The plaintiff claimed damages on the ground that the defendant had failed to conclude a licensing agreement with the plaintiff, although a director of the defendant had made a promise to this effect.
The District Court rejected the claim, but the Court of Appeal of Hamm allowed it in principle. A second appeal by the defendant was unsuccessful for the following Reasons
2 (a) The Court of Appeal has allowed, in principle, a claim by the plaintiff for damages on the ground of blameworthy conduct in concluding a contract. It held that by the manner of his negotiations the defendant's director had caused justified expectations that a licensing would be concluded with the plaintiff. The reliance of the plaintiff on this expectation deserved protection.
(b) The appellant has objected … that the Court of Appeal had applied too low a standard in gauging the expectations in reliance on the negotiations for a contract resulting in liability to compensate the damage suffered in reliance on the conclusion of a contract, the negotiations for which had been broken off.
3. The basis of liability for blameworthy conduct in negotiating a contract is to be found in disappointed expectations [reference]. Looked at from this angle, if negotiations for a contract are broken off without good reasons, the party breaking off the negotiations may be liable in damages, if by his conduct he has previously raised or maintained the expectation that a contract was certain to be concluded [references]. This obligation is the consequence of the liability for the effects of a situation of confidence towards another who has been induced to believe that the proposed contract will become a reality [reference]. In so far as the proposed contract was to be concluded with a company still to be formed, it must depend upon the circumstances whether, in the light of the negotiations, a company formed subsequently could expect that the proposed contract would be concluded with it. It is true that in such a situation the other party may have an interest to reserve its full power decision until he has obtained more detailed information about the character and composition of the company to be formed. On the other hand, if a new company is to be formed by the contracting party, the other party may allow his co-contractor a certain freedom of action and curtail his own liability of decision, if he can be sure that the contract will be concluded. The Court of Appeal has held that the latter is the case. This finding of fact … binds the present court. It justifies the conclusion … that the plaintiff has claims based on the blameworthy conduct in the conclusion of the contract, having regard to the situation of confidence established towards him.