In February 1920 the plaintiff was engaged as a manager by the defendant company, the managing director of which was the second defendant. In June 1922 the plaintiff left the service of the first defendant as a result of a disagreement.
By a contract of employment dated 13 August 1920, which was to run for three years, the plaintiff was allotted the house, 6 K. Street in O. as his official residence rent-free. The defendant company had bought it shortly before for 120,000 Marks. When a new contract of employment was drawn up on 20 February 1922, to run until 30 September 1924, the second defendant signed a document on behalf of the first defendant, the company, whereby the plaintiff was granted a right of pre-emption in respect of the official residence at the price of 120,000 Marks.
The plaintiff sued both defendants demanding that the house be conveyed to him; alternatively he claimed damages resulting from the failure to convey the house.
The defendants pleaded that the promises had not been made notarial form or before a court as required by para. 313 BGB and were not binding. Alternatively they denied that any such promises had been made.
The Court of Appeal found that in 1920 the second defendant had congratulated the plaintiff on his performance and had stated that the house was to be his in lieu of Christmas bonuses in cash in 1920 and 1921. Shortly afterwards the second defendant had repeated the statement, adding that the plaintiff had requested the second defendant to convey the house to him, but the second defendant had assured him upon his word as nobleman that the notarial conveyance could take place at any time, but was unnecessary between the parties. The Court of appeal also found that no fraudulent intention of the defendants existed not to perform the contract and to rely on its formal invalidity. Instead the defendants had originally the intention to fulfil their obligations and had only changed their minds subsequently. The second defendant, in giving the assurances set out above, had caused the agreement not to be made in official form; it was contrary to good faith if the defendants now refused to convey the house.
The District court and the Court of Appeal of Düsseldorf gave judgment for the plaintiff. The judgment was quashed for the following
The courts below ... held that the defendants in their negotiations had the serious intention to perform the contract which was invalid in form and that they only decided subsequently not to do so. The courts below held as a matter of law that it is contrary to good faith and against the sentiments of decency entertained by all fair and just people if the defendants now refuse to execute the conveyance contrary to their previous promises "made in such a solemn form".
In view of the statutory requirement of form laid down by para. 313 s. 1 BGB neither the plea that a present violation of good faith (of present malice [references] had been shown nor any other violation of bonus mores can be said to have been made out.
As regards the first plea, the practice of the Reichsgericht (references) requires that a party who opposes a plea of lack of form must have been mistaken concerning the legal requirement of form and that this mistake was caused wilfully or negligently (para. 276 BGB) by the other party to the transaction. The facts as found do not disclose the existence of these two prerequisites. Instead, the pleadings show that both parties were aware of the need to observe the formalities; no deception or even an attempt to this effect has occurred. Nor can the defendants be said to have acted culpably at the time when the disputed promises were made, seeing that the Court of appeal has found that the defendants had the serious intention at that time to honour their promises and made the promises with this intention in mind. If it is correct that both parties knew of the need to observe the formalities, it is also due to the consent of the plaintiff that the formal recording of their agreement was postponed, and he must bear the consequences of this postponement without being able to shift the burden upon the other party. The mistake concerning the legal need to observe the formalities which is necessary to support the plaintiff's complaint cannot be replaced by a factual mistake as to whether in the circumstances the promise, even though informal, would be kept. The complaint raised here, as developed by the practice of the Reichsgericht and as featuring in the broader context of blameworthiness at the conclusion of the contract (culpa in contrahendo) does not support the claim ... (references).
A violation of good morals has not occurred either which might bind the defendant in virtue of para. 826 BGB in conjunction with para. 249 BGB to execute a conveyance (reference). If the promises "upon the word of a nobleman" were inspired by the honest intention to perform them when they were made, the "solemn declaration" alone cannot, by itself, be regarded as a violation of good morals; it can only be said to exist if the fact of these promises were denied in the course of the proceedings and their performance was refused. Since, however, the defence of lack of form in accordance with para. 313 s. 1 BGB constitutes, in principle, an admissible plea of an existing legal remedy a violation of good morals which obliges the defendant to pay damages held to have occurred in the special circumstances of the case, can only be found in the present situation, if the previous attitude can be said to have created a legal obligation. This must be denied in the present case, having regard to the basic facts found by the Court of Appeal. It is the essence of a legal provision requiring form that if the form is not observed, a declaration of an intention to conclude a legal transaction is not binding. It does not bind, even if the intention is manifested by especially emphatic words in solemn form. The statutory requirement of form cannot be replaced by some other solemn expression chosen by the parties. The form required by the statute cannot be rendered superfluous by these means, and it is not possible by way of awarding damages to accord legal effects to an informal declaration, if the statute denies it any effect.
Accordingly the claim for the performance raised by this action, which cannot be supported on the ground of blameworthiness at the conclusion of the contract (culpa in contrahendo) cannot be justified either on the ground that good morals have been violated. The claim must therefore be rejected.
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