1

Introduction

Select Bibliography. The best accounts of the topics discussed in this book can be found in the classic works of Werner Flume, Allgemeiner Teil des Bürgerlichen Rechts, vol 2 (3rd edn, 1979, reprinted 1992); Karl Larenz, Allgemeiner Teil des deutschen Bürgerlichen Rechts (7th edn, 1989; 9th edn, 2004 by Manfred Wolf) and Lehrbuch des Schuldrechts, vol I (14th edn, 1987), vol II/1 (13th edn, 1986), vol II/2 (13th edn, 1994 by Claus-Wilhelm Canaris), and Dieter Medicus, Allgemeiner Teil (8th edn, 2002); Schuldrecht, vol I (15th edn, 2004) and vol II (12th edn, 2004); Bürgerliches Recht (20th edn, 2004). The literature on German contract law is extensive; we mention only a few additional books here: Reinhard Bork, Allgemeiner Teil (2001); Dieter Leipold,

BGB Einführung und Allgemeiner Teil (3rd edn, 2004); Dirk Looschelders, Schuldrecht Allgemeiner Teil (2nd edn, 2004); Jürgen Oechsler, Schuldrecht Besonderer Teil–Vertragsrecht (2003); Hartmut Oetker and Felix Maultzsch, Vertragliche Schuldverhältnisse (2nd edn, 2004); Peter Schlechtriem, Schuldrecht, vol 1 (5th edn, 2003), vol 2 (6th edn, 2003). Of the smaller books one should perhaps mention Hans Brox’s Allgemeiner Teil des Bürgerlichen Gesetzbuchs (28th edn, 2004) and Helmut Köhler’s Allgemeiner Teil des BGB (28th edn, 2004), since both are short, clear, and will be more accessible to the foreign student. On the changes brought about by the 2001 reform of the German law of obligations, see the references given in chapter 9. We must also mention the commentary literature, which proceeds by annotating each provision of the BGB individually. To avoid repetition we indicate here (again making a selection) that the references are to the most comprehensive Staudingers Kommentar in its 13th edn (1993 et seq), the mid-sized Münchener Kommentar in its 4th edn, vol 1 (2001); vol 2a (2003); vol 3 (2004), and the compact Palandt in the 63rd edn (2004). Finally, in relation to English contract law, the reader is referred in particular to Sir Guenter Treitel’s treatise, The Law of Contract (11th edn, 2003) and Ewan McKendrick’s textbook, Contract Law (2003) which also contains cases and materials. Note also that in Markesinis and Unberath, The German Law of Torts (4th edn, 2002) we discuss a number of topics of general importance such as the organisation of the courts in civil matters, the traditional style of judgments of the Bundesgerichtshof, and the wider impact of the Constitution especially in the fields of family and tort law: see, especially, pp 1–13, 28–39. Of the material that exists in English one further notes: Hugh Beale, Arthur Hartkamp, Hein Kötz and Denis Tallon, Contract Law—Ius Commune Casebooks for the Common Law of Europe

(2002); EJ Cohn, Manual of German Law, vol 2 (2nd edn, 1968); Werner Ebke and Matthew Finkin (eds), Introduction to German Law (1996); Foster, German Legal System and Laws (3rd edn, 2002); P Marsh, Comparative Contract Law: England, France, Germany (1994); Mathias Reimann and Joachim Zekoll (eds), Introduction to German Law (2nd edn, 2005); Rüster (gen ed), Doing Business in Germany, loose-leaf (1999); Gerhard Robbers, An Introduction to German Law (1998); Raymond Youngs, Source book on German Law (1994)—a bilingual collection of important statutes and

2 INTRODUCTION

decisions but rather poorer on contracts. Finally, of course, there is Konrad Zweigert and Hein Kötz, An Introduction to Comparative Law (3rd edn, 1998 translated by Tony Weir), arguably the best textbook on the subject both from its historical and dogmatic perspectives; and Hein Kötz and Axel Flessner, European Contract Law, vol 1 (trans Tony Weir) (1998).

1. PRELIMINARY OBSERVATIONS

In the memorable words of Tony Weir contract law is ‘productive’ (unlike tort law which is ‘protective’). The whole institution of contract is there to increase wealth and its liberal (in the sense of classical contract law) underpinnings must not be forgotten even in a book such as this which primarily wishes to describe German law for the benefit of common lawyers by placing it in comparative juxtaposition with (mainly) the English and American ideas and solutions. Yet, starting with this observation, one is inevitably led to add six additional statements or qualifications which the reader may do well to bear in mind when reading the account of detailed rules that follow in the entire book.

Thus, first (and obviously) both in the German and the common law, the basic principle is the same since both legal families operate in what one often calls the free market system. Yet nuances (one could call them shades of capitalism and consumerism) do exist as to how far down the line one must take the free market ideas and to what extent the courts can ‘intervene’ and redress the balance in favour of the weaker party. Thus, German law (like French law) does not conceal a certain preference for the weaker party (invariably but not always necessarily, the consumer), just as it does not allow complete freedom to the parties to withdraw with impunity from negotiations which have not yet matured into a contract, the notions of fairness or justice here trumping that of freedom. Of course here, as in so many other cases, one must be quick to avoid lumping American law with English (private) law, since the latter has in recent times and largely under the influence of European Directives, come closer to German law than the former can ever claim to be. But the existence of differing ideological beliefs behind technical rules must nonetheless be noted straight away and always be borne in mind. To put it differently, many technical rules of the law of contract disguise (often only thinly) important political or economic choices.

