UNEXPECTED CIRCUMSTANCES
Prof. An. Valtoudis Aristotle University of Thessaloniki Greece
Introduction
The principle of the binding nature and the inviolability of contracts (pacta sunt servanda) is one of the most fundamental of the Civil Code. Nevertheless, in certain cases the contractual commitment may be proved overly harsh for one of the parties, particularly if the circumstances, on which the contract is based, have changed and, consequently, the balance of the contract has been overthrown to the detriment of one of the parties1. The Civil Code deals with this problem by an express, international forward- looking2, provision, that of Art 388 AK. By this Article the greek legislator provides the parties with the right to seek the judicial dissolution or adjustment of a reciprocal contract. Αrt 388 AK reflects criteria, resulting from classic theories and more modern doctrines, which have been developed internationally in the 20th century (that is, basically, the german doctrine of the collapse of the transaction’s underlying basis -Wegfall der Geschäftsgrundlage3- and the french theory of the unforeseen - théorie de l' imprévision)4. The basic idea, however, which permeates the above article is the one of bona fides, established by the general and most basic provision of Civil Code, that of Art
1 See Stathopoulos, Contract Law, n. 291. 2 See Litzeropoulos, p. 249-250· Sakketas, ErmAK 388 n. 1· Ast. Georgiadis, vol. ΙΙ, p. 129-130. 3 This theory was first-presented in a systematical way by Oertmann, The contract’s underlying basis, 1921, who took advantage especially of Windscheids' theory for the contract’s condition (Die Voraussetzung). For the partial acceptance of this doctrine by Art 388 AK see Sakketas, ErmAK 388 n. 16· Gasis, ΝοΒ 23, p. 707· Papantoniou, The good faith, p. 174· Ast. Georgiadis, vol. ΙΙ, p. 134. 4 See also Stathopoulos, Contract Law, n. 292. 2
288. As a consequence, when the strict conditions of Art 388 AK are not met, there is still the possibility of resorting to Art 288, when, in general terms5, the fulfillment and the maintenance of the contract violates the fundamental principle of bona fides6. Τhis, however, does not mitigate the practical value of Art 388 AK, given that the legislative will for the constitutive judicial intervention is clearly demonstrated in this article7. The special prerequisites of Art 388 AK are the following: 1. The contract should be reciprocal. The problem of unforeseen change of circumstances in other obligations (e.g. in unilateral contracts) is regulated by the general provision of Art 288 AK8. 2. The change should concern circumstances, on which the parties have based the conclusion of the contract, regarding the requirements of good faith and common usage. According to the prevailing opinion9, these are the real and legal facts, whose importance emerge from the will of the parties (subjective criterion) and, simultaneously, from the main target and the function, which ought to be completed by the specific contract (objective criterion)10. This is the so called underlying basis of the contract but in a more objective way11. The mere subjective importance of an unforeseen change is irrelevant by virtue of Art 143 AK. 3. The above change should be supervening, that is, should have occurred after the formation of the contract. If the crucial circumstances are non-existent or the change of them has already taken place at the time of the formation and the parties are unaware of it, Art 388 AK is not implemented.
5 See in details infra. 6 See Stathopoulos, § 22 n. 3· the same, in Georgiadis-Stathopoulos AK 288 n. 41· Ap. Georgiadis, § 33 n. 8· AP 1066/1996, HellD 38, p. 114· Thessaloniki Appeal Court 1228/1997, HellD 38, p. 1959· Athens Appeal Court 9107/1995, HellD 38, p. 916· 11603/1995, HellD 38, p. 917· 1343/1995, HellD 37, p. 1656· 6796/1994, HellD 36, p. 1612· 6727/1994, HellD 36, p. 1612. 7 See Stathopoulos, § 22 n. 3. 8 See Balis, p. 312· Sakketas, ErmAK 388 n. 20-3· Zepos, p. 560· Michailidis-Nouaros, p. 214· Stathopoulos, § 22 n. 13· Ast. Georgiadis, vol. ΙΙ, p. 137-8· Ap. Georgiadis, § 33 n. 9· Spyridakis, p. 314. 9 For a different, purely objective approach see infra in Case 2. 10 In details Sakketas, ErmAK 388 n. 30-1· further more Balis, p. 312-3· Stathopoulos, § 22 n. 16· Ast. Georgiadis, vol. ΙΙ, p. 138-140· Ap. Georgiadis, § 33 n. 10-2· Spyridakis, p. 314- 5. 11 See Stathopoulos, § 22 n. 14-16. 3
De lege ferenda this restriction is hardly legitimated, while the principle of bona fides necessitates (perhaps even more than in case of the subsequent change) the dissolution or adjustment of the contract12. However, the resorting to other articles, e.g. Arts 140 et seq AK about the error, which provide more or less equal protection, remains possible. Rather seldom, but not out of the question, is the implementation of Art 179 AK (exploitative contract)13. In particular, concerning the error of the parties, it should be pointed out14 that, if the false evaluation of the reality is shared between both parties and relates to facts, which are crucial for the specific contract, then the aggrieved party has the right to annul the contract pursuant to the implementation of Arts 140 et seq AK about the error as to the declaration (Art 140-141 AK) or, pursuant to another version, as to the qualities (Art 142 AK), without any obligation, whatsoever, to compensate the counter-party. This approach is supported by the judiciary and a part of legal writers 15. According, though, to another and more persuasive view16, Art 288 AK is the one, which exerts influence on the fate of the contract and, under its strict conditions, provides an ipso jure adjustment or dissolution of the contract. On the other hand, concerning the unilateral error of a party, this is a case ruled directly by the Arts 140 et seq AK. The party’s error is due either to a discrepancy between his will and his declaration (Art 140-141 AK: error as to the declaration) or to a false estimation of the qualities of a person or a thing (Art 142 AK: error as to the qualities). In the above cases, the party in error is provided with the constitutive right to a judicial dissolution of the contract, which is total and retrospective. Further prerequisites are not presupposed (in contrast to Art 388 AK or even 288 AK). The annulment of the contract, though, does not deprive the counter-party of any kind of protection. Usually, this party is entitled to claim for recovery of the damages, which he suffers
