учебный год 2023 / Kahler, Decision-Making about Suretyships under Empirical Uncertainty

European Review of Private Law 3-2005 [333–355] © Kluwer Law International | Printed in the Netherlands

Decision-Making about Suretyships under Empirical Uncertainty

– How Consequences of Decisions about Suretyships Might Influence the Law

LORENZ KÄHLER*

Keywords: Decisions under Uncertainty, Suretyship, Underprotection, Overprotection

Abstract: The paper addresses the uncertainty that prevails if courts have to decide about the fairness of suretyships. They do not know whether creditors will refrain from giving a credit in similar situations or increase the interest rate. Similarly, they do not know to what extent strict rules will ruin the lives of sureties. Several strategies how to deal with this uncertainty are analysed like the ignorance of adverse effects, the minimax-strategy and the choice of an overprotective or an underprotective rule. It will turn out that an underprotective rule creates a smaller risk than an overprotective rule.

Résumé: L’article traite de l’incertitude dans laquelle se trouvent les juges quand ils ont a rendre des décisions en matière d’équité des garanties. Ils ne savent pas, si les créanciers s’abstiendront d’accorder un crédit dans des situations similaires ou s’ils augmenteront les taux d’intérêt. De même, ils ne savent pas, dans quelle mesure des règles strictes pourrons ruiner les garants. Plusieurs stratégies sur comment gérer cette incertitude sont analysées ici parmi lesquelles l’ignorance des effets négatifs, la minimisation des pertes et le choix d’une règle faiblement ou avantageusement protectrice. Il s’avère qu’une règle faiblement protectrice crée un risque moindre qu’une règle sur-protectrice.

Zusammenfassung: Der Artikel thematisiert die Unsicherheit, mit der Gerichte bei der Entscheidung über die Sittenwidrigkeit von Bürgschaften konfrontiert sind. Sie wissen nicht, ob Kreditgeber in ähnlichen Fällen davor zurückschrecken, einen Kredit zu geben, oder die Zinsrate erhöhen. Ebenso ist ihnen unbekannt, inwieweit strikte Regeln Bürgen ruinieren. Einige Strategien, wie mit dieser Unsicherheit umzugehen ist, werden im Folgenden analysiert etwa das Ignorieren negativer Auswirkungen, die Minimierung der Verluste (minimax) sowie die Wahl einer zu stark oder zu schwach schützenden Regel. Es wird sich zeigen, daß die Anwendung einer den Bürgen zu schwach schützenden Regel ein geringeres Risiko darstellt als die Anwendung einer zu stark schützenden Regel.

1Introduction

After a supreme court decides about the fairness of a suretyship1 many things may happen. The adopted rules although formally not binding not only influence future decisions of the courts but also the behaviour of sureties and creditors. If the court declares a certain class of suretyships invalid the sureties may refuse to pay the debt

* Research Assistant, University Göttingen, Germany.

1The concept ‘suretyship’ is in the following paper used as a translation for ‘Bürgschaft’, according to § 765 Bürgerliches Gesetzbuch (BGB). It means an agreement by which the promisor (surety) is secondarily liable to the promisee (creditor) for the debt for another person (principal debtor).

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and banks will not give credits to people whose main security are similar suretyships. Equally, the decision to enforce ruinous suretyships can have disastrous consequences for sureties and their families because creditors will enforce suretyships in similar cases. The concerned sureties may lose most of their property and their families most of their income. Thus, each decision about a suretyship can have considerable consequences not only for the parties of the dispute but for actual and potential sureties, their family members, creditors, and other people.

Unfortunately, one can only guess how probable these consequences are. There is, at least in Germany, little empirical research examining what economic and social effects different rules of suretyships have.2 For instance, it is uncertain to what extent decisions about suretyships diminish the credit-worthiness of small businesses. This uncertainty stands in a striking contrast to the huge amount of literature about the German law of suretyship in the recent years.3 This is the more remarkable as the law of suretyship is not governed by specific statutory provisions but mainly by general clauses and abstract fundamental rights.4 In the interpretation of these norms general arguments virtually indistinguishable from moral and policy arguments play a greater role than the textual interpretation. The legal provisions leave thus space for the considerations about the consequences of different rules.5 But it is far from obvious what role these considerations play as long as the consequences of the law of suretyship are uncertain. The purpose of the following paper is to address this uncertainty and to ask how one should deal with it in a legal context.

