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Case:
BGHZ 146, 298 Bundesgerichtshof (fifth civil senate) V ZR 437/99
Date:
19 January 2001
Note:
Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz
Translated by:
Mr Raymond Youngs
Copyright:
Professor B.S. Markesinis

Facts

The claimant demands from the defendant retransfer of land, and subsidiarily rectification of the Land Register and submission to execution proceedings, in relation to three pieces of land in M-V with a total area of 3,005 sq. metres. The pieces of land, one of which has had a three family house on it since 1963, were in the ownership of the claimant's mother who was born on the 31st July 1907 and died on the 5th August 1991. The claimant, who had not been provided for in her mother's will, acquired all the estate by a notarial document through a purchase of the inheritance from the sole heiress. The claimant's mother sold the pieces of land by notarial contract of the 15th May 1990 to the defendants (each of whom acquired a half share) at the price of 100,000 DM. Besides this, the defendants undertook to pay from June 1990 onwards a life long inflation-proof monthly pension at a rate of 1,400 DM to the claimant's mother; and they made a land charge in respect of this. The defendants further granted to the claimant's mother a lifelong right to live without payment in all the rooms in the first upper storey, subject to the obligation of bearing the cost of all heating, lighting and services, except for cost of electricity. The claimant is of the view that the purchase contract of the 15th May 1990 was void, as it was in the nature of an extortionate transaction under § 138 (1) of the BGB. She claimed that the piece of land had had a value of at least 860,000 DM; as a counter performance, in addition to the cash purchase price of 100,000 DM, only a further 66,500 DM for the capitalised pension and 37,958 DM for the capitalised right of residence had been spent. Besides this, the defendants had been informed about the state of health of the testatrix, who had been ill with cancer of the lymph glands since 1988, and at the end of 1988 had suffered a stroke. In addition to this, the claimant asserted, her mother had been not legally competent at the conclusion of the purchase contract.

The claim was successful at first instance only as to the subsidiary application in the partial sum of 69,886.20 DM. The Oberlandesgericht rejected the claimant's appeal, and on the defendants' cross appeal rejected the claim altogether. The claimant's appeal in law is directed against this decision and the defendants apply for its rejection.

Reasons

The appeal in law is in substance successful.

I.

The appeal court denies the invalidity of the purchase contract for extortion. The subjective prerequisites were in any case lacking. For extortion, it was necessary that the person obtaining the extortionate advantage knew of the objectively conspicuous disparity and the objective exploitation of the disadvantaged party, and intentionally made use of this situation. According to the result of the taking of evidence, it had not been established that the disparity between performance and counter-performance, as well as the testatrix's position of weakness, had been known to the defendants. The subjective prerequisites for a transation contrary to good morals under § 138 (1) of the BGB were also not fulfilled. Admittedly a flagrant, particularily blatant, disparity between performance and counter-performance might be present, but it was necessary for the assumption that a transaction was akin to extortionate that the objective values were known to the favoured party. The conclusion of a reprehensible state of mind could only be drawn from a flagrant disparity if the favoured party was conscious that he was enjoying an exceptional concession. But this consciousness could not be established. Finally the claimant could also not prove the legal incompetence of the testatrix, which she had asserted, at the conclusion of the purchase contract and the declaration of transfer.

II.

These observations do not stand up to legal examination in all respects.

1. Contrary to the view of the appeal court, the claimant can demand from the defendants the retransfer sought by the main application. The claimant has acquired the claim, which at first belonged to the testatrix and passed to sole heiress on inheritance, by way of transfer under § 2 of the notarial document of the 26th February 1992, on the basis of an inheritance purchase.

a) The appeal court has stated without legal error that the prerequisites of an extortionate legal transaction under § 138 (2) of the BGB cannot be established. The appeal in law accepts this. The purchase contract between the claimant's mother and the defendants is however contrary to good morals under § 138 (1) of the BGB as a legal transaction which is akin to extortionate, and therefore void.

b) A legal transaction is void under § 138 (1) of the BGB if it cannot be reconciled with good morals according to its total character, to be deduced from the combination of content, motive and purpose. Neither consciousness of the immorality nor an intention to harm is necessary here; instead it suffices if the person acting knows the facts from which the immorality follows. It makes no difference whether someone closes his mind to the knowledge of pertinent facts deliberately or with gross negligence (reference omitted).