12 See Stathopoulos, § 22 n. 20. 13 See Zepos, p. 561· Michailidis-Nouaros, p. 215/6· Papantoniou, p. 401-3· Stathopoulos, § 22 n. 20 f.· Ast. Georgiadis, vol. ΙΙ, p. 139· Ap. Georgiadis, § 33 n. 13· Spyridakis, p. 315. 14 For further details see infra in Case 13. 15 See in details supra in Case 13. 16 See in details supra in Case 13. 4
due to the frustration of his trust, that he showed in the validity of the declaration of the party in error (see Art 145 Sub.-para. 1 AK). This is, in fact, a case of a negative interest, which does not, however, exceed the limits of the positive interest (that is the non performance damages of the creditor∙ see 145 Sub.-para. 1 AK). 4. The causes, which have brought about the change, should be exceptional as well as unforeseen. The unusual events of a natural, political, social, economic etc. nature -not necessarily events of force majeure- are generally considered as exceptional17. The specific character of the cause is irrelevant (e.g. radical illness of a party). The causes are considered unforeseen, when they have not and could not have been foreseen. Criterion for the capability of the foresight is, according to a view of the literature18, the party itself, which invokes the legal protection of Art 388 AK (subjective criterion). 5. The consequence of the change should be that the performance becomes, in comparison with the counter-performance, so excessively onerous for the debtor, that the insistence of the counter-party on the fulfillment of the performance is being estimated as opposite to the directness and decency or, in other words, to the good faith, required by the transactions19. The mere fact that the debtor suffers an unpredictable loss immediately after the radical change or his sole difficulties in the fulfillment of the performance are not sufficient, despite that his complete financial ruin is not required20. If, exceptionally, the extreme onerous of the fulfillment exceeds any tolerable limit and goes beyond the maximum economic sacrifice, which can be demanded by the debtor (see also Art 288 AK), then a case of an economic impossibility occurs21 and Art 380 AK is implemented. In these circumstances, both parties are ipso jure released from their obligations 17 See Zepos, p. 562· Stathopoulos, § 22 n. 24· Ast. Georgiadis, vol. ΙΙ, p. 141· Ap. Georgiadis, § 33 n. 14-5. For a legitimation of the above criterion see in details supra in Case 2. 18 See Ap. Georgiadis, § 33 n. 17. The objective point of view, similarly with the objective approach of negligence, supports Hennsler, p. 55, in the same legal frame of german law. 19 AP (in its plenary session) 9/1997, HellD 38, p. 767· AP 474/1997, HellD 38, p. 1826. 20 See Balis, p. 314 f.· Sakketas, ErmAK 388 n. 49· Spyridakis, p. 316. 21 See Stathopoulos, § 19 n. 57 et. seq. 5
(rule of common release), while the judicial adjustment of the contract is excluded22. In fact, the above is a restricted approach of the so called economic impossibility of performance opposite to the wider approach of the impossibility, which is supported by the prevailing view of the literature23. Nevertheless, it appears preferable, because, in the largest number of cases, it allows the maintenance of the contract (“in favor contractus”), even as adjusted to the new situation24. Beyond the expressly required conditions by Art 388 AK, the prevailing opinion also presupposes: A) The lack of any contractual provision, which allocates the risk of the arisen situation between the parties (force majeure clauses etc.)25. Still, the total shifting of the risks on to one of the contracting parties26, that is, the indirect total and in advance waiver of the legal protection, which is provided by Art 388 AK27 is null and void, especially when this agreement does not serve -or is not justifiable by- the purpose of the contract (e.g. aleatory contracts)28. B) The total or at least, partial non- execution of the contract29. In exceptional cases, however, the implementation of Art 388 AK should not be prohibited by the mere fact that the contract is being already fulfilled30. The lack of the debtors’ default, while the unforeseen change had occurred, is only required by a minority view of the legal writers31, cumulatively with the above conditions. The latter is based on Art 344 sub- para. 2 AK, which burdens the debtor even with chance events. Nevertheless, 22 See Stathopoulos, § 22 n. 26· Ap. Georgiadis, § 33 n. 19. 23 See Balis, § 47∙ Litzeropoulos, § 156∙ Zepos, p. 128 et. seq∙ Ap. Georgiadis, § 24 n. 5. 24 See Stathopoulos, § 19 n. 57. 25 See AP 494/1999, HellD 40, p. 1083. 26 See Stathopoulos, Contract Law, n. 298. 27 See Balis, p. 316· Gasis, ΝοΒ 23, 707· Michailidis-Nouaros, p. 218· Oikonomopoulos, NDik 28, p. 324· Papantoniou, The good faith, p. 180· Stathopoulos, § 22 n. 27, 40· the same, in Georgiadis-Stathopoulos AK 388 n. 5· Ast. Georgiadis, vol. ΙΙ, p. 135-7· Xypolias, ΝοΒ 32, p. 1684 et seq.· Atsalakis, ΝοΒ 4, p. 345· Theodoropoulos, p. 176-8. See also AP (in its plenary session) 350/1985, HellD 26, p. 468 = ΝοΒ 33, p. 1197. The non-mandatory character of Art 388 AK was supported by Sakketas, ErmAK 388 n. 53· Fourkiotis, p. 693/4· Zepos, p. 567. 28 See Stathopoulos, § 22 n. 40· the same, in Georgiadis-Stathopoulos AK 388 n. 5· Ap. Georgiadis, § 33 σημ. 27. 29 See Sakketas, ErmAK 388 n. 55· Litzeropoulos, p. 303· Michailidis-Nouaros, p. 217· Oikonomopoulos, NDik 1972, p. 326 Ι· Ast. Georgiadis, vol. ΙΙ, p. 142. 30 See Stathopoulos, § 22 n. 29. 31 See Sakketas, ErmAK 388 n. 54· Zepos, p. 561 not. 2· Theodoropoulos, p. 137. 6
Art 344 AK deals with the luck of the performance of the defaulting debtor. Is not related, though, to the counter-performance and, moreover, with the destroyed balance of the performances. Thus, the default of the debtor should not be considered a negative prerequisite for the doctrine of the unforeseen change of circumstances32. If the above conditions are met, the debtor of the excessively onerous performance acquires the constitutive right to seek for the judicial adjustment of the performance to the appropriate extent, or, in case that the adjustment is impossible, the total or partial (only as to its still unfulfilled part) dissolution of the contract33. The judicial dissolution of the contract results in the extinction of the contractual obligations for the future and only exceptionally retrospectively34, and the return of those, already taken place, pursuant to the provisions governing unjust enrichment, for a not-existing -after the formation of the contract- cause (Arts 388 § 2, 904 et seq., 912)35. Theoretically, in case that the adjustment or dissolution of the contract is based on Art 288 AK, then the judicial intervention does not create -as in Art 388 AK- the new legal situation. On the contrary it acknowledges it36.