To do that I will proceed as follows: First, I want to discuss which uncertainty is at stake and whether the consequences of different rules of suretyships might be legally relevant. If so, they influence the decision how to construct the appropriate rules of suretyships (section 2). Second, I want to demonstrate that these consequences are mainly uncertain und that there is no easy escape from this uncertainty like burdens of

2The current situation of sureties is described by H.I. SAGEL-GRANDE, ‘Bürgschaft in Deutschland: facts and figures’, in: U. Drobnig, H.I. Sagel-Grande, H.J. Snijders, Neuere Entwicklungen im Recht der persönlichen Kreditsicherheiten in Deutschland und in den Niederlanden, Sellier, Munich, 2003, pp 63.

3See with further references: U. DROBNIG, H.I. SAGEL-GRANDE, H. J. SNIJDERS (footnote 2); N. HAUN, Die Unwirksamkeit der Bürgschaftsübernahme wegen Sittenwidrigkeit, Druck & Verlagshaus Wienand, Köln 1995; A. HOLZNAGEL, Bürgenschutz mit System, Nomos, BadenBaden 2002; N. HORN, Bürgschaften und Garantien, 7th ed., RWS-Verlag, Köln 1997; D. REINICKE, K. TIEDTKE, Bürgschaftsrecht, 2nd edition, Luchterhand, Neuwied and Kriftel 2000, pp 55.

4Art. 2 sec. 1 and Art. 6 sec. I Grundgesetz (GG); §§ 138, 242, 1618 a BGB.

5At least, in these cases the consequences are legally relevant, cf. K. ADOMEIT, Normlogik – Methodenlehre – Rechtspolitologie, Duncker & Humblot, Berlin 1986, p 147; W. KILIAN,

Juristische Entscheidung und elektronische Datenverarbeitung, Athenäum, Frankfurt 1974, pp 211; A. RÖTHEL, Normkonkretisierung im Privatrecht, Mohr Siebeck, Tübingen 2004, p 152159; but see H.-M. PAWLOWSKI, Methodenlehre für Juristen, 2. edition, C.F. Müller, Heidelberg 1991 for a critique for such arguments.

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proof. Even anecdotal evidence and a subjective assessment can hardly tell to what extent the law of suretyship influences the credit-worthiness of people and businesses (section 3). Finally, I will examine some strategies regarding how to deal with this uncertainty. Such strategies are, for instance, the ignorance of possible consequences and the minimax-strategy, i.e. the construction of rules of suretyships in such a way that possible losses are minimal (section 4). In this latter part my aim is to show that courts have to choose between the overand underprotection of sureties. They can hardly find the ideal balance between overund underprotection of sureties. Furthermore, I want to argue that underprotection of potential sureties is the preferable strategy under these conditions. However, I will not derive any specific rule about suretyships from it because for that purpose one would have to analyse the specific legal provisions in a more detailed fashion. Many further considerations would have to be taken into account. But the aim here is limited to the demonstration that among these considerations the uncertainty about the consequences supports a strategy of underprotection.

The examples I will use are closely connected to the German law of suretyship. However, the following discussion tries to analyse the underlying conflict of interests behind this law and is, therefore, independent from the dogmatic discussion about a specific statute. This might help to transfer the arguments to other legal systems and especially to the discussion about the unification of European private law. It seems that the adoption of principles of European law in the field of suretyships has to make a similar choice6 between the risk to underprotect and the risk to overprotect sureties.

In the following pages I try to use some insights from decision-theory in which decisions under uncertainty have been discussed for many years.7 The legal discussion of decisions under uncertainty about sureytships differs from this discussion, at least, in two ways: First, it is normative in kind, i.e. the question is not how people act under uncertainty in fact or how they would act as rational beings with given prefer-

6See, for instance, the draft articles as at June 2002 about Personal Securities by the Study Group on a European Civil Code, especially Part IV, published at <http://www.sgecc.net/media/download/personal_securities.pdf> (visited 2. February 2004).

