Rechtswissenschaftliches Institut
Comparative Private Law
Judicial Control of Contracts
10th November 2014
Prof. Dr. Ulrike Babusiaux
PLEASE NOTE:
The following slides are not complete.
The missing words and phrases must be filled in by the students.
Seite 1
Judicial Control of Contracts in different European
Countries
I.
Abuse of Circumstances and Excessive Benefit: Qualified
laesio enormis
II. Immoral and Illegal Contracts
III. Change of Circumstances, Hardship and imprévision
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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I. Abuse of Circumstances and Excessive Benefit
-
laesio enormis = a situation,
-since Antiquity, there is a discussion, whether
 the contract should be void only because of the
disproportion
 the contract should be void only if the disproportion is
the consequence of the abuse of circumstances by the
stronger party
- in Civil Law: rules of public policy or usury
- in Common Law: doctrine of
- recent development: constitutionalisation of the law of
contracts
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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German and French Law: Abuse of circumstances
1. German Law (Reader p. 27): § 138 BGB as a limit for the freedom of
contract
2. French Law = Cass. soc. 5 July 1965: «intellectual violence» (Reader p.
27-28)
cf. Art. 1111 Code civil
Violence exerted against the person who has contracted the obligation is a
ground for annulment even though it was exerted by a third party different
from the one for whose benefit the agreement was made.
Art. 1112
There is violence where it is of a nature to make an impression upon a
reasonable person and where it can inspire him with a fear of exposing his
person or his wealth to considerable and present harm. Regard shall be paid,
on this question, to the age, the sex and the condition of the persons.
Art. 1113
Violence is a ground for annulment of a contract, where it is exerted not only
against a contracting party, but also against the party's spouse, against his or
her descendants or ascendants.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Comparision between § 138 BGB and «intellectual
violence» according to Cour de cassation:
-
commonalities:
 a situation, in which a contracting party feels obliged to and cannot
decide freely to enter into a contract or not
 exploitation of this singular situation by the other party (i.e.
recognition and willingness to exploit the difficulties for her own
benefit)
 a contractual imbalance to the detriment of the party in difficulties

differences:

§ 138 BGB requests an infringement of public policy (cf. par. 1), i.e.
a behaviour that is contrary to good faith in general

according to the Cour de cassation, the disproportion of the
reduction, is enough regarding the situation of constraint Maly was
in (i.e. an appreciation of the individual case)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Common Law: Duress
- situation where
- pressure exerted upon a person to coerce that person to
perform an act that he or she would ordinarily not perform.
- in the context of contract law it is a defense; the contract may
be rescinded, since it is then voidable.
- there may be physical
or economic
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
.
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Equity: Undue influence
- situation,
.
- equity will investigate the manner in which the intention to enter into the
transaction was secured: «how the intention was produced» (Lord Eldon,
Huguenin v Basely 1807).
- Two groups of undue influence:
(1)
undue influence: the relationship falls in a class of
relationships that as a matter of law will raise a presumption of undue
influence  the burden of proof lies on the person who took advantage,
to disprove undue influence.
(2)
undue influence: the facts of the case indicate, that
there was a relationship between the parties that led to undue influence
 the victim has to prove that the transaction was brought about by the
exercise of undue influence.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Lord Brown-Wilkinson:
«Class 1: actual undue influence.
In these cases it is necessary for the claimant to prove affirmatively that the
wrongdoer exerted undue influence on the complainant to enter into the
particular transaction which is impugned.
Class 2: presumed undue influence.
In these cases the complainant only has to show, in the first instance, that
there was a relationship of trust and confidence between the complainant
and the wrongdoer of such a nature that it is fair to presume that the
wrongdoer abused that relationship in procuring the complainant to enter
into the impugned transaction.
In Class 2 cases therefore there is no need to produce evidence that actual
undue influence was exerted in relation to the particular transaction
impugned: once a confidential relationship has been proved, the burden
then shifts to the wrongdoer to prove that the complainant entered into the
impugned transaction freely, for example by showing that the complainant
had independent advice.»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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House of Lords: Royal Bank of Scotland v Etridge
(N° 2), Reader p. 29-34.
