The parties, both German nationals, met in Moscow in 1920. The plaintiff lent the defendant, a former prisoner of war, 30,000 Soviet roubles in return for two promissory notes dated 16 and 17 May 1920, whereby the defendant undertook to pay the plaintiff 5000 and 2500 Marks within two months of his return to Germany. When the plaintiff claimed 7500 Marks the defendant contended and the plaintiff admitted that at the time when the loan was made the equivalent of 30,000 Soviet roubles was only 300 Marks.
The District Court found that at the time when the loan was made, the parties assumed that a Soviet rouble was equivalent to 25 Pfennig and that neither party was aware at the time that the value of the rouble was much lower. Accordingly it gave judgment for the plaintiff, which was upheld by the Court of Appeal. Upon further appeal the judgment of the Court of Appeal was quashed for the following
The approach of the Court of Appeal is open to doubt as to whether the defendant may claim to annul his two promissory notes on the ground of mistake ... had in fact sought to avoid them, his attempt was ineffective in law seeing that according to his own pleadings he had not been in error in respect of the substance of his own declaration and had not intended to make a declaration different from that which he had made; instead his error concerned the value of the Soviet rouble and therefore constituted a motive for his declaration.
The appellant rightly objects that this view cannot be sustained in law ... The loan was made in Soviet roubles; therefore, according to para. 607 s. 1 BGB it must as a rule be repaid in the same currency. By a special agreement, embodied in the promissory notes, the defendant undertook however to repay 7500 Marks. In making this agreement ... the parties assumed that in Germany a Soviet rouble was worth 25 Pfennig. Consequently the declaration of the defendant that he intended to owe the plaintiff 7500 Marks in lieu of the original sum of money lent represents a manifestation of intent, clearly apparent to the plaintiff, that he proposed to convert the money lent into German currency at this rate of exchange. It is true that this intention, which was directly influenced by the mistaken belief that the rouble was worth not 1 Pfennig but 15 Pfennig determined the decision of the defendant. However, it did not refer to those circumstances which preceded his declaration forming part of the transaction and did not merely represent subjective considerations. Instead, this intention was part of the declaration itself and was communicated to the other party in the course of the negotiations for a contract. It was not necessary to incorporate it in the documents or to make an express oral statement. The intention to apply the rule of conversion, assumed to be correct, was expressed as such in the declarations exchanged in connection with the special agreement ...
Accordingly, the mistake was not one of motive, which is irrelevant in law, but constituted a mistake concerning the basis of the legal transaction. It must be regarded as a mistake affecting the declaration which may be annulled in accordance with para. 119 s. 1 BGB.
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