Secondly, it follows from the above that German law, like most continental European legal systems, often veers towards an ‘artificially’ constructed equality between the parties, contrary to nature’s (and the market’s) preference for inequality. The result is an increased erosion of the notion of contractual freedom, especially when it comes to clauses which seek to exclude or even just limit the liability of one party. In some cases, this modern trend to assist the weaker party has also resulted in challenging traditional contractual orthodoxy: for instance, the right of consumers in certain types of contract to ‘back out’ of engagements already made without the need to justify this change of mind let alone for the co-contractor to agree to such an alteration. Legal orthodoxy has in these and many such cases yielded to contemporary ‘socio/political’ realities, and it is probably better to accept these rules on such wider socio-economic grounds rather than to try to explain them by attempting to trim or

PRELIMINARY OBSERVATIONS 3

adjust classical contractual thinking. This is not to deny, however, that purists have tried to do the latter as well.

Thirdly, it could be argued that in Germany this move towards a proconsumer/weak party position may have received some support from the so-called Sozialstaatsprinzip, a constitutional principle mentioned in Article 20(1) of the Constitution (Basic Law of 1949—Grundgesetz). This places an obligation (Gestaltungsauftrag) first and foremost on the legislator to shape the country’s social order. The notion thus creates a (limited) legal counterbalance to positions of social and economic power. In this sense it is a new (and for some controversial) feature in Germany’s constitutional history. Linking the principle to developments of a more typical private law nature is debatable—indeed the majority of private lawyers have refused to find in it the explanation for court activism let alone an underlying justification for its many incidents. Yet as stated we have not set out to write a purely descriptive book, but to also occasionally fly some academic kites, so we feel obliged to draw the attention of Anglo-American readers to the existence of this constitutional principle, not least since it is not one found in either the Anglo-American or French constitutions. A more detailed account can be found below in section 6 on the ‘constitutionalisation’ of private law.

It suffices here to point out that the idea of the Constitutional Court that (alleged) ‘abuses of economic power’ should be counterbalanced with the help of the general clauses of the German Civil Code (Bürgerliches Gesetzbuch, henceforth BGB in short): § 138 (public policy); § 242 (good faith), is evidently influenced by the Sozialstaatsprinzip—though, once again, we must stress that the dominant opinion in Germany has not gone as far as seeing in this principle the connecting link or common foundation of court activism. Yet, as we shall see in detail in chapter 5 and in section 6, p 38, contracts which (a) place an unusually heavy burden on one of the parties involved in the transaction, and (b) are the result of a ‘structurally unbalanced distribution of bargaining power’ are thus not acceptable under § 138 BGB. (BVerfGE NJW 1994, 36, case no 81 the seminal Bürge-decision, and BGH NJW 2002, 2228, case no 82.) This does not mean, as should be clear at the outset, that the legal order will or should intervene in all contractual relationships which feature some kind of inequality in the parties’ respective ability to influence the negotiations; intervention for the sake of socially ‘just’ or ‘fair’ results must be balanced with legal certainty (Rechtssicherheit), a value in its own right. But if the contract in question falls within a category of cases typically characterised by a weakness of one party, and if this party is excessively burdened by the ‘freely’ negotiated result, the Constitutional Courts appear to be saying that the private legal order is called upon to intervene and to correct the outcome. The court has justified this by Article 2(1) Basic Law (protection of private autonomy), and crucially by reference to the Sozialstaatsprinzip though others (especially private lawyers) might choose to attribute less or no force to the principle under consideration (see for a view strongly opposing this approach of the court, eg, Adomeit NJW 1994, 2467; see also p 256 for an alternative, non-constitutional explanation of that case).

Fourthly, the move away from what one could call the nineteenth century ‘liberal contractual model’ has come about through a mixture of statutory intervention and judicial creativity. This is true as much of English law as it is of German law (though American law has on the whole been more reluctant to go down that path and has relied

4 INTRODUCTION

more on the courts to bring about reform). In Europe, and we now include (as one must nowadays) the UK in this term, this trend has in recent times received further impetus as a result of Community legislation. For comparative lawyers this trend may conceal consequences which national lawyers may not be inclined to notice adequately.

The following, in particular, deserve mention. One notes a trend to weaken (if not destroy) the long-hallowed distinction between English law (as being a system essentially judge-made) and continental European law (including German law) as being a system largely found in statutes, especially the Civil Code. The reader of chapters 3 and 5 will be left in no doubt about the veracity of this statement. Another consequence may be a move away from the traditional model of contract law essentially being a set of rules of a ius dispositivum nature and thus always subject to party agreement. We return to this point and to the limits on freedom of contract at the end of this chapter. Finally, a no less significant consequence stemming from these developments is the fragmentation of the law of contract into a law of contracts: namely, a law of business contracts, consumer contracts, national contracts, international contracts, special (and highly regulated) contracts such as employment contracts and the like. Suffice it to say, all these types of contracts are subject to different rules since they are imbued with a different socio-economic spirit. The fragmentation of modern contract law must thus not be forgotten in the account that follows, the reader always enquiring whether the rules presented in this book are appropriate to all types of contract.