Facts:
8 cases in which a wife charged her interest in her home in favour of a
bank as security for her husband’s indebtedness of a company through
which he carried on business.
Later on, the wife asserted she signed the charge under undue influence
of her husband.
The House of Lords had to decide, whether there had been undue influence
(misuse of the influence one person has over another).
It then had to decide about the burden of proof – is there presumed
undue influence between husband and wife?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Definition and conditions of undue influence
according to Royal Bank of Scotland v Etridge
(1) The complainant reposed trust and confidence in the other party or the
party acquired ascendency over the complainant.
(2) The transaction is not readily explicable by the relationship of the parties.
In the 8 cases:
(1) No presumption of undue influence between husband and wife
(2) No excessive benefit and no sign for misuse of influence.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Bundesverfassungsgericht (German
Constitutional Court) on surety, 19 October 1993:
Facts:
- A bank had offered a businessman a loan of DM 100.000 on condition that
the businessman’s daughter would sign a contract as a surety.
- The daughter was 21 years old, uneducated, unemployed and had no
property.
- A bank employee told the daughter: «Would you just sign this here,
please? This won’t make you enter into any important obligation; I need this
for my files.»
- When four years later the father’s business had financial difficulties, the
bank claimed DM 160.000 (interests included) from the daughter because of
surety contract.
- The Landgericht held the contract valid and ordered her to pay, the
Oberlandesgericht found that the employee had violated his duty of
information. The Bundesgerichtshof (Federal Court) did not accept this and
held that every adult person is aware of the risks entailed by a surety.
- The daughter appealed to the Bundesverfassungsgericht claiming that the
Bundesgerichtshof had violated her fundamental rights.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Constitutional Law as a help in this case:
- The daughter claimed the violation
 of her right of dignity (Article 1 German Constitution)
 of her party autonomy (Article 2 German Constitution)
 in combination with the principles of the social state (Article 20 and
Article 28 of the German Constitution)
- The effects of constitutional law on contract law according to the German
Constitutional Court:
 Fundamental rights serve primarly to protect the citizens against the state
but they also represent an objective scale of values, which apply
throughout the legal systems.
 The content of constitutional law flows into private law
, such as § 242 duty to good
faith, § 137 nullity of contracts infringing good morals.
 The application of these civil law rules must hence be in accordance with
fundamental rights and constitutional law.
 Courts that do not respect fundamental rights, when interpreting and
applying the civil law, violate the constitution.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The Constitutional Court’s decision:
- In cases where a
of bargaining power has
led to a contract which is exceptionally onerous for the weaker
party, the civil courts are obliged to intervene on the basis of
the general clauses (§ 138 and § 242 of the Bürgerliches
Gesetzbuch).
- This obligation is based
the basis right of party
autonomy in conjunction with the principles of the social state.
- In this case, a contractual imbalance existed because the bank
had failed to inform the daughter about the risk relating to the
surety although the risk was very important with regard to her
income and financial situation.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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II. Immoral and Illegal Contracts
in Civil Law
illegality of contracts(infringement of public order)
immorality of contracts(infringement of public policy)
Confer and Compare:
Art. 15: 101 and 102 Principles of European Contract Law (p. 34)
§§ 134, 138 Bürgerliches Gesetzbuch (Germany, p. 34f.)
Art. 6, 1131, 1333 Code civil (France, p. 35)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Germany (p. 34)
§ 134: Statutory prohibition
A legal transaction that violates a statutory prohibition is void, unless the
statute leads to a different conclusion.
§ 138: Legal transaction contrary to public policy; usury
(1) A legal act that is contrary to public policy is void.
(2) In particular, a legal transaction is void by which a person, by exploiting
the predicament, inexperience, lack of sound judgment or considerable
weakness of the will of another, caused himself or a third party, in
exchange for an act of performance, to be promised or granted pecuniary
advantages which are clearly disproportionate to the performance.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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France (p. 35)
Art. 6 Code civil: Statutes relating to public policy and morals may not be
derogated from by private agreements.
