On 12 and 14 March 1934, the defendant had concluded with the claimant, represented by the President of the regional administration of P. , (Regierungspräsident) two written contracts, by which he made available to the claimant his real property situated in T. for use as a rural training home. According to the contract, the home, in respect of which extensive structural alterations were needed and had already been started with before the contracts had been signed, needed to be ready for occupancy before 15 April 1934. After an inspection on 16 April 1934, the claimant declared on 17 April 1934 to rescind the contract since the home proved to be uninhabitable.

During the building operations, the claimant had made advance payments to the defendant amounting to RM 11, 520. By his action he demands partial repayments amounting to RM 2,000. The defendant requests dismissal of the action and demands by way of a counterclaim payment of RM 6,200 as partial payment. The defendant holds that he is entitled to all contractual rights, and bases his claim a.o. on the claimant's culpa in contrahendo.

The Landgericht has dismissed the action and in respect of the cross-action ordered the claimant to pay the defendant RM 6,200. The appeal court has granted the defendant only RM 1.92 and otherwise dismissed the claimant's appeal. The defendant's further appeal results in a quashing of that decision and reference back to the court below.

Reasons

The appeal court's deliberations are open to objection insofar as they limit the amount of damages for culpa in contrahendo to the defendant's positive interest in the contract. The court of appeal holds that the provisions of paras 122, 307 BGB contain the general legal principle that the defendant cannot demand more than what he would have obtained if the contract had been fulfilled. However, this principle cannot be acknowledged quite so generally.

Case law and jurisprudence have acknowledged that culpa in contrahendo can form the basis for a claim for damages (review of the current state of opinion in Hildebrandt Erklärungshaftung; see also Stoll in JW [1933], p. 34; Steinberg Die Haftung für culpa in contrahendo and the remarks of Titze in JW [1931], p.512; Dömpke Die Grundlage und der Umfang der Haftung für Verhalten bei Vertragsabschlu_). In this respect it is irrelevant whether or not contractual obligations have come into existence. The fault need not concern the contents of statements made (see RGZ 78, 239).

The legal principle has rather been linked to the provisions of paras 122, 179, 307 BGB. In such cases, where contractual obligations have ceased to exist or have never effectively arisen, there are, indeed, identical provisions on the limitation of the amount of damages to the expectation interest and on an exclusion of the application of para. 254 BGB. The reason for the limitation of the amount of damages due is a result for the common special features of these cases. The person innocently relying on the validity of the contract is to be granted compensation for the damage which he, as a result of his trust, incurs from the non-performance. This means that he can only claim to be put into the same position as would have existed if the contract had been fulfilled, even where the disadvantages which he suffered from his reliance on the validity of the contract are thereby not fully compensated for. It would be unfair to relieve him from the risk taken when engaging in the contract and to grant him compensation even in respect of those losses which were intended to be matched by the gains made from fulfilment of the contract but which, in reality, could not have been obtained because of his miscalculations. As a result, he must bear those losses which he would have incurred if the contract had been valid. They are no longer caused by the invalidity of the contract.

However, culpa in contrahendo can also have totally different effects than the fact that the injured party is deprived of the fulfilment of the contract, i.e. only those consequences arise which primarily spring to mind in cases under paras 122, 179, 307 BGB. Thus, it could have been the illegal action itself which brought about the conclusion of the contract which would otherwise, i.e. without culpa, not have been entered into. In such cases, total compensation could not consist of placing the injured party in a position as if the contract had been fulfilled, for the conditions need to be restored which would have existed without culpa, i.e. in such cases generally without conclusion of a contract and thus without any expenditure made in respect of the contract. The claim for damages is therefore not restricted to the positive interest in the contract and is not accompanied by a claim for performance. Here, the object is not to restore the situation as it would have existed had the contract been fulfilled. However, it can be that the culpa does not affect the performance of the main obligation, as was the case in RGZ 78,239, where an accident occurred while goods were shown to a prospective buyer. In this as in the previously discussed case, restoration of the earlier situation is not achieved by merely acknowledging the existence of a reliance interest. Here, a claim for damages can exist apart from a claim for performance and it is not limited by the latter.

In these two cases discussed, the totally different consequences of the damage preclude an application of the legal principle contained in paras 122, 179, 307 BGB, which is geared to cases in which the damage merely consists in the failure to perform an obligation entered into and which has become or remains ineffective, even though no such restriction has found expression in law. The decision appealed against can therefore not be followed insofar as it unrestrictedly applies the legal principle expressed in paras 122, 179, 307 BGB to all cases for damages in respect of culpa in contrahendo.

In the present case and according to the appeal court's findings so far, it was the claimant's contributory negligence which led to the conclusion of the contract and caused the defendant to incur large expenditures. This does not, however, lead to the conclusion that the claimant is liable for all resulting economic loss. If the contract had been fulfilled, the defendant would have obtained a secure compensation for his expenditures only in the form of rent attributable to the fixed term of claimant's tenancy, i.e. not for all his expenses. If the claimant had refrained from extending the tenancy contract and no other tenant could have been found who could use the premises situated in T. in their contractually agreed state, the defendant would have incurred losses insofar as the income derived from rent fell short of the expenditures made, i.e. even where the contract had been fulfilled. The question therefore arises whether such loss can now, where the contract has not been fulfilled, legally be seen as a consequence of the claimant's fault, as the contract was only concluded because of his contributory negligence. The preconditions under which causation in its legal sense can be established are met insofar as a) the culpa led to the conclusion of the contract and, according to what now needs to be presumed, to all expenditures and b) the construction costs could normally have been expected. But not every result fulfilling these two precondtions is legally caused (translator's emphasis) by them. As for instance in the case of a private insurance, the advantage obtained concurrently with a damaging event cannot be seen as having been caused by this event; the judge dealing with the facts of the matter must ascertain whether or not, under fair and generally accepted standards, the consequences of a risk taken can still be declared as having been co-determined by the claimant's culpa, even if, had the contract been fulfilled, they had fallen onto the defendant. Such decision must basically depend on how far one can speak of a defendant's risk and as to what degree of certainty it could have been expected that the defendant, in case of full compliance with the contract, failed to find an offset for his expenditures.

The various differences here discussed in respect of the facts under which culpa in contrahendo can come into play prohibit to the same degree a quite general preclusion of para. 254 BGB. The Reichsgericht has without further reasoning declared the provisions of para. 254 BGB to be applicable, so for instance in RGZ 97, 336 (33); 120, 249 (253), but has on the other hand already conceded that para. 254 BGB is only applicable to a limited extent in a case (RGZ 104, 265 (268) which concerned damage from non-performance because a contract failed to be concluded.