Bundesgerichtshof 8 March 1995 [VIII ZR 159/94], BGHZ 129, 75

Translation [*] by Alston & Bird LL.P.
Editors: William M. Barron, Esq.; Birgit Kurtz, Esq. Coordinator: Thomas Carlé (Referendar); Translators (Referendars): Thomas Carlé; Nicola Heraeus; Carmela Schmelzer; Ulrich Springer

Facts

Defendant [buyer], who runs a fish import business in D., bought 1,750 kilograms (kg) New Zealand mussels for U.S. $3.70 per kg from Plaintiff [seller], who resides in Switzerland. [Seller] delivered the goods, as agreed, in January 1992 to a storage facility belonging to [buyer] and located at Company F. in G.G., and invoiced [buyer] on January 15, 1992 in the amount of U.S. $6,475 payable within 14 days.

At the end of January 1992, Company F. informed [buyer] that the federal veterinary agency of G.G. had taken samples of the goods for examination purposes. After the veterinary agency confirmed at the end of January/beginning of February 1992, upon [buyer’s] request, that an increased cadmium content was discovered in the mussels and that further examinations by the responsible veterinary examination agency of Southern Hesse were necessary, [buyer] informed [seller] of these facts by facsimile dated February 7, 1992. According to the report by the veterinary examination agency of Southern Hesse, which was received by [buyer] on February 26, 1992 and forwarded to [seller] by [buyer], cadmium contents of between 0.5 and 1.0 milligram per kg (mg/kg) were ascertained in four of the examined bags of mussels; these contents did not yet exceed twice the amount of the 1990 standard of the federal public health agency, but further examinations by the importer were found necessary. An examination commissioned by [seller] and conducted by the federal agency for veterinary matters in Liebefeld-Bern determined a cadmium content of 0.875 mg/kg.

By facsimile dated March 3, 1992, [buyer]) announced to [seller] that she was going to send the mussels back at [seller’s] expense since the veterinary agency had declared them “not harmless” due to their high cadmium content; simultaneously, she complained that the goods were “no longer in their original packaging as required” and that, furthermore, the packaging was unsuitable for frozen food. Thereafter, [seller] informed [buyer] by telephone that she would not accept the goods. Consequently, [buyer] did not return the goods. According to a report of the chemical examination laboratory of Dr. B. dated March 31, 1992, which had been commissioned by [buyer] for further examination, three samples revealed 1 mg of cadmium per kg; a doubling of the federal public health agency standards could not be “tolerated,” and at least 20 additional samples of the entire delivery had to be examined.

[Buyer] requested that [seller] cover, among other things, the future expenses of the examination; [seller] did not reply.

In the complaint, [seller] demands payment of the purchase price of U.S. $6,475 plus interest. She claimed that the mussels were suitable for consumption because their cadmium content did not exceed the permitted limit; furthermore, [buyer] had not given timely notice of the defects. [Buyer], on the other hand, declared the contract avoided due to a fundamental breach of contract because the mussels were defective and had been complained of by the responsible authorities. Thus, the mussels were not permitted to be delivered out of the storage facility. And by now, the “expiration date of 12/92,” affixed to the merchandise by [seller], had come and gone anyway.

The Trial Court (here the “Landgericht“) obtained an expert opinion from the federal public health agency. With respect to the question whether the mussels were suitable for consumption having the reported cadmium content, the federal public health agency elaborates that the ZEBS (central registration and evaluation office of the federal public health agency for environmental chemicals) standards are guidelines indicating an unwanted concentration of harmful substances in food for purposes of preventative consumer health protection. Occasionally exceeding the individual standard which are not toxicologically explainable, usually does not lead to harmful effects on one’s health, even if the measured concentration reaches twice the amount of the standard. If twice the amount of the standard is exceeded, the responsible state control authorities usually declare that, analogous to the procedure legally required for enforcement of the meat hygiene regulations (FleischhygieneVerordnung), the relevant food can no longer be considered suitable for consumption according to the foodstuffs and consumer goods law (“Lebensmittel- und Bedarfsgegenständegesetz” or “LMBG”) § 17(1)(Nr.1).

The Trial Court ruled against [buyer] in accordance with [seller’s] petition [seeLG Darmstadt 22 December 1992]. On appeal, buyer claimed, as a precaution and with offer of proof, that the cadmium content of the mussels was even higher than 1 mg/kg. The Court of Appeals (Oberlandesgericht) dismissed [buyer’s] appeal [see OLG Frankfurt 20 April 1994]. In the appeal to this Court, [buyer] continues to move for a dismissal, whereas [seller] pleads for a dismissal of the appeal.

Opinion

The appeal is unsuccessful.

I. The Court of Appeals has explained:

The U.N. Convention on Contracts for the International Sale of Goods dated April 11, 1980 (CISG) applies to the legal relationship between the parties. According to CISG Art. 53, [seller] is entitled to the purchase price. [Buyer] can only declare the contract avoided pursuant to CISG Art. 49(1)(a) in case of a fundamental breach of contract by seller. It is true that a delivery of goods that do not conform with the contract can be a fundamental breach of contract within the meaning of CISG Art. 25; in case of a lack of express agreement, CISG Art. 35(2) governs the question whether the goods conform with the contract. The question whether only goods of average quality are suitable for ordinary use (CISG Art. 35(2)(a)) or whether it is sufficient that the goods are “marketable” may be left open. The delivered mussels are not of inferior quality even if their cadmium content exceeds the examination results known so far. The reason for this is that the standard for cadmium content in fish, in contrast to the standard for meat, does not have a legally binding character but only an administratively guiding character. Even if the standard is exceeded by more than 100%, one cannot assume that the food is no longer suitable for consumption, because mussels, contrary to basic food, are usually not consumed in large quantities within a short period of time and, therefore, even “peaks of contamination” are not harmful to one’s health. That is why it is no longer relevant whether the public law provisions of those countries, to which an export was possible at the time of conclusion of the contract, have no influence on the conformity of the goods with the contract according to CISG Art. 35(2)(a).

The fact that the standard was exceeded is similarly not relevant to the elements of CISG Art. 35(2)(b) (fitness for a particular purpose). There is no evidence that the parties implicitly agreed to comply with the ZEBS-standards. Even if [seller] knew that [buyer] wanted to market the goods in Germany, one cannot make such an assumption, especially since the standards do not have legal character.

The demand to declare the contract avoided is also not legally founded based on [buyer’s] allegation that the goods were not packaged properly. [Buyer’s] pleadings in this respect are not substantiated and can, therefore, not be accepted. In any event, the statement to declare the contract avoided is statute-barred by CISG Art. 49(2). This is so because on March 3, 1992, Defendant (buyer) gave notice for the first time that the packaging of the goods delivered in the beginning of January did not conform with the contract; therefore, she did not give notice within a reasonably short time.

II. These elaborations hold up against a legal re-examination with respect to the result.

1. The application of the CISG provisions to the contract between the parties is expressly no longer questioned and is also correct (CISG Art. 1(1)(a)). The prerequisite to [buyer’s] right to declare the contract avoided pursuant to CISG Art. 49(1)(a) due to the cadmium contamination of the delivered mussels is, therefore, a fundamental breach of contract by [seller] within the meaning of CISG Art. 25. This is the case when the purchaser essentially does not receive what he could have expected under the contract, and can be caused by a delivery of goods that do not conform with the contract (see, e.g., Schlechtriem in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht(Commentary on the Uniform U.N. Law of Sales) Art. 25 6 20 (2d ed.) (with further citations)). Not even non-conformity with the contract within the meaning of CISG Art. 35 can, however, be determined.

a) In this respect, an agreement between the parties is primarily relevant (CISG Art. 35(1)). The Court of Appeals did not even find an implied agreement as to the consideration of the ZEBS-standards. [Buyer] did not argue against this finding, and it is not legally objectionable. The mere fact that the mussels should be delivered to the storage facility in G.G. does not necessarily constitute an agreement regarding the resalability of the goods, especially in Germany, and it definitely does not constitute an agreement regarding the compliance with certain public law provisions on which the resalability may depend.

b) Where the parties have not agreed on anything, the goods do not conform with the contract if they are unsuitable for the ordinary use or for a specific purpose expressly or impliedly made known to the seller (CISG Art. 35(2)(a) and (b)). The cadmium contamination of the mussels, that has been reported or, above that, alleged by [buyer], does not allow us to assume that the goods, under this rule, do not conform with the contract.

aa) In the examination of whether the goods were suitable for ordinary use, the Court of Appeals rightly left open the question — controversial in the legal literature — whether this requires generic goods of average quality or whether merely “marketable” goods are sufficient (see, e.g., Schwenzer in von Caemmerer/Schlechtriem, supra, Art. 35 6 15 (with further citations)). Even if on appeal, goods of average quality were found to be required, [buyer] has still not argued that the delivered mussels contain a higher cadmium contamination than New Zealand mussels of average quality. It is true that, according to the report from the examination laboratory of Dr. B., submitted by [buyer] to the trial court, and the contents of which is thereby alleged, “there are also other imported New Zealand mussels on the market … that do not show a comparable cadmium contamination.” It does not follow, however, that average New Zealand mussels on the market contain a smaller amount of cadmium than the mussels delivered to [buyer].

The appeal wrongly requests that [seller] submit a statement that New Zealand mussels usually have such a high cadmium contamination. After taking delivery without giving notice of the lack of conformity, the buyer must allege and prove that the goods do not conform with the contract and the seller does not have to allege and prove that they do conform with the contract (see, e.g., Herber/Czerwenka, Internationales Kaufrecht (International Law of Sales) Art. 35 6 9 (1991); Piltz, Internationales Kaufrecht (International Law of Sales) § 5 6 21 (1993); Schwenzer, supra, 6 49 (with further citations)). Contrary to [buyer’s] contention at trial, she accepted the mussels by physically taking delivery (CISG Art. 60(b)) at the place of destination in G.G., and she did not give notice of the lack of conformity of the goods at that time.

bb) Admittedly, from the point of view of salability and, therefore, resalability of the mussels and contrary to the Court of Appeals’ opinion, even if twice the amount of the ZEBS-standard is exceeded, as [buyer] alleged, this would not change anything regarding the suitability of the mussels for consumption pursuant to LMBG § 17(1)(1), and, considering the report from the federal public health agency and the documented administrative practice of the state health agencies, there would be reservations, if the public law provisions of the Federal Republic of Germany were relevant. This, however, is not the case. According to the absolutely prevailing opinion in the legal literature, which this Court follows, the compliance with specialized public law provisions of the buyer’s country or the country of use cannot be expected (Schwenzer, supra, Art. 35 6 16 et seq.; Stumpf in von Caemmerer/Schlechtriem, supra, Art. 35 6 26 et seq. (1st ed.); Staudinger/Magnus, BGB (German civil code), CISG Art. 35 6 22 (13th ed.); Herber/Czerwenka, supra, Art. 35 66 4, 5; Piltz, supra, § 5 66 35, 41; Enderlein in Enderlein/Maskow/Stargardt, Konvention der Vereinten Nationen über Verträge über den internationalen Warenkauf, Kommentar (The U.N. Convention on Contracts for the International Sale of Goods, Commentary) Art. 35 6 4 (1985); the same in Enderlein/Maskow/Strohbach, Internationales Kaufrecht(International Law of Sales) Art. 35 6 8 (1991); Bianca in Bianca/Bonell, Commentary on the international sales law Art. 35 6 2.5.1, p. 274 et seq., 6 3.2, p. 282 et seq. (1987); Audit, La vente internationale de marchandises (The International Sale of Goods) 6 98, p. 96 (1990); Heuzé, La vente internationale de marchandises (The International Sale of Goods) 6 290 (1993); Neumayer/Ming, Convention de Vienne sur les contrats de vente internationale de marchandises (The Vienna Convention on Contracts for the International Sale of Goods), Art. 35 6 7 (1993); probably also Hutter, Die Haftung des Verkäufers für Nichtlieferung bzw. Lieferung vertragswidriger Ware nach dem Wiener UNCITRAL-Übereinkommen über internationale Warenkaufverträge vom 11. April 1980 (The Liability of the Seller for Non-delivery or Delivery of Goods Not Conforming with the Contract pursuant to the Vienna UNCITRAL-Convention on the International Sale of Goods dated April 11, 1980) at 46 et seq. (doctoral thesis 1988); Otto, MDR [*] 1992, 533, 534; probably differentSchlechtriem in International Sales §§ 6.03, 6.21 (Galston/Smit 1984); not clearSoergel/Lüderitz, BGB (German civil code), CISG Art. 35 6 11 (12th ed.); inconsistent Heilmann, Mängelgewährleistung im UN-Kaufrecht (Guaranty with Respect to Non-Conformity with a Contract pursuant to the U.N. Law of Sales), compare p. 184 with p. 185 (1994); concerning the legal situation pursuant to the EKG,[*] compare, e.g., Dölle/Stumpf, Kommentar zum Einheitlichen Kaufrecht(Commentary on the Uniform Law of Sales) Art. 33 6 18 (1976) (with further citations) with Mertens/Rehbinder, Internationales Kaufrecht (International Law of Sales), Art. 33 6 16, 19).

