On 21 October 1963, the plaintiff and the defendant, a co-operative charitable housing corporation, concluded a written contract on 1) an option to buy a double-occupancy house, to be erected by the defendant on real property owned by the corporation , and on 2) the purchase of two shares in the co-operative. The plaintiff paid in cash the purchase price of DM 1,000 for the shares in the co-operative and DM 77, 000 as part of the final price for the house, preliminarily estimated at DM 78,500; he also made personal contributions which he values at DM 2,000, but which the defendant values at DM 885,50. The plaintiff refuses to pay the remaining DM 7, 047.58 which the defendant demands in respect of the final house price (DM 83,900), until the defendant has removed defects in the building.

The plaintiff has lived in the house since August 1965.

The Landgericht and Oberlandesgericht have ordered the defendant to convey the title in the property and to allow the plaintiff to be registered in the land register. With this further appeal the defendant pursues his claim to have the plaintiff's claim rejected.

Reasons

I. As the Oberlandesgericht correctly stated, under para. 313 BGB the contract needed to be recorded by a notary and is null and void for formal defects (para. 125 BGB). But this result is altogether unacceptable for the plaintiff. The general rule that un-notarised contracts on the transfer of real property are null and void must here exceptionally give way to the principle of good faith (para. 242 BGB):

According to the established case law of this Division, such deviation from the general principle can only be tolerated in quite exceptional circumstances. The buyer of a private house who fails to have his purchase contract notarised can normally only claim monetary compensation, even where he has paid the full purchase price and has lived in the house for quite some time (judgment of this Division of 29 January 1965 - V ZR 53/64, NJW 64, 812, 1014 = WM 65,315; see also judgment of this Division of 29 October 1965 - V ZR 96/563, ZMR 66, 202 = WM 66, 89 and of 21 March 1969 - V ZR 87/67, LM No. 37 to para. 313 BGB = WM 69, 692 = NJW 69, 1167). However, the court held this result to be intolerable where a party's very existence was at risk (see the references in the judgment of 21 March 1969 and of 27 October 1967 - V ZR 153/65, BGHZ 48, 396 = NJW 68,39). The Court of Appeal correctly held this case to be exceptional:

(..............)

Indeed, this case shows exceptional features: The prospective buyer of the owner-occupied house, already elderly when concluding the contract and occupying the house, purchased it as home for his old age. He spent his entire savings, for him a quite considerable amount (i.e. DM 77,000 in cash, DM 1,00 for shares in the co-operative and at least DM 885 as own contributions = in total almost DM 80,000) to acquire the house and had paid in cash the overwhelming part of the purchase price. In view of apparent defects in the building, the parties are in dispute over the remaining part of the purchase price of about DM 7, 000. Contractual partner of the plaintiff, an ordinary craftsman and member of a co-operative, was the housing co-operative to which he belonged, a recognised charitable institution which he, given its organisational structure, trusted with the choice of a correct and legally sound form for their contract. This trust was furthermore underpinned by the following "additional” typewritten agreement inserted into the printed contract form:

"As a cost-saving exercise, both parties will forego having this contract notarised, but acknowledge that it is valid."

This clause expressly declares the contract to be legally binding, which is different from the clause which the court considered in the above-cited judgment of 21 March 1969.

Under these circumstances, the fact that a prospective buyer is forced to relinquish his home and to look for another old-age residence very nearly equals losing the entire basis of his existence. Thus, in view of para. 242 BGB, the Oberlandesgericht rightly held such a result to be insufferable.

The counterclaims brought by the further appeal will not succeed:

( a) - d) ......)

e) The unacceptable consequences arising from the contractual nullity for lack of formal requirements are not removed by the fact that, according to the defendant, the plaintiff still owes part of the purchase price, amounting to some thousand Deutschmark, even if, in this context, this fact must be presumed to be correct (but see II and III).

II.

In so far as the Appeal Court affirmed that under para. 242 BGB the parties were bound by the provisional purchase contract despite its non-compliance with formal requirements, this Court upholds this decision in respect of the extent to which the parties are bound. However, some reservations still remain.

From the binding nature of the contract the Oberlandesgericht concludes that, as a matter of course, the plaintiff now had a claim against the defendant for the transfer of ownership. The non-payment of the residual purchase price was held as no impediment, since the plaintiff had a right of retention because of various detected building defects (para. 273 I BGB).

However, it must first be examined whether or not the contract, deemed to be valid, gives the plaintiff a right to conveyance. The result depends on an interpretation of the contract. Since a standard contract was obviously used which is or was in general use throughout the Land North-Rhine Westphalia and thus beyond the territorial jurisdiction of just one Oberlandesgericht, the Court of Further Appeal has jurisdiction for its own interpretation of that contract. The Court holds:

A contract for the purchase of an option to buy a house is intended as a mutually binding preliminary purchase contract. According to its wording, both parties are bound "at a given time" to conclude a (notarised) purchase contract using a specific standard form (Part 2 of the preliminary contract); the plaintiff was only entitled to claim "registration of transfer of ownership" "once the envisaged final purchase contract was concluded and he had fulfilled all his obligations towards the building corporation as set out in the contract" (Part 3.3). In an earlier case, this Court interpreted a comparable preliminary contract to the effect that the applicant's claim for transfer of ownership did not already arise from the preliminary contract but rather only from the main contract which was still to be concluded (judgment of 30 June 1967 - V ZR 104/64, BB 67, 1394). Where for instance a duty to transfer ownership existed by law as a result of a previously concluded agency contract (para. 667 BGB), the court interpreted clauses in preliminary contracts, using the same terminology, to mean that the due date of the claim for transfer of ownership was postponed until the main contract was concluded and all obligations from the purchase contract had been fulfilled. In respect of cases which, on the basis of para. 242 BGB were acknowledged to be exceptional, the court deemed the postponement of the due date to be irrelevant and acknowledged that the claim for transfer of ownership was thus due (judgment of 26 April 1968, V ZR 74/67, WM 68,1014 = BBauBl. 68, 571, and the contemporaneous judgments V ZR 75/67 and V ZR 76/67). As a result, this Division now holds that even in cases such as this one, where an obligation to transfer ownership does not arise until the preliminary contract has been concluded, an obligation nonetheless exists. The result is based on a sensible interpretation of the preliminary contract and the interests of the parties (paras 133, 157 BGB). The Court's previous considerations, originally only needed to be made in respect of the maturity of the claim, can now also be used strongly to advocate an interpretation of the preliminary contract to the effect that it gives rise to a claim for transfer of ownership.

The Court must weigh up the basic interests of publicly-funded building corporations in a safe recovery of expenditures from prospective buyers and the danger of losses arising from a transfer of ownership against the interests, likewise to be protected, of applicants in becoming full owners of the real property as soon as the building work is completed, since their own funds have normally been invested prior to completion of the building and these funds often represent the entire family savings, accumulated over many years. The buyer thereby intends to save additional administrative costs and like expenditures and to be protected from heavy losses should the building corporation run into financial difficulties. The building corporation's need for security is safeguarded by the contractual clause on the transfer of ownership whereby such transfer is postponed until a final contract has been concluded under the law of obligations, in which the final price and other outstanding payments are fixed.

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