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Case:
BGHZ 56, 81 VII. Civil Senate
Date:
29 March 1996
Judges:
Professor Basil Markesinis
Copyright:
Raymond Youngs

Facts:

The claimant had rented rooms on the ground floor and in the cellar of a house in B Street in L for a printing business. In the summer of 1989, the defendant acquired the land. To achieve a more economic use, he planned to alter the building to increase the size of an extension, and to divide it into shared ownership. In this connection negotiations between the parties took place in early 1991 about the sale of the rooms used by the claimant and further rooms at the price of 750,000 DM. This gave rise to the claimant carrying alterations from the end of April 1991 to February 1992. In October and December 1991, conversations took place between the parties in about a date for authenticating of the sale. The sale fell through in the end, because the defendant was only prepared to proceed at the price of 1,000,000 DM. After the defendant terminated the letting, the claimant vacated the property in the summer of 1992. Against the defendant's rent demand for the period from April 1992, the claimant set a claim for reimbursement of the costs of his building measures, the costs for moving and repair of machines because of the defendant's building measures and, with these in mind, overpaid rent in the sum of 20,150 DM - after reduction. By his claim he demanded payment of the balance of 154,716.34 DM from the defendant. He claimed that the parties were of one mind about the sale. Its authentication was not to take place until late in 1991, but only because the defendant wished to avoid tax disadvantages. The claimant's building measures had taken place with the defendant's consent. The defendant was liable for the reimbursement of the costs which had arisen from this on the ground of unjustified enrichment, and fault in the contractual negotiations. The defendant denied the existence of agreement about the sale and his consent to the claimant's works, and counterclaimed for the remainder of the rent, compensation for use, and reimbursement of costs for the removal of part of the alterations.

The Landgericht allowed the claim by a partial judgment about the principles. The defendant's appeal was unsuccessful. By his appeal in law he seeks rejection of the claim. The claimant applies for rejection of the defendant's appeal in law. The defendant's appeal in law has not been accepted by the senate in so far as it is directed against the claimant’s entitlement, which has been established in principle, to reduction of the agreed rent in a total sum of 20,150 DM. In other respects the appeal in law led to quashing and reference back.

Grounds:

I. (…)

II.

1. a) Because of contractual freedom, every contractual partner has the right until conclusion of the contract to walk away from the contract under consideration. Expenditure which is made in the expectation of conclusion of the contract is therefore in principle incurred at one's own risk (references omitted). Only if the conclusion of the contract can, in the light of the negotiations between the parties, be assumed to be certain, and expenditure for the implementation of the contract is made before its conclusion in reliance on this, is it possible for this expenditure to be reimbursable by the partner in the negotiations on the ground of fault in contractual negotiations, if he later declines to conclude the contract without any valid ground (references omitted).

A duty founded in this way to compensate for loss incurred through reliance amounts however to an indirect compulsion to conclude the contract. This compulsion runs counter to the purpose of the formal provisions of § 313 sentence 1 [§ 311b (1)] of the BGB, according to which a commitment without the observation of form is to be prevented because of the objective peculiarity of the subject-matter of the contract (references omitted). In the area of legal transactions which must be authenticated under § 313 sentence 1 of the BGB, breaking off contractual negotiations, the consequence of which could be assumed to be certain, by a partner to the negotiations therefore does not trigger claims to compensation for loss, even if there is no valid ground for breaking off (references omitted).

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

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

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

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

The defendant may have violated such a duty of explanation here. He has claimed in another connection that in late 1991 it had become evident that the cost calculated for his alteration and extension proposals of 1,500,000 DM was insufficient, and it would in fact amount to about 3,000,000 DM. Therefore he could not keep to his original calculation. But he alleges that, from this point in time onwards, the basis of the claimant's assumption that the contract would come into existence between the parties had disappeared. This was the latest date at which the defendant's preparedness to enter into the contract (assumed as certain by the claimant following the negotiations) was present. The uncertainty which had now arisen remained concealed from the claimant, but the defendant knew about it. His prior conduct and his knowledge of the claimant's current works therefore obliged him to inform the claimant without delay of the change in his ideas about price, in order to give the claimant the opportunity to refrain from further investment in the alteration and extension of the rooms made over to him. In this respect also there has been no submission which enables an exact chronological determination and classification of the expenditure.

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

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