Some uncertainties, noticeable in the discussions in the legal literature and probably partly caused by the not very precise distinction between subsections (a) and (b) of CISG Art. 35(2), do not require clarification in the evaluation of whether this question must be integrated into the examination of the ordinary use of the goods or the examination of the fitness for a particular purpose. There is, therefore, no need to finally decide whether, within the scope of CISG Art. 35(2)(a), as most argue, the standards of the seller’s country always have to be taken into account (see, e.g., Bianca, supra, 6 2.5.1; Piltz, supra, 6 41; Enderlein in Enderlein/Maskow/Strohbach, supra; Aue, Mängelgewährleistung im UN-Kaufrecht unter besonderer Berücksichtigung stillschweigender Zusicherungen(Guaranty with Respect to Non-conformity with a Contract pursuant to the U.N. Law of Sales under Special Consideration of Implied Promises), at 75 (doctoral thesis 1989); probably different Schlechtriem, supra; Hutter, supra, at 40), so that it is not important for the purposes of subsection (a) whether the use of the goods conflicts with public law provisions of the import country (see, e.g., Herber/Czerwenka, supra, 6 4). In any event, certain standards in the buyer’s country can only be taken into account if they exist in the seller’s country as well (see, e.g., Stumpf in von Caemmerer/Schlechtriem, supra, 6 26; Schwenzer, supra, 6 16; Bianca, supra, 6 3.2) or if, and this should possibly be examined within the scope of CISG Art. 35(2)(b), the buyer has pointed them out to the seller (see, e.g., Schwenzer, supra, 66 16, 17; Enderlein, supra) and, thereby, relied on and was allowed to rely on the seller’s expertise or, maybe, if the relevant provisions in the anticipated export country are known or should be known to the seller due to the particular circumstances of the case (see, e.g., Piltz, supra, 6 35; Bianca, supra). None of these possibilities can be assumed in this case:

aaa) [Buyer], who bears the burden of proof, did not allege that there are any Swiss public law provisions concerning the contamination of mussels with toxic metals. The appeal similarly does not mention anything in this respect.

bbb) The agreement regarding the place of delivery and place of destination is in itself, even if it could be viewed as an indication by [buyer] of the anticipated marketing in Germany, neither under subsection (a) nor under subsection (b) of CISG 35(2) sufficient to judge whether the mussels conform with the contract pursuant to certain cadmium standards used in Germany (compare, e.g., Stumpf, supra, 6 27; Schwenzer, supra, 6 17; Piltz, Enderlein and Bianca, each supra). Decisive is that a foreign seller can simply not be required to know the not easily determinable public law provisions and/or administrative practices of the country to which he exports, and that the purchaser, therefore, cannot rationally rely upon such knowledge of the seller, but rather, the buyer can be expected to have such expert knowledge of the conditions in his own country or in the place of destination, as determined by him, and, therefore, he can be expected to inform the seller accordingly. This applies even more in a case like this, where, as the reply to the appeal rightly points out, there are no statutes regulating the permissible cadmium contamination and where, instead, the public health agencies apply the provisions, that are only valid as to the meat trade (compare No. 3 of Exh. 6 to the regulation for meat hygiene dated Oct. 30, 1986, BGBl.[*] I 1678, as modified by the regulation dated Nov. 7, 1991, BGBl. I 2066)), “analogously” and, seemingly, not uniformly in all the German Länder(federal states) (compare the announcements of the federal public health agency in Bundesgesundhbl.[*] 1990, 224 et seq.; 1991, 226, 227; 1993, 210, 211) to the exceeding of standards in the fish and mussels trade and where the legal bases for measures of the administrative authorities do not seem completely certain (compare, in a different context, e.g., BVerwGE [*] 77, 102, specifically 122).

ccc) This Court need not decide whether the situation changes if the seller knows the public law provisions in the country of destination or if the purchaser can assume that the seller knows these provisions because, for instance, he has a branch in that country (see, e.g., Neumayer/Ming, supra), because he has already had a business connection with the buyer for some time (see, e.g., Schwenzer, supra, 6 17), because he often exports into the buyer’s country (see, e.g., Hutter, supra, at 47) or because he has promoted his products in that country (see, e.g., Otto MDR 1992, 533, 534). [Buyer] did not allege any such facts.

ddd) Finally, the appeal argues unsuccessfully that the mussels could not be sold due to the “official seizure” and were, therefore, not “tradable.” There is no need to go into great detail with respect to the question whether [buyer] has even alleged a seizure of the goods and whether she could have reasonably and with a chance of success attacked such a measure. In any event, a seizure would have been based on German public law provisions which, as set forth above, cannot be applied in order to determine whether the goods conformed with the contract (supra, specifically II(1)(b)(bb)(bbb)).

2. The Court of Appeals also correctly denied the [buyer’s] right to declare the contract avoided because of the improper packaging of the goods. The question whether [buyer’s] allegations were sufficient for a conclusive statement of a fundamental breach of contract (CISG Art. 25) or of any lack of conformity with the contract at all (CISG Art. 35(2)(e) [sic]) may remain unanswered. In any event, Defendant (buyer) lost her rights that might have resulted from these allegations due to untimeliness. This does not, however, result from the “untimeliness” of the declaration to avoid the contract pursuant to CISG Art. 49(2)(b)(i), but from the untimeliness of the notice of the lack of conformity required by CISG Art. 39(1), which must be considered first (compare Huber invon Caemmerer/Schlechtriem, supra, Art. 49 66 45 et seq. (2d ed.)).

In that respect, it does not make any difference whether the mussels were delivered “in the beginning” of January 1992, as the Court of Appeals assumed, or not until January 16, 1992, as the appeal alleges pointing to the “Betreff” (“Re.”) section of [buyer’s] facsimile dated February 7, 1992. The first notice of the lack of conformity of the packaging in the facsimile dated March 3, 1992 was untimely even if the latter date of delivery was decisive. [Buyer] had to examine the goods or had to have them examined within as short a period after they arrive at the place of destination as practicable under the circumstances (CISG Art. 38(2) in connection with subsection (1)). At least during the working week from January 20 to 24, 1992, [buyer] could have easily done this, whether by herself at the storage facility not far from her place of business or by a person employed by company F. and designated by [buyer]. The allegedly improper packaging could have easily been ascertained in an external examination. The time limit for the notice of the lack of conformity, which starts at that moment (CISG Art. 39(1)), as well as the time limit to declare the contract avoided pursuant to CISG Art. 49(2) (compare judgment by this Court dated Feb. 15, 1995, VIII ZR 18/94 at II(3)(b), intended for publication) should not be calculated too long in the interest of clarifying the legal relationship of the parties as quickly as possible. Even if this Court were to apply a very generous “rough average” of about one month, taking into account different national legal traditions (seeSchwenzer, supra, Art. 39 6 17 (with further citations); stricter, e.g., Herber/Czerwenka, supra, Art. 39 6 9; Piltz, supra, § 5 6 59; Reinhard, UN-Kaufrecht (U.N. law of sales) Art. 39 6 5 (1991)), the time limit for the notice of the lack of conformity with the contract had expired before March 3, 1992.

The appeal’s reference to an examination of the mussels already carried out by the public health agency as well as [buyer’s] earlier notice of the increased cadmium content do not affect the assumption that the notice of lack of conformity was untimely. If the goods do not conform with the contract in various aspects, it is necessary to state all defects individually and describe them (see, e.g., Schwenzer, supra, Art. 39 6 10; Herber/Czerwenka, supra, Art. 39 6 8). The buyer cannot claim those defects, of which he gave untimely notice.

Judgments of the Lower Courts: OLG [*] Frankfurt, April 20, 1994, Index No. 13 U 51/93; LG [*] Darmstadt, December 22, 1992, Index No. 14 O 165/92.

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Footnote

* For purposes of this translation, the Plaintiff of Switzerland is referred to as [seller]; the Defendant of Germany is referred to as [buyer].

Translator’s note on abbreviations: BGBl. = Bundesgesetzblatt [Federal Law Gazette]; Bundesgesundhbl. = Bundesgesundheitsblatt [Federal Health Gazette]; BVerwGE = Bundesverwaltungsgerichtsentscheidungen [Official Reporter of cases decided by Germany’s highest Federal Administrative Law Court]; EKG = Einheitliches Gesetz über den internationalen Kauf beweglicher Sachen [ULIS: 1964 Hague Convention, Uniform Law on the International Sale of Goods]; LG = Landgericht [District (trial) Court]; MDR = Monatsschrift für Deutsches Recht [monthly law journal]; OLG = Oberlandesgericht [Regional Court of Appeals].

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof 15 February 1995 [VIII ZR 18/94], Neue Juristische Wochenschrift 1995, 2101

Translation [*] by Alston & Bird LL.P.
Editors: William M. Barron, Esq.; Birgit Kurtz, Esq. 

Headnote

Regarding the time limitations of a right to declare a contract avoided due to anticipatory fundamental breach of contract.

Main Holding

Upon appeal by plaintiff [seller], the judgment of the Sixth Division for Civil Matters of the Higher Regional Court [Oberlandesgericht] of Düsseldorf dated November 18, 1993 is reversed with regard to costs and to the extent that the judgment found against the [seller]. The cross-appeal is dismissed.

To the extent that the judgment was reversed, the case is remanded to the Court of Appeals for another hearing and decision, also regarding the costs of the appeal.

Facts

On March 4, 1991, defendant [buyer] ordered a key-embossing machine with a round switch-table from the [seller] for a purchase price of DM [Deutsche Mark] 259,900. The [seller] accepted the order by confirmation dated March 22, 1991, and the purchase price was payable in three installments of 30% each upon confirmation of the order, at the time of notice of readiness for delivery, and at the time of invoicing, and the remaining 10% was payable after acceptance of the equipment; until the full purchase price was paid, the [seller] retained title to the machine, which was to be delivered in September 1991 “subject to the usual reservation.” The manufacturer of the machine, with whom the [seller] was connected through the distribution agreement dated February 21/23, 1979, was the intervenor [manufacturer]; the machine was supposed to be accepted in advance by the [buyer] at the manufacturer’s place of business. The [buyer] paid the [seller] the down payment in the amount of DM 77,970, which was due at the time of the confirmation of the order. After disputes arose between the manufacturer and the [seller] during the subsequent period of time, the manufacturer terminated the distribution agreement for cause without notice by letter dated July 18, 1991 and imposed, by letter dated August 14, 1991, a halt of delivery of goods against the [seller] until claims described in detail were satisfied. By letter dated August 26, 1991, the manufacturer notified the [buyer] that it was ready to make delivery to the [buyer] and attached its own invoice for the second installment in the amount of DM 77,970. Thereafter, the [buyer’s] employees performed the pre-acceptance of the machine in the absence of the [seller] at the manufacturer’s factory on September 11, 1991; following that, the [buyer] paid the requested second installment to the manufacturer. The latter delivered the machine including accessories in the beginning of October 1991 to the [buyer’s] business, who accepted the machine on October 18, 1991 after installation and training.

By facsimile dated November 4, 1991, the [seller] requested from the [buyer] payment of the remaining purchase price in the amount of DM 181,930 setting a deadline for payment. After the manufacturer had argued that it had “stepped into” the existing orders after the termination of the distribution agreement and after it required payment to itself, the [buyer] made no further payments to either the [manufacturer] or the [seller]. In its complaint, the [seller] demands that the [buyer] pay to the [seller] the remaining purchase price in the amount of DM 181,930 plus interest. The [buyer], supported by the manufacturer as the intervenor, claimed that the machine had been delivered to it by the [manufacturer] under retention of title in the [manufacturer’s] own name and on the [manufacturer’s] account. Arguing that the [seller] had not performed its fundamental obligation to deliver the purchased item and to transfer ownership, the [buyer] further declared the contract avoided pursuant to Art. 49(1)(a) of the U.N. Sales Convention. Alternatively, it set off the [seller’s] claim against the claim that arose under the agreement for services, in favor of the key-embossing machine in the amount of DM 102,240.35, which had been assigned to it by the [manufacturer] on April 2, 1992.

The Trial Court [Landgericht] granted the complaint except for part of the interest. After filing the appeal, the [buyer] declared a set-off against all of the payment claims of the [manufacturer] arising from the manufacture of the key-embossing machine and amounting to DM 186,333, based on the additional contract of assignment dated July 29, 1993 which was submitted by the [manufacturer’s] brief dated September 7, 1993. Furthermore, the [buyer], by facsimile of its attorney dated October 16, 1992, set a deadline of November 16, 1992 for the [seller] to prove that the [seller] was entitled to transfer ownership of the already delivered key-embossing machine in order to remove the existing defect of title, and after the time limit had expired without result, the [buyer] again, in the alternative, declared the contract avoided. With regard to the [buyer’s] alternative set-off, the [seller] asserted that the assignment of the [manufacturer’s] claim to the [buyer] had no effect because the [manufacturer] had already assigned this claim to someone else after the order was made, and, additionally, that it [the seller] had set off the [manufacturer’s] claim arising under the agreement for services against claims of higher amounts by a letter of its attorney dated November 22, 1991.

The Court of Appeals [Oberlandesgericht] amended the decision of the trial court and merely ordered the [buyer] to pay DM 3,577 plus interest and otherwise dismissed the claim. On appeal, the [seller] demands the reinstatement of the trial court’s decision. By brief dated November 22, 1991, the [manufacturer] filed a cross-appeal on behalf of the [buyer], requesting full dismissal of the claim irrespective of the alternative set-off.

Grounds

I. In the opinion of the Court of Appeals, which applies the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 (CISG) to the legal relationship between the parties, the [seller] had a claim for the balance of the purchase price in the amount of DM 181,930 pursuant to CISG Art. 53 until the [buyer] declared the set-off. Because of the [seller’s] lack of cooperation and consent, [the court ruled that] the [buyer] and the [manufacturer] were unable to replace the contracting party in such a way that, from then on, the [manufacturer] had become the contracting partner of the [buyer] instead of the [seller]. [The Court found that] the [buyer] also did not effectively declare the contract avoided because the requirements of CISG Art. 49(1) were not met. The Court held that, as anticipated, the [buyer] first obtained possession of the machine and, taking into account the retention of title, a legal expectancy right of the machine ordered by it; in this respect, [the Court reasoned that] its legal position was no different than if the [buyer] had considered the [seller] its supplier. The [buyer] should have given the [seller] an additional delivery deadline according to CISG Art. 47(1) after the [manufacturer] had refused to deliver in the [seller’s] name; then, after expiration of the time-limit without result, it could have declared the contract avoided under CISG Art. 49(1)(b); but it failed to do this. [The Court stated that] after obtaining possession of the machine and using it, it was no longer possible to set an additional time-limit for the purpose of declaring the contract avoided.

[The Court ruled that] the [buyer] could not successfully rely on the facsimile dated October 16, 1992. [It held that] it does not constitute a fundamental breach of contract that the [seller] was not yet able to transfer full ownership of the machine to the [buyer]. [The Court stated that] the [buyer] itself did not comply with its contractual duties, because it refused to fulfil its obligation to pay the purchase price to the [seller]; furthermore, the [buyer] was supposed to perform in advance considering the retention of title to which the [seller] and the [buyer] had agreed. [The Court found that] in any case, according to CISG Art. 80, the [buyer] could not rely on the still outstanding transfer of ownership, because the transfer of ownership had failed, among other things, for the reason that the [buyer] had not given the [seller] the opportunity, by granting a certain time-limit according to CISG Art. 47(1), to meet the requirements for the transfer of ownership after complete payment of the purchase price.

[The Court held that] the [seller’s] claim for the balance of the purchase price in the amount of DM 181,930 had, however, become void by way of set-off against a claim arising out of a right assigned by the [manufacturer] in the amount of DM 178,353, so that the [buyer] only had to pay DM 3,577.

II. These elaborations do not withstand legal scrutiny in all points.

1. The Court of Appeals correctly assumes that, pursuant to CISG Art. 1(1)(a) in connection with CISG Art. 3(1), the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 (BGBl. [*] 1989 II, 588) applies to the contract between the parties dated March 4/22, 1991 concerning the delivery of a key-embossing machine.

2. As the Court of Appeals further correctly states, the [seller’s] claim for the purchase price has not become void because of the alleged agreement between the [buyer] and the [manufacturer], since, due to the lack of the [seller’s] participation, the consent of all the parties (BGHZ [*] 96, 302, 308 with further citations) required for such an assignment of the contract is missing.

