbered object.

(2)If a right has been procured for the securing of a claim, retransfer cannot be demanded on the basis of the expiry of the limitation period for the claim. If property is reserved, withdrawal from the contract can occur even if the limitation period in respect of the secured claim has expired.

(3)Paragraphs (1) and (2) do not apply to the expiry of the limitation period in respect of claims to interest and other recurring performances.

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§ 217

Limitation in respect of subsidiary performances

The limitation period in respect of the claim to subsidiary performances dependent on the main claim expires with that of the main claim, even if the special limitation period applying to the former claim has not yet expired.

§ 218

Ineffectiveness of withdrawal

(1)Withdrawal because performance was not effected or not effected in accordance with the contract is ineffective if the limitation period in respect of the claim to the performance or the claim to subsequent fulfilment has expired and the debtor refers to this. This also applies if the debtor does not need to perform under § 275 paragraphs 1 to 3, § 439 paragraph 3 or § 635 paragraph 3 and the claim to performance or the claim to subsequent fulfilment would be time barred. § 216 paragraph 2 sentence 2 remains unaffected.

(2)§214 paragraph 2 applies correspondingly.

[. . .]

Second Book

Law of obligation relationships

First Section

Content of obligation relationships

First Title

Duty to perform

§ 241

Duties arising from obligation relationship

(1)By virtue of the obligation relationship, the creditor is entitled to demand performance from the debtor. Performance can also consist in an omission.

(2)The obligation relationship can, according to its content, oblige each party to have regard to the rights, legal entitlements and interests of the other party.

§ 242

Performance in accordance with good faith

A creditor is obliged to effect performance in the manner required by good faith, having regard to custom (Verkehrsitte).

§ 243

Obligation relating to class

(1)A person who is obliged to provide a thing determined only according to its class must provide a thing of average type and quality.

(2)If a debtor has done what is necessary on his side to provide such a thing, the obligation relationship is limited to this thing.

APPENDIX II: BGB 883

§ 244

Debt in foreign currency

(1)If a money debt expressed in another currency than the euro is to be paid within the country, the payment can be made in euros, unless it is expressly agreed that payment is to be in the other currency.

(2)The conversion will take place according to the currency value which is determinative at the time of the payment for the place of payment.

§ 246

Statutory rate of interest

If a debt is to bear interest according to statute law or a legal transaction, four per cent per annum is to be paid in so far as no other rate has been determined.

§ 247

Basic rate of interest

(1)The basic rate of interest is 3.62 per cent. It changes on the 1st January and 1st July each year by the percentage points by which the base factor rose or fell since the last change of the basic rate of interest. The base factor is the rate of interest for the most recent major refinancing operation of the European Central Bank before the first calendar day of the half year concerned.

(2)The Deutsche Bundesbank will publish in the Bundesanzeiger the applicable basic rate of interest without delay after the points in time mentioned in paragraph 1 sentence 2.

[. . .]

§ 249

Type and scope of compensation

(1)A person who is under a duty to provide compensation has to restore the state of affairs which would exist if the circumstance giving rise to the duty to compensate had not arisen.

(2)If compensation for harm is to be provided because of injury to a person or because of damage to a thing, the creditor can instead of restoration demand the sum of money necessary for this. In the case of damage to a thing the sum of money necessary under sentence 1 only includes turnover tax if and in so far as it has actually become payable.

§ 250

Compensation in money after setting of time limit

A creditor can determine for the person obliged to compensate an appropriate period for restoration in kind by a declaration that he will refuse restoration in kind after expiry of this period. After the expiry of the period, the creditor can demand compensation in money if the restoration in kind does not take place in time; the claim to restoration in kind is excluded.

§ 251

Compensation in money without setting of time limit

(1) In so far as restoration in kind is not possible or is not sufficient for indemnifying the creditor, the person obliged to compensate must indemnify the creditor in money.

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(2) The person obliged to compensate can indemnify the creditor in money if restoration in kind is possible only with disproportionate expenditure. Expenses which have arisen from medical treatment of an injured animal are not disproportionate simply because they substantially exceed its value.

§252

Lost profit

The harm for which compensation is to be made also includes lost profit. Profit is deemed to be lost if it could be expected with probability in the usual course of things or the special circumstances, in particular the arrangements and provisions which have been made.

§253

Non-material harm

(1)In the case of harm which is not financial harm, compensation in money can only be demanded in the cases determined by statute law.

(2)If compensation is to be provided because of injury to the body, health, freedom or sexual self-determination, fair compensation in money can also be demanded for harm which is not financial harm.

§254

Contributory fault

(1) If fault on the part of the victim has contributed to the origin of the harm, the duty to compensate as well as the extent of the compensation to be provided depends on the circumstances, and in particular on the extent to which the harm has been predominantly caused by the one or the other party.

(2) This also applies if the victim’s fault is limited to the fact that he has omitted to draw the debtor’s attention to the risk of an unusually high level of harm of which the debtor neither knew nor ought to have known, or that he has omitted to avert the harm or to reduce it. The provisions of § 278 apply correspondingly.

§255

Transfer of claims to compensation

A person who has to provide compensation for the loss of a thing or a right is obliged to compensate only in return for transfer of the claims which belong to the person entitled to compensation on the basis of property in the thing or on the basis of the right against third parties.

[. . .]

§ 266

Partial performances

The debtor is not entitled to make partial performances.

§ 267

Performance by third parties

(1)If the debtor does not have to perform in person, a third party can also effect performance. The consent of the debtor is not necessary.

(2)The creditor can refuse performance if the debtor objects.

APPENDIX II: BGB 885

§ 268

Right of discharge by third party

(1)If the creditor carries out an execution against an object belonging to the debtor, everyone who runs the risk of losing a right in the object through the execution is entitled to satisfy the creditor. The same right belongs to the person in possession of a thing if he runs the risk of losing possession through the execution.

(2)Satisfaction can also occur by deposit or by setting off.

(3)In so far as the third party satisfies the creditor, the demand transfers to him. The transfer cannot be claimed to the creditor’s disadvantage.

§ 269

Place of performance

(1)If a place for performance is neither determined nor can it be deduced from the circumstances, in particular from the nature of the obligation relationship, performance must occur in the place in which the debtor had his residence at the time the obligation relationship arose.

(2)If the obligation arose in the carrying out of the debtor’s business and if the debtor had his business establishment in another place, the place of establishment is substituted for the place of residence.

(3)It should not be deduced from the mere fact that the debtor has agreed to pay the costs of dispatch that the place to which the dispatch must be made should be the place of performance.

§ 270

Place of payment

(1)In case of doubt the debtor should transmit money at his own risk and cost to the creditor at his residence.

(2)If the demand arose in the carrying out of the creditor’s business and if the creditor has his business establishment in another place, the place of establishment is substituted for the place of residence.

(3)If, as a result of a change in the creditor’s residence or business establishment after the obligation relationship arose, the costs or the risk of transmission increase, the creditor must bear the additional costs in the former case and the risk in the latter case.

(4)The provisions about the place of performance remain unaffected.

§ 271

Time for performance

(1)If a time for performance is neither determined nor can it be deduced from the circumstances, the creditor can demand performance immediately and the debtor can effect it immediately.

(2)If a time is determined, it is to be assumed in case of doubt that the creditor cannot demand performance before this time, but the debtor can effect it earlier.

[. . .]

§ 273

Right of retention

(1) If the debtor has a claim which has fallen due against the creditor from the same legal relationship on which his obligation is based, he can, in so far as no different

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conclusion is to be drawn from the obligation relationship, refuse the performance owed until the performance which is due to him has been effected (right of retention).

(2)A person who is obliged to hand over an object has the same right if he is entitled to a claim which has fallen due for expenditure on the object or because of harm caused to him by it, unless he has obtained the object by a tort committed deliberately.

(3)The creditor can prevent the exercise of the right of retention by a providing a security. Security by a guarantee is excluded.

§ 274

Effects of the right of retention

(1)The claiming of a right of retention only has, as against the creditor’s claim, the effect that the debtor must be ordered to perform in return for the performance which is due to him (simultaneous fulfilment).

(2)On the basis of such an order the creditor can pursue his claim by way of execution without effecting the performance which he owes if the debtor is in delay in acceptance.

§ 275

Exclusion of duty to perform

(1)The claim to performance is excluded in so far as this is impossible for the debtor or for anyone.

(2)The debtor can refuse performance in so far as this requires expenditure which is in gross disproportion to the creditor’s interest in performance, having regard to the content of the obligation relationship and the requirement of good faith. When determining the efforts to be expected of the debtor, consideration must also be given to whether the debtor is responsible for the hindrance to performance.

(3)The debtor can further refuse performance if he has to effect performance personally, and on balancing the hindrance to his performance, together with the creditor’s interest in performance, the debtor cannot be expected to do this.

(4)The creditor’s rights are determined in accordance with §§ 280, 283 to 285, 311a and 326.