7P.C. FISHBURN, ‘Normative Theories of Decision Making under Risk and under Uncertainty’, in D.E. Bull, H. Raiffa (eds), Decision Making, Cambridge University Press, Cambridge 1988, pp 78; D. KAHNEMANN, P. SLOVIC, A. TVERSKY, Judgement under uncertainty: Heuristics and biases, Cambridge University Press, Cambridge 1982; R.D. LUCE, H. RAIFFA, ‘Individual decision making under uncertainty’, in P. Gärdenfors, N.E. Sahlin, Decision, probability, and utility, Cambridge University Press, Cambridge 1988, pp 48; R.D. LUCE, H. RAIFFA, Games and Decisions, Harvard University Press, Cambridge 1958, pp 284-285; M.G. MORGAN, M. HENRION, Uncertainty, Cambridge University Press, Cambridge 1992; A. RAPAPORT, Decision Theory and Decision Behaviour, Kluwer, Dordrecht 1989; A. TVERSKY, D. KAHNEMANN (eds), Choices, Values, and Frames, Cambridge University Press, Cambridge 2000; F.H. KNIGHT, Risk, Uncertainty, and Profit, Harper & Row, New York 1965. There are even a ‘Journal of Risk and Uncertainty’ and ‘Theory and decision: an international journal for multidisciplinary advances in decision science‘ both published by Kluwer, Dordrecht.

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ences but rather which rules judges shall construct if they are uncertain about the consequences of their decisions. This demands a discussion of the preferences that shall prevail in such situations and these preferences cannot be presupposed unlike in decision theory. Second, the following discussion is more specific. General thoughts about decisions under uncertainty and decisions under risk might help in many cases. However, they do not completely determine how to deal with uncertainty in the specific case of suretyships because procedural law or the law of suretyship might provide specific rules for these cases. For instance, the options to delegate a decision from the legislator to the administration or to proceduralise former substantial provisions8 are not available for decisions about suretyships in the courts because judges have to immediately decide the case in a civil procedure. They can not refrain from a decision and postpone it until other institutions have expressed their opinion.

2The Relevance of Empirical Facts about Suretyships

The uncertainty about the possible consequences of legal rules concerning suretyships is only a legal problem if these consequences have to be considered in the construction of rules about suretyships. This is far from obvious. There are many cases in which the governing rules do not depend on their consequences. If, for instance, the risk of a suretyship is hidden because a creditor tells the surety that the suretyship is just necessary ‘for the files’ and if at the same time the surety is under severe pressure from his father German courts regard the suretyship as unfair.9 Due to the deception about the risk and the severe pressure from a family member the suretyship lacks a free and autonomous decision. This view can refer to empirical evidence that risks are not taken sufficiently serious if decisions are emotionally influenced.10 In these cases the consequences for other sureties and creditors not involved in the dispute do not matter because they can not change the characterization of the contract as unfair. In the described case in which the risk is downplayed and the surety under severe pressure one would, for instance, hardly enforce such a suretyship and regard it as fair only because such a decision would in the long run enhance the credit-worthiness of other businesses.

Similarly, cases exist in which no serious doubt about the free and conscious decision to enter into a suretyship arise and, consequently, no doubt about its validity, others things being equal. If, for instance, a managing director of a limited

8Cf. A. SCHERZBERG, ‘Wissen, Nichtwissen und Ungewissheit im Recht’, in C. Engel, J. Halfmann, M. Schulte (eds), Wissen – Nichtwissen – Unsicheres Wissen, Nomos, Baden-Baden 2002, p 113 at 128-130, 143.

9Cf. the decisions Bundesverfassungsgericht (BVerfG) 19.10.1993, Neue Juristische Wochenschrift (NJW) 1994, 36-39; Bundesgerichtshof (BGH), NJW 1994, 1341-1345.

10C.R. SUNSTEIN, ‘Review of T. Gilovich, D.W. Griffin, D. Kahnemann (eds), Heuristics and Biases: The Psychology of Intuitive Judgement, Cambridge, 2002’, 70 University Chicago Law Review 751, 771 (2003) relying on works of Robert Baron.