3. With respect to the result, there is no objection to the assumption of the court of appeals that the contract between the parties continues to exist, because the [buyer] has neither in its answer to the complaint nor in its appeals brief effectively declared the contract avoided.

a) It need not be decided whether the [buyer] was entitled to declare the contract avoided pursuant to CISG Art. 72 after it had obtained knowledge of the [manufacturer’s] imposing a halt on the delivery of goods and whether there was, therefore, a risk that the [seller] would possibly no longer be able to transfer ownership of the machine to the [buyer]. It is true that, according to CISG Art. 72, the other party may declare the contract avoided if, prior to the date of performance of the contract, it is apparent that one of the parties will commit a fundamental breach of contract. The purpose of this provision, however, is only to protect a party against a future breach of contract, and it therefore takes place before the delivery and its different forms of disruptions (see von Caemmerer/Schlechtiem, Kommentar zum Einheitlichen UN Kaufrecht, 1990, Art. 72 para. 4).

With respect to breaches of contract that occur only after the obligation has become due, the ordinary provisions applicable hereto remain in force, especially the right of the buyer to declare the contract avoided pursuant to CISG Art. 49.

After the [buyer] had accepted the machine on October 18, 1991 and valid delivery had thereby taken place, it was obligated to pay the balance of the purchase price after another six weeks, at the latest, pursuant to the contract entered into by the parties on March 4/22, 1991, i.e., it was obligated to pay by November 29, 1991, in order to cause the transfer of ownership of the machine. Therefore, performance of the contract was set by both parties for the end of November 1991, so that the [buyer] was able to exercise its right to declare the contract avoided pursuant to Art. 72 CISG only until that point. Although the [seller] had demanded, by facsimile dated November 11, 1991, that the [buyer] pay the balance of the purchase price in the amount of DM 181,930, so that the [buyer] had to assume that the [seller] insisted on the performance of the contract, the [buyer] exercised its right to declare the contract avoided for the first time in its answer to the complaint dated March 30, 1992.

b) The [buyer’s] claim to declare the contract avoided is also not justified under CISG Art. 49, as the court of appeals has correctly found in the outcome. In this respect, it can be left undecided here as well, whether the [seller] committed a fundamental breach of contract by failing to perform its obligations, which would have given the [buyer] the right to declare the contract avoided according to CISG Art. 49(1)(a). In any case, the [buyer] lost this right because it did not exercise it within a reasonable period of time (CISG Art. 49(2)(b)). At the latest, when the [buyer] received notification that the [manufacturer] had imposed a halt of delivery of the goods to the [seller] in November 1991, it was apparent to the [buyer] that the [seller] would not be able to perform its obligation of transferring ownership even after receiving payment of the purchase price. If, however, the [buyer] let approximately five months pass until it declared the contract avoided for the first time during the lawsuit commenced by the [seller], it lost its right to declare the contract avoided, the exercise of which should not be delayed unreasonably in the interest of quick clarification of the legal relationships between the parties. Therefore, the [buyer’s] cross-appeal properly was unsuccessful.

4. The Court of Appeals is, however, wrong in assuming that the [seller’s] claim for the balance of the purchase price in the amount of DM 181,930 is voided by the [buyer’s] set-off against a claim in the amount of DM 178,353 arising out of an assigned right.

a) Nevertheless, on appeal, the [seller] argues unsuccessfully that the set-off already does not hold up because the [buyer] has not submitted evidence showing that the claim for the balance due under the agreement for services was assigned effectively to the [buyer] by the [manufacturer]. The appeal thus refers to the [seller’s] allegation that the [manufacturer] had already assigned its claim against the [seller] arising under the order dated March 26, 1991 to the G.-Bank in B. after the order was placed; the Court of Appeals considered this statement irrelevant because an allegation of the point in time of the alleged other assignment was missing.

aa) It is true that the [seller’s] allegation may be interpreted as the defense of another prior assignment because a subsequent (further) assignment would not have affected the preceding assignment.

bb) Even if the [seller] had denied the validity of the assignment to the [buyer] by arguing that there was a prior assignment of the claim of the [manufacturer] to G.-Bank and that, consequently, the [buyer] had the burden of proof regarding the absence of the alleged assignment as a negative fact, the principles established by case law with respect to furnishing so-called negative evidence are of advantage to it. According to these principles, the [seller] first had to deny the validity of the assignment of the claim to the [buyer] by substantiated specification of the alleged prior assignment, while the [buyer] then had to prove the falsity of the other party’s argument (compare BGH,[*] decision dated February 5, 1987 IX ZR 65/86 = WM 1987, 590 at II 1 = BGHR [*] ZPO [*] § 286 Negativbeweis 1 with further citations; see also Zöller/Greger, ZPO, 19th ed., before § 284 para. 24). A substantiated specification of the alleged prior assignment to G.-Bank, which the [buyer] denied by pleading lack of knowledge and which the [manufacturer] denied as false, is, however, missing so that the court of appeals has rightly assumed, at least with respect to the result, that this argument was irrelevant.

b) The Court of Appeals has, however, as the appeal correctly argues, made a procedural error by rejecting the [seller’s] argument as untimely under ZPO §§ 527, 520(2), 296(1), that it [the seller] had set off the claim assigned to the [buyer] [**] against claims amounting to more than DM 218,000 by letter of its attorney dated November 22, 1991.

aa) Insofar as the [buyer] has, with reference to the [manufacturer’s] brief dated September 9, 1993, declared a set-off exceeding the assignment dated April 2, 1992, for the first time on appeal in accordance with the submitted assignment agreement dated July 29, 1993, a failure to observe the deadline to answer set for March 1, 1993 (ZPO § 520(2)) cannot be considered in any event, because, until this time, the set-off had not yet been declared in this respect. If the [seller], therefore, by brief dated September 22, 1993, substantiated, for the first time, its counter-claims, with which, according to its submissions, it declared a set-off against the [manufacturer’s] claim by letter from its lawyer dated November 22, 1991, this was not too late.

bb) The question, whether the [seller’s] argument was late with respect to the partial amount of DM 102,240.35, which was designated for set-off at trial because of the assignment dated April 2, 1992, does not have to be decided. Because the [seller’s] contention that the [manufacturer’s] claim arising under the agreement for services was void because of the counter-set-off pursuant to the letter dated November 22, 1991, must be investigated as explained above, a delay of the proceedings according to ZPO §§ 527, 520(2), 296(1) will equally not be considered insofar as the [seller’s] objection is aimed at the assignment of the claim to the partial amount of DM 102,240.35 according to the assignment declaration dated April 2, 1992.

5. The challenged decision therefore must be reversed upon the [seller’s] appeal insofar as it found against the [seller], and the matter must be remanded to the court of appeals to that extent for clarification of the question whether the alleged counter-set-off dated November 22, 1991 was valid.

Prior decisions: OLG [*] Düsseldorf November 18, 1993, 6 U 228/92; LG [*]Düsseldorf July 9, 1993, 31 O 223/91.

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Footnotes

* For purposes of this translation, the Plaintiff of Germany is referred to as [seller]; the Defendant of Switzerland is referred to as [buyer]. Amounts in German currency (Deutsche Mark) are indicated as [DM].

Translator’s note on other abbreviations: BGBl. = Bundesgesetzblatt [Federal Law Gazette]; BGH = Bundesgerichtshof [German Federal Supreme Court]; BGHR = Systematische Sammlung der Entscheidungen des Bundesgerichtshofs (LB1) [Systematic Collection of Decisions of the German Federal Court of Justice (looseleaf)]; BGHZ = Die amtliche Sammlung der Entscheidung des Bundesgerichtshofes in Zivilsachen [Official reporter of Decisions of the German Federal Court of Justice in Civil Matters]; LG = Landgericht [District (trial) Court]; OLG = Oberlandesgericht [Higher Regional Court, a Court of Appeals]; ZPO = Zivilprozeßordnung [German Code of Civil Procedure].

** Translator’s note: The original German text states “the claim assigned to plaintiff [seller],” which does not make sense in this context.]

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof (Sixth Civil Senate) 15 November 1994, BGHZ 128,1, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mrs Irene Snook

[The defendant publishes widely distributed illustrated magazines. On the front page and inside of two of these magazines appeared  a fictitious interview with the plaintiff, Princess Caroline of Monaco, along with an article containing false statements about her intentions to re-marry.  The plaintiff requested that the defendant publish a full retraction and two clarifications, giving these items the same prominence as the original statements and articles.  She also claimed monetary compensation for non-pecuniary damage to her right of personality.  Both lower courts found in favour of the plaintiff.  The defendant’s further appeal was unsuccessful in principle, but the Federal Supreme Court (Bundesgerichtshof) quashed the Appeal Court’s decision and referrred the case back for the following reasons]

II.  The further appeals of both parties are admissible.  The appeal court’s decision contains no addendum restricting the admissibility of the further appeal.  Nor do the reasons for the decision contain a restriction as to the further appeal’s admissibility.  In these reasons, the court states that the decision on the compensation for pain and suffering and the order to print certain matters on the front page of the magazine concern legal questions of fundamental importance.  But this reference is not to be understood as a restriction to but rather as a reason for declaring the further appeal to be admissible.  The appeal court did not pronounce as unequivocally as necessary that it intended to restrict the further appeal to the two legal questions referred to in its statement of reasons.

III. [Dealing with the defendant’s further appeal]

The defendant’s appeal is unsuccessful.

1.  The defendant’s arguments against the court order to print a retraction fail.  By analogy to § 1004 of the BGB, the courts grant the person of whom untrue factual statements have been made a claim for retraction against the tortfeasor, in order to curtail a continued damage to the injured person’s reputation and to end the unlawful intrusion (reference). The Court of Appeal correctly found that the plaintiff’s claim satisfied these pre-requisites.

The Court of Appeal correctly held that the publication complained of continues to injure the plaintiff’s person.  Her right to determine her own image is impaired by fictitious statements.  The untrue allegation, printed in the widely distributed magazine, according to which the plaintiff revealed to a reporter and intended for publication her reasons for refusing to give interviews, infringes her right to self-determination.  In order to eradicate the continued intrusion into her personality, a retraction of the untrue statements is necessary.  The defendant cannot rebut this demand with reference to the fact that more than two years have passed since publication.  This time-scale is insufficient to eradicate the harmful effects for the plaintiff resulting from the false statements made in a magazine with a large circulation.

Publication only of a counter-statement from the plaintiff was insufficient to remove the intrusion.  This follows from the limited protective function of such counter-statements, which aim to provide the injured party with a means of expressing her side of the story without anyone else checking the truth behind these statements.  It makes no difference that the defendant added an apology to his counter-statement saying that he had made a mistake, since the statement and apology were printed in an obscure place, and in small type.  The plaintiff can demand that the retraction be printed on the cover page and in the particular type size ordered by the Appeal Court.

The defendant’s further appeal submits that this decision contravenes the principle of proportionality since the statements objected to appeared on the inside of the magazine.  The decision also infringes the constitutionally guaranteed right to freedom of the press which allows the defendant, freely and uncensored by public authorities to decide on the make-up of cover-pages.  This argument fails.  The correction that the plaintiff had not, as printed, talked to the defendant’s reporter serves no other purpose than – in a few factual words – to abolish, as far as still possible, the impairment to the plaintiff’s personality originating in the false report.

Contrary to the arguments of the further appeal, the order to print the retraction on the front page, using a certain specified type size, is sound.  It is true that the principle of proportionality requires the defendant’s interests to be taken into account.  By this order, he is restricted in his decision as to the outer appearance and thus the marketing of his magazine.  The front page of a magazine fulfils a special function: it serves as the magazine’s billboard, attracts the readers’ interest, and highlights the main stories.  This function of a front page should not unduly be reduced by the need to publish a retraction on it.  There must be enough space left for notices on other editorial contents.

On the other hand, the publication of the retraction must be able, as far as possible, to remove the intrusion into the plaintiff’s rights.  Through its visual effect, the retraction must therefore be able to reach approximately the same readership as the initial statements.  These readers not only comprise the purchasers of the magazines but also the “news-stand readers”.  The order as to the size of print must express the importance of the retraction, which must be capable of creating in the reader the same amount of interest as the false information which it countermands.  This means that in all cases where an announcement illegally created a false impression on the front page, as a rule the retraction must also appear on the front page  (references).

The decision appealed against follows these principles.  The nucleus of the information injuring the plaintiff’s legal right … appeared on the front page so that the purpose of the retraction demands that it appear in that position, also.  The Appeal Court’s decision to reduce the required type size to be used for the text of the retraction, consisting only of three short sentences, leaves ample space for further headlines.

The defendant’s reference to the guaranteed freedom of the press (Art. 5 (1) (2) of the Constitution – GG) must fail.  The equally constitutionally guaranteed right of personality (Arts. 1 (1) and 2 (1) GG), to be safeguarded by the retraction, sets limits to the freedom of the press.  In cases of conflict, both legal positions must be weighed against each other.  Contrary to the opinion expressed in the defendant’s further appeal, the order that the defendant publish the retraction in the manner stated does not deprive the defendant of his freedom to decide on the make-up of the front page.  This freedom is only restricted in so far as this is necessary in order to protect the plaintiff’s right to her personality.

[2. and 3. contain similar rebuttals of further appeal arguments in respect of another article misquoting the plaintiff and/or creating a wrong impression as to her future intentions.]

4.  The further appeal also attacks the decision as to payment of compensation. This, too, must fail.  According to the established case law of this court, the victim of a breach of the general right to one’s personality is entitled to monetary compensation where the intrusion is grave and the impairment cannot otherwise adequately be compensated.  Whether there is a grave infringement of the right of personality requiring payment of monetary compensation, depends in particular on the severity and extent of the intrusion, the occasion giving rise to the article, the infringer’s motive and the degree of his culpability (references).

Infringements of the right of personality like the one before the court are grave intrusions of this kind.  In full knowledge of the fact that the plaintiff refused to be interviewed, the defendant created a fictitious interview on problems in the plaintiff’s private life and her psychological condition [further details].  In order to increase his circulation numbers and for commercial gain, the defendant exposed the plaintiff’s private life to the curiosity and sensationalism of hundreds of thousands of readers.  In respect of two of the publications in question this was done deliberately. In the case of the third publication there was at least negligence.

The claim for monetary compensation raised by the plaintiff is not barred by the fact that the defendant is also ordered to print the two corrections.  Some legal authors are of the opinion that such retraction usually suffices to remove the breach of the right of personality (references).  Others argue that a retraction does not in principle exclude monetary compensation, since it does not include an element of satisfaction, specially since it is the weakest means of protecting the general right of personality (references).

In the opinion of this Division, the facts of each case will determine the outcome.  The decisive factor is whether or not the retraction provides a sufficient compensation for the interference with the plaintiff’s rights.  This can be negated where the attack is aimed at the very essence of one’s personality (reference), or where the infringer refuses to print a requested retraction, so that the plaintiff can only obtain a corrective statement on the basis of a court order (reference).  Thus, a retraction and correction will not exclude the plaintiff’s right to monetary compensation.  We are dealing here with injuries to the right of personality of a particularly grave nature given the contents of the publications, their distribution numbers, and the defendant’s motives and degree of culpability.  Moreover, the plaintiff had to fight for a retraction and correction by taking the defendant to court, fighting the case through all three instances before finally, and after long delays, obtaining relief.