§ 276

Responsibility of debtor

(1)The debtor is responsible for intention and negligence if no stricter or more lenient liability is either determined or to be deduced from the other content of the obligation relationship, in particular from the adoption of a guarantee or a risk of production. The provisions of §§ 827 and 828 apply correspondingly.

(2)A person acts negligently if he does not have regard to the care necessary in human affairs.

(3)The debtor cannot be released in advance from liability for intention.

§ 277

Care in own affairs

A person who only has to take responsibility for that care which he is accustomed to apply in his own affairs is not freed from liability for gross negligence.

APPENDIX II: BGB 887

§ 278

Responsibility of debtor for third parties

The debtor has to answer for fault on the part of his statutory representative and of the persons whom he uses for the fulfilment of his obligations to the same extent as for his own fault. The provisions of § 276 paragraph 3 do not apply.

[. . .]

§ 280

Compensation for violation of duty

(1)If the debtor violates a duty arising from an obligation relationship, the creditor can demand compensation for the harm arising from this. This does not apply if the debtor is not responsible for the violation of duty.

(2)The creditor can only demand compensation for delay in performance under the additional prerequisite of § 286.

(3)The creditor can only demand compensation instead of performance under the additional prerequisites of § 281, § 282 or § 283.

§ 281

Compensation instead of performance, because of non-performance or performance not in accordance with obligation

(1)In so far as the debtor does not effect the performance which is due or does not effect it in accordance with the obligation, the creditor can, under the prerequisites of § 280 paragraph 1, demand compensation instead of performance if he has set a reasonable period for the debtor for the performance or subsequent fulfilment, but without result. If the debtor has effected a partial performance, the creditor can only demand compensation instead of the whole performance if he has no interest in the partial performance. If the debtor has not effected performance in accordance with the obligation, the creditor cannot demand compensation instead of the whole performance if the violation of duty is not substantial.

(2)The setting of a period can be dispensed with if the debtor refuses performance seriously and finally, or if special circumstances are present which, on balancing the interests of both sides, justify the immediate making of a claim to compensation.

(3)If, because of the kind of violation of duty, the setting of a period does not come into consideration, then a warning will take its place.

(4)The claim to performance is excluded as soon as the creditor has demanded compensation instead of performance.

(5)If the creditor demands compensation instead of the whole performance, the debtor is entitled to demand back what has been performed in accordance with §§ 346 to 348.

§ 282

Compensation instead of performance because of violation of duty under § 241 paragraph 2

If the debtor violates a duty under § 241 paragraph 2, the creditor can demand compensation instead of performance under the prerequisites of § 280 paragraph 1 if performance by the debtor can no longer be expected of the creditor.

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§ 283

Compensation instead of performance on exclusion of duty to perform

If the debtor does not need to perform according to § 275 paragraphs 1 to 3, the creditor can demand compensation instead of performance under the prerequisites of § 280 paragraph 1. § 281 paragraph 1 sentences 2 and 3 and paragraph 5 apply correspondingly.

§ 284

Reimbursement of abortive expenditure

In the place of compensation instead of performance the creditor can demand reimbursement of expenditure which he has made in reliance on receiving the performance and could fairly make, unless its purpose would not have been attained even without the debtor’s violation of duty.

§ 285

Handing reimbursement over

(1)If the debtor obtains replacement or a claim to replacement for the object which is the subject of the obligation as a result of the circumstance on the basis of which he does not need to effect performance according to § 275 paragraphs 1 to 3, the creditor can demand the handing over of what has been received as replacement or the transfer of the claim to replacement.

(2)If the creditor can demand compensation instead of performance, this will reduce by the value of the replacement obtained or the claim to replacement if he makes use of the right provided for in paragraph 1.

§ 286

Delay by debtor

(1)If the debtor does not perform in response to the creditor’s warning which takes place after performance has become due, then he will be in delay as a result of the warning. The raising of a claim to performance as well as the submission of a warning order in warning proceedings are equivalent to a warning.

(2)A warning is not needed if

1.a time is determined for the performance according to the calendar,

2.an event must precede the performance and an appropriate time is determined for the performance in such a way that it can be reckoned from the event onwards according to the calendar,

3.the debtor refuses performance seriously and finally,

4.the immediate commencement of delay is justified on special grounds on balancing the interests of both sides.

(3) The debtor in respect of a demand for payment will be in delay at the latest if he does not perform within 30 days after the due date and an account or an equivalent payment statement is received; this only applies as against a debtor who is a consumer if his attention has been particularly drawn to these results in the account or payment statement. If the point in time of the arrival of the account or payment statement is uncertain, the debtor who is not a consumer is in delay at the latest 30 days after the due date and receipt of the counterperformance.

(4) The debtor is not in delay as long as performance fails to occur as a result of a circumstance for which he is not responsible.

APPENDIX II: BGB 889

§ 287

Responsibility during delay

The debtor is responsible for all negligence during the delay. He is liable with regard to the performance even for chance events unless the harm would also have occurred on punctual performance.

§ 288

Interest during delay

(1)A money obligation bears interest during the delay. The rate of interest during delay for the year is five percentage points above the basic rate of interest.

(2)For legal transactions in which no consumer participates, the rate of interest for demands for payment is eight percentage points above the basic rate of interest.

(3)The creditor can demand higher interest on a different legal ground.

(4)A claim for further loss is not excluded.

[. . .]

Second Title

Delay by creditor

§ 293

Delay in acceptance

The creditor falls into delay when he does not accept the performance offered to him.

§294

Actual offer

The performance must be actually offered to the creditor as it is to be effected.

§295

Verbal offer

A verbal offer by the debtor suffices if the creditor has declared to him that he will not accept the performance or if action by the creditor is necessary for the effecting of the performance, in particular if the creditor has to collect the thing owed. An invitation to the creditor to undertake the necessary action is equivalent to an offer of performance.

§ 296

Dispensability of offer

If a time is determined in accordance with the calendar for the action to be undertaken by the creditor, an offer is only needed if the creditor carries out the action punctually. The same applies if an event has to precede the action and a reasonable time for the action is determined in such a way that it can be reckoned from the event onwards according to the calendar.

§ 297

Inability on part of debtor

The creditor does not fall into delay if the debtor is not in a position to effect performance at the time of the offer or, in the case of § 296, at the time determined for the action by the creditor.

[. . .]

890 APPENDIX II: BGB

§ 300

Effects of delay by creditor

(1)The debtor only has to answer for intention and gross negligence during delay by the creditor.

(2)If a thing is owed which is only determined by its class, the risk transfers to the creditor at the point in time at which he falls into delay by not accepting the thing offered.

[. . .]

§ 304

Reimbursement of additional expenditure

The debtor can in the case of delay by the creditor demand the reimbursement of the additional expenditure which he had to incur for the unsuccessful offer as well as for the preservation and maintenance of the object owed.

Second Section

Formulation of obligation relationships in legal transactions by general conditions of business

§ 305

Incorporation of general conditions of business into contract

(1)General conditions of business are all contractual conditions formulated beforehand for many contracts which one contracting party (the user) places before the other at the conclusion of a contract. It does not matter whether the provisions form an outwardly separated component of the contract or are taken into the contractual document itself, what their scope is, in what kind of written form they are composed and what form the contract takes. General conditions of business are not present in so far as the conditions of contract are negotiated individually between the contracting parties.

(2)General conditions of business will only be a component of a contract if the user on conclusion of the contract

1. refers the other contracting party expressly to them or, if an express reference is only possible with disproportionate difficulties because of the way in which the contract is concluded, by a clearly visible notice at the place of conclusion of the contract, and

2. provides the other contracting party with the opportunity of becoming acquainted with their content in a reasonable manner which also takes appropriate account of any physical disability of the other contracting party which the user can recognise and if the other contracting party is in agreement with their applicability.

(3)The contracting parties can agree the applicability of certain general conditions of business in advance for a certain kind of legal transaction, provided they observe the requirements described in paragraph 2.

§ 305a

Incorporation in special cases

Even without observance of the requirements described in § 305 paragraph 2 nos 1 and 2, there will be included, if the other contracting party is in agreement with their applicability:

APPENDIX II: BGB 891

1.the tariffs and implementation provisions of the railways issued with the approval of the competent transport authority or on the basis of international treaties and the transportation conditions of trams, buses and motor vehicles providing regular services approved in accordance with the Transportation of Persons Act in the transportation contract,

2.the general conditions of business published in the official journal of the regulatory authority for telecommunications and post and kept available in the places of business of the user

a) in transportation contracts which are concluded outside business premises by the insertion of postal packets in letterboxes,

b) in contracts about telecommunication, information and other services which are effected at once directly by employment of methods of communication from a distance and during the effecting of a telecommunication service if the general conditions of business can only be made accessible to the other contracting party before the conclusion of the contract with disproportionate difficulty.