Article 1128: Only things which may be the subject matter of legal
transactions between private individuals may be the object of agreements.
Article 1131: An obligation without cause or with a false cause, or with an
unlawful cause, may not have any effect.
 public order = rules protecting the political, social or economic order
 good morals (bonnes moeurs) = basic principles of family life, social life
and economic behaviour
 sanction is linked to the concept of cause
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Switzerland
Art 20 Code of Obligations
1 A contract is void if its terms are impossible, unlawful or immoral.
2 However, where the defect pertains only to certain terms of a contract,
those terms alone are void unless there is cause to assume that
the contract would not have been concluded without them.
Art. 27 Swiss Civil Code
1 No person may, wholly or in part, renounce his or her legal capacity
or his or her capacity to act.
2 No person may surrender his or her freedom or restrict the use of it
to a degree which violates the law or public morals.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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In Common Law
A contract may be void because of its illegal OBJECT or its
illegal CONSIDERATION
Two maxims:
(a)Ex turpi causa non oritur actio (no action arises from a bad
cause)
Lord Mansfield: «
.»
(b) In pari delicto potior est conditio defendentis (where there is
equal fault, the defendant is in a stronger position)
Lord Mansfield: «
»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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What constitutes Illegality ?
of the positive law (statutes, that expressly
declare the contract illegal)
- other legislation, which shows the legislative intent or purpose
to prohibit the contract or his object
concepts of public policy (ex.: sexual
immorality, attempts to buy honors, interference with the course
of justice)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Consequences of illegality:
an illegal contract is not enforceable
in general, if it is partially executed, the party which has been
disadvantaged cannot ask for restitution
exceptions:
- the party repents and repudiates the contract (locus
penitentiae)
- if one party is innocent, she may be entitled to
restitution (cf. in pari delicto)
- the party which is protected by statutes, is also entitled
to claim restitution
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Queen’s Bench: St. John Shipping Corp v. Joseph
Rank Ltd (Reader p. 35)
Facts:
-
The defendants chartered the plaintiff’s ship to carry grain from the USA
to the UK.
-
The ship was overloaded in contravention of the Merchant Shipping Act
1932; the master was fined the maximum fine.
-
The defendants paid part of the freight but withheld a sum equivalent to
the extra freight earned by overloading.
Legal problem:
(1) Does the Merchant Shipping Act mean to prohibit contracts?
(2) Does the contract in question belong to the contracts that are prohibited
by the Act?
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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Answers to the legal problems:
(1) «The relevant section of the Act of 1932, section 44, provides that the
ship ‘shall not be so loaded as to submerge’ the appropriate loadline. It
may be that a contract for the loading of the ship which necessarily has
this effect would be unenforceable. (…) But an implied prohibition of
contracts of loading does not necessarily extend to contracts for the
carriage of goods by improperly loaded vessels. Of course, if the parties
knowingly agree to ship goods by an overloaded vessel, such a contract
would be illegal; but its illegality does not depend on whether it is
impliedly prohibited by the statute, since (…) there is an intent to break
the law.»
(2) «In my judgement, contracts for the carriage of goods are not within the
ambit of this statute at all. A court should not hold that any contract or
class of contracts is prohibited by statute unless there is a clear
implication (…) that the statute so intended. If a contract has as its whole
object the doing of the very act which the statute prohibits, it can be
argued that you can hardly make sense of a statute which forbids an act
and yet permits to be made a contract to do it (…).»
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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(III) Change of circumstances, Hardship and imprévision
Problem, whether a party may be released from her
obligations by supervening events which make the contract
much more onerous
 especially in long-lasting contracts
 Period of economic instability
 Unforeseen events (war, catastrophes)
principle of pacta sunt servanda
vs protection of the weak or aggrieved party
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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A modern definition of Change of Circumstances,
Art. 6: 111 PECL (Reader p. 38)
Characteristics:
 performance has become
 change of circumstances, i.e.
 the
occurs after the time of conclusion of the
contract and could not be reasonably foreseen.
 one party did not accept the risk for the change of circumstance.