IV. [Dealing with the plaintiff’s further appeal]

The plaintiff’s further appeal is unsuccessful in so far as she demands that the retraction and correction are printed in the size and type of lettering corresponding to the initial statements made on and in the magazines.  But her claim for an improved monetary compensation is successful.

1.  The plaintiff’s further appeal alleges that the Court of Appeal, by ordering that the retraction and correction be printed in a somewhat smaller print than the initial publication, had violated the principle of “equal fighting chances”.  Based on her constitutionally guaranteed right of personality, the plaintiff could claim that the retraction and correction should be as noticeable to a cursory reader or passer-by as the initial article/headline.

The court cannot follow the argument that the type size must be equal to that of the original statements.  As pointed out above, the decision on the placing and the size of lettering for the retraction and correction is made in view of the conflict between the general right of personality and that of press freedom.  In her further appeal, the plaintiff fails to take into account the requirements of press freedom to which the defendant rightly refers.

These pre-requisites require that in order to design sales-promoting front and other pages on which he must include the retraction and correction, the defendant must still have sufficient room for other purposes.  A high circulation of the magazine containing a correction or retraction on the front page is also in the interest of the plaintiff.  Her interests in attracting the same degree of readers’ attention for the retraction or correction as for the original untrue statements fought against by her court action can be satisfied by an announcement on the front page even when a smaller typeface is used.

2.  But the plaintiff is entitled to more substantial monetary compensation than the one afforded by the Appeal Court.  The plaintiff correctly argues that the Appeal Court’s reasoning fails to do justice to the purpose of monetary compensation payable in the case of grave infringements of the general right to personality.  In such cases, compensation is not really compensation for pain and suffering (Schmerzensgeld) under § 847 BGB but rather a legal form of redress which is based on the protective mandate enshrined in Arts. 1 and 2 (1) GG (reference).

Granting monetary compensation has its roots in the consideration that, without such a claim, impairments of a person’s dignity and honour would often remain unpunished with the result that legal protection of one’s personality starts to wither and decay.  In contrast to compensation for pain and suffering, in cases of monetary compensation claimed for an infringement of the general right of personality, the aspect of the victim’s satisfaction comes to the fore (reference).  Despite doubts raised in legal literature (references), the court upholds this point of view.  Moreover, this form of redress is meant also to serve a preventive purpose (references).

The Appeal Court’s reasoning as to the amount of compensation due here fail to do justice to these specific purposes which relate to any claim for monetary compensation for infringment of the right of personality.  According to the Appeal Court, the fact that the defendant infringed the plaintiff’s right of personality for reasons of personal gain must, like the idea of prevention, be left out of consideration when the compensation due is calculated.  This court, however, is of the opinion that for cases like the one before it the Appeal Court’s view is too narrow.

The case is characterised by the fact that the defendant, by a deliberate tortious act, used the plaintiff’s personality as means of increasing the circulation of his publications and of pursuing his own commercial interests.  Without any monetary compensation that the defendant can actually feel [as unpleasant], the plaintiff would practicably be unprotected against such irresponsible compulsory commercialisation of her personality.  Court orders to retract or correct will only provide an insufficient protection for the plaintiff since, as shown, they may only be ordered by taking into account the defendant’s own rights arising from the guaranteed freedom of the press.  An order to pay monetary compensation can only properly serve the purpose of prevention, required by the right of personality, where the amount of compensation due represents a correlation to the fact that, as here, the right of personality was infringed for reasons of personal gain.

This does not mean that in such cases of shameless commercialisation of a personality the court must resort to a “syphoning-off of profits”.  But the gain aimed at and reached by the tortious act should be included in the calculation when deciding on the amount of monetary compensation due.  Where a famous personality is commercially exploited, the amount of monetary compensation due must act as a real deterrent.  The intensity by which the right to one’s own personality was injured can also be used in the calculation.  In this context it must particularly be borne in mind that the publication of the fictitious exclusive interview weighs heavily against the defendant.  On the other hand it must be remembered that monetary compensations due may not reach such a pinnacle that the freedom of the press in unduly restricted.  This will, of course, not be the case where, as here, the press is stopped from ruthlessly and commercially exploiting a particular personality.

Since the decision on the actual amount of compensation payable to the plaintiff lies with the court dealing with the facts of the case (reference), the court quashed the Appeal Court’s decision and referred the case back to the lower court.

Note

This is one of four, recent ‘Caroline’ cases which form an important part of the developing law of privacy. The entire subject, an excellent illustration of private law developing under the influence of constitutional law, is fully discussed in B. S. Markesinis, The German Law of Obligations, vol II, The Law of Torts, 3rd ed. (1998)  pp. 63 –68; 376-447; 998-1005.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Third Civil Senate) 10 November 1994, BGHZ 127, 378, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mrs Irene Snook

[The case concerns the question of the protective scope of a report prepared by an architect / building expert submitted to the owner of the building pursuant to a contract concluded between the expert’s employer and the owner of the building. The report concerned the value and state of repair of the said building.  It was used as the basis for a purchase contract concluded between the plaintiff / purchaser and the owner of the building.  After the transaction was completed, grave defects were detected in the building. Since the vendor had excluded his liability for visible or hidden defects, the purchaser sued the expert’s employer for damages. The Appeal Court dismissed the claim but the Federal Supreme Court quashed the judgment below and referred the case back for the following reasons]

1.  The Appeal Court failed to discuss whether the plaintiffs had a claim for damages as a result of a direct contractual relationship in the form of a tacitly concluded contract to supply information (Auskunftsvertrag). (References omitted).

This cannot be challenged for legal reasons since prior to the conclusion of the purchase contract the parties had no direct contacts.

2.  The Appeal Court interprets the contract to provide an expert report to the effect (§§ 133, 157 BGB) that, out of that contract with the owner, protective duties arose that the expert owed towards the plaintiffs.  For the court, the crucial point came when the son of the owner, who concluded the contract on his behalf, stated that the property valuation report was needed for the purposes of selling the property.  The inclusion of the plaintiffs within the protective scope of the contract for a report on the state and value of the property is legally sound.

a)  In particular, and in this instance, the existence of a contract with protective effect for third persons cannot be denied with reference to the fact that the interests of the plaintiffs and the person who commissioned the report were contradictory.  Where an expert report is requested from a person possessed of particular knowledge – which is certified or attested by official documents  – for the purpose of using the report in contractual negotiations with a third person, the person commissioning the report normally has an interest in it as means of evidence.  This can only be guaranteed if the report was prepared objectively, conscientiously, and in full knowledge of all facts and where its author accepts responsibility for its contents as towards third persons.  Accordingly, the Federal Supreme Court has previously decided that in such a case the juxtaposition of interests of the person commissioning the report and the third person does not rule out the latter’s inclusion in the protective scope of the contract authorising the preparation of the report (references).  It is irrelevant that the defendant, when compiling his report, was unaware that his assessment was to be submitted to that particular plaintiff.  Acknowledging his duty of care does not presuppose that the person so duty-bound knows the number or names of the persons to be protected.  It suffices that the defendant knew that his valuation was intended for a (potential) buyer. (References omitted.)

[There follow passages dealing with the particular personal qualifications of the defendant, whose professional standing, duties in respect of the expert report submitted, and the inclusion of the plaintiff in the protective scope of the contract to provide the report, were likened to those of a publicly-appointed expert.]

b)  Contrary to the doubts raised in the defendant’s reply to the further appeal, the existence of a contract with protective effects for third persons can arise even where, during inspections of the premises, the owner’s representative deliberately concealed the defects of the property.  This fact may be an indication that he was not interested in an objectively correct expert opinion on the value of the property that would take into account the interests of the buyer.  But this hidden and unrevealed reservation has no bearing on the question as to what was objectively declared when an order was made for a valuation, i.e. in respect of the purpose of the report and a possible inclusion of third persons in the protective scope of the contract.

3. [There follow statements as to the specific duties to inspect fully the object to be valued, possible breaches of these duties by the expert, and their effects. The court also deals with the vicarious liability of the architect’s/builder’s employer.]

On the basis of the undisputed facts it must be assumed that the defendant, who under § 278 BGB is responsible for the acts of the expert, has performed his contractual duties badly and that this breach led to the submission of a report whose contents were incorrect.  The Court of Appeal was convinced that an accurate expert opinion would have discouraged the buyer from concluding the purchase contract, i.e. that the defendant’s wrongful act caused the damage.

4.  The Court of Appeal held that – as towards the plaintiff – the defendant is not liable for damages according to the principles of `positive breach of contract’  (positive Forderungsverletzung). [There follow the lower court’s reasonings].

The  reasoning of the lower court is legally unsound.

a)  The Court of Appeal rightly assumed that a person commissioning a report, who deliberately intends it to reflect wrongly the actual state of repair of the object of the report, has no claim for damages against the author of the report.

Contracts for the provision of expert reports, like the one before the court, must be qualified as contracts for the production of work (§ 631 BGB). This means that in cases of an intentionally wrong assessment of real property, the person commissioning the report has either a claim for damages under § 635 BGB or a claim for positive breach of contract if the damage arose as a consequence of the first defect (Mangelfolgeschaden): in this case the original faulty report (reference).  Such a claim for damages would not be affected by the  knowledge of the commissioning person that the expert’s report is flawed, since it is only in respect of claims listed in §§ 633, 634 BGB that § 640(2) BGB requires the commissioning person, at the point of acceptance, to reserve his rights.  This provision does not apply to claims for damages (reference).  But the person who commissions the report and who deliberately brings about a misleading expert report, exposes himself to the defence of abuse of right if he later bases his claims for damages on this defect (references).  This defence of malice will be upheld even where the charge of ‘contradictory behaviour’ (venire contra factum proprium) is based on the actions of a representative  (§ 166 1 BGB) (reference).

b)  The starting point of the Appeal Court’s reasoning is also in line with the Supreme Court’s case law according to which the protected third person, who derives his rights from the contractual relationship between the initial contractual partners, has basically no wider rights than the tortfeasor’s direct contractual partner.  The courts deduced from this fact that the third person, deliberately damaged by the person liable to protect him will, under § 254 BGB, face the tortfeasor’s defence that the contractual partner was co-responsible for the damage, unless this partner was a legal representative of the third person or employed by him to fulfil his own obligations  (§ 278 BGB) (references). The same result applies for a contractually agreed exemption from liability (reference).  This limitation of the third person’s protection is based on the legal maxim expressed in § 334 BGB and the principle of good faith (§ 242 BGB).

Both arguments show that we are dealing here with merely a legal rule (reference) and not with an unshakeable principle.  As far as the maxim of good faith is concerned, this fact is self-evident.  Nothing different can be derived from the legal argument behind § 334 BGB or – as the Appeal Court held – from an analogous application of § 334 BGB.

The provisions of § 334 BGB which deal with the true contract for the benefit of a third person are of an optional nature.  According to those provisions, the promisor can use contractual defences even against the third person.  Their application can, even tacitly, be excluded as can be seen, in particular, from the nature of the covering (or underlying) relationship (Deckungsverhältnis)(reference).  There is no apparent reason for applying more stringent rules in cases like the present where, when interpreting the contract in order to establish how and to what extent a third person was protected, these legal provisions are to be applied either directly or according to their underlying maxim.  The lower court misjudged this point.

When interpreting the expert report, the Appeal Court should have considered that the “nature of this particular contract” resulted in an exception to the rule according to which the liability of a person who owes protection to a third person does not exceed his liability towards his direct contractual partner.

The defendant knew that the expert valuation had been commissioned for sales purposes.  Accordingly, not only could he expect that his report would be submitted to interested buyers. He should further assume that, given the special trust which prospective buyers normally place in the reliability and expertise of an approved expert, the statements made in his report would probably be given a greater weight than the information provided by the seller.  The maker of report should have thus assumed that his report was apt to disperse possible doubts of prospective buyers in the veracity of the seller’s information.  Herein lies the obvious and particular value that the report has for the vendor, i.e. its ability to promote the chances of a sale.  Above all, it matches the obvious interests of a prospective buyer in legal protection for his trust in the veracity of the report, especially in cases where the seller dishonestly tries to conceal the true condition of the sales object.  Where, therefore, a contract for the production of an expert report must be taken to include prospective buyers within its protective ambit, it must be assumed that the third person’s trust in the expert’s statements must be protected even where the incorrectness [of the report] was (also) instigated by the principal.  This result does not depend on the effects which this inducement has on the liability of the supplier as against the principal (references).

Such contractual interpretation will not burden the expert with an unreasonable risk of liability. More precisely, it will, certainly, render him liable for the dishonesty of the person who commissioned the report from him.  True, when providing his report, the expert can use information provided by his principal – and he will often be forced to do so – wherever he cannot himself verify the facts.  But he must then make this clear in his report (reference).  Normally, he will thereby indicate that he excludes his liability for the truth of these statements.

5.  The reasoning of the Appeal Court, in denying the defendant’s liability as towards the third person included in the protective scope of the contract, is thus legally flawed and its decision must, therefore, be quashed.

[There follow instructions as to the re-interpretation of the contract and the court’s opinion that the plaintiffs cannot be held to have been co-responsible for the damage merely because they have not personally found any defects when inspecting the premises.)

Comment

The absence in German law of any liability for negligently inflicted pure economic loss has resulted in a number of substitute legal constructions.  One such device is the so-called contract with protective effects for the benefit of third persons a judicially-created variant of the better-known notion of contract in favour of third parties.  This construction makes it possible to treat pure economic losses of third persons, created by a faulty performance of contractual (or non-contractual) duties, as damage resulting from a breach of a contractual duty.  This liability for pure economic loss, though now well acknowledged in principle, is still controversial as to certain details as well as its dogmatic basis. The above decision deals with the detailed problem whether and to what extent – as against the third person’s claim for damages – the co-responsibility of the contractual partner (in this instance, the cite own)r, to whom the faulty performance was made, should be taken into account. In the final analysis, the Federal Supreme Court did not attributed the contractual partner’s co-responsibility to the third person who incurred the damage, thus taking another step in the direction of a contractually unrelated, i.e. extra-contractual tortuous liability for certain economic loss.  But the court did not dare speak openly of a tortuous “duty of care” towards certain third persons. Instead, the Court relied on a device, not always available, to solve this problem. Thus, the Federal Supreme Court assumed that in the contract that created the duty of care towards certain third parties, the contractual debtor (expert) tacitly waived his right of set off against the plaintiff which he, the contractual debtor, had against his contractual partner (the person commissioning the report).  This waiver of the claim that stemmed from a breach of contract by his contractual partner (the owner of the land) was justified on the fact that the expert knew that his performance was intended to form the basis of the financial calculations of the purchaser of the land. For more details in English (and further references to German literature, see: Markesinis, The German Law of Obligations, vol. I, The Law of Contracts and Restitutionby B. S. Markesinis, W. Lorenz and G. Dannemann  (1997) ch. 4; vol II,  The Law of Torts, 3rd ed. (1998) chs 2 (d) (iii) and  3 1 and 2.)