Accordingly, mutual agreements can be immoral as legal tranactions which are akin to extortionate under § 138 (1) of the BGB even if the concept of extortion in § 138 (2) of the BGB is not fulfilled in all its prerequisites, if objectively a flagrant disparity exists between performance and counter-performance, and besides this there is at least one further circumstance which causes the contract to appear as immoral through a combination of subjective and objective characteristics. This is in particular so if the favoured party's state of mind appears to have been reprehensible because he has, for instance, deliberately exploited the economically weaker position of the other party to his own advantage or has at least closed his mind with culpable negligence (leichtfertig) to the knowledge that the other was only compelled by circumstances to become involved in a contract which is unfavourable for him. The circumstances mentioned in § 138 (2) of the BGB in their effects on the free decision of the will are equivalent to economic compulsion to enter into unfavourable contractual conditions. It therefore suffices if the favoured party closes his mind deliberately or with gross negligence to the perception that the other party has entered into the contract only from lack of discernment or because of considerable weakness of will (references omitted).

c) If the disparity between performance and counter-performance is especially flagrant, this can justify the inference of a deliberate or grossly negligent exploitation of a circumstance restricting the contractual partner in his freedom of decision (references omitted). Such a degree of flagrant disparity, which permits the inference of a reprehensible state of mind, is to be assumed in relation to land transactions if the value of the performance is almost double the value of the counter-performance (references omitted). The inference connected with this is derived from the principle of experience that as a rule exceptional performances are not granted unless a person is in need - or not without some other circumstance inhibiting the disadvantaged party - and the favoured party also shares this experience (references omitted).

2. The appeal court has admittedly recognised this to some extent, but has imposed an additional requirement for deducing a reprehensible state of mind that the favoured party must be aware that he is enjoying an exceptional concession. The Senate cannot endorse this.

a) As the Senate has repeatedly stated, the presence of an especially flagrant disparity between performance and counter- performance and the inference connected with this of a reprehensible state of mind depends only on the objective values of these performances (references omitted). But until now there was no need for a more precise statement to the effect that knowledge by the favoured party of the disparity in values is accordingly insignificant. It is true that the appeal court was called upon by the Senate's judgment of the 8th November 1991 (loc. cit.) to make findings, after the case had been referred back, on the knowledge of the defendant in that case about the value of the dwellings sold. The basis of that, however, was that the defendant had left the contractual negotiations and the conclusion of the contract to others, and therefore - if the value relationship was not known to him anyway - there could be no question of him having closed his mind with culpable negligence to knowledge of the disparity. According to the facts which were the basis of the Senate's judgment of the 18th January 1991 (reference omitted) knowledge by the defendant's representative of the especially flagrant disparity was already established. In so far as the Senate in the judgment of the 12th January 1996 (loc. cit.) takes into acount the defendant's knowledge of the objective disparity, this was unavoidable, because of his professional knowledge as an estate agent, broker and investment adviser as well as his knowledge of the subject matter of the purchase. It does not however follow from this that a reprehensible state of mind on the part of the defendant ought to be deduced only if this prerequisite were present. Finally, the Senate in the judgment of the 3rd July 1992 (loc. cit.) merely took into consideration that it was obvious that the defendant, as a prospective lawyer, knew in what manner the elderly claimant had been cheated. But this question remained undecided, as it was indicated that it sufficed for the existence of the subjective characteristics of § 138 (1) of the BGB if the favoured party merely closed his mind to the perception that it was only through lack of discernment that the other party became involved in contractual conditions which were unfavourable for him.