I. Equivalent of exchange is distorted
1. Canal de Craponne: Long-term contract, "regular" inflation/price-increase
Early in the 20th century, the farmers A and B entered into a contract under which A promises to build and maintain an irrigation canal; B is entitled to draw off water at a fixed price. The contract is concluded for an unlimited period of time. Almost 100 years later, 32 See Balis, p. 313· Michailidis-Nouaros, p. 218· Papantoniou, The good faith, p. 179/180· Ast. Georgiadis, vol. ΙΙ, p. 140· Stathopoulos, § 22 n. 28· the same, in Georgiadis- Stathopoulos AK 388 n. 17 and ΑΚ 344 n. 3· in details Spyridakis, ΝοΒ 26, p. 1016 et seq. 33 See Balis, p. 315· Zepos, p. 563· Michailidis-Nouaros, p. 218· Ast. Georgiadis, vol. ΙΙ, p. 143-5· Spyridakis, p. 317· in details Theodoropoulos, HellD 1960, p. 133 et seq., 344 et seq. 34 See Stathopoulos, § 22 n. 34. 35 See Michailidis-Nouaros, p. 219· Stathopoulos, § 22 n. 35· Spyridakis, p. 318. 36 See Stathopoulos, in Georgiadis-Stathopoulos AK 288 n. 21. 7
A's successors ask for an increase in the price arguing that due to inflation and a rise in the cost of maintenance as well as labor the agreed price has become completely inadequate.
Is the claim of A's suAKessors justified? Are they, alternatively, entitled to terminate the contract?
The A's successors acquire either the right to a judicial adjustment and, especially, to an increase of the monetary-performance or, alternatively, the right to an out-of-courts dissolution of the contract as a consequence of a unilateral termination without notice. The exact provision, which provides the adjustment of the monetary- performance, depends on the special circumstances. That is, if the major devaluation of the currency is being evaluated as an exceptional, unforeseen and excessive disturbance of the subjective equivalence of the performances, then the application of Art 388 AK is indicated. If, however, the devaluation is long-term and gradual, but in result also an excessive one, the A's successors have a right to an adjustment, based, in this case, not on Art 388 AK (due to the lack of the exceptional character of the event), but on the general provision of Art 288 AK37. Naturally, the perspective of a long-term contractual relationship makes the devaluation appear normal and foreseen. However, as mentioned before38, the crucial criterion is not only the fact of the subjective foresight of an event, but, also, the influence of the foresight on the allocation of the contractual risks, which does not take place in the above agreement. The disturbance is considered to be excessive only if the devaluation goes beyond the limit of 50% or 60%39 -which should be considered as given in Case 1- after the elapsed time of 100 years and the interference of two world wars. This kind of devaluation destroys completely the contractual
37 See AP 382/1997, HellD 38, p. 1827· 678/1996, HellD 39, p. 593· Gasis, ΚritΕ 1994, p. 176/7. 38 See above in the Introduction. 39 See Spyridakis, p. 316· Stathopoulos, in Georgiadis-Stathopoulos AK 388 n. 29. 8
apportionment of risks and makes the judicial re-allocation of the damages indispensable 40. The adjustment of the contract to the above conditions consists, according to Art 288 AK, in a divergence from the fundamental principle of the nominalismus, which stands for the greek currency system (see Art 2 § 3 compuls.L. 362/1945). In accordance with this principle, the only value of currency, relevant to the fulfillment of a monetary-performance, is the nominal one, even if the currency has lost part of its real value in the period between the conclusion and the fulfillment of the obligation (the opposite principle is the one of valorismus)41. Furthermore, the judicial intervention in the above case is an exception to the principle of the subjective equivalence, which rules every liberal law of contracts. Under the perspective of the subjective equivalence the validity of a contract remains indisputable, even if the counter performances are not objectively equivalent. The institution of ‘’laesio enormis’’ and the philosophical approach of a possibility to ‘’discover’’ the just price (justum praetium) were not adopted by the greek Civil Code, as well as by the european Codes42. Only under the strict conditions of Arts 388 and 288 AK, the excessive objective disproportion between the counter performances is to be taken under consideration. Finally, the major disturbance of the contract-equilibrium legitimates the parties to terminate the contract without notice. According to a broad principle, all long-term contractual relationships (as the above in Case 1) may be terminated by either party, if substantial reasons can be proved43; and the excessive devaluation meets undoubtedly with this requirement. The right of unilateral termination for a substantial reason puts aside the consequence of adjusting the contract, with which Art 288 AK (and 388 AK) provides, unless the termination of the contract proves to be a forbidden abusive exercise of a
40 Sakketas, ErmAK 388 n. 44. 41 See Gasis, ErmAK 291-292 n. 26· Stathopoulos, § 11 n. 19, n. 37· Ap. Georgiadis, GenPrinc, § 8 n. 15· Kallimopoulos, p. 167. 42 See Papanikolaou, p. 258 επ.· Dellios, p. 351 επ.· even more Wieacker, p. 295 et seq. 43 See Κapodistrias, ErmAK Introd. notes 416-454 n. 42 et seq.· Stathopoulos, § 5 n. 85· Ap. Georgiadis, § 53 αριθμ. 10. 9
right, according to Art 281 AK, especially under the scope of a possibility of adjusting the counter performance on to the new circumstances44. The major devaluation of the national currency and the consistent demolish of the contractual balance of the transactions instigated the greek legal theory -but unfortunately not the majority of the Courts- to reproach the problem of the unforeseen change of circumstances45. Under the force of Roman Law -the greater source of Greek civil law after the Liberation of Greece46- the difficulty in fulfilling a performance, no matter how harsh it was, did not allow the debtor's release. Only the total non-fault impossibility of performance provided with the legal reason for the debtors' release. The greek judicial rulings and especially the rulings of Areios Pagos insisted on an unexceptional application of this principle, even after the major devaluation of the currency, which have arisen after the end of the 1th World War47. On the contrary, the legal theory and the minority of the Courts of the two first instances provided, through the broadening of the term "impossibility of performance", a frame for the legal protection of the debtor. This development, not only brought out the need for the legal protection of the debtor, but mostly affected the members of the Committee for the new greek Civil Code, permitting the entrance of the underlying basis of the contract, in the year of 1940, not “from the window” -according to the well-known sentence of Windscheid48- but “from the door”49, with the narrow but forward- looking provision of Art 388 AK50.
44 See Chiotellis, p. 162-3. 45 See Litzeropoulos, p. 240 et seq.· Ast. Georgiadis, vol. ΙΙ, p. 132/3· in details Vournasos, p. 3 et seq. and passim. 46 In the Decree of 23 February 1835 was stipulated not only that a civil code should be drawn up, but also that of the laws of the Byzantine emperors, as contained in the Hexabiblos of Armenopoulos and in Basilika, should be in force. This provision was meant as an affirmation of the appliance of the Roman Law (Corpus Juris Civilis), due to the fact that the Hexabiblos was based, at least indirectly, on the Basililka, which were to a large extent a translation with commentary into Greek of the legislation of Justinian. See in details Stathopoulos, Contract Law, n. 5. 47 See Sakketas, ErmAK 388 n. 2, 7-8, 13-15· Zepos, p. 556-8· in details Theodoropoulos, p. 108 et seq. 48 Windscheid, AcP 78 (192), p. 197: „Zur Thüre hinausgeworfen, kommt sie zum Fenster wieder herein“. 49 See Schmidt-Rimpler, p. 12/3, in the framework of his own theoretical concept. 50 There was already in force the poln Civil Code and followed, in the year 1942, the italian Civil Code· see Sakketas, ErmAK 388 n. 15. 10
2. FM (Hardship due to extraordinary inflation; hardship resulting from a foreign currency agreement) (Extraordinary inflation) A receives a loan from the B-Bank. Under the agreement, the interest rate is fixed at 10 percent for five years. In the last 20 years before the agreement, the rate of inflation had been relatively stable within a range of one to six percent. In the third year after the conclusion of the agreement, the economic situation begins to destabilize and inflation rises quickly to 50 percent.