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Sixth Civil Senate) 15 March 1994, NJW 1994, 1592, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mr. Tony Weir, Trinity College, Cambridge

Facts: The plaintiff was injured in a traffic accident on 31 October 1988 owing to the negligent driving by the first defendant of a car insured by the second defendant.  There can be no doubt that the defendants are liable for all the harm suffered by the plaintiff in consequence, including a broken nose, a fractured elbow, damage to the tendons in his left arm, bruising to the right side of his sternum, and dislocation of the tarso-metatarsal joint in his left foot.  The last-mentioned injury involved loss of function, great pain and the need to wear orthopaedic footwear.  These problems continue.  The main issue between the parties is whether the plaintiff was bound to mitigate the damage by submitting to an operation, namely arthrodesis or fusion of the affected joint, which could improve his condition.

For his pain and suffering the plaintiff claims DM 25,000 (over and above the DM 15,000 already paid before trial) and instalment payments of DM 250 per month; for material harm he claims DM 7,316; he also seeks a declaration that the defendant is liable to him for all material and immaterial harm resulting from the accident except in so far as such claims have vested in third parties such as his social insurer.

The Landgericht ordered the defendant to pay DM 10,000 as further damages for pain and suffering and DM 5,416 for further material harm; it granted the declaration sought except as to expenditure which would have been avoided if the plaintiff had proceeded to the arthrodesis of the joint in his left foot.  On appeal the plaintiff obtained an increase of DM 1,800 in damages for his material loss, but failed as to further damages and instalment payments in respect of pain and suffering; the restriction in the declaration was upheld.  On the plaintiff’s further appeal the judgment of the Oberlandesgericht was vacated in part and the case remanded.

Reasons.

I. According to the court below the fact that in refusing to proceed with the arthrodesis which was medically recommended the plaintiff was in breach of his duty to mitigate his loss must affect the damages for pain and suffering and the declaration of liability; the operation was one which he could be expected to undergo, and it was his duty to proceed with it.

The court accepted the evidence of its appointed experts, Professor H and Dr. G, to the effect that if the plaintiff did what several doctors had recommended and proceeded to the operation, there was a 90% probability of significant betterment in his condition, with diminution of pain and improvement in function.  The operation was not unduly risky; arthrodesis might possibly lead to stress on adjoining joints in the foot, but it was unlikely that there would be overstraining of knee and hip or damage to the other leg and the spine.  It is true that for six days after the operation there would be considerable pain, but this could be allayed by normal analgesics and reduced to a level regarded as tolerable by the average patient.  The plaintiff’s objections to the position adopted by the experts were held unpersuasive: most of his quotations regarding the risks of the operation were said to be taken out of context from literature based on research conducted long ago and in view of subsequent improvements in surgical techniques were no longer reliable.

Given this failure to mitigate his damage, the lump sum of DM 10,000 as further damages for pain and suffering was fair and sufficient.  To award instalment payments as well would not be right: the plaintiff’s injuries were not serious enough, and if they were awarded the proper capital sum granted below would have to be curtailed, which the plaintiff did not want.  In view of the plaintiff’s failure to undergo the recommended operation, the declaration of the defendant’s liability must remain qualified.

Some of the appellant’s criticisms of the judgment below are cogent: the reasons given by the court do not support its conclusion that the plaintiff was in breach of his duty to mitigate his loss under § 254(2) BGB.

1. It is true, as the court held, that under certain circumstances a victim of injuries who fails to proceed to an operation which he can be expected to undergo and which would improve his condition may be held to be in breach of his duty to mitigate his loss under § 254(2)(1) BGB and have his damages reduced accordingly.  But this can only be the case if the operation is simple and safe, relatively painless and predictably curative or highly beneficial [references, including NJW 1989, 2332 on burden of proof], and an operation is not rendered mandatory just because one or more doctors conclude, after weighing up the benefits and risks, that it is desirable and so advise the victim: it is insufficient that the operation be medically indicated.

2. In holding that the plaintiff was in breach of his duty to mitigate the damage the court did not apply the right test, as one can see by considering the evidence of Prof. H and Dr. G on which the court relied.

a) Neither from the experts’ written opinions submitted at first instance nor from their oral explanations before the Landgericht was the court entitled to conclude that the operation was “simple”.  Arthrodesis involves intervention in the structure of the foot, its bones and joints, and according to the experts any operation on the tarsus must affect the joints close to it.  One cannot describe such an operation as “simple”.

b) The court below did not give sufficient weight to the fact that the plaintiff cannot be expected to go through with an operation which is likely to cause considerable pain.  The experts’ statement that “one must expect  serious pain for up to six days” after the operation indicates that it involves a degree of pain clearly in excess of that which is the inevitable and normal result of surgical intervention.

This being so, the court below should not have been satisfied with the statement of Dr. G that medication could reduce the pain to a level regarded as tolerable by the average patient.  Before the court could properly conclude that the plaintiff should undergo so painful an operation it should have sought further evidence on the nature and intensity of the pain, discovered what was meant by “controllable by normal analgesics” and “tolerable by the average patient”, and sought particulars of the nature and possible side-effects of the medicaments in question.

c) That the recommended operation was sufficiently likely to procure a “significant improvement” in the plaintiff’s condition is a conclusion which the court could properly reach on the expert evidence, which put at 90% the chance that the plaintiff would be essentially freed from pain.  Since absolute guarantees of beneficial results can never be given in medical matters, it lies within the prerogatives of the judge of fact to conclude from such a statement by a specialist that the chance of significant improvement is sufficiently great, even in the present case where experts agree that orthopaedic footwear is still required in 30% of cases  and that even if the operation is a success the plaintiff’s working capacity will be only 85% (as opposed to 75% without the operation).

But the appellant is right to criticise the court’s failure to take due account of the risks, which the experts agreed must be offset against the probable success of the arthrodesis.  The reports demonstrate that the operation may result in stress to the neighbouring joints.  If non-trivial sequelae can be foreseen, the operation should not be assumed to be risk-free, and here one cannot wholly discount the risk that Sudeck’s acute bone atrophy may develop.  The court should not have dismissed these worries with the simple observation that stress to the knee and hip joints and damage to the other leg and spine were unlikely. In treating as conclusive the experts’ view that the operation was to be recommended the court did not apply the correct test: one certainly cannot hold that an operation is one which the victim must undergo on pain of being held in breach of his duty to mitigate just because the doctors, “after considering the risks, the age of the patient and the prognosis”, decide to recommend it.

3. The appellant is also right to object to the fact that as regards the risks inherent in the proposed arthrodesis the court below relied exclusively, without seeking further elucidation, on the reports which the appointed experts laid before the court of first instance.  The court should have engaged with the objections raised by the plaintiff as regards such risks, and it was a fault of procedure not to do so.

a) In his appeal to the court below the plaintiff referred to numerous articles from the medical literature which contradicted the points made by the appointed experts and suggested that in several respects he was at particular risk in the operation.  For example, he maintained that the risk of infection was particularly high in the case of operations on the foot, and also that it appeared from the literature that arthrodesis of this joint caused a significant number of cases of pseudoarthrosis. He also referred to the fact that he already suffers from arthrosis in his ankle joint which renders any operation on the foot especially delicate.  To substantiate these concerns he produced a report an orthopaedic surgeon, one Dr. E.

b) The judge of fact must take seriously any criticisms which a party may make of reports by experts, even those appointed by the court [references], especially when the criticisms are supported by a report from the party’s own expert [references].  The court below did not meet these procedural requirements.

c) Although there is no indication that the court itself possessed adequate specialist knowledge, it held that the literature adduced by the plaintiff was based on research done so long ago that improvements in surgical techniques had rendered their findings unreliable.  But the question whether or not the views and research adduced by the plaintiff were still authoritative and whether operative techniques had indeed improved so as to counter the risks previously known to exist was one which could be properly answered only by an expert.  Since the court’s experts Prof. H and Dr G were involved only at first instance and never had sight of the objections of the plaintiff or the statements of his chosen expert, the court was bound, as indeed the parties requested, to seek further expert opinion, possibly by hearing it during the appeal.

4. The court below held that the supposed failure of the plaintiff to mitigate his loss under § 254(2) had a significant effect on his claim for damages for pain and suffering and on his claim for a declaration.  Its judgment as to the latter therefore cannot stand, nor can its dismissal of the plaintiff’s claim for a further capital sum for pain and suffering.

It also rejected the claim for instalment payments for pain and suffering, but the plaintiff’s appeal against this must fail.  The court cannot be criticised on review for refusing to grant such instalment payments although the plaintiff continues to suffer impairment: instalment payments should be granted in addition to a lump sum only in the case of the most serious injuries, which the plaintiff feels anew every day [references].

NOTE to RGZ 83, 15 ff. and BGH NJW 1994, 1592 ff.

These decisions deal with a claimant’s duty to mitigate his loss.  In the context of physical injuries, this may require him to undergo an operation if (a) it is likely to improve his condition and (b) he can properly be expected to submit to it.  In refusing to treat as conclusive the recommendations and opinions of medical men as to the benefits and risks involved in such an operation, the Bundesgerichtshof has here tightened the criteria applicable to (b).

For further details in English see B. S. Markesinis, W. Lorenz and G. Dannemann, The German Law of Obligations, vol I, The Law of Contract and Restitution  (1998), ch. 8, esp. 661 ff. See, also, vol II, The Law of Tort, 3rd ed. (1998), pp. 914 ff.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Ninth Civil Senate) 24 February 1994, NJW 1994, 1341

The plaintiff’s father worked as an estate agent. He was also involved in developing and selling flats. When in 1982 he requested the defendant savings bank to increase his borrowing limit for account no. 172429 from DM 50,000 to DM 100,000, the defendant requested him to provide a guarantee from his daughter, the plaintiff in this action. At this time, the plaintiff was 21 years old, earned some DM 1,150 net per month as a blue collar worker and did not dispose of any assets. On 29 November 1982, the plaintiff signed at the defendant’s premises an absolute guarantee for the amount of up to DM 100,000 plus collateral debts in order to secure all present and future claims which the defendant had against the principal debtor “arising from its business relationship (in particular from current account, credits and loans of any kind, and bills of exchange) as well as bills of exchange handed in by third parties, guarantees, assignments or subrogation”. The following day, the defendant granted the extension of the credit. At that time, the defendant had also granted to the plaintiff’s father a bridging loan amounting to DM 3 million for the construction of a multiple private dwelling. This loan was valued at some DM 2.5 million at the time when the plaintiff provided the guarantee. In 1984, the principal debtor gave up his estate agency and became a shipowner, for which he received further credits from the defendant. When his assets deteriorated two years later, the defendant called in all credits. From the day when the plaintiff signed the guarantee, the principal’s debts continued to exceed DM 100,000. The plaintiff initially filed a declaratory action, claiming that the contract of guarantee was void. When the defendant brought a counterclaim for the payment of DM 100,000 plus interest, both parties declared the main action to be settled.

The Landgericht allowed the counterclaim. The Appeal Court dismissed it. On appeal by the defendant, this Senate, by judgment of 16 March 1989 (NJW 1989, 1605 …), restored the judgment of the first instance. This judgment was quashed by the decision of the Bundesverfassungsgericht of 19 October 1993 (NJW 1994, 36 …), and the case was referred back to this Senate. The appeal did not succeed.

Reasons

I. The Appeal Court refused the action for payment on the ground that the plaintiff had a claim for compensation in pre-contractual liability, which obliged the defendant to relieve the plaintiff from the guarantee.

In the Appeal Court’s view, a bank is not required to inform about the risk involved in a guarantee. However, a bank must not trivialize the type, scope or risk of the guarantor’s liability and thereby influence his decision, in particular if the guarantor is obviously inexperienced in business matters. Precisely this had happened in this case. According to the credible account by the plaintiff’s father, the employee acting for the defendant before signature made a representation to the effect of: “Would you just sign this here, please, this won’t make you enter into any important obligation, I need this for my files.” This created the impression on the plaintiff that not much could happen to her at the end of the day. By this, the defendant’s agent had grotesquely trivialized the significance of the liability which the plaintiff had assumed. The plaintiff would not have provided the guarantee if the defendant’s employee had not trivialized the risk which was connected with this obligation.

II. These explanations withstand legal examination, as far as the outcome is concerned.
Due to the particular circumstances under which the guarantee contract was concluded with the principal debtor’s daughter, this contract offends good morals and is thereby void (§ 138 I BGB).

1. …

2. A legal transaction is void under § 138 I BGB only if its entire character, as it results from content, motivation and purpose taken together, offends good morals, for which only those circumstances are to be taken into account which prevailed at the conclusion of the contract (references omitted). The mere fact that the content of the contract placed a considerable burden on the plaintiff and only the plaintiff, cannot in itself question the validity of the guarantee. By operation of the law, the content of such a contract will as a rule be a unilateral obligation in favour of the creditor. Generally, the content and purpose of such a contract consist merely in providing the creditor with a security for certain claims against the principal debtor. By its structure, the guarantee is therefore not characterized by an appropriate and in principle equal consideration of mutual interest but, by its legal nucleus, is aimed at providing benefits to one party only.

3. Likewise, the obligation which has been assumed does not merit disapproval by the law merely because at the time of her declaration of intention, the guarantor did not dispose of the necessary income or assets for performing the obligations for which she was to be liable. The Constitution guarantees freedom of contract within the legal framework, which includes the freedom to design the rules of a contract. This forms an important foundation for the present private legal order. It follows from the freedom of contract that a person must generally be free to enter into risky transactions at his own responsibility and to undertake an obligation which can only be performed under particularly favourable circumstances, if necessary by permanent use of all the income which exceeds the protected earnings rate. This principle, which has dominated the jurisprudence of this Senate (references omitted) has been approved by the Eleventh Civil Senate of the BGH (reference omitted). As a rule, any person with the unlimited capacity to contract is in a position to realize that a guarantee implies the assumption of a considerable personal risk, to assess the consequences of such conduct accordingly, and to reach a decision on this basis. In principle, this also applies if the guarantor is a close relative of the principal debtor (references omitted).

4. However, if the guarantor assumes an obligation the amount of which exceeds by far his present and potential future income situation and assets, such a contract can be void under § 138 I BGB, if additional circumstances, which can be attributed to the creditor, levy a considerable additional burden on the guarantor and lead to an intolerable imbalance between the parties to the contract. In particular, such burdens can be caused if the creditor exploits the guarantor’s inexperience in business matters or a mental predicament, or exerts undue influence on his freedom of decision in another way.

5. The plaintiff’s father has influenced her decision to assume liability towards the savings bank in a manner which must be disapproved of by the law, i.e. which violated § 1618a BGB. These facts can be attributed to the defendant, who was at least grossly negligent not to consider such influence on the guarantor.

