The plaintiff bought from the defendant ten tons of tempered iron wire to be delivered forthwith. When the defendant failed to perform the plaintiff set a time limit and then sued £or damages on the ground of failure to perform. The defendant pleaded a change of circumstance.

The District Court rejected the claim, but the Kammergericht allowed it. Upon a second appeal by the plaintiff, the judgment of the Kammergericht was quashed for the following

Reasons

The defendant contends that he can no longer be required to deliver the goods, having regard to the change of conditions in the meantime. In answer the Court of Appeal held that the defendant's opinion, to the effect that the contract had been dissolved by supervening impossibility, was inaccurate. This could only be accepted if the change had brought about a complete alteration of the situation and such a significant increase in prices that the performance of the contract by the defendant would lead to his economy collapse; no such allegation had been made. The plaintiff rightly criticises this view. The opinion expressed thereby is too narrow in every respect. The court below should have considered the situation not only from the aspect of impossibility, but also above all in order to determine as to whether the defendant according to good faith could be expected to perform having regard to commercial custom. Also in another respect the judgment is too narrow inasmuch as it considers only whether performance would have led to the economic collapse of the debtor. Certainly no such assertion has been made, and clearly it could not be alleged in the present case. However, decisive this factor will be, if it exists, it is not indispensable. For obviously it does not reflect correctly the fundamental idea the clausula rebus sic stantibus, the idea which justifies its existence and at the same time its effect. One reason is that it will lead to a differentiation, according to whether the debtor is a person of means or somebody who is penniless. Above all, normally the starting point must be the opposite, namely that a debtor cannot claim the right to refuse performance because it would ruin him. Even if the debtor is made bankrupt and must give up everything, he remains bound nevertheless. The same applies if a person whose financial position was equal to his obligation, when he undertook it, and found himself in the position later on, as a result of a change of conditions of being unable to perform, rebus sinc stantibus, without ruining himself completely. The validity of the claim can be justified better by the nature of the mutuality of obligations (synallagme), by the nature of the contract of mutual exchange. The defence of the clause was the object in innumerable cases in which a decision could be, and was, reached without considering any other contractual relationship of the debtor than that in issue. In the case of a synallagmatic contract, it is necessary to start from the fact that parties who enter into such a contract thereby wish to conclude an honest contract of exchange; each party is prepared to benefit the other by a performance which is regarded by the other party as equivalent to his own. It is true that, in general, each party must look after itself and may leave the other to its own worries and that the contract must be kept if one or the other of the parties, or perhaps both, miscalculated past or future events. It is difficult, however, if at the same time the events vary the values, especially the value of money to such an extent, and thus create an imbalance between the value of the stipulated performances to such a degree, that the debtor would receive a counter-performance in return for his own which can no longer be regarded even as approximating to an equivalent, as it was contemplated by the contract. The creditor acts contrary to good faith if he insists upon the performance in these circumstances.

The fact that in several decisions the Reichsgericht has attached decisive importance to the question as to whether the performance would ruin the debtor does not detract from what has been stated here inasmuch as in the cases referred to the defendant had actually pleaded this defence; it is understandable that in face of the difficulty of drawing the line in these circumstances this factor was treated as decisive ... It is true that the decision of the same Third Division [references] stated in quite general terms that the clausula rebus sic stantibus can only prevail, if the performance of the contract turns out to be economically impossible, that is to say only if the performance, either as such or in conjunction with other liabilities, would ruin the business of the contracting party or lead it to the brink of ruin. However, the general and apposite idea that decent people will not understand and would find it incompatible with their sense of justice, if all the advantages flowing from the new economic conditions which could not be foreseen at the time of the conclusion of the contract should accrue to one party only is limited immediately afterwards to the case where the other party would perish financially. In developing its reasons the court examined in this case too, the other aspects of the facts and considered that the rise in prices and the loss resulting from the performance, as shown to have happened, would not suffice by themselves to justify the defence of the clausula rebus sic stantibus.

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