A claim for an increase in the amount of the dead rent fixed in a contract for the extraction of saltpetre at the turn of the century cannot be upheld on the ground that the intervening decline in the purchasing power of money has caused the collapse of the basis of the transaction.
3. The court below held that the landowners had no claim for any increase in the amount of the dead rent , and did so on the ground that the "equivalence" between performance and counterperformance had not really been disturbed by intervening events. The court held that although the contract of 1898 for the extraction of saltpetre was a reciprocal contract, and the agreed dead rent was the mining company's counterperformance for the right of extraction granted to it by the landowner and the agreement of the latter not to dispose otherwise of the minerals during the period of the contract, it was impossible to say why the dead rent was set at 1200 Mark per annum: that sum was not related to the current price of saltpetre, since the parties in 1898 did not refer to it, and indeed did not know, because there was technically no means of finding out, whether there were any extractable saltpetre at all in the area covered by the contract or if so, how much of it there might be. Nor could the landowners' claim for an increase in the amount of the dead rent be based on the view that revaluation was justified because the original basis of the transaction had collapsed owing to general changes in the economy. According to the jurisprudence of the supreme court, it was only in very exceptional cases that there was any scope for adapting a long-term contract to altered circumstances, i.e. when the relationship between performance and counterperformance had shifted so fundamentally that it would be inconsistent with the requirements of good faith and fair dealing and the principle of fidelity to contracts to maintain the original allocation of rights and duties. That was not the situation in the present case. The dead rent was not part of a direct exchange, and cannot be seen as a sufficient counterpart for the landowners' contractual duty. To grant the requested increase in the agreed amount would be to make an impermissible revaluation of a debt in marks; the mark was set at par by the Aufwertungsgesetz of 1925 and again at par for DM by UmstG para. 18 par. 1 no. 1, and the official indexes and other publications show that there has been no revolutionary change in the general economy since that currency reform.
The appellant claims that these views are wrong in law.
a) To a certain extent the appellant is right. We cannot agree with the court below on all the points related to collapse of the basis of the transaction on which it rejected the landowners' claim for an increase in the dead rent. It is indeed possible that in the course of a long-term contractual relationship the balance between performance and counterperformance may become so upset that it would no longer be fair to keep the disadvantaged party to what was originally agreed. If that be so, then the principle of good faith and fair dealing which dominates the whole of our law (para. 242 BGB) requires either that the reciprocal obligations be adapted to the changed situation, supposing that the maintenance of the contract is in the interests of the parties as properly conceived, or that the contract be completely cancelled. Actually, this was the position from which the court below started. It first asked whether there was a relationship of equivalence between the obligation the landowners undertook in the contract of 1898 and the agreed dead rent. They held that there was. This was correct, since the question is not whether performance and counterperformance were objectively equivalent in value, but whether the parties treated them as being so. But the court went on to say that no disturbance of this relationship of equivalence could be found because the agreed annual sum of 1,200 Mark was an "arbitrary figure" which bore no relation to the current price of saltpetre or the amount extractable from the land in question. This is very dubious, and the appellant is right to argue that even an arbitrary sum may in the minds of the contractors have been geared to the general condition of the economy and the current purchasing power of money. If such circumstances have changed very materially in the intervening period one could no more exclude the possibility of a shift in the relationship of equivalence in the case of an "arbitrary" sum than in the case of a sum fixed in relation to concrete factors in the situation.
Again, the lower court's reasoning is dubious in that it first asked whether the plaintiff had a claim for the "reinstatement of the relationship of equivalence" as such, that is, as an independent ground of claim, and only then asked as a subsidiary question whether "the change in the basis of the transaction" entitled the landowners to demand an increase in the dead rent under para. 242 BGB on the ground of the alteration in the economic situation. In reality, though the court below does not seem to have seen this, these are one and the same question: the shift in the balance between performance and counterperformance ("disturbance of the relationship of equivalence") is simply an instance of the destruction or collapse of the basis of the transaction, that is, of a situation which may lead to a cancellation of the contract or its adaptation to the new situation, under the very narrowly defined conditions laid down in the jurisprudence of the Reichsgericht and Bundesgerichtshof.
b) Despite these defects in the decision of the court below, the outcome is correct. One of the stated requirements for the application of the theory of the collapse of the basis of the transaction, and one which is especially important in cases of this kind, is that the intervening change be of a critical nature and affect the interests of the parties to a significant degree. Not every adverse modification of the prior relationship of equivalence, unforeseen by the parties at the time of the contract, justifies a departure from the principle that contracts must be adhered to ("pacta sunt servanda").
What is really required is such a fundamental and radical change in the relevant circumstances that it would be an intolerable result quite inconsistent with law and justice to hold the party to the contract [references]. This test is crucial in this case. The court below recognised this and was right to apply this test. In doing so it went thoroughly into the facts and after considering the interests of both parties came to the conclusion that the stated preconditions for breaking with the principle that contracts must be kept were not satisfied.