B-Bank asks for renegotiation and adjustment of the contract.
(Variation: foreign currency agreement) The loan agreement between A and the B-Bank provides for repayment and interest in a foreign currency. In the last 10 years before the agreement, the relevant exchange rate had been relatively stable within a range of 20 percent. Subsequently, the national currency devaluates by 80 percent as compared to the foreign currency.
A asks for renegotiation and adjustment of the contract.
The B-Bank acquires the right to a judicial adjustment of the contract pursuant to Art 388 AK, but it has no right, whatsoever, to enforce (outside or inside the court) to a renegotiation of the contract. Variation: Α acquires the right to a judicial adjustment of the contract pursuant to Art 388 AK, but he has no right to enforce (outside of or inside the court) to a renegotiation of the contract. 11
The unexpected economic crisis, which destroys the functional equilibrium of the exchanged performances51, is an undeniable case of an “unexpected change of circumstances”. Naturally, a real will of the parties, either explicit or implicit one, to base a loan-contract on the economic stability, does not usually exist. At the time of the formation the economic stability52 may interfere in the parties’ considerations only by chance. And the fact that the economic stability is, among other things, a logic prerequisite, does not prove that the parties rely on this (unless we accept a fictitious will)53. Furthermore, the inevitable contractual gap can not be filled by the complementary interpretation of Art 200, while there are no objective or subjective indications into the contractual framework. This gap, though, might reveal that the underlying basis of a contract is in fact composed of purely objective criteria, and especially of the objective criterion of the contractual allocation of risks54. Thus, the underlying basis of a contract might be considered as consisted by every legal or real fact, the absence of which destroy the allocation of the contract risks. The specification of an allocation of the risks is cumulatively contributed by the, explicit or implicit, parties’ agreements, the statutory rules and the, more or less, speculative or personal features of the contract. Very important for the risks’ allocation is also the foresight of a risk. The party, who predicted or could have predicted the realization of the
51 At this point, the overturning of the functional equilibrium of the counter- performances might be clarified as followed: Regarding the “unexpected” reality, the analogy of the real values of the performances has none relation, whatsoever, with the analogy of the performances, which is established by the specific contract, in a matter that overthrows the parties’ calculations∙ see also AP 1138/1990, ΝοΒ 40, p. 77. 52 As well as the political, environmental etc. stability. 53 The limited boundaries of the human knowledge and prediction have inevitably as a result, that every positive judgment includes semantically a countless amount of negative judgments, which the subject is not in the position to supervise· see Ε. Καufmann, p. 84. These negative judgments constitute a logic prerequisite of the positive judgment, but not, “always or usually”, a psychological reality of the positive judgment· see Lenel, AcP 121, 15. Against this so called „pseudo-psychologisches criterion“ -which is founded predominantly by Oertmann- see also Kegel(/Rupp/Zweigert), p. 108/9· Kegel, Gutachten, p. 148· Larenz, The contract’s underlying basis, p. 10· the same, p. 323/4· Fikentscher, p. 6, 7, 15/6· Εmmerich, p. 314· Κοller, p. 19/20· Κöhler, p. 298. Contra Filios, p. 439/440∙ Simantiras, n. 737 p. 551. 54 For the unique trustworthy criterion speaks Rabel, I, p. 357 (ind. 1). See also Papanikolaou, ΝοΒ 33, p. 942 Ι, 944/5∙ Valtoudis, p. 300 et sec. and also, even though indirectly, AP 678/1996, HellD 39, p. 593, 593 ΙΙ· 1066/1996, HellD 38, p. 114, 115 Ι· Thessaloniki Appeal Court 1228/1997, HellD 38, p. 1659, 1659 Ι. 12
accidental fact, is usually the one, who bears the damaging consequences55. The foresight of frustrating event creates the presumption that the party intended to bear the consequences of the event. If this intention influences the allocation of the contractual risks, this intention becomes regularly part of the content of the contract, according to the rules of the complementary interpretation of the contracts (see Art 200 AK). This is a case of an implicit clause, which would have been stipulated for the specific contract, if both parties, acting on good faith, would have dealt with the specific problem at the time the contract was created (hypothetical will)56. Naturally, whatever is considered as a content of the contract -the explicit as well as the implicit one- it is impossible to be its underlying basis of this contract in the same time57. In such circumstances, this should be the real reason, why the foresight of the frustrating event excludes the possibility of collapsing of the contract’s underlying basis. A further, de lege ferenda, explanation is that the party who foresaw the risk should be self-secured by the stipulation of protective clauses58. If this party omits to do so, then it is only fair for it to bear the damage59. If both parties foresaw or could foreseen the realization of
55 See AP 382/1997, HellD 38, p. 1827. See also in the Introduction. 56 By the above approach the limits between the implicit clauses and therefore the content of a contract and its underlying basis, which is equally ruled by the general principle of good faith, becomes, in some cases, extremely harsh. A criterion for the distinction, which might be pointed out, is the one of the, already existent, framework and the indications of the specific contract (explicit clauses, negotiations of the parties, type of the contract, statutory rules etc). Thus, when the result of the interpretative approach of the contract is based directly on the already existent framework of the contract, then this is a matter of the content of the contract. Otherwise the matter is to be solved by the doctrine of the contract’s underlying basis. Given, nevertheless, than the contract’s underlying basis is the middle stage between the contract, the limits of which are sometimes uncertain, and the irrelevant subjective motives of the parties, the distinction of which from the contract’s underlying basis arises equal difficulties, demonstrates that the exact approach of the latter is occasionally an intricate venture. 57 Βλ. Stathopoulos, § 22 n. 17· Ap. Georgiadis, GenPrinc, § 43 αριθμ. 16-7· Filios, ContrLGenP, p. 380· v. Tuhr, LZ 1921, p. 157· Oertmann, p. 31· Fikentscher, p. 20, 41. 58 Nevertheless, there is an exception in case of the party, who is financially weak and, therefore, not in the position to impose his own clauses. In such circumstances, the weak party may invoke a collapse of the contract’s underlying basis∙ see Ulmer, AcP 174, p. 188-9, and generally p. 186 f.∙ Papanikolaou, ΝοB 33, p. 949 ΙΙ. 59 Same as to the result bur from different approaches between them Οertmann, p. 116, 149· Κegel, Gutachten, p. 203· Larenz, The contract’s underlying basis, p. 107· Larenz/Wolf, § 38 n. 37· Schmidt-Rimpler, p. 18· ΜünchKomm-Roth, § 242 n. 537· Ulmer, AcP 174, p. 185 et seq. See, nevertheless, the reservations from Oechsler, Justice, p. 186-9. 13