b) Only an especially flagrant disparity in value permits the inference of a reprehensible state of mind as a subjective characteristic of § 138 (1) of the BGB. This is because there must be a reprehensible state of mind whenever the favoured party closes his mind, at least with culpable negligence, to the perception that the other party has become involved in the unfavourable contract only under the compulsion of circumstances or the circumstances mentioned in § 138 (2) of the BGB (reference omitted). According to the principle of experience described above (that exceptional counterperformances are not granted except in cases of need) the favoured party may not only close his mind to knowledge of the other party's "difficult position" by taking no notice, in a case of recognised blatant disparity, of that party's predicament or some other circumstance which inhibits him. He may also do so by not even becoming conscious of the disparity if it is objectively especially flagrant. This consideration is in harmony with the case law of the Bundesgerichtshof for other contractual relationships aimed at exchange of performances. It in principle allows a reprehensible frame of mind to be inferred if only the objective requirements of § 138 (1) of the BGB are fulfilled by an appropriate disparity in value (see for credit contracts [references omitted]; for brokerage contracts [references omitted]; for financial leasing [reference omitted]). For legal transactions which are directed towards the acquisition of land ownership otherwise than for money, the position is no different. Here as well the value relationship of the two performances arises from a comparison with the market price. If the favoured party does not have sufficient expert knowledge anyway on the basis of activity in real estate business, he will in general - regardless of whether he is a transferee or transferor - (because of the high financial expenditure associated with acquiring a piece of land) have obtained at least basic knowledge of market prices before concluding a contract, perhaps by observing the land market or obtaining expert information. He is therefore as a rule easily in a position to recognise a transaction as exceptionally advantageous for him, so he is being at least culpably negligent if he closes his mind to the recognition of an especially flagrant disparity in value and the predicament of his contractual partner indicated by this. If knowledge by the favoured party of the disparity in value were to be demanded, all cases of a reprehensible frame of mind would not be covered.

c) Individual circumstances capable of influencing a decision of the will to conclude a contract can take many forms (references omitted). It is not therefore necessary to decide whether the inference is so compelling that it could result in full proof of the reprehensible frame of mind of the favoured party (by way of prima facie proof), or whether it only acquires significance as circumstantial evidence (references omitted) (reference omitted). In any case, it is an actual presumption which makes proof easier and is to be taken into consideration by the judge of fact in the area of assessment of evidence. It will only not apply if in the individual case doubt is cast upon it by special circumstances.

Such circumstances casting doubt on the presumption are more likely to be present if the favoured party is not aware of the especially flagrant disparity than if he knows of it. Thus it is for instance conceivable that the value relationship of the performances on both sides was a matter of complete indifference to the contracting parties because the purchaser, who was exceptionally well placed economically, wanted to acquire a piece of land anyway. Special motives or a sentimental interest also fall to be considered. Such circumstances play no roll in establishing a blatant disparity in value, but they acquire importance when examining the subjective side of immorality (references omitted). If the contractual parties had taken a defective opinion as to market value as the basis of the agreed purchase price, this can likewise deprive the presumption of its force (reference omitted) and the same applies for special difficulties in valuation (references omitted). Such special circumstances are to be explained and if necessary proved according to general principles (reference omitted) by the party to whose advantage they work, and thus here by the favoured party (references omitted).

3. Although the appeal court has left open the question of the value relationship between the performance of the testatrix and the counterperformance of the defendants, it is possible for the Senate to make a decision on this on the basis of the facts of the case, which are undisputed and do not require further findings.

a) The defendants have not disputed in any significant way that there is an especially flagrant disparity between the performance and counterperformance. It can even be established according to their defence. The defendants did not pursue on the first appeal their case at first instance - based on the private report of the expert N of the 30th August 1991 - that the value of the pieces of land bought by them had amounted to merely 340,000 DM. Now on the basis of the expert's report obtained by the Landgericht they have expressly claimed a land value of 441,660 DM even on the 15th May 1990 - the crucial date of the conclusion of the contract (reference omitted) - and for their own counterperformances a total sum of 224,000 DM. The value of the seller's performance is therefore almost double that of the value of the defendants' counterperformance, which according to the established case law of the Senate suffices for the assumption of an especially flagrant disparity. Even if the defendants' defence is understood (as the appeal court understood it) as meaning that the defendants had only wanted to argue the potential yield value in the sum of 412,800 DM determined by the expert on the 15th May 1990, this maks no change in the especially flagrant disparity. The Senate has e.g. already found a blatant disparity with a purchase price of 45,000 DM and a land value of 80,000 DM (reference omitted) or with a value relationship of 220,000 DM to 400,000 DM (reference omitted); under special circumstances an even smaller disparity was regarded as sufficient (reference omitted).