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company gives a suretyship for his business after an extended explanation by the bank about the risk and possible consequences of the suretyship hardly anyone would consider the suretyship as unfair.11 For the director can freely decide to what extent the company will use the credit and for what amount he can be, consequently, held responsible. Whether or not other people will be frightened by such suretyships and decline to become managing directors and whether or not the credit-worthiness of small businesses is influenced by such decisions is irrelevant. These consequences do not matter because they can not contradict the characterization of the suretyship as a free and autonomous decision. It is the nature of a free market that its individual participants are trusted to make their decisions as they like. The hope is, of course, that overall everybody will benefit by such a regime. But as far as the legal validity of the individual acts is concerned it is irrelevant whether this hope is fulfilled or not.

Between these scenarios lie cases in which suretyships are neither obviously fair nor obviously unfair. These cases are the most interesting because the line between valid and invalid suretyships runs across them. Is a suretyship only invalid if its risk is hidden or is it invalid already if its risk is downplayed by the creditor? If so, what degree of downplay is necessary? Has the unfairness due to the pressure of a family member to be proven or is there a presumption that there was such a pressure once the surety is a close family member of the debtor?12 The law must answer these questions and, at least, the case law has to draw a sharp line between valid and invalid suretyships. Equally, each community discussing rules of suretyships has to consider them. They are difficult to answer because they depend on the degree with which one treats a person as a rational being responsible for its actions and the degree with which one accepts a paternalistic protection of it. Lawyers as well as politicians disagree about them. But no matter how one draws the line between fair and unfair suretyships borderline cases exist. At least, in these cases considerations of policy seem to be legitimate because neither the abstract principle of freedom of contract nor the necessity to protect individual autonomy nor another abstract legal principle can then decide the issue. Therefore, it becomes necessary to analyse how different rules effect the interests of the sureties and creditors.

A second reason for the consideration of these consequences is the purpose of the fairness-rules about suretyships. They limit the freedom of contract in order to protect the autonomy of the sureties as the most vulnerable party in a suretyship. This purpose is crucial for the construction of rules limiting the validity of suretyships. For the basic condition each such rule must fulfil is that due to it sureties will be better off. Otherwise there would be no point in creating such a rule in the first place. Therefore,

11At least, under German law such a suretyship is valid, even if it is not limited to the credit at the time of the signing, BGH 11.12.1997, NJW 1998, 894; 15.1.2002, NJW 2002, 956; 18.9.2002, NJW 2002, 1337.

12The Supreme Court applies such a presumption BGH 29.6.1999, NJW 1999, 2584; 14.11.2000, NJW, 2001, 815, at 817; 4.12.2001, NJW 2002, 744, at 745.

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hardly anybody would opt for rules limiting the validity of suretyships if the rules turn out to contradict these interests. For that reason it is necessary to consider how different rules of suretyships will effect the interests of potential sureties. Rules damaging these interests are obviously unnecessary, let alone the fact that they run across the interests of the creditors and principal debtors. Thus a court constructing such rules has not only to consider the interests of the parties involved in the dispute but also the interests of potential sureties for whom the same rules apply.

A further reason to consider the interests of potential sureties is the necessity to generalize a decision. Under German procedural law13 a court has to give reasons for his decision. It can do that only by reference to reasons that are by their nature generalizable.14 Without them the decision between enforcing a suretyship and declaring it void would seem to be arbitrary. The appropriateness of a general rule depends not only on the interests of the parties of the actual dispute but also on the interests of potential parties because they are equally effected by these rules. There is no reason to discriminate between the interests of the parties before the court and future litigants. Accordingly, the decision-maker has to consider the interests of all sureties to whom its rules apply. If he constructs, for instance, a rule under which a suretyship for the debts of a company is invalid if given by a close family member of its owner he has to consider that in similar cases companies whose main security are such suretyships would not get credits or get them only for higher interest-rates. This might effect small businesses with low working capital and people whose work and income depend on them. The protection from ‘ruinous’ suretyships might turn out to be ruinous for sureties and the principal debtors. Therefore, even if the intention to protect sureties is not weighed against the interests of the creditor it is necessary to consider the consequences for sureties. For the protection of some sureties is necessarily connected with the limitation for all potential sureties to enter into suretyships.