the risk, than the damage of its realization lies to the party who happened to suffer it. According to the above, the unforeseen raise of the inflation as to 50% it should be taken under consideration that it excessively overturns the functional equilibrium of the counter-performances60 (at the loan at interest -the consensual and the delivery one- the counter-performance of the borrower is the interest itself61). Thus, the B-Bank, which is here the creditor of the highly underestimated performance, has the constitutive right to seek an adjustment of the contract, and especially, an increase of the interest, by virtue of Art 388 AK. If the borrower is incapable of fulfilling his adjusted obligation62, then the dissolution of the contract from the B-Bank, which has happened, due to an unilateral and extraordinary, out of court, termination based on an substantial reason (see Art 288 AK) should be considered legitimated (favor contractus). In any case, the B-Bank has no right to enforce the renegotiation of the contract, in contrast with the approach of the legal writers63. The prevailing version of this approach -which is found also and especially in german literature64-, supports the ancillary and bilateral obligation of the parties to renegotiate the terms of the contract, disregarding the result. This obligation derives from the principle of the bona fide fulfillment of the contract. If the party denies to collaborate, the counter-party is entitled either to refuse the fulfillment of his obligation (exception non adimpleti contractus∙ see Art 374 AK), or to recover his damages (due to the default of the other party65 or to the so called “improper performance” or “positive breach of contract”66), or, even, to rescind, making the adjustment of the contract impossible. The obligation to renegotiate is regulated also by the -non statutory67- UNIDROIT
60 See ad hoc Spyridakis, p. 316. 61 See Vouzikas, ErmΑΚ 806-809 Introd. notes n. 28, ΑΚ 806 n. 88, 94, 96∙ Rokas, in Georgiadis-Stathopoulos AK 806-809 Introd. notes n. 16, ΑΚ 806 n. 12. 62 See generally Stathopoulos, in Georgiadis-Stathopoulos AK 388 n. 22. 63 See Georgakopoulos, DEE 1995, p. 30, 31 ΙΙ. 64 See above all Horn, AcP 181, p. 256 επ. In details Nelle, passim and especially p. 173 et sec., 260 et sec., 303 et sec., 331 et sec. 65 See Georgakopoulos, DEE 1995, p. 31 ΙΙ. 66 See Horn, AcP 181, p. 286 f. 67 See in details Canaris, The position of ‘’UNIDROIT Principles’’, p. 8 et sec., 13 et sec. 14
Principles about the international trade (see Art 6.2.3 §§ 1-3). There are some disadvantages, though, which make the above approach quite implausible. For example, without convincing arguments a) it opposes to the ipso jure adjustment of the burdensome contract, in cases where Art 288 AK is implemented68, b) it deprives the party, who denies to renegotiate, of the benefits of an adjustment of the contract, and c) gives the opportunity to the party, who took advantage of the unexpected change of circumstances, in order to elude the judicial intervention, which is presumed as fair, by participating figuratively in the supposed negotiations69. Therefore, the prevailing view should be disputed and not be adopted, similar to the approach, which stands also in the frame of the Vienna Convention for the international sales of goods (see Art 79)70. Variation: The above solution may also meet with the variation of the foreign currency agreement. The aleatory feature of the specific contract has no influence on this judgment, regarding the seriousness of the economic crisis.
3. HCG (Government intervention; post-contractual imposition of a tax) A and B enter into a contract under which A promises to supply 120,000 liters of industrial spirit to B. Subsequently, a statute is enacted by which an alcohol tax is imposed on the sale of industrial spirit. The tax statute provides that the seller has to pay the tax. The tax is so high that it even exceeds the price that A and B have agreed upon.
Is A entitled to recover compensation for the additional costs or to cancel the contract?
68 See above in the Introduction in f. 69 See Martinek, AcP 198, p. 373, 375, 351, 376-7. 70 See Schlechtriem(-Stoll), § 79 n. 39· Martinek, AcP 198, p. 383. 15
As a consequence of the sudden inaction of the alcohol taxes, the obligation of A to perform becomes extremely onerous and gives him the right, pursuant to Art 388 AK, either to a judicial adjustment of the contract by raising the height of the counter-performance, or to a judicial dissolution of the contract, if the fulfillment of the adjusted performance will be proved burdensome for B’s interests. Undeniably, A has no right to a compensation. Even the adjustment of a contract does not aim at the compensation of the damaged party, but at the restore of the disturbed equilibrium of the performances71.
4. LV (Unexpected benefit) B leases business premises from A for a fixed period of 15 years. Shortly after conclusion of the contract, the character of the area changes strongly and unexpectedly: A military airport located nearby is shut down and an enormous amount of public funds is invested in the area (infrastructure etc.). As a consequence, B´s business soars and his profits are 500% of what he could reasonably have expected. By the same token, the rental value of comparable business premises in the same area rises to 500% of the amount A and B have agreed upon. A claims that the leasing price is to be adjusted accordingly or, alternatively, that the agreement is to be terminated.
Is A´s claim justified?
By virtue of Art 288 AK, A acquires the right to an extraordinary and without notice termination, based on a substantial reason, which proves the function and maintenance of the contract against the requirements of bona fides72.
71 See Stathopoulos, in Georgiadis-Stathopoulos AK 388 n. 22. 72 For the application of Art 288 AK in business lease see AP (in its plenary session) 9/1997, HellD 38, p. 767∙ AP 63/2000, NoB 48, 1573∙ 494/1999, HellD 40, p. 1083∙ 474/1997, HellD 38, p. 1826∙ 1066/1996, HellD 38, p. 114∙ 293-1992, HellD 34, 1293∙ Thessaloniki’s Appeal Court 1228/1997, HellD 38, p. 1659∙ Athens Appeal Court 9107/1995, HellD 38, p. 16
Instead of a dissolution, A has the right to an adjustment of the contract, which presupposes not only a substantial reason, but, furthermore, the strict conditions of Art 388 AK. The prerequisite for the application of Art 38873, is the unforeseen und excessively onerous misbalance of performances’ equilibrium. This prerequisite stands also in this Case, even though the aggrieved party does not, as regularly, suffer positive damages due to the fulfillment of the contract but loses a great deal of profits, which would not have been lost, if the subsequent change of the reality were predicted. A different approach should be avoided, in order to deprive the benefited party of the possibility to speculate to the detriment of the counter- party, against the requirements of bona fides.