§ 305b

Priority of individual arrangement

Individual contractual arrangements have priority over general conditions of business.

§ 305c

Surprising and ambiguous clauses

(1)Provisions in general conditions of business which in the circumstances, in particular the outward appearance of the contract, are so unusual that the contractual partner of the user does not need to take them into account are not part of the contract.

(2)Doubt about the interpretation of general conditions of business will be resolved to the disadvantage of the user.

§ 306

Legal consequences of non-incorporation and ineffectiveness

(1)If general conditions of business have wholly or partially not become part of the contract or are ineffective, the contract remains effective in other respects.

(2)In so far as the provisions have not become part of the contract or are ineffective, the content of the contract will be determined in accordance with the statutory provisions.

(3)The contract is ineffective if adhering to it, even taking into account the alteration provided for in paragraph 2, would represent an unreasonable hardship for a contracting party.

§306a

Prohibition of circumvention

The provisions of this section apply even if they are circumvented by other formulations.

§ 307

Control of content

(1) Provisions in general conditions of business are ineffective if they unreasonably disadvantage the user’s contracting partner in a manner contrary to the requirements

892 APPENDIX II: BGB

of good faith. An unreasonable disadvantage can also arise from the fact that the provision is not clear and comprehensible.

(2) An unreasonable disadvantage is to be assumed in case of doubt if a provision

1.cannot be reconciled with essential basic concepts of the statutory regime from which there is a deviation, or

2.so limits essential rights or duties which arise from the nature of the contract that the attainment of the purpose of the contract is endangered.

(3) Paragraphs 1 and 2 as well as §§ 308 and 309 only apply for provisions in general conditions of business by which rules are agreed deviating from legal provisions or supplementing them. Other provisions can be ineffective under paragraph 1 sentence

2in combination with paragraph 1 sentence 1.

§ 308

Prohibition on clauses with possibility of discretion

In general conditions of business, the following in particular are ineffective 1. (Periods for acceptance and performance)

a provision by which the user reserves unreasonably long or insufficiently determinate periods for the acceptance or refusal of an offer or the effecting of performance; reservation of performance only after expiry of the period for revocation or return under § 355 paragraphs 1 and 2 and § 356 is excepted from this;

2. (Additional period)

a provision by which the user, deviating from the legal provisions, reserves an unreasonably long or insufficiently determinate additional period for the performance to be effected by him;

3. (Reservation of right of withdrawal)

agreement of a right by the user to release himself from his duty to perform without a ground which is objectively justified and given in the contract; this does not apply for long term obligation relationships;

4. (Reservation of right of alteration)

agreement of a right by the user to alter the promised performance or to deviate from it, if the agreement of the alteration or deviation, taking into consideration the interests of the user, cannot be expected of the other contracting party;

5. (Fictitious declarations)

a provision according to which a declaration by the contractual partner of the user is, on the undertaking or omission of a certain act, to count as given or not given by him, unless

a)the contractual partner is allowed an appropriate period for giving an express declaration and

b)the user commits himself especially to draw the attention of the contractual partner at the beginning of the period to the significance of his conduct as provided for;

this does not apply to contracts in which Part B of the Order regarding public works contracts (Verdingungsordnung) for building services is included as a whole;

6. (Fictitious arrival)

a provision that a declaration by the user of particular importance is to count as having reached the other contracting party;

7. (Winding up of contracts)

APPENDIX II: BGB 893

a provision under which the user can demand, for the case in which a contracting party withdraws from the contract or terminates the contract by notice,

a)an unreasonably high recompense for the exploitation or use of a thing or a right or for services effected or

b)an unreasonably high reimbursement of expenses;

8. (Non-availability of performance)

an agreement permissible under no 3 of a reservation by the user to release himself from the duty to fulfil the contract in the case of non-availability of the performance, if the user does not commit himself,

a)to inform the contractual partner without delay about the non-availability and

b)to restore counterperformances of the contractual partner without delay.

§ 309

Prohibition of clauses without possibility of discretion

Even in so far as a deviation from the statutory provisions is permissible, the following are ineffective in general conditions of business:

1. (Price increases on short notice)

a provision which provides for increase of the payment for goods or services which are to be delivered or carried out within four months after the conclusion of the contract; this does not apply for goods or services which are delivered or carried out within the framework of long term obligation relationships;

2.(Rights to refuse performance) a provision by which

a) the right to refuse performance which belongs to the contractual partner of the user under § 320 is excluded or limited, or

b) a right of retention belonging to the contractual partner of the user, in so far as it is based on the same contractual relationship, is excluded or limited, and in particular is made dependent on the recognition of defects by the user;

3.(Prohibition of set off)

a provision which takes away the power from the contractual partner of the user to set off an undisputed demand or one established in a legally binding way;

4. (Warning, setting of a period)

a provision by which the user is released from the statutory obligation to warn the other contracting party or to set him a period for performance or subsequent fulfilment;

5. (Lump sum for claims to compensation)

the agreement of an all-inclusive claim by the user to compensation or to recompense for a diminution in value, if

a)the lump sum exceeds the harm to be expected in the cases regulated according to the usual course of events or the diminution in value usually arising, or

b)the other contracting party is not allowed expressly to prove that harm or a diminution in value did not occur at all or is substantially lower than the lump sum;

6. (Contractual penalty)

a provision by which the user is promised payment of a contractual penalty for the case of non-acceptance or delayed acceptance of the performance, of delay in payment or for the case where the other contracting party releases himself from the contract;

7. (Exclusion of liability on violation of life, body or health and in case of gross fault)

a)(Violation of life, body or health)

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an exclusion or a limitation of liability for harm from violation of life, body or health which is based on a negligent violation of the user’s duty or an intentional or negligent violation of the duty of a statutory representative or agent of the user;

b) (Gross fault)

an exclusion or limitation of liability for other harm which is based on a grossly negligent violation of duty by the user or on an intentional or grossly negligent violation of duty of a statutory representative or agent of the user;

a and b do not apply for limitations of liability in the conditions of transport and tariff provisions of trams, buses and powered vehicles on regular services authorised in accordance with the Transportation of Persons Act, in so far as they do not deviate from the Regulation on general conditions of transportation for tram and bus traffic and regular services with powered vehicles of the 27th February 1970 to the disadvantage of the passenger; b does not apply for limitations of liability for state authorised lottery or raffle contracts;

8. (Other exclusions of liability on violation of duty) a) (Exclusion of right to be released from contract)

a provision which excludes or limits the right of the other contracting party to be released from the contract in the case of a violation of duty for which the user is responsible and which does not consist in a defect in the object purchased or in the work; this does not apply for the transportation conditions and tariff provisions described in no 7 under the prerequisites mentioned there;

b) (Defects)

a provision by which in relation to contracts about deliveries of newly manufactured things and about work services

aa) (Exclusion and reference to third parties)

claims against the user because of a defect are excluded altogether or with reference to individual parts, limited to the granting of claims against third parties or are made dependent on prior court claims against third parties;

bb) (Limitation to subsequent fulfilment)

claims against the user are limited altogether, or with reference to individual parts, to a right to subsequent fulfilment in so far as the right is not expressly reserved to the other contracting party on failure of subsequent fulfilment to reduce or, if the defects liability does not relate to building services, at his option to withdraw from the agreement;

cc) (Expenses on subsequent fulfilment)

the duty of the user is excluded or limited to bearing the expenses, in particular costs of transportation, road tolls, work and materials, necessary for the purpose of subsequent fulfilment;

dd) (Withholding of subsequent fulfilment)

the user makes subsequent fulfilment dependent on the prior payment of the full sum due or of a part of the sum due which is disproportionately high, taking the defect into consideration;

ee) (Exclusive period for notification of defects)

the user sets the other contracting party an exclusive period, which is shorter than the period permissible under ff, for the notification of defects which are not obvious;

ff) (Reduction of limitation period)

the limitation period for claims against the user in respect of a defect in the cases of § 438 paragraph 1 no 2 and § 634a paragraph 1 no 2 is reduced or, in the other cases,

APPENDIX II: BGB 895

there is a limitation period consisting of less than a year from the statutory commencement of limitation; this does not apply for contracts in which Part B of the Order regarding public works contracts (Verdingungsordnung) for building services is included as a whole;

9. (Effective period of long term obligation relationships)

in respect of a contractual relationship which has as its subject matter the regular delivery of goods or the regular effecting of services or work by the user,

a)an effective period for the contract binding the other contracting party for longer than two years,

b)a tacit lengthening by, in each case, more than a year of the contractual relationship binding the other contracting party, or

c)a longer period of notice of termination than three months before the expiry of the contractual duration provided for initially or extended tacitly and which is to the disadvantage of the other contracting party;

this does not apply to contracts for the delivery of things sold as related to each other, for insurance contracts and for contracts between the proprietors of copyright rights and claims and exploitation companies in the sense of the Act on the exercise of copyright rights and related protective rights;

10. (Change of contracting partner)

a provision according to which in purchase, service or work contracts a third party steps, or can step, into the rights and duties arising from the contract in place of the user, unless

(a) the third party is described by name in the provision, or

(b) the provision grants to the other contracting party the right to release himself from the contract;

11. (Liability of agent concluding contract)

a provision by which the user imposes on an agent who concludes the contract for the other contracting party

a)a personal liability or duty to indemnify without an express and separate declaration directed at this, or

b)in the case of an agency without authority, a liability going beyond § 179; 12. (Burden of proof)

a provision by which the user alters the burden of proof to the disadvantage of the other contracting party, in particular by

a)imposing on this person the burden of proof for circumstances which lie within the area of responsibility of the user, or

b)causing the other contracting party to confirm certain facts;

b does not apply for acknowledgements of receipt which are signed separately or are provided with a separate qualified electronic signature;

13. (Form of notifications and declarations)

a provision by which notifications or declarations which are to be given to the user or a third party are to be in a stricter form than written form or subject to special requirements as to receipt.

