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Case:
BGHZ 11, 80 I. Civil Senate (I ZR 140/52)
Date:
13 November 1953
Note:
Translated German Cases and Materials Under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz
Translated by:
Tony Weir
Copyright:
Professor B.S. Markesinis

Under a charterparty in Cencon form dated 3O August 195O, the plaintiff was to make its ship Ouistreham available in New York on or about 5 September l95O. The Ouistreham arrived in New York on 11 September l95O. The plaintiff then gave notice of readiness to load to C.Sh. Co., the firm nominated by the defendant after repeated requests. That firm replied that it was entirely unconcerned with the loading of the ship. In fact the defendant had been unable to find a cargo. The same day the plaintiff informed the defendant that it would regard itself as released from the charterparty unless by the end of 12th September either the loading of the vessel had begun or the defendant had provided a bank guarantee. The promised governmental and bank guarantees were unforthcoming, and the defendant provided no cargo, merely adumbrating the possibility that a cargo might be available in New Orleans. On 13 September the plaintiff informed the defendant that in view of its culpable conduct it regarded the charterparty as unperformed, that it was going to withdraw the Ouistreham and that it reserved its rights to hold the defendant liable in damages for breach of contract. On 15 September the Ouistreham was berthed elsewhere in New York and was returned to liner service on 28 September.

The plaintiff now claims compensation for the cost of the wasted trip to New York. The claim was based expressly on Clause 13 of the charterparty ("Indemnity for nonperformance of this charterparty proved damages, not exceeding estimated amount of freight"). The defendant denied liability on the basis of the plaintiff's failure to satisfy the conditions of s. 577 HGB, and contested the quantum of the claim.

The Landgericht dismissed the claim, but the Court of Appeal reversed, and the defendant's appeal is dismissed on the following grounds: I. (The Court of Appeal agreed with the lower court that German law applied). II. The Landgericht considered ss. 58O, 585, 567, 574 HGB, and ss. 326 par. l, 3O4 BGB, and held that the preconditions laid down by these paragraphs for the making of a claim for a money payment were not satisfied. The Court of Appeal rightly observed that it was irrelevant whether or not any claim for dead freight lay under ss. 58O, 585 HGB since the plaintiff was making no such claim: the plaintiff was suing for damages under Clause 13 of the charter- party. This clause is substantially equivalent to the clause in German charterparties "In case of non-performance of this contract of carriage, the party at fault must pay the innocent party the damage which is proved to have arisen; such payment, however, must not exceed the estimated freight" (see Capelle, Die Frachtcharter in rechtsvergleichender Darstellung (l94O) 566).

The dispute between the parties is as to whose "breach of contract" (Vertragsbruch) was to blame for the non-performance of the charterparty. The plaintiff's view was that it could not reasonably be expected to wait any longer for a cargo in view of the defendant's prevarication and unbusinesslike conduct, and that in any case it had the right to withdraw the ship on the expiry of the notice that it would wait only until 12 September. As against this the defendant claims that the plaintiff was in breach of s. 577 HGB in withdrawing the ship against the defendant's wish before the laytime was up. Under the special provisions of s. 577 HGB, the plaintiff was bound to wait until the laytime had expired and indeed, if so required by the charterer, for an extra period thereafter (Uberlageseit). The Commercial Code provided no means whereby the shipowner might shorten this period of waiting (ss. 568, 57O HGB). But here the plaintiff did not even wait until the expiry of the laytime. Under the Commercial Code the contract abated only if the prescribed waiting period had proved fruitless. Until then there could be no claim for damages either. Under the BGB, if it applied at all, the plaintiff was the party whose performance was due first, and only if the preconditions laid down in s. 321 BGB were satisfied, could he release himself from the contract before performance was due from the other side.

In the event the Court of Appeal rightly accepted the plaintiff's view, and, applying the general principles of law contained in the BGB, held that the waiting time had been brought to a premature end by reason of the defendant's "breach of contract". The Court of Appeal explained that the defendant's conduct constituted a breach of contract since it was so unreliable and shifty that it would no longer be just to hold the plaintiff to its part of the bargain. Given this "positive breach of contract" the plaintiff was entitled to resile from the contract without giving any time for further performance, and to demand damages under s. 276 BGB.