Consequences:
(1) the parties are bound to enter into negotiations in order to adapt the
contract
(2) the court may terminate the contract, if parties fail to reach agreement, or
the court may adapt the contract
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The French Rigidness: Canal de Craponne,
(Reader p. 39):
Facts:
By contracts of 1560 and 1567 Craponne untertook the obligation to provide
water to the waterers of Pélisanne. The contracts stipulated by way of
compensation for a set charge. This charge of 3 sols per unit of water, which
was sufficient at the time of the conclusion of the contracts, was no longer
sufficient in 1873.
The Cour d‘appel d‘Aix set an increade of 60 centimes per unit of water.
The Cour de cassation:
«Dans aucun cas, il n‘appartient aux tribunaux, quelque équitable que
puisse leur paraître leur décision, de prendre en considération le temps et
les circonstances pour modifier les conventions des parties et de substituer
des clauses nouvelles à celles qui ont été librement acceptées par les
parties.»
(English Translation p. 40)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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The argument of the Cour de cassation
art. 1134 Code civil:
«Contracts which are lawfully concluded take the place of legislation for those
who have made them.
They can be modified or revoked only by the parties‘ mutual consent or on
grounds which legislation authorises.
They must be performed in good faith.»
 the contract is
for the parties and for the judge as
well as would be a statute; it is the parties‘ statute
 the parties
the contract.
or to renegotiate their obligations in
 judges are not able to find the parties‘ intentions, if the parties did not
think about the future.
 the protection of
autonomy is important
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
and of parties‘
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New tendencies in French Law (Reader p. 41f.):
•Avant-Projet Catala (2005):
«Art. 1134-1
The parties may reserve to themselves or to one of themselves a right of
withdrawal from the contract, this right being exercised under the conditions
set by the contract itself, by custom or by legislation.»
•Proposition de loi visant à permettre la renégociation d’un contrat en cas de
changements de circonstances imprévisibles durant son exécution.
(22.6.2011)
Art. 1134 al. 2
„Si un changement de circonstances imprévisible, rend l’exécution
excessivement onéreuse pour une partie qui n’avait pas accepté d’en
assumer le risque, celle-ci peut demander une renégociation à son
cocontractant mais dois continuer à exécuter ses obligations durant la
renégociation. En cas de refus ou d’échec de la renégociation, le juge peut,
si les parties en sont d’accord, procéder à l’adaptation du contrat, ou à
défaut y mettre fin à la date et aux conditions qu’il fixe.˝
(English translation Reader p. 42)
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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English Law:
-principle of pacta sunt servanda (as in French Law); possibility
and duty of the parties to make their provisions; but interpretation
of contract is necessary.
e.g. Lord Ratcliffe (in: Davis Contractors case):«a court can and ought to
examine the contract and the circumstances in which it was made, not of
course to vary, but only to explain it, in order to see whether or not from
the nature of it the parties must have made their bargain on the footing
that a particular thing or state of things would continue to exist.»
-doctrine of frustration
 if events occur which make performance of the contract impossible,
illegal or radically different from which was envisaged by the parties at
the time of contract.
 and if performance of the contract in the new circumstances would be
fundamentally different from what was foreseen by the parties at the
time of contract.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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German Law: «disappearence of the basis of
transaction» (Wegfall der Geschäftsgrundlage)
(Reader p. 42-46)
- Case law since the time of the Reichsgericht (1920th)
- Codification in 2002: § 313 BGB (p. 45f.)
 a codification of judge-made law
 very broad application of the principle
 Two-step-solution of PECL: At first, the parties will have to
renegotiate the contract; if they do not succeed, the court will have
the choice to terminate or to adapt the contract
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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At home:
(1) Please compare the French reform projects and the German codification
of change of circumstance with the PECL!
(2) Do you think the doctrine of change of circumstance is now harmonised
in both countries? Or are there differences that remain?
Please prepare your answers in written form, so that you are able to read
them to the other students and that you are prepared to discuss their
contributions.
Thank you.
Comparative Private Law HS 2014, Prof. Dr. iur. Ulrike Babusiaux
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