In 1912 the plaintiff let business premises to the defendant for a period ending on 1 April 1915 in a building in Berlin belonging to the plaintiff. The lease was, however, ex-tended to the end of March 1920 since the defendant has availed himself of an option to renew the tenancy. Under para. 20 of the contract the defendant was entitled to the supply of steam for industrial purposes. The plaintiff considers that he is entitled to demand payments, in addition to that made under para. 20 of the contract, for the steam supplied between 6 September 1917 and the end of July 1919 because the market conditions for coal and labour have changed substantially. By way of a subsidiary plea the plaintiff asks for a declaration that the contract for the delivery of steam is invalid or that henceforth he is only bound to supply steam at a reasonable price. The claim was rejected by the Landgericht Berlin and by the Kammergericht. On a second appeal by the plaintiff the judgment of the Kammergericht was reversed for the following

Reasons

The Court of Appeal was right in rejecting the plaintiff's contention that properly interpreted, the words in para. 420 number 6 of the contract "the prices for industrial steam are as follows" as well as the additional contents of this arrangement disclose a con-tractual agreement to the effect that a fundamental change in conditions will also result in a change in the price of steam. The relevant observations of the Court of Appeal are mainly of a factual nature and do not disclose any error in law. Nor can objections be raised against the arguments of the Court of Appeal rejecting the attempt of the plaintiff to base his claim on the ground that the obstinate insistence of the defendant on the contract price constit-uted a violation of good morals (boni mores) according to para. 138 BGB with the result that the contractual clause concerning the price of steam was void at the present time, thus opening up the possibility of fixing an adequate price for the steam in accordance with paras 632 or 812 BGB. However, the plaintiff's demand appears justified from the point of view of the so-called clausula rebus sic stantibus. The Civil Code recognises this principle only in a limited number of special cases, and the Reichsgericht, as this Division said recently in a decision of 8 July 1920 [references], has not recognised it as a general principle. On the other hand, the Reichsgericht has recognised in a series of decisions of this and other Divisions delivered during the last few years, that the unexpected course and result of the War, leading to a collapse and radical change of economic conditions, may exceptionally have had such an effect upon existing contracts as to justify the request of a contracting party for a dissolution of the contractual relationship, if that party cannot any longer be expected for economic reasons to adhere to the contract given the new, completely changed conditions. The principle was and is based on positive law as expressed in para. 242 and 325 BGB. If, according to the first of these provisions, good faith governs the debtor's duty to perform as also the creditor's right of performance - his right to performance - then having regard to this aspect, performance of a contract can no longer be owed or demanded if, as a result of a complete change of conditions, the contractual performance has become completely different from that originally contemplated or intended by both parties. And if in para. 325 BGB impossibility means not only factual but also economic impossibility the clausula rebus sic stantibus features clearly in the Code. In the cases decided earlier, the situation was such that one party to the contract demanded a dissolution of the entire contractual relationship on the ground that the conditions had changed completely. In the present case both parties continue the contract intentionally or have continued it. Now one of them, in the present case the plaintiff, demands an increase in the counter performance while the contract continues. The plaintiff asserts that, from an economic point of view, his own performance has become different from what it was at the time of the conclusion of the contract to such an extent that the substance of the counter-performance, if not changed, would be unbearably disproportionate in economic terms compared with his perform-ance to such a degree as to require a modification of the counter-performance according to good faith. This Division cannot refuse to recognise that the plaintiff's demand is justified, assuming that his assertion is correct. In the decision of 8 July of this year (referred to above), this Division held that in such a case fairness requires a corresponding modification of the contractual performance of the other party [references]. It is true that in its decision of 4 May 1915 [references], reiterated subsequently on 3 July 1917 [reference], this Division stated that the judge cannot adjust relations between the parties in order to mitigate the hardships of war. The first and noblest task of the judge is, however, to satisfy in his decisions the imperative demands of life and to allow himself in this respect to be guided by the experiences of life. The statement [quoted above] of this Division, as this Division believes now, cannot be maintained in its strict generality. It has been superseded by the experience of this Division during the subsequent course of the war, and especially as a result of its unexpected outcome and the ensuing, equally unexpected turbulent changes of all economic conditions. These conditions require imperatively that the judge should intervene in existing contractual relations if otherwise a manifestly unbearable situation would arise which would be an insult to good faith and to every principle of fairness and justice. The foundation in positive law, regarded as desirable and necessary, is provided by the provisions of the Civil Code cited above. If these provisions support even the dissolution of the entire contractual relationship at the request of one of the parties, it appears all the more admissible to modify an individual contractual clause forming part of a contractual relationship which the parties wish to continue, if good faith, fairness and justice so require. Moreover it may also be possible to rely on the idea that when a contractual performance has become impossible as a result of changed conditions, a gap arises in the contract which the judge must fill in by his own determination, as in the case of other contractual gaps.