(a) Freedom of contract, which enjoys protection as a basic right, can justify the conclusion of risky and at the same time unilaterally burdensome contracts only if both parties are in a position to decide freely in favour of or against being bound by a contract. It is this freedom, combined with an unrestricted opportunity to understand the potential legal consequences of the obligation in question, which alone can justify why a guarantor should be bound by a decision which he reached in his own responsibility even if the legal consequences prove extraordinarily burdensome (BVerfG NJW 1994, 36 …). The danger of the guarantor’s freedom of decision being unreasonably restricted exists particularly in situations where young adults, who either have not completed their education or are at the beginning of their professional activity (in other words: who are inexperienced) are asked by their parents to assume liability in their favour for legal transactions in which the children take no legal or economic interest of their own. If parents impose such a request on them, young adults in particular, who have reached majority only a few years ago and who enjoy an undisturbed relationship with their parents, will mainly be led by the desire to accede to the parents’ request. It is in these situations in particular that emotional considerations can easily be uppermost in their minds, and that the guarantee is granted solely in full trust in the parents’ abilities and good intentions. In such situations guarantors are highly liable to repress from their minds the considerable risks which they enter into as regards their own designs on life. Young adults, who normally have little business experience, are particularly at risk in such a situation that they do not decide in a free and matter-of-fact way, but that they comply with the parents’ request out of mental predicament or without serious consideration. They will hardly be in a position to envisage the scope of the consequences, which their signature could possibly entail.

(b) If parents require their children, after they have reached majority, to provide, for the sole motive of helping their family, a guarantee which by far exceeds the childrens’ financial capacity, such a request will frequently be questionable from a moral viewpoint and be incompatible with the duties of parents which continue to exist towards adult children. The way in which maintenance obligations are designed, but even more so the provision of § 1618a BGB, which was inserted when the law of custody was reformed, make it clear that parents and children owe to each other assistance and consideration for the entire span of their lives. This norm creates true legal duties, even if their violation does not lead to immediate sanctions (reference omitted). It is the duty of consideration in particular which can necessitate that personal interests must be put aside if they are to be reasonably balanced with the interests of the other family members. If parents cause their children to provide a guarantee with the consequence that, if the risk materializes, the children will have to make substantive payments to the creditor over an unforeseeable period or perhaps for the rest of their lives, the parents thereby expose to lasting danger the children’s entire independent plans for life, which will frequently not yet have advanced beyond an early stage. Exerting such influence on children, who have reached majority, contradicts the conduct which § 1618a BGB requires for the mutual relationship between children and parents, and is fundamentally irreconcilable with generally acknowledged views on the responsibility of parents towards their adult children.

At the time of the conclusion of the contract, the plaintiff was not in a position ever to pay an obligation amounting to DM 100,000 plus interest. As an unskilled worker, she earned no more than some DM 1,150 per month. Nothing has been submitted to show that her income situation or assets could possibly fundamentally improve in the future. The plaintiff, who was 21 at the time, was also inexperienced in business matters. After having completed her Hauptschulabschluß (approximately GCSE), she was unemployed for a long time, had only temporarily performed some clerical work in her father’s office, and had just started in a position as a worker in a fish factory. It is not disputed that the granting of the credit did not serve the plaintiff’s own interests. On the contrary, the father acted solely in pursuit of his own economic interests. The risk, which he placed on his daughter, could also not be considered negligible, as he had additional obligations towards the defendant in connection with the construction of a multiple private dwelling, amounting to some DM 2.5 Million.

(c) It is true that all these circumstances primarily characterize a conduct which offends good morals in the relationship between the principal debtor and the guarantor. But these circumstances are not without influence on the legal relationship between the guarantor and the creditor bank. It is true that a bank cannot reasonably be expected to investigate in each individual case whether the guarantor was restricted in his freedom of decision, and in particular whether and in which way parents have exerted pressure on their children. However, the abovementioned danger, to which the guarantor is frequently exposed in such cases, influences the kind of conduct which the bank must show as regards the securities which the bank requires and accepts from the borrower. If a bank deems it necessary to require securities for a requested loan, and for this reason makes payment conditional on the borrower procuring a guarantee by his child for an amount which expectedly exceeds by far the child’s financial capacity, the question will necessarily arise whether the creditor was aware of the morally and legally unacceptable influence which the creditor exerted on the guarantor, or whether it deliberately closed its mind to such insight. If this is the case, the borrower’s conduct, which violates § 1618a BGB, will be attributed to the bank. This will regularly warrant the conclusion that the guarantee in itself is considered void. Therefore, the bank generally must not impose on the client the request to provide as a security a guarantee by a child which is still inexperienced, which has no own interest in the granting of the credit, and which expectedly will be unable for a longer period of time to pay the secured debt if the risk materializes. To the extent that this Senate in previous judgments did not attach the same meaning to the above-mentioned dangers for the guarantor’s freedom of decision and the resulting obligations of the bank (references omitted), the Senate no longer adheres to that view. The defendant requested the account holder to provide a guarantee by his daughter for the sum of DM 100,000. The plaintiff’s own interests were not involved. The defendant could not help noticing or even positively knew that the plaintiff would be economically overtaxed, as the defendant could not seriously assume that the plaintiff would be in a position to pay DM 100,000 plus all of the accumulated interest within a foreseeable period of time should the occasion arise. On the contrary, the general assumption must be that young adults, who have not completed their education or find themselves at the beginning of their professional development, do not dispose of considerable assets or an income which far exceeds the average, unless there is clear evidence to the contrary. This is particularly true if the parents themselves are not in a position to provide other securities to the bank and for this very reason depend on their child to provide a guarantee in order to obtain the desired credit. This is why the defendant could not help noticing that the plaintiff, through lack of experience, entered into an obligation which would utterly overtax her financially if the risk materialized.

It is also common practice in banking that the securities which need to be provided in order for the loan to be paid out are examined for their value, as without such examination the economic purpose of this security agreement can, as a rule, not be fulfilled. On the other hand, if a bank decides not to make such enquiries in cases where the children of the principal debtor provide securities for very large amounts, this will, as a rule, leave no other possible interpretation than that they were either aware of the guarantor’s financial circumstances, or that they deliberately closed their eyes towards the value which this security would provide.

6. The bank itself exerts undue influence on the guarantor if its employees trivialize the scope of the guarantee, in particular if they purport the signature to be a mere formality (reference omitted). In particular as regards inexperienced guarantors, who additionally are close relatives of the principal debtor, such conduct can create the impression on the guarantor that there is nothing serious to worry about, thereby preventing the guarantor from having a closer look at the content of the document. The representation which S, an employee of the bank, made as regards the meaning and the scope of the guarantee before the plaintiff signed the document, was apt to obscure the risk of such liability and thereby the dangers which this would impose on what the entire future would hold for the plaintiff. This conduct gravely impaired the plaintiff’s freedom to reach a matter-of-fact and balanced decision.

(a) The Appeal Court assumes that the defendant played down and even trivialized the guarantor’s liability towards the plaintiff, and therefore exerted undue influence on the determination of her will. This appreciation withholds the appeal’s attack.
(aa) … (bb) …

(cc) The Appeal Court believes that the defendant’s employee played down both the degree of the risk and the scope of the liability. Therefore, his statement was prone to create the impression on the plaintiff that not much could happen to her at the end of the day. These findings are based on an interpretation of this statement, which is a question of facts to be decided by the lower courts, and which on second appeal can only be examined as to whether they violate statutory rules of interpretation, rules of logic, empirical standards or rules of procedure (references omitted). Contrary to the view expressed by this Senate in its judgment of 16 March 1989 (= NJW 1989, 1605, …), no such violation has occurred. If the creditor declares during guarantee negotiations that the entire matter is a formality, it may frequently be obvious to the parties concerned that this is but an empty generalization which says nothing about scope and importance of the risk (reference omitted). The representations made by the defendant’s employee, however, went beyond such a declaration. It is particularly the combination of the hint that this was no important obligation and the additional statement that this declaration was needed for the files which could create the inaccurate impression on the addressee that the requested guarantee was in its essence a formality. Neither was the representation made by the employee S unambiguous enough for the plaintiff to necessarily understand it as a mere reference to the financial soundness of her father. In addition, the Appeal Court considers that at this time the plaintiff did not have the slightest experience with banking business. Thereby, the Appeal Court is right in referring to the perspective of the recipient of the declaration.

(b) But even if the father’s financial soundness was to be considered as favourable at the time, it was, in view of the entire circumstances of the disputed case, particularly reprehensible to trivialize the guarantor’s risk towards the plaintiff to such an extent.

(aa) It is not disputed that the plaintiff was to provide the guarantee in order for the credit line on the father’s current account to be extended from DM 50,000 to DM 100,000. This is why liability was limited to the amount of DM 100,000 plus interest and costs. However, since the guarantee, according to the standard form content of the document, related to all claims which the defendant had against the plaintiff’s father arising from their banking business relationship, this implied that the plaintiff also secured to this amount the credit obligation amounting to DM 2.5 million at that time which arose from the building project. By this fact, the risk which the plaintiff had incurred was instantly much higher than it might have appeared if one had looked only at the extended current account credit. It is not disputed that this extraordinarily high claim, which the defendant possessed, was not mentioned when the plaintiff was presented with the guarantee contract form.

(bb) In addition, the plaintiff was already in a position which made it particularly difficult for her to decide in a reasonable and balanced way due to the presence of her father, who had accompanied her to the savings bank with the intention of obtaining the desired credit by her signature.

…

(c) Under § 278 BGB, the bank must account for its employee’s undue influence on the determination of the plaintiff’s will. As regards the subjective requirements under § 138 I BGB, the findings made supra (5) (c) apply mutatis mutandis. The above-stated circumstances justify the assumption that the plaintiff signed the guarantee contract as a consequence of the mental predicament which she had been caused. It can be left open whether the father’s conduct sufficed for this, or whether the trivializing representations made by the saving bank’s employee were an additional cause, as the defendant must account for either conduct within the framework of § 138 I BGB (reference omitted).

Translation ©1997 Gerhard Dannemann. HTML edition ©1998 Gerhard Dannemann. This translation first appeared in The German Law of Obligations, Vol. I: The Law of Contracts and Restitution, by B.S. Markesinis, W. Lorenz and G. Dannemann, Oxford University Press 1997, where it appears as case no. 33 on pp. 232 et seq. Reproduced by permission of Oxford University Press.The contents of this page may be downloaded and printed out in single copies for individual use only. Making multiple copies without permission is prohibited.

Bundesgerichtshof (Sixth Civil Senate) 9 November 1993, BGHZ 124, 52, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mrs Irene Snook

[Before undergoing an operation which would leave him sterile, the 31 years old plaintiff had some of his sperm frozen in order to have children later.  Through the fault of the university clinic, this sperm was lost.  The plaintiff demands damages from the clinic.  Both lower courts rejected his claim.  The Federal Supreme Court quashed the appeal decision for the following reasons]

According to the Appeal Court, the plaintiff’s general right of personality was not infringed.  The destruction of the sperm deprived him of his liberty to decide whether, how, and when his sperm was to be used for fertilisation; but this freedom was not covered by the general right of personality, which only protects this legal position in principle.  The general right of personality protects personal integrity but not personal activities.

II. These deliberations are legally unsound.
…..
2.  As a result of the negligent destruction of his sperm, the plaintiff’s claim for damages is well founded.

a) According to a controversial but more or less dominant legal opinion, a part of the body separated from it becomes a physical object, with the result that a person’s right to his own body is transformed to a right of ownership in the separate part of his body (references).  In legal literature, some authors are of the opinion (reference) that this result applies to frozen sperm; and the Appeal Court follows this view.  Accordingly, the destruction of the sperm would not amount to a physical injury to which § 847 BGB links a claim for damages for pain and suffering.

The Court holds that this view is too narrow.  This Division has given the concept of physical injury, as expressed in §§ 823(1), 847(1) BGB, a wide meaning.  It considers the right to one’s own body as a legally formulated section of the general right of personality. It also interprets as “physical injury” – expressly mentioned in § 823 I BGB and treated separately from “impairment to health” – every unjustified intrusion of bodily integrity, unless the owner of the right has given his consent (references).  It is not the physical matter as such that is protected by § 823 I BGB but rather a person’s entire area of existence and self-determination, which is materially manifested in the body (references).  The provisions of § 823 I BGB protect the body as the basis of human personality.

In view of modern medical possibilities and in respect of the body as object of the protected right, a person’s right of self-determination, emanating from his right of personality, acquires additional significance.  Medical advances allow the extraction of body parts for later re-implantation.  This applies for instance to transplants of skin or bone parts intended for transplantation to other parts of the same body.  Where, with the consent of the person affected,  parts of a body are taken out in order later on to be re-implanted as a means of preserving or improving bodily functions, the legal opinion that § 823 I BGB comprehensively protects corporeal integrity in order to guarantee a person’s right to self-determination will lead to the following result. In view of the protective purpose of this paragraph, these extracted parts continue to form a functional unity with the remaining body even during their separation from it.  It therefore seems necessary to classify the damage to or destruction of such extracted body parts as a physical injury in the sense of §§ 823 I , 847 BGB.  The result is different where, according to the wishes of the person concerned, the separated parts of his body are not intended to be used or re-integrated at a later stage.  For such cases of final severance, the normal legal consequence applies, i.e. that at the point of separation the severed body parts lose all links to the protected entity of the “body” and become “objects” in the legal sense.  The reason for the latter result lies in the concept that, given every person’s right to self-determination, the body and its now separate parts no longer form a functional unity.  This outcome applies in particular to donated organs which, under the will of the donor, are intended to be implanted into another person, or to blood donated for third persons.  Even in such cases, claims for damages can arise if the donation is used or destroyed in breach of the express or tacit intentions of the donor. For even under these circumstances the right of personality influences the right to ownership in these objects (references) although only under the specific restrictive preconditions developed for cases of injury to the right of personality.

b) On the basis of these considerations, the frozen sperm, which the owner of the right of personality intended to use for future procreation, represents a special case.  On the one hand, the sperm has permanently been separated from the body.  On the other, it is intended to fulfil a bodily function, i.e. that of procreation.  In any case when, as here, the preservation of sperm was meant as a substitute to the lost capability of procreation, this sperm is no less valuable than a woman’s egg cell or other bodily parts in respect of: 1) the corporeal integrity of the owner of the right of personality and of personal self-determination, which is part of it, and 2) due to the importance and its particular potential.  As explained above, even after their separation from the body, the latter are covered by the protection of §§ 823 I and 847 I  BGB.  As with egg cells, taken from the body to be fertilised and re-implanted, the frozen sperm represents for the owner in this particular case, the protected right. For it is his only chance of using his bodily functions in order to sire children to whom he can pass on his genetic material.  In view of the similarity and equal value of both bodily parts: a) for their need to be protected against tortious acts and b) because of the protective purpose of the relevant tort provisions, this equal status must also be manifest in the legal consequences provided by the law of torts.  Even in cases like this, where frozen sperm is not directly covered by the factual text of the tort provisions which outline and determine the protected right of corporeal integrity, those provisions must, nonetheless, at least be applied analogically given the above-described circumstances.  The general right of personality legitimises such extensive and extended legal application of §§ 823 I and 847 I BGB for a person whose right of personality is not differently or less intensely affected than a woman’s right is by destruction of her egg cells, extracted from her body and intended for re-implantation.  Just like the woman in that case, the plaintiff had a claim for damages for pain and suffering based on § 847  I BGB.