This court is in entire agreement. The imbalance between the duties of the parties which is in issue in this case is the result of the fall in the purchasing power of money since the contract was formed. According to the calculations in the expert opinion of Larenz, which we can unhesitatingly accept, the value of money diminished by two-thirds during the period in question; thus the sum agreed as dead rent in the contract has only about one third of the purchasing power today it had in 1898. But the plaintiff is quite wrong to say that the landowners are now entitled to claim three times the original sum, namely 3,600 DM. Simple arithmetic does not answer the question whether a reduction in purchasing power produces a situation which is intolerable by the test of good faith and fair dealing. The expert opinion just mentioned, which itself proposes a rise of only 75% rather than 200%, pays too much attention to the figures in stating that if in 1898 1,200 Marks was fair compensation to the owners for their performance (i.e. agreeing not to exploit the minerals) the fall in the value of money in the ensuing sixty years was so great that it would be inequitable not to increase that sum.
The very writer of the opinion in his book "Geschäftsgrundlage und Vertragserfüllung" (2nd ed., 1957) is right to emphasise the basic principle that contracts must be adhered to, and states that the law should only intervene under para. 242 BGB in cases where holding the party to his contract would be manifestly and grossly contrary to its spirit (p. 165), and that a rigorous standard should be applied: it is not every serious shift in equivalence that justifies departing from the contract, but only such a shift as a reasonable person would see as going far beyond the risk assumed and as negating nearly the entire interest which the affected party had in the transaction [references]. We agree with these principles, and if one keeps them in mind it is clear that the claim in the instant case is unjustified. The court below rightly saw the critical question as being whether the dead rent as originally fixed "must now be regarded as a wholly inadequate return", and did not fall into any legal error in concluding that it could not. This finding alone justified the court in dismissing the claim.
Whether it would make any difference to the decision if the landowners, contrary to the actual fact, were in urgent need of the money and would face economic ruin if the payments of dead rent were suppressed or seriously reduced is a question we need not answer. Nor need we take a position on the question whether it falls within the so-called "normal risk of contracting" when recurrent payments under a long-term contract or a contract of indefinite duration, such as this one, which the court below held contained no "speculative element", lose two-thirds of their value because of the ever-increasing cost of living [references]. For even on a very generous view of Treu und Glauben it would be impossible to justify granting the plaintiffs another increase in the dead rent when the contractual sum was fully revalued at the end of the First World War and then in 1948 converted at par into the present currency. Otherwise the effect of the doctrine of the foundation of the transaction would be to imply into long-term contracts a sort of "gold clause", and this, as the court below was right to observe, would be contrary to the currency legislation and would be apt to impair faith in the currency. The courts are not free to depart from the law on grounds of equity; only the legislator can effect any further adjustment of long-term contracts to situations produced by inflation.
c) The appellant invokes para. 7 d. of the Law on Agricultural Leases which permits the courts to adjust a contract when radical changes occurring in the surrounding circumstances have produced a gross imbalance between reciprocal obligations, and argues that it can be applied by analogy to the present case. That is not so. The court below explained that this legislation is very specific and not to be extended to contracts of other types. That is right. It is true that contracts for the extraction of soda are in many respects similar to long-term leases of land [reference], but at any rate as regards the dead rent they do not have those features of long leases of land which led the legislature to enact para. 7 LPG.
This provision is just the most recent example of special legislation on long-term leases of farms, going back now for many years, passed in the public interest for reasons having to do with agriculture, and it cannot be extended by analogy or construed by the courts as applying to contracts of types other than long-term farming leases, which are distinctive, especially because the effect of their terms alters over time [references]. The legislation applies only to such leases. The aim of the legislator is to see that the return of agricultural land is fairly divided between owner and tenant farmer despite changes in economic circumstances, so that both may make their contribution to the maintenance and increase of its productivity - the tenant-farmer by good farm management and the owner by performing his contractual duties to keep the buildings in good repair and improve the land. If either party lacked the means to perform his part, the harvest would suffer, and if the owner were not properly protected against economic changes he would be reluctant to enter into long-term leases of his farmland, although they conduce to its optimal use [references]. Such considerations are not central to contracts for the extraction of minerals: they were mainly entered into half a century ago; if new contracts are entered into today the parties are free to adopt appropriate terms whereby their obligations will be adjusted to future developments. At any rate there appears to be no public interest beyond that of the parties to mineral extraction contracts such as to call for special legislation.
A further reason for not applying this statute in the present case, whether directly or by analogy, is that that enactment empowers the courts to make law for the parties, whereas when a court applies para. 242 BGB, as is suggested in this case, it is simply finding the law, not making it; the judge does not reconstruct the legal relation of the parties but simply declares what alterations in the legal relationship have already been produced, according to good faith and fair dealing, by changes in the surrounding circumstances [references].
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