§ 310

Area of application

(1) § 305 paragraphs 2 and 3 and §§ 308 and 309 do not apply to general conditions of business which are used as against an undertaking, a legal person under public law or

896 APPENDIX II: BGB

a special fund under public law. § 307 paragraphs 1 and 2 also apply in cases within sentence 1 in so far as this leads to the ineffectiveness of the contractual provisions mentioned in §§ 308 and 309; appropriate account is to be taken of the customs and usages applying in trade.

(2)§§ 308 and 309 do not apply to contracts by electricity, gas, district heating and water supply undertakings for the supply of special consumers with electrical energy, gas, district heating and water from the supply network in so far as the conditions of supply do not deviate to the disadvantage of the buyer from the Regulations about general conditions for the supply of tariff customers with electrical energy, gas, district heating and water. Sentence 1 applies correspondingly for contracts about the disposal of sewage.

(3)In relation to contracts between an undertaking and a consumer (consumer contracts) the provisions of this section apply with the following provisos:

1. general conditions of business count as being inserted by the undertaking, unless they were introduced by the consumer into the contract;

2. § 305c paragraph 2 and §§ 306 and 307 to 309 of this Code as well as Article 29a of the Introductory Act to the Civil Code also apply to preformulated contractual conditions when these are only intended for use on one occasion and in so far as the consumer could not have any influence on their content because of the preformulation; 3. in assessing the unreasonable disadvantage under § 307 paragraphs 1 and 2, the circumstances accompanying the conclusion of the contract must also be considered.

(4)This section does not apply to contracts in the area of inheritance, family and company law or to tariff contracts or business or service agreements. In its application to labour contracts, the special features applying in labour law are to be considered as appropriate; § 305 paragraphs 2 and 3 are not applicable. Tariff contracts and business and service agreements are equivalent to legal provisions in the sense of § 307 paragraph 3.

Third Section

Obligation relationships arising from contracts

First Title

Formation, content and termination

First Sub-title

Formation

§ 311

Obligation relationships arising from legal transactions and similar obligation relationships

(1)A contract between the participants is necessary for the formation of an obligation relationship by a legal transaction as well as the alteration of the content of an obligation relationship, in so far as statute law does not prescribe otherwise.

(2)An obligation relationship with duties under § 241 paragraph 2 also arises from 1. the opening of contractual negotiations

APPENDIX II: BGB 897

2.the initiation of a contract, in which initiation one party, having regard to a possible relationship in the nature of a legal transaction, grants to the other party the possibility of exerting an effect on his rights, legal entitlements and interests, or entrusts these to him, or

3.similar business contacts.

(3) An obligation relationship with duties under § 241 paragraph 2 can also arise in favour of persons who are not themselves to be contracting parties. Such an obligation relationship arises in particular when the third party claims reliance for himself to a special extent and thereby substantially influences the contractual negotiations or the conclusion of the contract.

§ 311a

Hindrance to performance on conclusion of contract

(1)It is not inconsistent with the effectiveness of a contract that the debtor does not need to perform under § 275 paragraphs 1 to 3 and the hindrance to performance is already present on conclusion of the contract.

(2)The creditor can demand compensation instead of performance or reimbursement of his expenses to the extent determined in § 284, according to his choice. This does not apply if the debtor did not know of the hindrance to performance on conclusion of the contract and is also not answerable for his lack of knowledge. § 281 paragraph 1 sentences 2 and 3 and paragraph 5 apply correspondingly.

§ 311b

Contracts about land, property and estates

(1)A contract by which one party commits himself to transfer or acquire the property in a piece of land needs notarial authentication. A contract concluded without regard to this formality is valid in its entire content if it is followed by transfer and entry in the Land Register.

(2)A contract by which one party commits himself to transfer his future property or a fraction of his future property or to encumber it with a usufruct is void.

(3)A contract by which one party commits himself to transfer his present property or a fraction of his present property or to encumber it with a usufruct needs notarial authentication.

(4)A contract about the estate of a third party who is still alive is void. The same applies to a contract about the part of an estate which must go to the closest relation or a legacy from the estate of a third party who is still alive.

(5)Paragraph 4 does not apply to a contract which is concluded between future statutory heirs about the statutory inheritance or the part of the estate of one of them which must go to the closest relation. Such a contract needs notarial authentication.

§ 311c

Extension to accessories

If someone commits himself to transfer or encumber a thing, this duty extends in case of doubt to the accessories to the thing.

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Second Sub-title

Special forms of sale

§ 312

Right of revocation in front door transactions

(1)In a contract between an undertaking and a consumer which has as its subject matter a performance in return for money and which the consumer has been induced to conclude

1. by oral negotiations at his workplace or in the area of a private dwelling,

2. on the occasion of a leisure time event carried out by the undertaking or by a third party at least also in the undertaking’s interests or

3. following on a surprise approach on a vehicle or in a publicly accessible area (front door transaction), the consumer has a right of revocation in accordance with § 355. The consumer can be allowed a right of return in accordance with § 356 in place of the right of revocation, if in connection with this or a later transaction a continuous association is to be maintained between the consumer and the undertaking.

(2)The necessary information about the right of revocation or return must refer to the legal consequences of § 357 paragraphs 1 and 3.

(3)Without prejudice to other provisions, the right of revocation or return does not exist for insurance contracts, or if

1. in the case of paragraph 1 no 1 the oral negotiations on which the conclusion of the contract is based have been conducted on the previous order of the consumer, or

2. the performance is effected and paid immediately on conclusion of the negotiations and the payment does not exceed 40 euros, or

3. the consumer’s declaration of will has been authenticated by a notary.

§ 312a

Relationship to other provisions

If the consumer is entitled at the same time in accordance with other provisions to a right of revocation or return under § 355 or § 356 of this statute or under § 126 of the Investment Act, the right of revocation or return under § 312 is excluded.

§312b

Distance sale contracts

(1)Distance sale contracts are contracts about the delivery of goods or about the effecting of services, including financial services, which are concluded between an undertaking and a consumer by the exclusive use of distance communication methods, unless the conclusion of the contract does not take place within the framework of a sales or services system organised for the distance sale. Financial services in the sense of sentence 1 are bank services and services in connection with a grant of credit, insurance, pensions for individuals, investment and payment.

(2)Distance communication methods are methods of communication which can be employed for the initiation or the conclusion of a contract between a consumer and an undertaking without the simultaneous physical presence of the contracting parties, in particular letters, catalogues, telephone calls, faxes and emails as well as radio, tele and media services.

(3)The provisions about distance sale contracts do not apply to contracts

APPENDIX II: BGB 899

1.about distance learning (§ 1 of the Distance Learning Protection Act),

2.about time share use of residential buildings (§ 481),

3.about insurances, as well as their negotiation,

4.about the transfer of land and rights in the nature of land, the formation, transfer and termination of rights in rem in respect of land and rights in the nature of land as well as about the construction of buildings,

5.about the delivery of food, drinks or other household objects of daily need, which are delivered at the residence of a consumer, or the place where he stays or works, by undertakings within the framework of frequent and regular journeys,

6.about the effecting of services in the areas of accommodation, transport, delivery of food and drinks as well as use of leisure time when the undertaking commits itself on conclusion of the contract to carrying out the services at a determined point in time or within a period of time which is exactly stated,

7.which are concluded

a)by use of automatic vending machines or automised business premises or

b)with the operators of telecommunication services on the basis of the use of public telephones in so far as they have the use of such telephones as their subject.

(4) In the case of contractual relationships which include an initial agreement with transactions connected to it following on one another or a sequence of separate transactions of the same kind connected to it, and in a temporal relationship, the provisions about distance sale contracts only apply to the first agreement. If transactions of this kind follow one another without such an agreement, the provisions about the undertaking’s duties to provide information only apply to the first transaction. If however no transaction of the same kind takes place for longer than a year, the next transaction is deemed to be the first transaction in a new sequence in the sense of sentence 2.