II. Recipient' use of contractual goods or services etc. is substantially affected
5. Renovation of cellar becomes useless due to destruction of the rest of the building. A agrees to refurbish B's cellar into a wine-cellar. The works are scheduled to start one month after the agreement. Before the works have started, B's house is completely destroyed during a heavy summer storm. However the cellar of the house remains fully intact. B immediately informs A and asks him not to perform. A insists on the agreement. He argues that B's cellar is still intact, that he has reserved two weeks to perform the works and that he has already purchased the necessary materials.
Is B obliged tο pay the contract price or, alternatively, to compensate A' s losses?
916∙ 1343/1995, HellD 37, p. 1656∙ 11603/1995, HellD 38, 917∙ 5487/1994, HellD 36, p. 1614. See also Archaniotakis, p. 14-5, 113 et seq.∙ Ap. Georgiadis, ContrLSpecP, § 29 n. 19 f. Against the application of Art 288 AK, due to the special statutory rule of the Art 5 para. 4 of the Decree 34/1995 for the business leases, AP 1062/1996, HellD 38, p. 115. 73 See also above in the Introduction. 17
To begin with, some basic remarks should be made at this point: By the conclusion of a reciprocal contract every party undertakes the obligation to perform (direct legal cause), in order to acquire the claim for the fulfillment of the counter-performance (indirect legal cause). For example: In the above Case, the contractor A undertakes the obligation to carry out a work, in order to gain the price74, while the person ordering the work B undertakes the obligation to pay the price, in order to receive the agreed work75. This situation concerns the purpose of the transfer itself, the purpose of the commitment or, in other words, the “exchange’s cause” of a reciprocal contract76, which is called traditionally “causa aquirendi” ( = a cause of acquiring a claim)77. The indirect legal cause results from the contract itself78. For that reason, its abnormanl development is dealt by the provisions about the impossibility, the default or the defects in title or on the thing79. Nevertheless, the transfer of the goods itself does not consist of the final purpose. It is only a way for the parties of satisfying their needs and financial goals80, of satisfyin their so called “secondary” or “substantial causes”. E.g.: In the above Case, by the completion of the work A might aim at further investments, while B at taking advantage of the work for reasons of pleasure. Under the reservation of a different agreement, the “secondary causes” are not content of the contract. So, their frustration does not affect the validity (see Ar. 143 AK) or the development of the contract81. The commitment and engagement of a contract (pacta sunt servanda) enforce the protection of the 74 Or, more accurately, in order to acquire the claim for the fulfilment of the monetary-performance. 75 Or, more accurately, in order to acquire the claim for the fulfilment of the counter- performance. 76 See Kress, p. 35 f.∙ in details Κlinke, p. 103 et seq., 116-120. The “exchange’s cause” is also called “direct cause of the contract” in contradiction to the “indirect cause”∙ see Litzeropoulos, Elements, vol. ΙΙ, p. 318-9· Iliopoulos, p. 14-5· Stathopoulos, Claim, p. 76. 77 See Balis, GenPart, p. 111-2· Zepos, p. 353-5· Sourlas, ΕrmΑΚ 361-373 Introd. Notes n. 25· Evrigenis, ΕrmΑΚ 873-875 Introd. Notes n. 3-4· Simantiras, n. 587· Papantoniou, p. 280/1· Stathopoulos, Claim, p. 76· Ladas, p. 280-2· Ap. Georgiadis, § 4 αριθμ. 29-33· the same, GenPrinc, § 29 αριθμ. 51· Karassis, p. 49-50. 78 See Fikentscher, p. 26. 79 See Ul. Huber, JuS 1972, p. 58 ΙΙ. 80 «Nihil est sine ratione»· βλ. Ehmann, p. 131· in details Κöhler, p. 1, 3-10· Fikentscher, p. 22-4, 27. For the human act as a „carrier“ of a meaning see Karassis, GenPrinc, n. Α 13 et seq. 81 The matter, whether the unlawfulness of the cause may influence the validity of the contract, is a different one. See Litzeropoulos, Elements, vol ΙΙ, p. 320. 18
party, even in case that the “secondary causes” of the counter-party are frustrated82. That is why every party is ought to fulfill, even if, e.g., the supplying’s cost for the performance has arisen (“supplying risk” of the seller, contractor, lessor etc), or the counter-performance’s value is decreased (“devaluation risk”), or the plans of taking specific advantage of the counter- performance are frustrated (“risk of use” of the buyer, master of work, lessee etc), or, as far as the monetary-performance concerns, if the debtor is in solvency (“risk of solvency” or “risk of payment”)83. The only exception to this allocation is the collapse of the underlying basis of the contract, that is the demolishment of the contractual allocation of risks due to unexpected circumstances. In the present Case, B’s specific purpose of using the refurbished cellar did not become, one way or another, content of the agreement. Thus, according to the above mentioned, the frustration of B’s purpose of using the cellar does not consist of any kind of non fulfillment -e.g., non-fault impossibility of A to perform- and so the “risk of use” bears the creditor B84. In such circumstances, the possibility of a collapse of the underlying basis of the contract should be excluded. The only alternative the creditor has, in order to be released from the contract, is the right to a free unilateral termination of the contract at any time up to the completion of the work, which is provided by the special provision of Art 700 AK. In fact, the irreversible refusal of B to accept the performance of the counter-party might be interpretated, pursuant to the good faith (Art 173, 200 AK), as an implicit exercise of this unilateral termination. If so, then B, after the implicit termination, is obliged to pay the agreed fee to A, subtracted to expenses, which the contractor either has saved due to the cancellation of the work (e.g. wages of employees) or intentionally omitted to benefit from (Art 700 sub-par. 2 AK)85. By no means, whatsoever, -not even alternatively to the fee- should the creditor be obliged
82 See Papantoniou, The good faith, p. 175∙ Stathopoulos, ΚritΕ 1995/1, p. 110. 83 See indicatively Valtoudis, p. 296-7. 84 See generally Karassis, p. 101/2. 85 See Kardaras, in Georgiadis-Stathopoulos AK 700 n. 5, 8-9· Deligiannis/Kornilakis, vol. ΙΙ, p. 306/7, p. 316. 19
to pay any pecuniary compensation, that is the “positive interest” or (non-) performance damage in the form either of positive damage (damnum emergens) or of lost profits (lucrum cessans)86.
6. HCG (Government intervention makes use of rented gas station impossible) A leases a petrol station from B. Due to outbreak of war, the government confiscates all petrol in that area and it is impossible for A to obtain petrol from any source. As a result, A can make no use of the petrol station. He stops the payment on the lease.
Is A’s refusal to pay the rent justified?