III. This is the correct legal approach to all culpable breaches of contract unless they occasion impossibility of performance or delay. A contract is only fulfilled if the debtor does everything the contract requires of him (RGZ l6O, 310, 314). In this wide sense the obligation includes not only all principal and collateral duties, such as duties to prepare for performance, duties to safeguard the object of the contract, duties to give information, duties to give notice, duties to co-operate and so on, but also what are called the pure "creditor requirements" (Glflubigerobliegenheiten> which include, for example, in the case of a contract for labour and materials (Werkvertrag), anything the creditor needs to do to enable the work to be done (s. 642 BGB), acts which are "the creditor's business" even though they may not, strictly speaking, constitute a positive obligation. Any breach of these "contractual duties" in this wide sense which disturbs the performance and causes harm to the other contractor engenders an obligation to pay damages. This principle of law is generally recognised by courts and writers, and should be treated as statutory even if it is not expressed in terms in the Civil Code (RGZ 1O6, 22, 26; it is at least analogous to the rules which apply when a party is at fault in causing impossibility or delay (compare ss. 28O, 286, 325, 326 BGB)). It is true that the Reichsgericht always based liability in damages directly on s. 276 BGB although on its proper construction that provision only determines when liability exists and not what its effect is. Nevertheless at the end of the decision cited the Reichsgerichtdid substantially recognise that the rule could be justified without invoking s. 276 BGB (reference omitted).

If the plaintiff suffers harm over and above his interest in performance and it is due to the defendant's culpable breach of contract not resulting in impossibility or delay, for which the BGB has special rules, then compensation may be awarded under ss 249 ff. BGB. This applies to bilateral contracts as well as to unilateral obligations independent of any counterperformance (RGZ 161, 330, 337 f.). But in bilateral contracts the party injured by the other party's positive breach is not limited to claiming damages for the invasion of his 'negative interest' (reliance or Ausgleichsinteresse): under certain circumstances he has other rights which in terms of content are much like those which arise under s. 325, 326 BGB, but whose legal basis is really to be found in s. 242 BGB. If a "positive breach of contract" so imperils the contractual purpose that in view of all the circumstances it would be unfair and not in accordance with the principles of Treu und Glauben to expect the innocent party to continue with the contract and render the performance for which it calls, he may on his side refuse to perform the contract and at his option claim damages for non-performance, including his positive interest in performance or withdraw from the contract (RGZ 54,98; 57, 114; 67∑, 5 f.; 67, 311, 317 ; 93, 285 f.; 104, IS f.; 106, 22, 25 f.; 152, 119 ff.; further references omitted). While it is true that in principle a suit for damages for harm other than the plaintiff's interest in performance has no effect on the performance as such, performance of the contract is in fact excluded when the contractual purpose has been unacceptably imperilled, so the person who is entitled for that reason to refuse to perform his side of the contract is also entitled to withdraw from the contract and claim damages for non-performance. The present suite is not brought for harm going beyond the plaintiff's interest in performance. Even on the Reichsgericht's analysis, the present claim for damages need not necessarily be based on s. 276 BGB, despite the apparently contrary view of the Court of Appeal. The critical matter, whether in view of the defendant's conduct the plaintiff was entitled to withdraw from the contract prematurely, depends very much more on the question whether, given all the circumstances of the case, it would be consistent with s. 242 BGB to expect the plaintiff to continue to perform its obligations under the charterparty, essentially making the vessel available and effecting the carriage. Applying the general principles of law in the BGB rather than the specific provisions of the Commercial Code, these obligations cease to bind if the charterer by faulty conduct puts the contractual adventure so much at risk that the owner can no longer be expected to render the performance called for by these obligations. We cannot accept the defendant's view that the plaintiff, being the party bound to render performance first, could only refuse to perform if the conditions of s. 321 BGB were satisfied. This provision is directed to the special case where there has been a serious deterioration, whether or not he is to blame for it, in the economic circumstances of the party entitled to receive prior performance; it does not rule out the possibility that principles of Treu und Glauben under s. 242 BGB give rise to other and further reaching limitations on the duty to render prior performance. In addition, the prevalent view is that s. 242 BGB entitles the party bound to prior performance to withdraw from the contract if the other party whose deteriorating resources are putting the contractual purpose at risk is not prepared to alleviate that risk by agreeing to pay as performance is rendered or to give security for payment. Positive breach of contract in the present case may be established by any misconduct on the part of the defendant. Thereafter the critical question is simply whether the harm is so extensive as to endanger the contractual purpose and also to make it unfair to expect the injured party to proceed with the contract (references omitted). If the breach of contract is such given all the circumstances of the case, especially the nature of the contract and the particular relationship and interests of the parties, that the innocent party cannot be expected to proceed with the contract, then there is no need for the innocent party, at any rate in the normal case, to give notice that unless the other party performs within a certain time, he will refuse performance on his side (RGZ 1O4, 39, 41; further reference omitted). The innocent party may abandon the contract forthwith on giving the reasons which move him to do so. The only relevant reasons are those which exist at the time of the notice and are adduced as determinative (references omitted ). Reasons arising or given later cannot be taken into account (RGZ 123, 239, 24O). The contains which contains the abandonment of the contract must be justified without regard to subsequent changes in the conduct or opinions of the parties (RGZ 142, 268, 274).