(5) More extensive provisions for the protection of the consumer remain unaffected.

§ 312c

Advice to consumer in case of distance sale contracts

(1)The undertaking must make the information (which is provided for in the Regulation under article 240 of the Introductory Statute to the Civil Code) available to the consumer clearly and comprehensibly in time before he gives his contractual declaration, in a manner corresponding to the distance communication method employed, and giving the business purpose. The undertaking must, in telephone conversations instigated by it, disclose its identity and the business purpose of the contact expressly at the beginning of each conversation.

(2)The undertaking must further communicate to the consumer the contractual provisions, including the general conditions of business, and the information provided for in the Regulation under article 240 of the Introductory Statute to the Civil Code in the scope and manner determined there in text form, and

1. in the case of financial services punctually before the giving of his contractual declaration, or, if at the wish of the consumer the contract is concluded by telephone (or by use of some other method of distance communication which does not allow the communication in text form before the conclusion of the contract) without delay after the conclusion of the distance sale contract;

900 APPENDIX II: BGB

2. in the case of other services and in the case of the delivery of goods, immediately, and at the latest by the complete fulfilment of the contract, and in the case of goods at the latest by delivery to the consumer.

A communication under sentence 1 no 2 can be dispensed with in the case of services which are furnished directly by employment of methods of distance communication, in so far as these services occur instantaneously and are deducted through the supplier of the method of distance communication. The consumer must however in this case be able to inform himself of the address of the undertaking’s establishment at which he can make objections.

(3)In the case of financial services the consumer can demand from the undertaking at any time during the period of the contract that it makes available to him in a document the contractual provisions including the general conditions of business.

(4)Further limitations on the use of distance communication methods and further duties to supply information on the basis of other provisions remain unaffected.

§ 312d

Right of revocation and return in relation to distance sale contracts

(1)The consumer has a right of revocation under § 355 in respect of a distance sale contract. The consumer can be granted a right of return under § 356 instead of a right of revocation in the case of contracts about the delivery of goods.

(2)The period for revocation does not, deviating from § 355 paragraph 2 sentence 1, begin before the fulfilment of the duties to give information under § 312c paragraph 2, nor in the case of the delivery of goods before the day of their arrival with the recipient, nor in the case of recurring delivery of goods of the same kind before the day of arrival of the first partial delivery, nor in the case of services before the day of conclusion of the contract; § 355 paragraph 2 sentence 2 does not apply.

(3)The right of revocation in respect of a service lapses in the following cases also: 1. in the case of a financial service, if the contract has been completely fulfilled by both sides at the express wish of the consumer before the consumer has exercised his right of revocation,

2. in the case of another service, if the undertaking has begun to carry out the service before the end of the period for revocation with the express consent of the consumer, or the consumer has brought this about himself.

(4)The right of revocation does not exist, in so far as no different provision has been made, in relation to distance sale contracts

1. for the delivery of goods which are prepared according to a customer specification or are clearly tailored to personal needs or which are not appropriate for return on the basis of their composition or which can perish quickly or the expiry date of which would be exceeded,

2. for the delivery of audio or video recordings or of software in so far as the data carriers delivered have been unsealed by the consumer,

3. for the delivery of newspapers, journals and magazines, 4. for the carrying out of betting and lottery services,

5. which are concluded in the form of auctions (§ 156), or

6. which have as their object the delivery of goods or the provision of financial services, the price of which is subject on the financial market to fluctuations over

APPENDIX II: BGB 901

which the undertaking has no influence, and which can occur within the period for revocation, in particular services in connection with shares, share certificates which are issued by a capital investment company or a foreign investment company, and other negotiable securities, foreign currency, derivatives or instruments on the money market.

(5)The right of revocation also does not exist in the case of distance sale contracts in which the consumer already has a right of revocation or return under §§ 355 or 356 on the basis of §§ 495, 499 to 507. In the case of such contracts paragraph 2 applies correspondingly.

(6)In the case of distance sale contracts about financial services, the consumer, deviating from § 357 paragraph 1, only has to provide reimbursement for the value of the service provided under the provisions about statutory withdrawal if he has been referred to this legal consequence before giving his contractual declaration and if he has expressly agreed that the undertaking should begin to carry out the service before the end of the period for revocation.

§ 312e

Duties in electronic business

(1)If an undertaking uses a tele or media service for the purpose of the conclusion of a contract about the delivery of goods or about the carrying out of services (contract in electronic business), it must

1. make available for the customer appropriate, effective and accessible technical methods with the assistance of which the customer can recognise and correct mistakes in submission before the giving of his order,

2. communicate to the customer clearly and comprehensibly the information provided for in the Regulation under Article 241 of the Introductory Act to the Civil Code in time before the giving of his order,

3. confirm to the customer the arrival of his order without delay by electronic means, and

4. provide to the customer the possibility on conclusion of the contract of calling up the contractual provisions, including the general conditions of business, and storing them in a form capable of being reproduced.

The order and confirmation of receipt in the sense of sentence 1 no 3 count as having arrived when the parties for whom they are intended can call them up in usual circumstances.

(2)Paragraph 1 sentence 1 nos 1 to 3 do not apply if the contract is concluded exclusively by individual communication. Paragraph 1 sentence 1 nos 1 to 3 and sentence 2 do not apply if something different is agreed between contracting parties who are not consumers.

(3)More extensive duties to give information on the basis of other provisions remain unaffected. If the customer has a right of revocation under § 355, the revocation period does not begin, deviating from § 355 paragraph 2 sentence 1, before the fulfilment of the duties regulated in paragraph 1 sentence 1.

§ 312f

Divergent agreements

No deviation may be made from the provisions of this subtitle to the disadvantage of the consumer or the customer in so far as no different provision is made. The

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provisions of this subtitle apply even if they are circumvented by different formulations, in so far as no different provision is made.

Third Sub-title

Adaptation and termination of contracts

§ 313

Disturbance of foundation of transaction

(1)If the circumstances which have become the foundation of the contract have seriously altered after the conclusion of the contract and if the parties would not have concluded the contract, or would have concluded it with a different content if they had foreseen this alteration, then adaptation of the contract can be demanded in so far as adherence to the unaltered contract cannot be expected of one party taking into consideration all the circumstances of the individual case and in particular the contractual or statutory division of risk.

(2)It is equivalent to an alteration of the circumstances if essential preconceptions which have become the foundation of the contract turn out to be wrong.

(3)If an adaptation of the contract is not possible or cannot be expected of a party, the disadvantaged party can withdraw from the contract. For long term obligation relationships, the right to terminate by notice takes the place of the right of withdrawal.

§ 314

Termination of long term obligation relationships by notice on substantial ground

(1)Long-term obligation relationships can be terminated by any contracting party on a substantial ground without observing a period of notice. A substantial ground is present if, taking into consideration all the circumstances of the individual case and balancing the interests of both sides, the continuation of the contractual relationship until the agreed termination or until the expiry of a notice period cannot be expected of the party giving notice.

(2)If the substantial ground consists of the violation of a duty under the contract, termination by notice is only permissible after the expiry without result of a period determined for the taking of remedial action or after a warning without result. § 323 paragraph 2 applies correspondingly.

(3)The person so entitled can only terminate by notice within a reasonable period after he has obtained knowledge of the ground for termination.

(4)The entitlement to demand compensation is not excluded by termination by notice.

[. . .]

Second title

Mutual contract

§ 320

Objection of unfulfilled contract

(1) A person who is under an obligation in a mutual contract can refuse the performance which is incumbent upon him until the effectuation of the counterperformance, unless he is obliged to effect performance beforehand. If the performance has to occur

APPENDIX II: BGB 903

in favour of several people, refusal can be made to an individual of the part which is due to him until the whole counterperformance has been effectuated. The provisions of § 273 paragraph 3 are not applicable.

(2) If performance has been partially effected by one party, counterperformance cannot be refused in so far as refusal would in the circumstances violate the principles of good faith, in particular because of the relative triviality of the part remaining to be performed.

§ 321

Objection of uncertainty

(1)A person who is obliged to effect performance beforehand under a mutual contract can refuse the performance which is incumbent upon him if it is evident, after conclusion of the contract, that his claim to counterperformance is endangered by the lack of ability to perform on the part of the other party.The right to refuse performance lapses when the counterperformance is brought about or security is provided for it.

(2)The person obliged to effect performance beforehand can determine an appropriate period in which the other party must effect counterperformance simultaneously with performance or provide security, according to his choice. After expiry of the period without result, the person obliged to effect performance beforehand can withdraw from the contract. § 323 applies correspondingly.

§ 323

Withdrawal because performance not carried out or not carried out in accordance with contract

(1)If the debtor in a mutual contract does not effect performance which is due, or does not effect it in accordance with the contract, the creditor can withdraw from the contract, if he has determined for the debtor an appropriate period for performance or subsequent fulfilment but without result.