b) If an especially flagrant disparity is accordingly present, a reprehensible state of mind is assumed. Special circumstances which could rebut this presumption are not present.

aa) Admittedly the scope of the defendant's counterperformance was, in so far as it exceeded the amount paid in cash of 100,000 DM, dependant on the life expectation of the testatrix. But the first defendant was nevertheless in the situation "to work out to some extent" the income from the property, as he stated when he was questioned as a party. In this connection he has calculated an expenditure of 250,000 to 270,000 DM, which is admittedly in the appropriate order of magnitude and yet outside of an especially flagrant disparity. But this does not, in view of the obvious uncertainty of the estimate undertaken, prevent the assumption that the first defendant had closed his mind with culpable negligence to knowledge of the circumstances inhibiting the testatrix in the sense of § 138 (2) of the BGB. No other inference can follow from the first defendant's knowledge, as established by the appeal court, of the offer of sale in respect of a house plot situated in the neighbourhood for 320,000 DM. The first defendant, as he himself has stated, did not even look at this plot. He could not therefore assume that it was comparable with the property bought by him and allowed conclusions as to its value. As the second defendant had apparently entrusted the first defendant, her husband, with the conduct of the negotiations, according to her statement as a party, she has to have his state of knowledge attributed to her within the framework of § 138 (1) of the BGB (reference omitted).

bb) The contracting parties had also not obtained a report on the market value and made it the basis of the agreed purchase price. The report of the expert N was commissioned by the defendants only after more than a year from the conclusion of the contract, and immediately after the death of the testatrix. Since the defendants have no longer claimed before the appeal court that this report is correct, there are no indications to suggest that an expert would have attained a comparable result to that of the expert N if both parties had entrusted him in the course of contractual negotiations with ascertaining the market value.

III.

The judgment under challenge cannot therefore stand. As the case is ready for a final decision after the findings made by the appeal court, the Senate must make a final decision (§ 565 (3) no 1 of the ZPO (Civil Procedure Code)). The claim in the main application is accordingly largely successful.

1. The consequence of a transaction which is akin to extortionate is, according to § 138 (1) of the BGB, the invalidity of the contract under the law of obligations only. The abstract disposal transaction is not covered by the consequence of invalidity, because the disparity in value only concerns the causal transaction (reference omitted). The claimant can therefore demand from the defendants the retransfer of the transferred plot of land under § 812 (1) sentence 1 of the BGB. The result is no different if the claimant demands the reversal of the contract in culpa in contrahendo because of violation of pre-contractual duties of care (references omitted). Even then, she can still demand from the defendants to be put in the same position as if the contract with them had not been concluded (reference omitted).

2. The claimant does not need, as the defendants have not claimed a right of retention, to limit her claim by the offer of a simultaneous counterperformance. It is true that the reclaim, when it concerns the dismantling of a mutual contract, can according to the saldo theory (balance theory) (references omitted) only be aimed at a settlement of the movement of assets on both sides. If the performances are, as here, dissimilar, the person who claims enrichment must - as the claimant by her subsidiary application has in any case done in parts - consider the counterperformance in the application in the claim by offering its retransfer simultaneously (references omitted). At least in the special circumstances of the actual case, the saldo theory can however claim no validity.