3.  (There follow general statements on how to calculate the amount of damages for pain and suffering due and some specific guidelines for this particular case.)

Comment

Under German law, § 847 BGB, claims for compensation for pain and suffering are only admissible in cases of physical injury and deprivation of liberty but not in cases of damage to property.  In order to provide a claim for damages the court, therefore, had to treat certain parts of the body, separated from it, not as objects but rather as remaining parts of that body. Since in this case there was no pecuniary loss, a claim for damage to property would have failed.  The complications that arise from §253 BGB are discussed in greater detail in B. S. Markesinis, The German Law of Obligations, vol. II,  The Law of Torts, 3rd ed. (1998) pp. 25,  66,  380-90.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Full Senate for Civil Matters) 9 July 1986, BGHZ 98, 212, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mr. Tony Weir, Trinity College, Cambridge

Reasons:

I. In the autumn of 1981, when the well-appointed dwelling of which the plaintiff is owner-occupier was undermined and rendered unstable by the incompetence of the defendant in constructing a row of houses lower down the steep slope on which it was built, the city authorities prohibited its occupation for a period of five weeks. The cost of reconstruction is no longer in issue between the parties, but the plaintiff also claimed DM 3,000 plus interest as compensation for the loss of use of her house, alleging that during this period she and her husband had to stay in a camper on neighbouring land, an allegation which the defendant counters by stating that they used the house every day.

The Landgericht and Oberlandesgericht rejected this part of the plaintiff’s claim, and the plaintiff appeals again.

In agreement with the courts below that even if the plaintiff had entirely lost the use of the house for the period of the prohibition this was not an economic loss but an uncompensable immaterial loss, the Fifth Civil Senate would have dismissed the appeal, but in the interests of uniformity of case law it submitted the following question to the Full Senate for Civil Matters pursuant to 137 of the Law on the Court System (GVG):

1. Does temporary inability to continue using a piece of property, such as a dwelling, as a result of a tortious invasion of one’s ownership constitute a compensable economic loss, even if no extra costs or loss of income are involved?

2. If the harm consisting of loss of use is compensable, how is the measure of compensation to be computed?

II. The request for a decision (published in VersR 1986, 189 = WM 1986, 266 = JZ 1986, 387) explains in detail that the decisions of the Bundesgerichtshof on the compensability of loss of use of property are hard to reconcile.

The Third, Sixth, Seventh and Eighth Civil Senates are in principle favourable to compensation if public opinion would regard the personal use of a thing as having an independent economic value and the loss is “felt by”, “perceptible to”, the owner who could and would have used the thing had it not been damaged. Since the decisions of the Third Civil Senate of 30 September 1963 (BGHZ 40, 345, 349f. and NJW 1964, 717 = VersR 1964, 380) this has been the basis on which the individual owner of a motor car has been granted compensation for temporary loss of its use even if he did not hire any substitute. The principal reason for such decisions in tort and cognate areas is that things such as motor cars are commonly bought precisely in order that they be permanently available, so that to impair their use is to impair the economic counterpart of the price paid (BGHZ 40, 345, 348, 350; 63, 393, 397; 74, 231, 234; 76, 179, 185; 86, 128, 131, 133). They emphasise that the price which property will fetch depends on its current availability and that the market itself puts a value on the usability of a thing, as is indicated by the costs of hire (references); it would not be right for the tortfeasor to benefit from the fact that the victim has put up with the drawbacks of not being able to use his property [references].

Opposed to these decisions are cases involving property which public opinion regards as an amusement (swimming pool – BGHZ 76, 179, 187), a luxury (fur coat – BGHZ 63, 393, 398; caravan – BGHZ 86, 128, 133), or a pastime (speedboat – BGHZ 89, 60, 64), property whose use is life-enhancing but without any independent economic value.

In 1967, in the wake of these decisions, the Eighth Civil Senate, in a holding limited to cases of breach of contract, awarded damages to the owner of a house rendered temporarily uninhabitable by the post-contractual fault of a tenant (WM 1967, 749 = (in part) NJW 1967, 1803). Likewise, the Seventh Civil Senate in 1985 has awarded the owner of a parking garage damages against a contractor because some parking spaces were unusable owing to the failure of the contractor to make good defects in his work, the finding that their use had an independent economic value being admittedly reinforced by reference to the purpose of the rule that the contractor guarantees the quality of his work (BGHZ 96, 124).

By contrast the Fifth Civil Senate in its decisions of 14 May 1976 (BGHZ 66, 277) and of 21 April 1978 (BGHZ 71, 234) expressed reservations, repeated in its present request for a decision, about allowing damages for loss of use outside the “restricted area of typical mass risks”, and in its decision of 30 November 1979 (BGHZ 75, 366) it adopted the position, so far as tort law is concerned, that no compensable economic loss is involved in infringements of the right to use land where the loss of use is less than total.

Writers are on the whole against treating the loss of the personal use of property as an economic loss, regarding it rather as a possible source of loss, giving rise where the planned use would be purely personal to immaterial losses not capable of compensation. [References to eight writers]. A few writers approve of the result reached by the courts in cases of damage to motor cars, while entertaining serious doctrinal objections [citing six writers]. A minority accepts that damages may be awarded for loss of use of property: [citing 11 authors]. A few writers would give damages for wasted expenditure due to a loss of use [citing five authors], or for the resulting need [one author].

III. The Full Senate is of the view that the rule as to motor cars in private use can be extended at any rate to things which the owner needs to have constantly available for use in his domestic arrangements, such as the house he lives in; the temporary loss of the chance of using it as a result of a tortious invasion of his property rights constitutes a compensable economic harm to the extent that the owner would have used the thing during the period in question. Given this limitation, neither the law itself nor the need for legal certainty offer a conclusive objection; indeed, to leave such losses without compensation would be to fall short of just and full compensation for economic losses.

1. The BGB does not define the concepts of wealth or economic harm in the law of damages but leaves it to writers and the courts to develop them. Like the Reichsgericht before it, the Bundesgerichtshof generally employs the “difference method” to ascertain whether the estate of the claimant has suffered an economic loss: rather in the manner of an accountant it compares the situation after the occurrence of the harmful event with the situation which would have existed without it (BGHZ  27, 181, 183f.; 40, 345, 347; 75, 366, 371; 86, 128, 130).

In its request for a decision the Fifth Civil Senate is right to point out that the temporary loss of personal use of a thing does not show up in the “difference method”, in which loss of use figures only if there is a cost in procuring a substitute involved or some loss of income from its use in acquisitive economic activity or onerous obligations are incurred which would have been avoided had the thing still been available.

a) Meanwhile the Bundesgerichtshof has recognised that the difference method is value-neutral and that one must still, in the light of the purpose of liability law and the compensatory function of damages, determine what factors should be included in the difference procedure. In this sense there is a normative input into the difference method, which is not actually laid down by law [reference]. Certainly when one is making the comparison an economic harm will always take the form of a diminution of the positive or an increase in the negative aspects of the claimant’s estate, but it is for the judge to decide what factors are to be taken into account for the purposes of compensation.

b) In doing this the court must remember that it is not only the “having” of wealth that makes it important but also the “using” of it, the option it affords the owner of advancing his goals in life by actualising its potential (references to von Savigny, von Tuhr and Kohler). This functional aspect of wealth is protected by law. The fact that wealth is used in other contexts than business would be being ignored if only the monetary aspects of the loss of use of property resulting from a tort were taken into account: its use in the domestic sphere can also be “rewarding” and economically activating and its impairment can likewise affect the economics of the person affected, even if no actual loss of income results.

Thus over and above the fact that a motor-car is often the most valuable item in a private person’s wealth, its usability is commonly the centre of his personal economy — he builds his life round it, especially if he is professionally dependent on it. It is even more obvious that the decision to have a home of one’s own to live in is first and foremost an economic one.

In market terms an element for the usability of such property is factored into its price, and its temporary loss is treated as a short-term depreciation, so if such loss involves a perceptible constraint on the owner’s management of his personal affairs for that period, this too is economically relevant. It would only be otherwise if one’s calculation were based exclusively on monetary gain or loss. Such calculation not mandated by the nature or quality of wealth.

2. Nor is it mandated by § 252 BGB. Its express coverage of loss of income when the use-value of property is diminished certainly reflects the legislator’s sense of the importance of using property for acquisitive purposes, since there is no corresponding provision for property used domestically, but we do not agree with the Fifth Senate that it represents a decision against granting monetary compensation for the loss of use of items of wealth when no loss of income occurs. The main aim of § 252 BGB was to make it clear, in contrast to earlier codes, that the entirety of the harm is to be made good, not just a proportion depending on the degree of fault (Mot. II 17f. = Mugdan, Materialien zum BGB vol. II 10); it implements the principle of full compensation which emerges from § 249 BGB. Consistent with this is § 252 sent. 2 BGB which the courts have hitherto taken to involve only a relaxation of the burden of proof designed, like § 287 Code of Civil Procedure, to avoid the claimant’s having to put up with inadequate compensation in cases where the harm is difficult to establish exactly (BGHZ 29, 393, 398; 74, 221, 224 with references). Given that the law aims to promote the positive use of property and provided always that damages are not allowed for loss of use in abstracto, which the BGB allows only exceptionally (§§ 288, 290, 849 BGB), to develop the law so as to include in the compensation of economic harms the use of property for private purposes analogous to profitable uses need not, as the Fifth Senate fears, lead to the claimant’s being unfairly advantaged in establishing his claim. In the case loss of use of a motor car the courts have insisted that the loss be “felt” by the victim, that he could and really would have used the car had it not been damaged, that is, that he was able and willing to make use of it. This restrictive rule can be applied to other kinds of property also, and puts the tortfeasor in the same evidentiary position as in claims for loss of profitable use; it also ensures that compensation for the loss of privately used property is geared to the individual case and involves no typification of the different kinds of property or tarification of the award.

3. Unless it is developed in this way, the law will have unsatisfactory results, especially as regards the very items of wealth which are of central importance to the individual’s way of life.

a) The codal rule which provides for restitution in kind draws no distinction as regards the economic nature of the loss of use. In principle, therefore, the tortfeasor must bear the cost of providing his victim with a substitute for an item he would have used for private purposes. But suppose the victim refuses to accept the substitute, which does not always indicate that he was not dependent on the property: then unless the proposed development is accepted, the tortfeasor would be relieved of the obligation to pay for what are real constraints on the victim’s living arrangements.

Payment of the capital value of property does not adequately compensate for loss of use-value, for although it is true that the market value of a thing includes an element for its usability so that use-value cannot be wholly severed from the inherent value of the thing, nevertheless payment of the inherent value of a thing only gives full compensation for the loss of use-value when it is paid immediately, for it takes no account of the diminution in value in the interim. To this extent use-value and capital value rest on different considerations: capital value goes to the condition of the property, use-value to its availability for use. Temporary loss of the latter is not adequately made good either by replacement of the thing or by interest on the diminution of the capital value; nor can the “advantage” lost be recaptured. At the most there is a saving in wear and tear and in the costs entailed in use, but the loss of use, temporary though it is, is definitive. In order to cover it, the difference method of computation of economic loss calls for an extended notion of value.

b) If there is no such extension, compensation based on the pure difference principle will unfairly discriminate against the use of property in the private economic sphere as compared with its use for acquisitive purposes, for which the tortfeasor is bound to pay damages in the absence of restitution in kind. The jurisprudence of the courts as regards the loss of use of motor cars, designed to take better account of the use of property for private purposes in line with the principle of full compensation for economic losses, needs to be extended to other kinds of property. Once the Bundesgerichtshof has developed its case law on the damages payable as regards each kind of property and practitioners are confident that it is stable, it would be right, not least on grounds of legal certainty and faith in the interpretation of the law, to proceed in the direction indicated.

The Full Senate is quite aware of the advantages of the difference method for the calculation of economic loss and of the need to limit compensation to the harm actually suffered by the particular claimant, but to add a normative element to the difference method will not lead to unacceptable extension if it is realised that the aim is to produce just compensation by equating personal with profitable uses of property, when economically comparable.

Recent practice as regards loss of use of motor vehicles shows that this need not led to a huge increase in the damages payable, but in any case to deny damages in cases of loss of use of a thing privately used just because there are residual problems of evaluation is inconsistent with the principle of just and full compensation.

4. The extension of the law in this manner must naturally be limited to items of property which people typically need to have constantly available in their daily lives. This is as much as can be justified by the need to correlate the law of damages as to the use of property for private and for profitable purposes, and to go further would risk infringing § 253 BGB by awarding damages for non-economic loss in conflict with the need for legal certainty and calculability of damages.

a) The reason § 253 BGB restricts money damages to economic losses is so that only such damage is covered as can be measured by objective standards. The judge must determine the damages not on the basis of the victim’s subjective value-judgements, which cannot be checked, but on the basis of the value placed on it by the public generally, using the money measure of the market. The legislator was also concerned that “ideal” interests and values not be treated as commodities in the law of damages (Prot. I 622.623; Mugdan 517). There is always some disruption of life when a thing one is using stops functioning, but to award damages for such disruption runs the risk of compensating for harm which is indissolubly linked to the person of the claimant and must in principle remain uncompensated under § 253 BGB. This restriction is mandatory as to extracontractual, delictal liability, with which alone we are concerned. It may be different for liability in contract, for the parties can dispense with 253 BGB just as, to a large extent, they can further restrict their liability for economic harm.

There is no danger of allowing damages to trespass into the area of immaterial interests if the property is such that its use is generally of major importance in daily life, for such use appertains to the material economic sphere (reference); furthermore, because the uses made of such property are relatively similar, there are now objective standards of valuation, at least of its core economic functions, so that there is no risk of being affected by subjective value-judgements arising from idiosyncratic uses not prized by the general public. The impairment of such uses should be fully compensated in damages notwithstanding the fact they do not figure in the difference method of accounting proper to the acquisitive economy.

b) On the other hand, the absence of a firm mechanism of control such as is contained in § 252 BGB means that there must be strict proof that the property was of economic importance for the claimant’s way of life, and that his estate has really been affected by the loss of an objectively valuable facility. This strict requirement is also necessary in order, so far as possible, to avoid extremes in budgeting so that the compensation in cases of a particular type remains calculable despite all the variables in the individual case. Hence damages for loss of private use must in principle be reserved for certain types or groups of case in which the functional impairment typically has a significant effect on the material conditions of the claimant’s living conditions. At this point public opinion may come in. One can agree with the Fifth Civil Senate that public opinion cannot decide when § 253 BGB applies and when it does not, but even so, just as the measurement of the loss must be geared to the standards of the market, so the test to be applied in law can properly relate to what people generally regard as economically important to acceptable life-styles.

c) The tests laid down in the caselaw of the Bundesgerichtshof for the compensation of loss of use of motor cars are quite restrictive; this is in part because when a kind of harm is suffered by the million, one needs a rule which ignores variations in the importance accorded to the use of the thing in question by individual claimants.