In order, however, to prevent at the outset any misuse of the above-mentioned principle, three factors must exist if it is to apply.

First, as has already been said repeatedly, both parties must wish to continue the contractual relationship. Cases where the continuation is compulsory are not to be considered for this purpose.

Second, only very special and quite exceptional transformation and change of circumstances, as it has been brought about by the war, can bring about the result outlined above. The fact alone that a subsequent change in the conditions is not foreseeable and could not be foreseen does not suffice.

Third, in a case such as the present, an adjustment of the interests of both parties must take place. A change cannot only take place in favour of that party which suffers or has suffered as a result of the new conditions if the contract continues. The interests of the other party, whose duty of performance will be increased or altered, will also have to be considered. The whole disadvantage must not be placed on him, with the result that his situation would become unbearable and would offend against fairness and justice. Instead the loss must be fairly apportioned between them. How to make the proper adjustment depends upon the experience of the judge and his sensitive appreciation of both sides.

If the present case is considered from this point of view little supports the reasons of the decision by the court below. The plaintiff has pleaded that having regard to the contractual price paid to the defendant for the supply of steam he had to pay an additional sum of 89,000 Marks during the period between 1 September 1917 and the end of July 1919, due to the immense increase in the price of coal etc. In other words he has clearly made a loss of this amount. In this connection it must be noted that the yearly rental for the premises let to the defendant amounted only to 9362 Marks. The situation in question is illustrated glaringly by the fact that the Rent Control Officer in Berlin, on 21 February 1920 raised by more than ten times of the contract price the price of the steam to be supplied by the plaintiff to the defendant during the period from 31 March 1920, the end of the contract, until 31 March 1921, the time up to which the Rent Control Officer had extended the lease, which the plaintiff had terminated. In view of this fact and the other clearly apparent conditions, the statement of the Court of Appeal that the plaintiff merely miscalculated when he concluded the contract inasmuch as he did not take the consequences of a war into consideration, does not agree at all with reality. Wrong calculations at the time when the contract was concluded cannot, naturally, constitute a basis for modifying agreed prices. Even if the train of thought of the Court of Appeal were to be followed to this extent, that the plaintiff should perhaps have taken the effects of a possible war into consideration, it is out of the question that the plaintiff, when he concluded the contract in 1912 should have envisaged even remotely, in view of the state of the German Reich at that time, a war of such a size, such an outcome and such consequences, and could have included such a war in his calculations. Nobody in Germany foresaw such an event or could have foreseen it; what happened was beyond any human imagination. The Court of Appeal, therefore, clearly wronged the plaintiff in placing the burden of the consequences of this war upon him alone, as against the defendant, on the grounds that the plaintiff did not consider the consequences of a possible war. Obviously the fact that no war clause was included in the contract must not be held against the plaintiff.

In conclusion the following observations must be made. In a decision of the First Division of the Court dated 9 March 1918 [references] the following statement occurs: "The plaintiff does not wish to be released from the contract but wants instead the contract to continue, though with the changed content in that either the price be raised or that the plaintiff be relieved of the duty to perform until peace is concluded. This result cannot be achieved having regard to the reasons set out here." Clearly this statement was intended to apply only to the contractual relationship and the situation at that time (1918). There is thus no reason for applying para. 137 BGB, all the more so because the First Division in a decision of 18 February 1920 [references] expressed an opinion which, in its general tendency, agrees with the present decision.

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