IV. If we apply these legal principles to the undisputed facts of this case, the plaintiff's declared refusal to perform the contract was clearly justified, as the Court of Appeal found.

Instead of admitting that it had no cargo owner in view, the defendant referred the plaintiff to a non-existent company, the o.Sh.Co., on 7 September, and on 8 September it referred the plaintiff to the C.Sh. Co, Inc. On 9 September the defendant sought to allay the plaintiff's suspicions at these repeated falsehoods by stating that the A. Bank had taken over the financing of the operation. A simple enquiry showed that this, too, is false. Such conduct on the part of the defendant would naturally make the plaintiff feel doubtful whether the charter would be performed normally; there was, indeed, an objective risk of the plaintiff's interests being frustrated by the defendant's misconduct and prevarication. The Court of Appeal was thus right to hold that two days before the vessel even arrived in, New York, the situation was such that the plaintiff must have feared seriously that the defendant would not perform the contract. The defendant had already shown on frequent occasions how unreliable it was. Even at that time its conduct would have justified the immediate withdrawal of the ship.

The great economic risk which a shipowner bears by reason of being bound to perform first is only fair and tolerable if the charterer does everything he can to avoid conduct which is apt to shatter the basis of trust which the execution of such a contract calls for. According to the undisputed facts, the conduct of the defendant was so unreliable as necessarily to raise in the plaintiff a serious doubt whether the contract would be duly executed. Despite this, the plaintiff did not abandon the contract forthwith, but gave the defendant a chance to provide a cargo or a bank guarantee and thus allay the plaintiff's doubts about the performance of the contract. This was much as is provided for in s. 321 BGB. By giving the defendant a period of grace up to 12 September, the plaintiff certainly did all that could reasonably be expected of him in accordance with Treu und Glauben with a view to protecting the contractual interests of both parties in performing their respective parts (s. 242 BGB).

The defendant made no use of the chance thus afforded to him, and failed to satisfy the conditions on which the plaintiff had made the continuation of the contract depend. In such a situation the plaintiff, being a foreign company which could assert its rights only in Germany, could no longer be expected in view of the inadequate security to expose itself further to the risk of loss increasingly resulting from the idleness of the vessel. The plaintiff's faith in the contractual dependability of the defendant was so completely shattered that it could no longer be expected to adhere to the contract. In such a case the risk to the plaintiff's interest is equivalent to a frustration of that interest (reference omitted). On 13 September 1950 the plaintiff telegraphically upbraided the defendant for its breach of contract, and communicated its decision to withdraw the ship and claim damages on the express ground of the defendant's prevarication ("...having been twice misled..."). On making this declaration the plaintiff was definitively released from its obligation to perform the contract and became entitled to claim damages under Clause 13 of the charterparty.

V. The appellant maintains that on neither the objective nor the subjective view were the requirements of positive breach of contract satisfied. The three erroneous messages from the defendant could not imperil the contractual purpose, since the plaintiff was in any case obliged to wait; much less could the mere fact that the information given was erroneous render it intolerable to require the plaintiff to proceed with the contract.

l. Although the Court of Appeal, referring to RGZ 1O3, 257 ff ., thought otherwise, we can agree with the appellant that the delivery to the plaintiff shipowner of the goods to be carried under the contract was not an obligation which the defendant charterer assumed as debtor, even by express contractual stipulation, although it was bound as a creditor to co-operate towards the carriage of the goods (reference omitted). But the appellant is wrong to say that such "creditor requirements" can never lead to a positive breach of contract. Courts and scholars unanimously accept that positive breaches are possible in contracts of services, to which category charterparties as contracts of affreightment belong (RGZ 104, 15 f.; 152, 119 ff .; other references omitted).

2. Nor do the terms of s. 577 of the Commercial Code conflict with the assumption of a positive breach of contract. This provision deals with the case where a third party, the consignor, i.e. the party that is to provide the cargo, "cannot be ascertained" or refuses to provide a cargo, In such a case, and in accordance with s. 642 BGB, this may put the charterer in delay in accepting the carrier's tender of carriage which has fallen due (reference omitted). But if the fact that the consignor "cannot be ascertained" results from the faulty conduct of the charterer which is such as to imperil the contractual purpose, then in accordance with the general legal principles of the BGB, there may unquestionably be a positive breach of contract. The legal situation is thus analogous to that in the cases already cited construing s. 642 BGB: that provision deals with the legal consequences of delay in acceptance when the creditor has failed to cooperate as required if the work is to be produced, but there may well be concurrent claims based on positive breach of contract if the person ordering the work was at fault.

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