On the facts of the case giving rise to the question laid before us, we need not decide finally what kinds of property other than motor cars should give rise, in accordance with what has been said above, to a claim for damages for temporary loss of use, but where the use of an owner-occupied house is temporarily lost as a result of a tort, as in the case at hand, there can be no doubt that this constitutes a compensable economic harm. We need not dilate on the fact that an individual’s economic life centres on his residence and that the continuous availability of the home is a major feature of a person’s whole estate. This very point shows how disproportionately one would be privileging the acquisitive economy over the personal deployment of resources if one were to say that damages are available only for losses of profitable use and to treat impairment of personal use as a mere source of harm which must remain uncompensated unless a substitute is rented. It may be acceptable to deny damages for short-term deprivations of use which the victim could allay by making different arrangements which are economically reasonable, but it would be contrary to the principle of full compensation for economic harm to do so when a home is completely unusable, even for a short time, and the owner would have stayed in it but for the invasion.

It must really be left to the practice of the courts to determine which types of property should attract compensation for loss of use and what regulatory mechanisms are appropriate. The only legal constraints are that the measurement of loss must be in line with the purpose of damages law, especially the requirement of § 253 BGB that the criteria be objective and that the rules as to damages be regularly applied.

In principle it would be wrong to award as damages what it would have cost the owner to hire a substitute, for the aim is compensation not reparation. What is to be measured is not the cost which the owner has avoided by meeting his need otherwise but the value in money of the use of the thing for the owner’s own purposes. Nor can the owner claim damages on the basis of what he would have charged the tortfeasor for the use of the thing: such a method of calculating the loss may be justified in special circumstances where there is a specific conflict of interest, but it is not conformable to general principles of damages law, for what is to be met is the loss of use of the property for the purposes intended by the owner, not what he would have collected by letting it to a third party, which he never intended to do.

Nevertheless the normal cost of hire, once properly purged of the profit element, may serve as a basis for the measurement of the harm. Other relevant factors may be a proportion of the basic costs of the use prevented (appropriate interest on the capital invested, running costs for the availability of the property, depreciation in value over the time it was out of use). Nor, contrary to the view of the Fifth Civil Senate, does it seem wrong in this connection to apply a markup on what is generally considered as the minimum cost of use, for the loss of use of such economic goods may well have had the ulterior effects on the whole estate of the claimant which it is impossible to identify precisely.

Other methods of valuation in addition to these which we have indicated may also be appropriate.

NOTE to BGHZ 40, 345, BGHZ 89, 60 and BGHZ 98, 212

The problem in these cases is one which has been the subject of much dispute in Germany and it has exercised the Bundesgerichtshof in a whole series of decisions. The victim of property damage can of course claim, in addition to the cost of repair, the costs involved in the loss of its use such as, in the case of a motor car, the hire of a substitute or the cost of using other means of transport. In the case of a house, the claim would be for the cost of renting a substitute or the cost of staying in an hotel. But can the victim claim damages for loss of use when he has made the loss good costlessly, e.g. by using his bicycle while the car was being repaired or staying in a caravan in the garden when the house was uninhabitable and so on? That is the issue in dispute. The decisions given here form part of a long line of cases which have allowed the plaintiff to claim for loss of use in abstracto, despite the lack of any provable money loss. The question has occasionally divided the different Senates of the Bundesgerichtshof, but the decision of the Great Senate for Civil Matters in BGHZ 98, 212 has, for the time being at any rate, put an end to the discussion.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Sixth Civil Senate) 15 November 1983, BGHZ 89, 60, with case note.

This case is first published in the German Law Archive courtesy of:

Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz

Translated by Mr. Tony Weir, Trinity College, Cambridge

On 6 July 1979 while the plaintiff was driving to the Baltic for a sailing holiday there was an accident in which the speedboat he was towing was seriously damaged. The necessary repairs took so long that he was unable to use it during his fortnight’s summer holiday or on subsequent weekends.

The parties are agreed that the defendant, as the tortfeasor’s liability insurer, is liable for the harm suffered by the plaintiff as a result of the accident.

The plaintiff’s claim includes damages for the loss of use of his boat by reason of the accident at the rate of DM 154 per day (as against the daily hire charge for a similar boat of DM 280) for the forty days he would have used it during his summer holidays and on subsequent weekends until the end of October.

The Landgericht granted the plaintiff DM 100 per day for forty days’ loss of use, on the basis that now boats are offered for hire as well as cars, the use of a boat has become as “commercial” as the use of a car.

When the defendant appealed and the plaintiff cross-appealed, the court below dismissed the plaintiff’s claim for damages for loss of use. The plaintiff’s further appeal was now dismissed.

Reasons

I. The court below held that the plaintiff had no claim in respect of the loss of use of his motor boat while it was being repaired: the temporary loss of the chance of using the boat did not constitute or cause an economic harm capable of compensation under § 249 ff. BGB. The principles developed by the courts in relation to the temporary loss of use of a motor car damaged in a traffic accident could not be generalised. Unlike a motor car a speed-boat is not virtually indispensable for people’s general and daily needs; it merely conduces to leisure activity rather than saving time and rationalising work. It followed that the cost involved in using such a boat constituted an immaterial value not compensable in money.

II. These views are based on the jurisprudence of the Bundesgerichtshof and are unobjectionable.

If in addition to the substantial damage done to the boat the accident had, by depriving the plaintiff of its use, caused him further damage which could be qualified as economic harm he would have a claim for loss of use (arg. § 253 BGB), but no such further harm occurred.

1. In cases concerning the loss of use of a motor car the Bundesgerichtshof has developed certain tests in order to decide whether a harm is economic or not. Recognising that the concept of harm is not a purely legal one but rather an economic concept embedded in the law, the Bundesgerichtshof holds that economic harm occurs only where the victim’s loss is something which economists would recognise as a detriment; whether or not this is so depends mainly on public opinion (Verkehrsauffassung) [references].

Applying these tests, this senate has decided, in agreement with other senates, that a tortfeasor must in principle pay for the loss of use of a motor car even if the victim has not procured any substitute, the critical consideration for this senate being the general view today that the temporary loss of use of a car is to be regarded as an economic loss because the availability of a car conduces both in working and leisure hours to the saving of time and energy, advantages which can be regarded as “money’s worth” (BGHZ 45, 212, 215; 55, 146, 149; 56, 215, 216). It is true that a motor car gives pleasure to the person using it, but this is not the principal point, for in the general view it is because of the economic advantages of a motor vehicle that people buy and keep one (BGHZ 40, 345, 349; 45, 212, 215).

2. On the question whether the temporary loss of use of property other than motor cars is to be regarded as economic harm, a strict test must be applied. This is required by the legislative policy underlying § 253 BGB. The strict test has led the Bundesgerichtshof on several occasions to deny compensation for loss of use of property other than motor cars (BGHZ 63, 393 – fur coat; 76, 179 – private swimming pool; 86, 128 – caravan). The critical reason for rejecting the claim in these cases was that the loss of use would not generally be regarded as harm which is economic in nature.

3. The application of the test in this case leads to the conclusion that in being deprived of the use of a speed boat designed for leisure activities the plaintiff did not suffer an economic loss.

a) It cannot be shown that the general public views the loss of use of such a boat as constituting economic harm. Unlike a motor car, the property here was not principally designed or apt to provide the user with an economic advantage: the boat was to afford the pleasure of taking part in water sports. Temporary loss of the chance of using the boat involved a diminution of the personal pleasure of the individual, not what the law considers an economic loss. [references]

b) The appellant’s case is not advanced by his argument that since a speed-boat such as the plaintiff’s can be let out on hire, its use is “commercialised”. Now that most pleasures can be had in exchange for money the idea of “commercialisation” has largely lost its validity as a test for distinguishing material from immaterial harm (BGHZ 66, 277, 279f., 86, 128, 131). The Fifth and Eighth Senates of the Bundesgerichtshof have already indicated as much, and this senate agrees with them.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

Bundesgerichtshof (Seventh Civil Senate) 31 January 1990, BGHZ 111, 308 = NJW 1990, 2524

The plaintiff raises against the defendant an assigned claim for remaining payments under a works contract amounting to DM 20,505 plus interest. In 1985 and 1986, S, the plaintiff’s husband, carried out works for the defendant, without having been entered in the crafts registry, and without having his trade registered. Both facts were known to the defendant. The defendant paid at least DM 4,500 to S for his work. S failed to pay either tax or social insurance contributions on this amount. S then assigned the remainder of his alleged claim for payment under a works contract to the plaintiff.

The Landgericht ordered the defendant to pay DM 11,880 plus interest, and dismissed the remainder of the claim. The Oberlandesgericht (NJW-RR 1990, 251) dismissed the action in its entirety. On appeal, this judgment was quashed and the case referred back.

Reasons

1. The Appeal Court assumes that not only the defendant, but also S as his contractual partner have violated the Gesetz zur Bekämpfung der Schwarzarbeit(Act to Combat Illicit Work, SchwArbG).

In the Appeal Court’s view, S did exercise a craft profession without being registered in the crafts registry (§ 11 Nr. 3 SchwArbG). S did this in order to gain considerable economic advantages. His endeavour was therefore covered by the aforementioned provision. In consequence, S had neither contractual nor non-contractual claims which he could have assigned to the plaintiff.

2. The first part of these considerations are correct.

…

3. The contracts concluded between S and the defendant were therefore void under § 134 BGB. As has been set forth in more detail by the present Senate (reference omitted), by imposing fines on both the contractor and the client, the Act to Combat Illicit Labour intends to prohibit illicit labour jobs as such, and to prevent any exchange of performances between the “parties to the contract”. This already strongly indicates that the legal order wants to deprive of any effect a contract which contravenes the prohibition on illicit labour jobs. In particular, as has been said elsewhere by this Senate (reference omitted) – the purpose of the Act to Combat Illicit Labour can be achieved only if such contracts are considered to have no legal effect. This is at least the case if – as presently – both parties have violated the provisions of the Act to Combat Illicit Labour. Even so, in individual cases it may nevertheless offend good faith if one party relies on a contract being void for violation of a statutory provision (reference omitted).

4. The contracts under consideration being void, the plaintiff can at best raise claims for the return of performances made. According to the jurisdiction of the present Senate, §§ 677 et seq. [negotiorum gestio] do, in principle, apply to such cases (BGHZ 37, 258 (263), remainder of reference omitted). However, in the present case, the “expenditure” incurred by S consisted in an activity which was prohibited by law. Therefore, S could not consider this “expenditure” to be “necessary according to the circumstances”; for this reason alone, claims for remuneration under §§ 683, 670 cannot succeed.

5. However, contrary to the opinion of the Appeal Court, the plaintiff can rely on the provisions on unjustified enrichment. Such a claim under § 812 I 1 BGB is, ultimately, not excluded by the provision of § 817 2 BGB. It is true that this provision does, in principle, apply to situations such as the present. This defence can also be raised against somebody who succeeds the original creditor as a new claimant (reference omitted).

Through his exercise of a craft, S, the assignor, has violated the Act to Combat Illicit Labour. According to the findings by the Appeal Court, both parties wanted their contracts to be carried out precisely as illicit labour jobs. Therefore, there can be no doubt that S was conscious of the violation, and nevertheless decided to carry on.

6. Enrichment claims, however, form part of the law which is governed by equity, and are therefore particularly influenced by the principle of good faith (reference omitted). It would be irreconcilable with this principle if the defendant were not to pay for the value of what he obtained without legal ground, but were rather entitled to keep it for free.

In a case which involved the sale of a brothel, and where the vendor had already performed, the Reichsgericht ruled that it amounted to deceitful conduct if the buyer refused to pay, and at the same time refused to return the house in reliance on § 817 2 BGB. Such conduct was not protected by the legal order (RGZ 71, 432). The present case is similar. § 817 2 BGB, which prevents the creditor from reclaiming the enrichment, comes as a severe blow to that party (reference omitted). Whenever this rule is applied, one must not lose sight of the purpose which the prohibitory norm intends to serve (reference omitted). In individual cases, it can be necessary to opt for a restrictive interpretation of § 817 2 BGB, a provision which is problematic as a matter of legal policy, and disputed as concerns its scope of application. The Act to Combat Illicit Labour does not primarily intend to protect one or both parties to the contract; above all, it serves public interests. When the Act was passed, concerns for the labour market were to the fore. According to the Official Reasons for the draft legislation, illicit labour leads to increased unemployment in many professions, causes loss of tax revenue, and damages the social insurance bodies; it also threatens self-employed business owners, who cannot work as cheaply as those engaged in illicit labour. It is only second to these concerns that the the client should also be protected against his loss of remedies for defective works (BT-Drucksache 2/1111 and 9/192). The Act was designed as a protective norm within the meaning of § 134 BGB, because the purposes which it intended could only be achieved by rendering the prohibited transactions void (reference omitted). Given the fact that the Act pursues mainly political aims of a general nature, these aims are, on the other hand, mostly served by excluding all contractual claims. In order to fulfil the aims of the Act, it is not absolutely necessary that a client who orders an illicit labour job be allowed to keep the advance performance for free and at the expense of the contractor. For the general deterrent effect, which the legislator was aiming for, is already achieved by the exclusion of contractual claims, combined with the threat of criminal prosecution and liability for outstanding tax and social insurance contributions once the illicit labour job becomes known. This Senate does not believe that this general deterrent effect would be undermined by allowing an enrichment claim (which, as will be shown infra, must at any rate be subject to certain restrictions). The client, who is normally in a stronger economic position, should, in the legislator’s view, on no account be treated more favourably than the contractor, who is economically in the weaker position (BT-Drucksache 2/1111, p. 10). Under these circumstances, a viewpoint based on good faith will gain the upper hand, namely that it would be inequitable if the client, who has benefitted from an advance performance, is allowed to keep this benefit for free (references omitted).

According to § 818 II BGB, the enrichment claim should compensate for the value which has accrued to the defendant without legal ground. When assessing what has been obtained by an illicit labour job, one must first consider that the contractor, by way of an enrichment claim, is on no account allowed to recover for amounts in excess of those stipulated by his void agreement with the client (reference omitted). As a rule, very considerable deductions will have to be made from this amount to cover the risks which are connected with illicit labour jobs. In particular, the value is much reduced by the fact that the client can have no contractual claims for defective works from the outset, since the contract is void. If any defects have emerged, these must be additionally considered when calculating the balance of the enrichment.

©1997 Gerhard Dannemann. HTML edition © 1998 Gerhard Dannemann. This translation first appeared in The German Law of Obligations, Vol. I: The Law of Contracts and Restitution, by B.S. Markesinis, W. Lorenz and G. Dannemann, Oxford University Press 1997, as case no. 136 on pp. 799 et seq. Reproduced by permission of Oxford University Press.The contents of this page may be downloaded and printed out in single copies for individual use only. Making multiple copies without permission is prohibited.