(2)The setting of a period can be dispensed with, if

1.the debtor refuses performance seriously and finally,

2.the debtor does not effect performance on a date determined in the contract or within a determined period and in the contract the creditor has made the continued existence of his interest in performance dependent on the punctuality of the performance or

3.special circumstances are present which justify immediate withdrawal, on balancing the interests of both parties.

(3) If the setting of a period does not come into consideration because of the type of violation of duty, then a warning will takes its place.

(4) The creditor can withdraw even before performance becomes due, if it is obvious that the prerequisites for withdrawal will occur.

(5) If the debtor has effected partial performance, the creditor can only withdraw from the whole contract if he has no interest in partial performance. If the debtor has not effected performance in accordance with the contract, the creditor cannot withdraw from the contract if the violation of duty is insignificant.

(6) Withdrawal is excluded if the creditor is solely or overwhelmingly responsible for a circumstance that would entitle him to withdraw or if a circumstance for which the debtor is not responsible occurs at a time at which the creditor is in delay in acceptance.

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§ 324

Withdrawal because of violation of duty under § 241 paragraph 2

If the debtor in a mutual contract violates a duty under § 241 paragraph 2, the creditor can withdraw if adherence to the contract can no longer be expected of him.

§ 325

Compensation and withdrawal

The right to demand compensation in respect of a mutual contract is not excluded by withdrawal.

§ 326

Release from counterperformance and withdrawal in case of exclusion of duty to perform

(1)If the debtor does not need to perform under § 275 paragraphs 1 to 3, the claim to counterperformance lapses; in the case of partial performance § 441 paragraph 3 applies correspondingly. Sentence 1 does not apply if the debtor does not need to effect subsequent fulfilment under § 275 paragraphs 1 to 3 in the case of performance not in accordance with the contract.

(2)If the creditor is solely or overwhelmingly responsible for a circumstance on the basis of which the debtor does not need to perform under § 275 paragraphs 1 to 3 or if this circumstance for which the debtor is not responsible occurs at a time when the creditor is in delay in acceptance, the debtor retains the claim to counterperformance. He must however allow to be reckoned against him what he saves as a result of release from performance or acquires by some other use of his power to work or wilfully refrains from acquiring.

(3)If the creditor demands the handing over under § 285 of the replacement obtained for the object owed or transfer of the claim to replacement, he remains obliged to effect counterperformance. This is however reduced in accordance with § 441 paragraph 3 in so far as the value of the replacement or of the claim to replacement falls short of the value of the performance owed.

(4)In so far as a counterperformance which is not owed under this provision is effected, what is performed can be demanded back under §§ 346 to 348.

(5)If the debtor does not need to perform according to § 275 paragraphs 1 to 3, the creditor can withdraw; on withdrawal § 323 applies correspondingly with the proviso that the setting of a period can be dispensed with.

[§ 327 is repealed.]

Third Title

Promise of performance to third party

§ 328

Contract for benefit of third party

(1)Performance towards a third party can be stipulated for by contract with the effect that the third party acquires the right directly to demand performance.

(2)In the absence of a special provision, it must be deduced from the circumstances, in particular from the purpose of the contract, whether the third party is to acquire the right, whether the third party’s right is to arise immediately or only subject to certain

APPENDIX II: BGB 905

prerequisites, and whether power should be reserved to the persons concluding the contract to cancel or amend the third party’s right without his consent.

§ 329

Rule of interpretation on taking over of fulfilment

If one party commits himself in a contract to satisfy a creditor of the other party without taking over the obligation, in case of doubt it is not to be assumed that the creditor is to acquire the right directly to demand satisfaction from him.

§ 330

Rule of interpretation in case of a life insurance or life annuity contract

If stipulation is made for the payment of the insured sum or the life annuity in a life insurance or life annuity contract to a third party, it is to be assumed in case of doubt that the third party is to acquire the right directly to demand performance. The same applies if in the case of a gratuitous transfer a performance towards a third party is imposed on the beneficiary or in the case of a transfer of assets or property a performance is promised by the transferee to a third party for the purpose of the settlement.

§ 331

Performance after death

(1)If performance towards a third party is to take place after the death of the person to whom it is promised, in case of doubt the third party acquires the right to the performance on the death of the recipient of the promise.

(2)If the recipient of the promise dies before the birth of the third party, the promise to perform towards the third party can only still be cancelled or amended if authority for this has been reserved.

§ 332

Alteration by disposition on death in case of reservation

If the recipient of a promise has reserved to himself the power to put another person in the place of the third party described in the contract without the consent of the promisor, this can take place in case of doubt in a disposition on death as well.

§ 333

Rejection of right by third party

If the third party rejects the right acquired from the contract as against the promisor, the right is deemed not to have been acquired.

§ 334

Objections by debtor against third party

Objections arising from the contract also belong to the promisor as against the third party.

§ 335

Right of demand by recipient of promise

The recipient of the promise can, in so far as no different intention on the part of the persons concluding the contract is to be assumed, also demand performance towards the third party if this person has the right to the performance.

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Fifth Title

Withdrawal, and right of revocation and return in respect of consumer contracts

First Sub-title

Withdrawal

§ 346

Effects of withdrawal

(1)If a contracting party has contractually reserved for himself the right of withdrawal or if he is entitled to a statutory right of withdrawal then in the case of withdrawal the performances received are to be retransferred and the benefits taken are to be handed over.

(2)The debtor has to provide compensation for value instead of retransfer or handing over in so far as

1. retransfer or handing over is excluded by the nature of what has been obtained,

2. he has consumed, transferred, encumbered, converted or transformed the object received,

3. the object received has deteriorated or is destroyed; however, deterioration which has arisen by proper operation is left out of consideration. If a counterperformance is determined in the contract, it is to be taken as a basis in the calculation of the compensation for value; if compensation for value for the advantage of use of a loan is to be provided, it can be proved that the value of the advantage of use was lower.

(3)The duty to provide compensation for value lapses:

1.if the defect giving rise to the entitlement to withdraw has shown itself for the first time during the conversion or transformation of the object,

2.in so far as the creditor is responsible for the deterioration or destruction or the harm would likewise have occurred in his hands,

3.if in the case of a statutory right of withdrawal the deterioration or the destruction occurred in the hands of the person entitled even though he observed that care which he usually applies in his own affairs.

A remaining enrichment must be handed over.

(4) The creditor can demand compensation for violation of a duty under paragraph 1 in accordance with §§ 280 to 283.

§ 347

Benefits and uses after withdrawal

(1)If, contrary to the rules of a proper business, the debtor does not obtain benefits even though he could have done so, then he is obliged to provide the creditor with compensation for value. In the case of a statutory right of withdrawal, the person entitled only has to take responsibility in relation to the benefits for that care which he usually uses in his own affairs.

(2)If the debtor gives the object back, provides compensation for value, or his duty to provide compensation for value is excluded in accordance with § 346 paragraph 3 no 1 or 2, then he is to be compensated for necessary expenditure. Other expenses are to be reimbursed in so far as the creditor is enriched by these.

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§ 348

Simultaneous fulfilment

The obligations of the parties arising from withdrawal are to be fulfilled simultaneously. The provisions of §§ 320, 322 apply correspondingly.

§ 349

Declaration of withdrawal

Withdrawal takes place by a declaration as against the other party.

§ 350

Extinguishment of right of withdrawal after setting of period

If a period has not been agreed for the exercise of the contractual right of withdrawal, a reasonable period for the exercise can be determined for the person entitled by the other party. The right of withdrawal is extinguished if the withdrawal is not declared before the expiry of the period.

§ 351

Indivisibility of right of withdrawal

If there are several participants on the one or the other side in respect of a contract, the right of withdrawal can only be exercised by all and against all. If the right of withdrawal is extinguished for one of the persons entitled, it is also extinguished for the remainder.

§ 352

Set off after non-fulfilment

Withdrawal because of non-fulfilment of an obligation is ineffective if the debtor could free himself from the obligation by set off and declares the set off without delay after the withdrawal.

§ 353

Withdrawal in return for forfeit

If the right of withdrawal is reserved in return for payment of a forfeit, the withdrawal is ineffective if the forfeit is not paid before or at the time of the declaration and the other party rejects the declaration on this ground without delay. The declaration is however effective if the forfeit is paid without delay after the rejection.

§ 354

Forfeiture clause

If a contract is concluded with the reservation that the debtor is to lose his rights under the contract if he does not fulfil his obligations, the creditor is entitled to withdraw from the contract when this occurs.

Second Sub-title

Right of revocation and return in respect of consumer contracts

§ 355

Right of revocation in respect of consumer contracts

(1) If a right of revocation is granted to a consumer by statute in accordance with this provision, then he is no longer bound by his declaration of will to conclude the contract if he has revoked it within the period. The revocation does not have to contain any reasons and must be declared in text form or by sending the thing back within two

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weeks to the undertaking; punctual dispatch suffices for the observance of the period.