The legal relevance of the consequences is most plausible in extreme scenarios. If strict rules about suretyships would lead to a situation in which 90 % of the newly founded companies and 40 % of the existing small companies would not get bankcredits one would hardly say that this does not matter. Families could lose their income because of the protection of one of its members, let alone the over-all effect on the economy. Even if one considers only the interests of the sureties one would have to characterise the rules of suretyhips in such a scenario as overprotective. At least in the borderline cases between fair and unfair suretyships one would then rather choose rules enforcing suretyships then rules restricting the capacity to conclude them. For in that situation even the class of potential sureties would be worse off because it could neither directly nor indirectly benefit from the principal debtors. Of course, such an extreme scenario is not very plausible because the credit-worthiness depends on many

13§ 313 section 3 Zivilprozessordnung (ZPO).

14For a recent discussion of the generalizability of arguments see H. SIEGEL, ‘Argument Quality and Cultural Difference’, Argumentation 13 (1999), p 183.

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other factors like the existence of further securities and the prospect of the business. The lacking opportunity to give suretyships has hardly such a desastrous effect. In anyway it seems impossible to prove it. But the important point to notice here is that if it were possible to prove such a connection courts should change the applicable rules. This shows that the rules governing the law of suretyship is not immune from the empirical consequences they have on the credit-worthiness of the principal debtors.

The opposite scenario is that each year 70 % of the bankruptcies of limited companies would ruin the life of spouses or children of the managing directors whereas the benefits for the creditors are small because of the negligible recovered sums. In such a situation even the principal debtors would hardly profit from the suretyship because it would not considerably increase their credit-worthiness. This situation seems as unlikely and difficult to prove as the first one.15 But again the point is that in such a situation one would characterise the law as underprotective and could hardly deny the legal relevance of these consequences. In borderline cases between fair and unfair suretyships one would then rather opt for more protective rules. Thus, the characterisation of the law about suretyships as overor underprotective depends, among other things, on its empirical consequences. Therefore, it is necessary to know what consequences different rules of suretyships bring about.

Especially important seems the question to what extent the credit-worthiness of companies is influenced by these rules and what impact a diminished creditworthiness has. Generally, it is worthwhile to know under which rules sureties would benefit and under which rules they would suffer. The consequences can be manifold. The more restrictive the fairness-rules about suretyships are the less these suretyships can serve as a security for credits and, accordingly, the worse the conditions for these credits become. Creditors will incur higher costs for the information about the debtor and for its monitoring.16 They might decide to use other securities with higher handling expenses.17 Most significantly, they cannot longer be as sure about the intention of the principal debtor to repay the credit as they were when people close to the debtor were liable. For these reasons under restrictive rules the costs for the creditor rise and the creditworthiness of the principal debtor deteriorates. Creditors would then, for instance, increase the interest rate, demand other securities like a higher working capital or shorten the term for which the credit is given. In many cases the creditor will totally refrain from giving a credit because the involved risk is so high that he would have to charge an interest rate invalid under the current law of

15However, there is empirical evidence that there are more than just a few cases in which women’s lives are ruined by suretyships, H.I. SAGEL-GRANDE (footnote 2), p 63, at 64.

16Cf. A.W. KATZ, ‘An Economic Analysis of the Guaranty Contract’, 66 University of Chicago Law Review 47, 68 (1999).

17Cf. M. ZEITTER, ‚Bürgschaften, Garantien und Patronate aus bankwirtschaftlicher Sicht’, in Institut für Bankrecht und Bankwirtschaft der Universität Rostock (ed.), Bürgschaften, Garantien, Patronate, Universität Rostock, Rostock 2001, p 7 at 13.

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usury.18 In these cases the protection of sureties leads to a situation in which neither the creditors nor the principal debtors have an incentive to agree about a credit previously secured by suretyships. These theoretically imaginable consequences are facts that are usually not detailed described in the statutes, leading cases or legal text books because only empirical research can establish them.

German courts rarely refer to empirical research in their reasoning. Therefore, it is no surprise that the decisions about suretyships were, at least in the published opinions, not influenced by their probable factual consequences. However, there are cases in which the German Supreme Court overruled a precedent because of its negative economic outcome although this effect did not play any role in the foundation of the abolished rules.19 Thus, the fact that the consequences of the law of suretyship are until now hardly discussed by the courts does not exclude that they would take empirical facts as an argument to overrule overor underprotective rules. In any case, the dogmatic discussion about the most appropriate rules of suretyships shall take seriously the question whether these rules serve their promulgated purpose to protect sureties or whether sureties suffer from them.