A’s refusal to pay the rent is unjustifiable. B does not breach any of his contractual obligations (see Art 574 AK). A should, firstly, either terminate the contract based on a substantial reason pursuant to the principle of bona fides (Art 288 AK)87 or demand the judicial adjustment of the contract according to Art 388 AK, in the form of suspension in the fulfillment of the contractual obligations. Afterwards, he could refuse the payment of the rent. Under the given circumstances, Art 596 sub-para. 1 AK is not implemented. According to this provision, the lessee is obliged to pay the rent, even if he is not using the leased thing due to personal impediments. On the contrary, general impediments or, even more, cases of force majeure -as the above-, which prevent from the use of the leased thing for the agreed purpose, dismiss the lessee from the obligation to pay to rent88.
7. PM (Hotel reservation: individual purpose of the visit frustrated; general safety endangered; coronation case) A booked a room at B’s hotel, but:
86 See Deligiannis/Kornilakis, vol. ΙΙ, p. 313. 87 For the application of Art 288 AK in business lease see infra in Case 4. 88 See Ap. Georgiadis. ContrLSpecP, vol. Ι, § 24 n. 37∙ Kafkas, vol. Ι, p. 326/7∙ Rapsomanikis, in Georgiadis-Stathopoulos AK 595-596 n. 5. 20
a) The exhibition he wants to visit is cancelled at the very last moment. b) A terrorist movement declares that it is to launch a campaign against tourists in that town. c) An unforeseeable strike of airport personnel prevents A from travelling at the specified time to the city where the hotel is located. d) The coronation procession scheduled at the respective date is cancelled. The room has a view to the street, on which the procession was supposed to take place. Due to the extraordinary event, the agreed price is ten times higher than the regular price.
Is A entitled to cancel the reservation?
a) Similarly to Case 6, A has no right to cancel the reservation. The “secondary cause” of A to visit an exhibition has not become, explicit or implicit (e.g. by the appropriate arrangement of the price89), content of the contract. Thus, the frustration of this purpose does not infect the validity (c.f. Art 143 AK) or the development of the contract. b) The maintenance of the peace and the social stability at the place of the fulfillment of a contract is definitely one of the crucial facts, the absence of which could destroy excessively the balance of the contractual framework. Nevertheless, only under exceptional circumstances a declare of a terrorist action might be considered -always from an objective point of view and regardless of the personal feelings of the creditor- as capable of overthrowing the social stability. Thus, under this reservation of exceptional circumstances, A will not be entitled to cancel the reservation. c) A has no right to cancel the reservation. A is not in the position to accept the appropriate offer of the performance. As a consequence, A is in default regardless his lack of fault, given that the creditor’s default is termed
89 See in general Larenz, The contract’s underlying basis, p. 105· Beuthien, p. 186· Häsemeyer, p. 257. 21
objective (see Art 349 AK). In that case, A -as any other creditor who is in default- is obliged to pay to the debtor the latter’ s expenses -if any- for the ineffectual offer of the performance, as well as his expenses for the safeguarding and maintenance of the performance for as long as the creditor’s default lasts (see Art 358 AK). There is one threshold for the application of this rule. That is the debtor’s ability to offer the appropriate performance, but not the ability of the creditor to accept the performance90. During the creditor’s default, the obligation of the debtor to fulfill remains valid. d) By the appropriate increase of the price, the “secondary cause” of A became implicit content of the contract. Thus, the frustration of this cause does not consist a collapse of the underlying basis of the contract, since it has already become its content91. It consists, though, of a non-performance of the contract, here in the form of a non-fault impossibility92, since B is irreversibly not in the position to cede the use of the leased room for the agreed purpose. In case of the non-fault impossibility both parties are ipso jure released (rule of common release; Art 380 sub-para. 1 AK). If the counter-performance, here the rent, has already been fulfilled, it must be restituted by means of the provisions as to unjust enrichment (Arts 904 et seq. AK).
8. MP (Shop rental: unexpected business environment in shopping center) A is the owner of a bookshop. He contracts with B for the rent of business accommodation in B’s shopping center. The fixed period of the lease is 5 years. The shopping center has just been built and a large part of the accommodation is still unoccupied. Both parties expect at the time of contracting that a variety of shops (hotel and catering trade, retail sale) will settle down. One year later almost all
90 See Stathopoulos, § 20 n. 35. 91 Therefore, it should be avoided to recognize a “common”, “normative” or “intersubjectiv” cause, either psychological or ontological one, parallel to the “exchange’s cause” of the contract. As exceptional case remains the contract of partnership (Arts 741, 772 AK). For the above approach see, among others, Flume, p. 513· the same, Contract, p. 217· Wieacker, publication in honor of Wilburg, p. 249, 252. 92 Βλ. Wieacker, publication in honor of Nipperdey, p. 811. 22
accommodation is rented, but ¾ of the shopping center consists of restaurants and cafes. For that reason most potential customers visit the shopping center after A closes the doors of his bookshop.
Is A entitled to cancel or to renegotiate the contract?
A has nor right to cancel or, even more, to renegotiate the contract (see in details infra in Case 2), on the condition -which seems to occur in the given Case- that B has not undertaken the obligation to lease only on specific kinds of enterprises. As mentioned before (in Case 5), the creditor of the performance always bears the economic loss, which is caused by the frustration of his purpose of using the performance, unless, exceptionally, this frustration demolishes the contractual allocation of risks. In the given Case, this exception is out of the question, due to the lack of any influence of the purpose on the contractual framework. In this Case it is clearly demonstrated, that even if both parties were based on the maintenance of certain facts or on their subsequent realization, the crucial criterion for diagnosing the collapse of the underlying basis of the contract, is still the contract itself and the allocation of risks, which the latter includes93.
9. LV (Long-term supply of beer; beer sales are far below expectations) A is the landlord of a bar. He enters into an exclusive supply agreement with the beer brewery B for a fixed period of 15 years. Pursuant to the contract, A is obliged to accept and pay a specific quantity of beer on a monthly basis, while he is allowed use technical equipment and furnishings owned by B. Consumption of beer, however, remains far below expectations. The bar is well
93 See Stathopoulos in Georgiadis-Stathopoulos AK 388 n. 11· Ε. Kaufmann, p. 107· Fikentscher, p. 16. 23
attended but the “B-beer” is unpopular amongst customers of A’s bar. A requests adjustment or termination of the agreement.
Is A´s claim justified?
A’ s claim is unjustified and the explanation for this similar to the one of Case 8. Nevertheless, after the maintenance of the contract for several years A will, inevitably, suffer serious economic losses. This result by itself might be considered as a substantial reason, that gives A the right to an extraordinary and without notice termination of the contract, pursuant to Art 288 AK94.
10. HCG (Export ban) Firm A purchases technical equipment which is to be produced by firm B. The parties know that firm A plans to resell the equipment to Iraq. At the time of contracting, exports to Iraq are illegal but the parties expect that the status quo will change until the time of delivery. The parties are aware that the equipment can only be sold to Iraq at a reasonable price. When firm B has completed production and offers delivery, exports to Iraq are still illegal and no change is in sight. Firm A refuses acceptance and payment.