a) The application of the saldo theory is admittedly not excluded by the absence of legal capacity on the part of the testatrix (references omitted). The appeal court has not been able to establish the legal incapacity of the claimant's mother, as alleged by the claimant, at the point in time of the documentation and this decision was not affected by legal error. The only objection by the appeal in law on this issue was that the appeal court (in the light of the contradictions between the report of the court expert P on the one hand and the private report of the consultant psychiatrist R of the 30th May 1997 and his supplementary opinion of the 6th August 1999 on the other) ought not to have contented itself with hearing the expert P. The appeal in law does not succeed in this objection. The hearing of the expert which occurred in this case has no other significance than the making of an oral (supplementary) report. As it is in the discretion of the appeal court whether an oral or written report is made (references omitted) only a limited examination by the Senate for legal error is possible. No such error is present, and in particular the appeal court has taken into consideration all the essential circumstances in its decision. Thus the expert P was sufficiently able to prepare his oral report, despite the complicated material, after the private report had been sent to him with the summons by order of the presiding judge.

b) Nor does § 819 (1) of the BGB prevent the invocation of the saldo theory. It is true that there is no room for the application of the saldo theory if § 818 (3) of the BGB does not apply; the debtor in the enrichment claim is liable under §§ 818 (4), 819, 292, 987 ff of the BGB "in accordance with the general provisions" and therefore essentially no longer under enrichment law (references omitted). The prerequisites of § 819 (1) of the BGB are however not fulfilled here, because the defendants, according to the findings of the appeal court, which are free from legal error and in this respect are not challenged by the appeal in law, did not have the necessary positive knowledge of the facts which led to the immorality and therefore to the absence of legal grounds for their acquisition (reference omitted).

c) It is however not reconcilable with statutory values to apply the saldo theory to the disadvantage of the claimant as the successor in law to the party disadvantaged by a transaction which is akin to extortionate. As the saldo theory in the end represents a correction of statute law by case law on the grounds of fairness, it cannot claim to be applied if the preference connected with it which is given to the debtor under the enrichment claim is contrary to fairness in the individual case. On this ground the Bundesgerichtshof rejects the application of the saldo theory to the retransfer claims of the contractual party who has been deceived (references omitted).

The contradiction in values arises from making a comparison with the exclusion of the saldo theory in the case of bad faith of the debtor under the enrichment claim under § 819 (1) of the BGB. Bad faith requires, as stated, that the debtor in the enrichment claim has positive knowledge of the facts from which the absence of a legal ground for his acquisition arises. On the other hand, in cases of especially flagrant disparity in value, the immorality of a legal transaction is substantiated if the favoured party merely closes his mind with gross negligence to recognition of the fact that the other contracting party has become involved in an excessively disadvantageous contract only through lack of discernment or considerable weakness of will. This does not require positive knowledge of the crucial circumstances. The application of the saldo theory would accordingly, depending on the state of the knowledge of the person acting in a manner contrary to good morals, be excluded in some cases of land transactions which are akin to extortionate, but not in others. No justification can be identified for the preferential treatment which this gives to the debtor in the enrichment claim. It is not a question of the reason for an increased liability of the debtor in the enrichment claim, which statute law in § 819 (1) of the BGB makes dependent on his knowledge. Instead the decisive factor here is the protection of the cheated party from a misuse of contractual freedom by § 138 (1) of the BGB (reference omitted). If, to achieve this goal, the legal order denies effectiveness to transactions which are akin to extortionate regardless of whether deliberate or culpably negligent action can be alleged, there is no sense in weakening the protection of the cheated party in the last mentioned case by applying the saldo theory, in particular by the associated limiting of the area of application of § 818 (3) of the BGB (references omitted).

3. The main application is admittedly not entirely well founded. The defendants are not liable as joint debtors in respect of the enrichment. What is to be returned in each case is only what each of them has obtained (references omitted). Besides this, the application in the claim will be unsuccessful in so far as it is aimed at extinguishing possible land incumbrances, by the rider that what was to be granted was the property registered "in Section III of the Land Register, free of incumbrances". Regardless of whether the debtor in the enrichment claim is obliged any way to remove an incumbrance on a piece of land obtained without legal grounds (reference omitted), it cannot be deduced from the findings of the appeal court that such incumbrances in any case occurred through the defendants and are registered in the third section of the Land Register.

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