3Decisions under Uncertainty and Decisions under Risk

If one accepts the position that the described possible consequences matter it becomes necessary to examine them. Although the law of suretyship has been hotly debated in the recent years20 in Germany there is – as far as I know – no specific empirical research on that issue. One can, of course, guess what scenario is likely and, for instance, say that the conditions for the credits, probably, deteriorated in Germany due to the more restrictive rules of suretyships. But there is no certainty about it and, even worse, it seems impossible to guess how much sureties, their families and creditors are adversely effected by these rules. There is some anecdotal evidence that banks nowadays do not accept a suretyship if the surety has no income or property with which he could pay for the credit. The federation of banks gives, at least, such advice to its member banks21 and this advice seems to be followed.22 Therefore, suretyships of people without a considerable income or property are no longer accepted23 and,

18German law regards a credit usually as unfair, if the interest rate is 100 % above the market level, cf. BGH 24.3.1988, Entscheidungen des Bundesgerichtshofs in Zivilsachen (BGHZ) 104, 102, at 105; 24.1.1990, BGHZ 110, 336, at 338.

19E.g. BGH 23.6.1997, NJW 1997, 2815 overruling BGH 19.4.1982, BGHZ 83, 319 at 325.

20See references in footnote 3.

21Bundesverband Deutscher Banken (Federal Association of German Banks), Banken und Verbraucher: Das verbraucherpolitische Gesamtkonzept der Banken, published at <www.bdb.de> (visited 2. February 2005).

22Cf. H.-P. BENCKENDORF, ‘Praktische Umsetzung der Rechtsprechung in Bankformulare’, in: U. Drobnig, H.I. Sagel-Grande, H.J. Snijders (footnote 3), pp 15, 16; N. HAUN (footnote 3), pp 14, 170. A short telephone survey of three commercial banks supported this assessment.

23Cf. M. ZEITTER (footnote 17), p 7 at 13.

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consequently, can not serve as a security for a credit. But again it is uncertain, to what extent small companies get less credit or credits for higher interest rates due to these rules. Thus a paradoxical situation arises. On the one hand the consequences of the law of suretyship matter. On the other hand there is no available empirical research about them. The consequences are something which we should know in the making of legal decisions but which we do not know at the moment. Therefore, the decision has to be made under uncertainty.

The decision-making under uncertainty differs from the decision-making under risk insofar as in the latter case the probabilities of different outcomes are known.24 If I decide, for instance, to use a car I might become involved in a car-acci- dent while driving. There is no certainty that this never happens. But yet, the decision to take the car is no decision under uncertainty but one under risk because one knows that statistically the probability of an involvement in a car accident is pretty small. So I have to decide between taking the car thereby accepting the small risk of a car accident or using some other means of transportation with a different risk. But in the case of suretyships there is no comparable knowledge how likely the involved risks are.

Rational choice theory tells us that if the consequences of an action are not known one shall weigh the probability of the consequences with their expected utility.25 If the probability is not established by reliable statistical figures one should decide by ‘subjective probability’, i.e. presume the consequences according to one’s general knowledge about similar cases.26 Such a decision would be one under risk. Although one does not know exactly what happens one can judge by probabilities. Even if there were, for instance, no reliable data about car-accidents we could tell by our own every-day experience that the risk of a road accident is much smaller than the chance of not being involved.

24This terminology goes back to F.H. KNIGHT (footnote 7), pp 19-20, and is commonly used,

A.TVERSKY, C.R.FOX, ‘Weighing Risk and Uncertainty’, in A. TVERSKY, D. KAHNEMANN (footnote 7), p 93 at 96; T. SCHMIDT, Rationale Entscheidungstheorie und reale Personen, Metropolis, Marburg 1995, p 30; A. VERMEULE (footnote 22), p 114. The distinction is criticized by G. MAJONE, ‘’What price Safety?’ The Precautionary Principle and its Policy Implications’, 40 Journal of Common Market Studies (2002), p 89 at 103. But even if we reframe the question as Majone to ‘How shall we act if all events are equally likely to occur?’ the same arguments for decisions under uncertainty about suretyships apply. I. SPIECKER genannt DÖHMANN, ‘Staatliche Entscheidungen unter Unsicherheit – juristische und ökonomische Vorgaben’, in J. Lege (ed.),