The above changes have brought English law closer to the German and contemporary European protectionist and interventionist model. By so doing, it has moved contemporary English contract law closer to a variety of European notions of consensus and compromise than arguably were commonly found in the traditional or classical common law. Consequently, not everyone is happy with this ‘Europeanisation’ of English law. (See for instance Weir, ‘All or Nothing’ (2004) 78 Tul L Rev 511 and earlier, Professor (now Judge) Beatson’s Cambridge inaugural lecture where he even asked the question whether the common law had any future; published 1997 by CUP.) Yet this phenomenon may be more interesting for the fact that it leaves wider legal circles unconcerned or plain disinterested, than for the fact that it ignores this system’s considerable pedigree. For in reality, the common law has not traditionally maintained the degree of isolation which the critics of modern trends condemn having repeatedly in its past been drawn into the gravitational orbit of French (first) and German (later) legal theorising and then, having borrowed from these systems, pretended a complete originality of structure. (On this see, inter alia, the masterly analysis of Professor James Gordley, The Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Part IV (2006) and the older and seminal article by Professor Brian Simpson, ‘Innovation in Nineteenth Century Contract Law’ (1975) 91 LQR 247.) Moreover, legal rules, indeed legal systems as a whole, cannot resist the pressures exerted upon them by their wider and ever-changing socio-economic environment. And this, at the turn of the twenty-first century, is very different from that which prevailed when the classical law of contract crystallised around the middle of the nineteenth century. Romantics may regret this metamorphosis but pragmatists need not fear it. For English lawyers, and indeed English politicians, need not fear losing the predominance that ‘Anglo-Saxon’ law has acquired in commercial matters for so long as the English language remains the lingua franca of commerce and this is largely controlled by ‘Anglo-Saxon’ financial institutions and multinational legal firms.

PRELIMINARY OBSERVATIONS 5

The above, wider comments may not convince the doubters—though here we are not trying to convince. But they may help make our readers think more broadly as they move through a book essentially devoted to explaining contemporary German law. However, they lead to our fifth broad statement namely, that contract law is not static.

To put it differently, contract rules adapt constantly to the changing backdrop of society and this backdrop is, not only consumerist in spirit, but increasingly also international in nature. This means that those who make law (in civil law systems mainly legislators but, in practice, courts as well), as well as those who teach it, are nowadays, in performing their assigned tasks, increasingly likely to be forced to look ‘sideways’ at what is happening elsewhere rather than backwards, ie at what old sources of law had to say about a problem. This means that growing awareness of what is happening in other legal systems as well as on the transnational ‘institutional’ level (European Union, international conventions, private projects of harmonisation of contract or commercial law etc) is bound to influence the future development of our subject. Though the effect this may have on national curriculum is still a matter of academic speculation (see for instance Markesinis, Comparative Law in the Courtroom and the Classroom (2004)), the real world of practice, upon which contract rules depend heavily, is unlikely to miss the significance of this shift. And it is this world that is giving English law its contemporary significance.

Finally, the comparison of German with English and American law calls for a special effort to be made in the presentation of the ‘foreign’ material. Attachment to the national method of presentation and to national concepts and terminology are likely to be so alien to lawyers from other systems that it may lead to a rapid decrease in interest in the foreign system presented to national lawyers. Such a discouragement will benefit no one (ie neither the importing or exporting system); it will only encourage the kind of insular self-sufficiency that prevailed briefly about a century ago after each European system adopted its own national codes. We believe our times call for a more open and internationalist approach and that this in turn, requires an ability to ‘package’ foreign law in a way that makes it attractive and user friendly to lawyers from other systems. That such an approach conceals dangers is beyond doubt (though some colleagues have made a career in proclaiming them over and over again). Here suffice it to say that all three of us have taken advantage of our different experiences in backgrounds to minimise these dangers and make a beginning at presenting to common lawyers one of the most theoretical, difficult and developed parts of German private law.

One cannot help but note the richness of contractual theorising found in German legal literature. Though English contract writing has its fair share of theorising minds—Atiyah, Burrows and Birks immediately spring to mind—it has not rivalled the kinds of writings that have emanated from the Americas in the last fifty years from the pens of such thought-provoking writers as Jules Coleman, Charles Fried, Leon Fuller, Grant Gillmore, James Gordley, AT Kronman, Stephen Smith, or Michael Trebilcok. It need hardly be stressed that the above are not meant to be taken as implying a comparative qualitative assessment of the work of learned colleagues. But it does suggest that whereas the common law writings look at the contract problems from an economic, philosophical or multidisciplinary perspective and often try to develop the author’s own ‘theory of contract,’ the German writings are as dogmatic in