(2)The period begins with the point in time at which a clearly formulated warning about his right of revocation has been communicated to the consumer in text form, which makes his rights clear to him according to the requirements of the method of communication employed, and which also contains the name and address of the person against whom the revocation must be declared and an indication of the beginning of the period and the regime of paragraph 1 sentence 2. If the warning is communicated after conclusion of the contract, the period is one month, deviating from paragraph 1 sentence 2. If the contract must be concluded in writing, then the period does not begin to run before a contract document, the written application of the consumer or a copy of the contract document or of the application is made available to the consumer. If the commencement of the period is in dispute, the burden of proof falls on the undertaking.

(3)The right of revocation lapses at the latest six months after the conclusion of the contract. For the delivery of goods the period does not begin before the day of their arrival with the recipient, and further not in the case of distance sale contracts about financial services if the undertaking has not properly fulfilled its duties of communication under § 312c paragraph 2 no 1.

§ 356

Right of return in respect of consumer contracts

(1)The right of revocation under § 355 can, in so far as this is expressly permitted by statute, be replaced by an unlimited right of return in the contract in respect of conclusion of a contract on the basis of a sale prospectus. It is a prerequisite that

1. a clearly formulated warning about the right of return is contained in the sale propectus,

2. the consumer could obtain detailed knowledge of the sale prospectus in the absence of the undertaking and

3. the consumer is granted the right of return in text form.

(2)The right of return can be exercised within the period for revocation (which does not however begin before the receipt of the thing) and only by sending the thing back or if the thing cannot be sent back as a packet, by a demand to take it back. § 355 paragraph 1 sentence 2 applies correspondingly.

§ 357

Legal consequences of revocation and return

(1)The provisions about statutory withdrawal apply correspondingly to the right of revocation and of return in so far as no different provision is made. § 286 paragraph 3 applies for the obligation to reimburse payments under this provision correspondingly; the period determined there begins with the consumer’s declaration of revocation or return. In this connection the period with respect to an obligation of reimbursement on the part of the consumer begins with the giving of this declaration, and with respect to an obligation of reimbursement on the part of the undertaking with its arrival.

(2)The consumer is obliged to send the thing back when exercising the right of revocation, if it can be sent by a packet. Costs and risks of sending back are born by the undertaking in the cases of revocation and return. If a right of revocation under § 312d

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consequences of the revocation or the return if the credit has already gone to the undertaking when the revocation or return comes into effect.

(5) The necessary warning about the right of revocation or return must refer to the legal consequences under paragraph 1 and paragraph 2 sentences 1 and 2.

§ 359

Objections in respect of connected contracts

The consumer can refuse to pay back the credit in so far as objections under the connected contract would entitle him to refuse his performance as against the undertaking with whom he has concluded the connected contract. This does not apply if the financed payment does not exceed 200 euros as well as in respect of objections which are based on a contract amendment agreed between this undertaking and the consumer after conclusion of the consumer credit contract. If the consumer can demand subsequent fulfilment, he can only refuse payment back of the credit if the subsequent fulfilment has failed.

[. . .]

Fourth Section

Extinguishment of obligation relationships

First Title

Fulfilment

§ 362

Extinguishment by performance

(1)An obligation relationship is extinguished when the performance owed is effected in favour of the creditor.

(2)If performance is made to a third party for the purpose of fulfilment, the provisions of § 185 apply.

§ 363

Burden of proof in case of acceptance as fulfilment

If the creditor has accepted as fulfilment a performance offered to him as fulfilment, the burden of proof falls on him if he wants the performance not to be counted as fulfilment because it was a performance different from the one owed or because it was deficient.

[. . .]

Third Title

Settling of accounts

§ 387

Prerequisites

If two people owe each other performances which are analogous in their subject matter, each party can set off his demand against the demand of the other party as soon as he can demand the performance due to him and effect the performance which he owes.

[. . .]

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Fifth Section

Transfer of demand

§398

Assignment

A demand can be transferred (assignment) by the creditor to another person by a contract with this person. The new creditor takes the place of the former creditor at the conclusion of the contract.

[. . .]

§404

Debtor’s objections

The debtor can set against the new creditor the objections which were established at the time of the assignment of the demand against the former creditor.

[. . .]

§ 407

Legal dealings towards former creditor

(1)The new creditor must allow a performance to take effect against himself which the debtor effects in favour of the former creditor after the assignment, as well as any legal transaction which is undertaken after the assignment between the debtor and the former creditor in respect of the demand, unless the debtor knows of the assignment at the time of the performance or at the time of the undertaking of the legal transaction.

(2)If a legally effective judgment about the demand has been issued in an action which has started between the debtor and the former creditor after the assignment, the new creditor must allow the judgment to apply against him, unless the debtor knew of the assignment when the action began.

§ 408

Multiple assignment

(1)If an assigned demand is assigned again by the former creditor to a third party, if the debtor performs in favour of the third party or if a legal transaction is undertaken between the debtor and the third party or an action has started, the provisions of § 407 apply correspondingly as against the former transferee in favour of the debtor.

(2)The same applies if the demand which has been already assigned is transferred by judicial decision to a third party or if the former creditor acknowledges to the third party that the demand which has already been assigned has passed by virtue of statute law to the third party.

§ 409

Notification of assignment

(1)If the creditor notifies the debtor that he has assigned the demand, he must allow the notified assignment to have effect against himself in his relationship with the debtor, even if it did not occur or is not effective. It is equivalent to notice if the creditor has issued a document about the assignment to the new creditor described in the document who produces it to the debtor.

(2)The notice can only be withdrawn with the consent of the person who has been described as the new creditor.

[. . .]

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§ 412

Statutory transmission of demand

The provisions of §§ 399 to 404, 406 to 410 apply correspondingly to the transfer of a demand by virtue of statute law.

Sixth Section

Taking over of obligation

§ 414

Contract between creditor and transferee

An obligation can be taken over by a third party by a contract with the creditor in such a way that the third party takes the place of the former debtor.

§ 415

Contract between debtor and transferee

(1)If the taking over of the obligation by the third party is agreed with the debtor, its effectiveness depends on the creditor’s ratification. Ratification can only take place when the debtor or the third party has informed the creditor of the taking over of the obligation. Until ratification the parties can alter or cancel the contract.

(2)If ratification is refused, the taking over of the obligation is deemed not to have taken place. If the debtor or the third party invites the creditor to make a declaration about ratification and determines a period, the ratification can only be declared up until expiry of the period; if it is not declared, it is deemed to have been refused.

(3)As long as the creditor has not given the ratification, the transferee in case of doubt is obliged as against the debtor to satisfy the creditor punctually. The same applies when the creditor refuses ratification.

[. . .]

§ 417

Objections by transferee

(1)The transferee can set objections against the creditor which arise from the legal relationship between the creditor and the former debtor. He cannot set off a demand belonging to the former debtor.

(2)The transferee cannot derive objections against the creditor from the legal relationship between the transferee and the former debtor which forms the basis of the taking over of the obligation.

[. . .]

Seventh Section

Multiplicity of debtors and creditors

§ 421

Joint debtors

If several people owe a performance in such a way that each is obliged to effect the whole performance, but the creditor is only entitled to demand the performance once (joint debtors), the creditor can demand the performance, as he wishes, entirely or in

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part from each of the debtors. All the debtors remain under an obligation until the effectuation of the whole performance.

§ 422

Effect of fulfilment

(1)Fulfilment by a joint debtor is also effective for the remaining debtors. The same applies to performance in place of fulfilment, and to deposit and set off.

(2)A demand which belongs to a joint debtor cannot be set off by the remaining debtors.

[. . .]

§ 426

Duty to settle and transmission of demand

(1)The joint debtors are in their relationship with one another under the obligation in equal fractions, in so far as no other provision has been made. If it is not possible to obtain from one of the joint debtors the contribution which falls to him, the deficit must be born by the remaining debtors who are obliged to settle.

(2)In so far as a joint debtor satisfies the creditor and can demand settlement from the remaining debtors, the creditor’s demand against the remaining debtors passes to him. The transmission cannot be claimed to the creditor’s disadvantage.

[. . .]

Eighth Section

Individual obligation relationships

First Title

Purchase and exchange

First Sub-title

General provisions

§ 433

Typical contractual duties in purchase contract

(1)The seller of a thing is obliged by a purchase contract to hand the thing over to the purchaser and to provide the property in the thing. The seller has to provide the thing to the purchaser free from physical and legal defects.

(2)The purchaser is obliged to pay the agreed purchase price to the seller and to take the purchased thing.

§ 434

Physical defects

(1) The thing is free from physical defects if it has the agreed composition when the risk passes. In so far as the composition is not agreed, the thing is free from physical defects

1. if it is suitable for the use assumed according to the contract, or otherwise

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2. if it is suitable for the usual use and has a composition which is usual with things of the same kind and which the purchaser can expect in accordance with the type of thing.