Gentechnik im nicht-menschlichen Bereich – was kann und was sollte das Recht regeln?, Verlag Arno Spitz GmbH, Berlin 2001, p 51 at 53-54, distinguishes between ‘Unsicherheit’ and ‘Risiko’, the German equivalents of ‘uncertainty’ and ‘risk’ differently: ‘Uncertainty’ means the lack of information before a decision is made, ‘risk’ the lack of information after a decision is made.

25E.L. NELL, Wahrscheinlichkeitsurteile in juristischen Entscheidungen, Duncker & Humblot, Berlin 1983, pp 130-137; T. SCHMID (footnote 22), pp 31; K.J. ARROW (footnote 7), p 497 at 500. A. TVERSKY, D. KAHNEMANN, ‘Prospect Theory: An Analysis of Decision under Risk’, in

A.TVERSKY, D. KAHNEMANN (footnote 7), p 17 at 20, criticize this approach.

26Cf. A. VERMEULE, ‘Interpretive Choice’ (footnote 22), p 114. NELL (footnote 23), p 128 calls such an approach ‘the best-guess-rule’.

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Unfortunately, there is even no reliable data about the probable effects the law of suretyship has. Even worse, it is difficult to judge by ‘subjective probability’ what happens under a certain degree of protection for sureties. Although it seems quite likely that strict rules prohibiting unfair suretyships have some negative effect on the credit-worthiness of the principal debtor it is impossible to tell its degree. Equally, it is difficult to estimate whether creditors adopt the suretyships to the new established rules. If so, the restriction might not play a great role. Under German law a suretyship is, for instance, not regarded as ruinous if the seizable income and assets of the surety suffice to repay, at least, the interest rate.27 Therefore suretyships limited to this amount are valid and can be enforced. Its economic value for the creditor seems not greatly to differ from the value of an unlimited suretyship because its enforcement depends in any way on the assets and income of the surety. The only difference between an unlimited and a limited suretyship in that respect is that the surety has to pay more if his income suddenly improves. But this prospect has a low value at the time the suretyship is made. For creditors will hardly bet on a negligible chance. Therefore, an ‘unlimited’ suretyship might have the same effect on the creditworthiness of the principal debtor as a suretyship limited to the existing assets and income. Thus the prohibition of ruinous suretyships has, possibly, no adverse economic effect.

On the other hand, suretyships of family members without income and considerable property seemed formerly, at least in some situations, to be accepted as securities for credits whereas they are not longer accepted nowadays. Therefore, to obtain a credit was easier before the Constitutional Court introduced restrictions for suretyships in 1993.28 Consequently, these restrictions had, probably, some negative effects on the ability of small companies and other principal debtors to get a credit. Thus the scenarios that the law of suretyship has or has no considerable adverse economic effect seem equally plausible. The decision how to construct rules about suretyships has currently to be made under uncertainty. At the moment judges can not dissolve the uncertainty by making empirical inquiries or by consulting experts because the necessary empirical research is too expensive and time-consuming for a civil procedure, let alone the procedural difficulties to consult experts in questions of law.29

The presumption that people act as rational beings maximizing utility would not help to overcome this uncertainty. For the decision under what conditions to give a credit depends on the probability with which a debt not secured by a suretyship is fulfilled. This depends, among other things, on the alternative available securities

27BGH 29.6.1999, NJW 1999, 2584 at 2586; 28.5.2002, NJW 2002, 2705 at 2706; v. 14.10.2003, NJW 2004, 161. In BGH 18.9.1997, NJW 1997, 3372 at 3373 the Supreme Court considered a suretyship as excessive if the surety cannot repay from his sizable income, at least, a quarter of the debt within five years after signing of the suretyship.

28BVerfG 19.10.1993, NJW 1994, 36-39.

29Cf. A. VERMEULE (footnote 22), p 100, who calls such questions that are empirical but unresolvable at acceptable cost within any reasonable time frame ‘trans-scientific’ and takes this terminology from Alvin Weinberg, cited id.

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