Composition according to sentence 2 no 2 also includes characteristics which the purchaser can expect according to the public statements of the seller, of the manufacturer (§ 4 paragraphs 1 and 2 of the Product Liability Act) or his assistant, in particular in the advertising or in the marking about particular characteristics of the thing unless the seller did not know of the statement and also need not have known of it, it was corrected at the point in time of the conclusion of the contract in an equally valid manner, or it could not influence the decision to purchase.

(2)A physical defect is also present if the agreed assembly has been carried out by the seller or his agent improperly. Further a physical defect is present in a thing intended for assembly if the assembly instructions are defective unless the thing is assembled correctly.

(3)It is equivalent to a physical defect if the seller delivers a different thing or too small a quantity.

§ 435

Legal defects

The thing is free from legal defects if third parties cannot claim any rights against the purchaser in relation to the thing or only those taken over in the purchase contract. It is equivalent to a legal defect if a right which does not exist is entered in the Land Register.

§ 436

Public burdens on land

(1)In so far as nothing different is agreed, the seller of a piece of land is obliged to bear development contributions and other residents’ contributions in respect of adjoining land for the steps in construction which have been begun up to the day of the conclusion of the contract, independently of the point in time when the contribution obligation arises.

(2)The seller of a piece of land is not liable for its freedom from other public taxes and from other public burdens which are not appropriate for entry in the Land Register.

§ 437

Rights of purchaser in respect of defects

If the thing is defective, the purchaser can, if the prerequisites of the following provisions are present and in so far as no different provision is made,

1.demand subsequent fulfilment under § 439,

2.withdraw from the contract under §§ 440, 323 and 326 paragraph 5 or reduce the purchase price under § 441 and

3.demand compensation under §§ 440, 280, 281, 283 and 311a or reimbursement of abortive expenditure under § 284.

§ 438

Limitation of claims in respect of defects

(1) The limitation period for claims described in § 437 nos 1 and 3 expires 1. in 30 years if the defect consists of

APPENDIX II: BGB 915

a)a right in rem of a third party on the basis of which handing over of the purchased thing can be demanded, or

b)another right which is entered in the Land Register.

2. in five years

a)in the case of a building and

b)in the case of a thing which has been used for a building in accordance with its usual manner of use and has caused the building’s defectiveness, and

3. in two years in other cases.

(2) The limitation period begins in relation to pieces of land with the transfer and in other cases with the delivery of the thing.

(3) Deviating from paragraph 1 nos 2 and 3 and paragraph 2, claims expire after the regular limitation period if the seller has deceitfully kept the defect secret. In the case of paragraph 1 no 2 the limitation does not however take effect before the expiry of the period determined there.

(4) § 218 applies for the right of withdrawal described in § 437. The purchaser can in spite of ineffectiveness of the withdrawal under § 218 paragraph 1 refuse payment of the purchase price in so far as he would be entitled to do so on the basis of the withdrawal. If he makes use of this right, the seller can withdraw from the contract.

(5) § 218 and paragraph 4 sentence 2 apply correspondingly to the right of reduction described in § 437.

§ 439

Subsequent fulfilment

(1)The purchaser can demand as subsequent fulfilment according to his choice the removal of the defect or the delivery of a thing free from the defect.

(2)The seller has to bear the expenditure necessary for the purpose of subsequent fulfilment, in particular transport, road tolls, work and materials costs.

(3)The seller can refuse the kind of subsequent fulfilment chosen by the purchaser regardless of § 275 paragraphs 2 and 3 if it is only possible with disproportionate cost. In this connection in particular the value of the thing in a condition free from the defect, the significance of the defect and the question of whether it would be possible to resort to the other kind of subsequent fulfilment without substantial disadvantages for the purchaser are to be taken into consideration. The purchaser’s claim in this case is limited to the other kind of subsequent fulfilment; the right of the seller to refuse even this under the prerequisites of sentence 1 remains unaffected.

(4)If the seller delivers a thing which is free from the defect for the purpose of subsequent fulfilment, he can demand from the purchaser the retransfer of the defective thing in accordance with §§ 346 to 348.

§ 440

Special provisions for withdrawal and compensation

Except in the cases of § 281 paragraph 2 and § 323 paragraph 2 it is not necessary to set a period even if the seller refuses both kinds of subsequent fulfilment in accordance with § 439 paragraph 3 or if the kind of subsequent fulfilment to which the purchaser is entitled has failed or cannot be expected of him. A repair counts after the second unsuccessful attempt as having failed if nothing different follows in particular from the kind of thing or the kind of defect or the other circumstances.

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§441

Reduction

(1) Instead of withdrawing, the purchaser can reduce the purchase price by declaration made to the seller. The exclusionary ground of § 323 paragraph 5 sentence 2 does not apply.

(2) If there are several participants on the purchaser’s side or on the seller’s side, the reduction can only be declared by all or against all.

(3) In a case of reduction, the purchase price is to be reduced in the ratio in which at the time of the conclusion of the contract the value of the thing in a condition free from the defect would have stood to its real value. The reduction is, so far as is necessary, to be ascertained by valuation.

(4) If the purchaser has paid more than the reduced purchase price, the surplus is to be reimbursed by the seller. § 346 paragraph 1 and § 347 paragraph 1 have corresponding application.

§442

Knowledge of purchaser

(1)The rights of a purchaser in respect of a defect are excluded if he knows of the defect on conclusion of the contract. If a defect remains unknown to the purchaser as a result of gross negligence, the purchaser can only claim rights because of this defect if the seller has deceitfully kept the defect secret or has undertaken a guarantee for the composition of the thing.

(2)The seller has to remove a right entered in the Land Register even if the purchaser knows of it.

§ 443

Guarantee of composition and durability

(1)If the seller or a third party undertakes a guarantee for the composition of the thing or for the fact that the thing will keep a certain composition for a certain length of time (durability guarantee), the purchaser in a case covered by the guarantee has, regardless of the statutory claims, the rights from the guarantee to the conditions given in the guarantee declaration and the relevant advertising against the person who has granted the guarantee.

(2)In so far as a durability guarantee has been undertaken, it is presumed that a physical defect arising during its period of validity is the basis of the rights under the guarantee.

§ 444

Exclusion of liability

The seller cannot refer to an agreement by which the purchaser’s rights in respect of a defect are excluded or limited in so far as he has deceitfully kept the defect secret or has undertaken a guarantee about the composition of the thing.

§ 445

Limitation of liability in case of public auctions

If a thing is sold on the basis of a right of lien in a public auction under the description “lien”, then the purchaser only has rights in respect of a defect if the seller has deceitfully kept the defect secret or has undertaken a guarantee about the composition of the thing.

APPENDIX II: BGB 917

§ 446

Transfer of risk and burdens

The risk of accidental destruction and of accidental deterioration passes to the purchaser with the handing over of the thing sold. From the handing over onwards the benefits are due to the purchaser and he bears the burdens of the thing. It is equivalent to handing over if the purchaser is in delay in acceptance.

§ 447

Passing of risk in case of postal purchase by dispatch

(1)If the seller sends the thing sold to another place than the place of fulfilment at the purchaser’s demand, the risk passes to the purchaser as soon as the seller has delivered the thing to the forwarding agent, the carrier or the other person or institution determined for the carrying out of the dispatch.

(2)If the purchaser has given special instructions about the kind of dispatch and if the seller deviates from the instructions without compelling reasons, the seller is responsible to the purchaser for the harm arising from this.

§ 448

Costs of handing over and comparable costs

(1)The seller bears the costs of the handing over of the thing and the purchaser the costs of the acceptance and the dispatch of the thing to a place other than the place of fulfilment.

(2)The purchaser of a piece of land bears the costs of recording the purchase contract and of the transfer, the entry in the Land Register and of the declarations necessary for the entry.

§ 449

Reservation of property

(1)If the seller of a movable thing has reserved the property until payment of the purchase price, it is to be assumed in case of doubt that the property will be transferred under the condition precedent of complete payment of the purchase price (property reservation).

(2)On the basis of the property reservation the seller can only demand the thing if he has withdrawn from the contract.

(3)Agreement of a property reservation is void in so far as the passing of the property is made dependent on the buyer fulfilling the demands of a third party, in particular of an undertaking connected with the seller.

§ 450

Excluded purchasers in respect of certain sales

(1)In relation to a sale by way of execution, the person commissioned with the undertaking or management of the sale and the assistants called in by him inclusive of the person recording the proceedings are not permitted to buy the object to be sold either for themselves personally or by someone else as agent for another.

(2)Paragraph 1 also applies on a sale outside execution, if the order for the sale has been given on the basis of a statutory provision which empowers the customer to have the object sold for the account of another, in particular in the cases of lien sale and of sale permitted in §§ 383 and 385 as well as on a sale from an insolvent estate.