Is A’s refusal of acceptance and payment justified?
Undeniably, since A refuses to accept the purchased equipment and to pay for it, commits a breach of the contract.
94 The substantial reason is located usually in the sphere of the receiver of the termination, but this does not exclude the possibility to be located in the sphere of the party who declares the termination∙ see Karakatsanis, in Georgiadis-Stathopoulos AK 416-454 Introd. notes n. 23. The possibility to terminate a continuing contract based on a substantial reason according to the rules of good faith supports the majority of legal writers∙ see Stathopoulos, § 21 n. 135∙ Ap. Georgiadis, ContrLGenP, § 14 αριθμ. 32∙ Kapodistrias, ΕrmΑΚ 416-454 Intod. notes n. 37 et seq.∙ Karakatsanis, in Georgiadis-Stathopoulos AK 416-454 Introd. notes n. 22 et seq. Conra Georgagopoulos, p. 171. 24
The impossibility to export the equipment to Iraq consists of a frustration of A’s secondary cause to use the performance in a specific manner. And, as it is repeatedly pointed out, this frustration does not influence the validity (Art 143 AK) or the function of the contract (see also infra in Case 5), which remains intact. Furthermore, the possibility of a disturbance of the contractual allocation of risks does not meet with the given Case. The impediments, which prevent from the export of the equipment, are foreseeable. And, as mentioned infra in Case 2, the ability to foresee a risk always influences the risks’ allocation. The party who foresaw or could have foreseen the realization of a risk, is usually the one who bears the damaging consequences of its realization. In the given Case, A neither suspended the validity of the contract from a condition, suspencive or dissolutory, nor stipulated any clause, related to the exportability of the merchandise. In the latter circumstance, the exportability would have become an agreed quality of the merchandise, the absence or frustration of which would have characterized the merchandise as a defective one, giving A the right to rescind the contract, by virtue of Art 540 § 1 n. 3 AK, that is, unless the defect is minor (an exception which does not meet with the given Case).
III. Frustration of specified purposes (other than I or II)
11. (*3) PM (Use of real estate by transferee does not comply with the expectations of the transferor) A sells his family house to B at a price far below its market value. Both parties assume that B would dedicate the house to cultural purposes only. However, this assumption was not inserted into the contract as an explicit condition. B changes his mind and gives it to one of his daughters instead. 25
Is A entitled to ask for the difference between the agreed price and the market value or, alternatively, to reclaim the house?
A is entitled to demand either to an increase of the price or to a dissolution of the contract and, in result, a reclaim of the house, pursuant to Art 388 AK. The above case is not a mere frustration of the unilateral expectations of a party, regarding the use of the contractual object, which is legally irrelevant (Art 143 AK). This is a subsequent collapse of the underlying basis of the transaction, deemed by the provision of Art 388 AK. B’s intention of using A’s family house for cultural purposes becomes a crucial part of the contractual basis. This approach seems to stand not because the parties have based their contractual relationship on it (subjective criterion), but, mostly, because the specific manner of using this house has affected a substantial part of the contract, that is the price (see infra in Case 2). As a result, A acquires the constitutive right to seek either the judicial adjustment (here increase) of the price or the total dissolution of the contract and the return of the house pursuant to the provisions of unjust enrichment (Arts 904 et seq.). The fault of the creditor, which leads to the collapse of the contractual basis, does not prevent the debtor from invoking Art 388 AK95.
12. HCG (equitable compensation if divorce laws lack a basis for compensation) Before A and B get married, they enter into a prenuptial agreement, in which they agree on separation of property. During the marriage A buys a house and A and B use the house as their family home. The price for the house is 500 000 Euro. A is the sole proprietor of the house, but B has contributed 100 000 Euro to the purchase-price. In addition, B does extensive renovation work before they move in. The renovation would have cost 50 000 Euro, if professional services had been employed. After A and B have lived
95 See also infra in the Introduction. 26
together in the house for one year, they separate and get divorced. Divorce law does not provide for a basis of compensation.
Is B entitled to compensation for his contributions to the family home?
The benefits, which B provides to A, go beyond the limit of his/her legitimate obligation of Art 1386 AK to a contribution to the family affairs. Therefore, under the reservation of a common intention, they should be considered as a donation by sense of Art 496 AK. This common intention seems to emerge by an objective interpretation of the parties’ behavior (Art 200 AK). The underlying basis of this donation, pursuant to the requirements of good faith and common usages, should be considered the marriage of the counter-parties. If so, by the dissolution of the marriage the underlying basis of the donation is overthrown. As a result, B should demand the judiciary dissolution of the contract and the reclaim of 150.000 € according to the provisions of the unjust enrichment (Arts. 904 et seq. AK).
IV. Mutual mistake
13. (*4) HCG (Common mistake concerning the market value of shares) A holds shares of the X-corporation. He agrees to sell the shares to B at the current price as listed by the stock-exchange on the day of contracting. In the written contract, the parties set a price of 10 Euro per share. However, the actual price per share on the day of contracting is 12 Euro. The internet service, from which the parties derived the price, had displayed an incorrect number. When A finds out about the correct price, he demands that the purchase price is to be increased to 12 Euro. 27
Can A ask for a price of 12 Euro per share? Can he, alternatively, cancel the contract?
This is a case, primarily solved by the rules of the contract‘s interpretation (Arts 173, 200 AK). If the parties have considered of relying primarily on the procedure to extract the price, and, only indirectly, on the final price, then there is a case of a mutual and of the same kind error as to the declaration (‘’falsa demonstratio’’). If this is the case, than the declared price -here the one of 10 €- should be substituted ipso jure by the price, which would have been stipulated, if the procedure had been applied correctly. And in the above Case that is the price of 12 €96 (: ‘’falsa demonstratio non nocet’’). If the parties, however, considered of relying -as usually- on the final price, and not on the procedure, from which the price has been extracted, then this is a case of a mutual, and of the same kind, error in the motivation. The Civil Code does not regulate this problem97. The unplanned legislative imperfection98, which is emerged, is dealt -according to the judiciary99 and a part of the literature100- pursuant to the analogical application of the provisions about the error (Arts 140 et seq. AK), which provides with the constitutive right to the annulment of the contract. The “involvement” both of the parties in the error consists of, according to one version101, an error as to the declaration (see Art 140 AK), and to another version102, an error as to the 96 See Oertmann, AcP 117, p. 289-291· Τitze, p. 87· Flume, p. 501-2· Brox, p. 65. 97 According to Wieacker (publication in honor of Wilburg, 246 not. 79) the reason for the above legislative malpractice, which is met also in german law, is, in fact, the contract’s distinction in offer and acceptance as well as the distinction of the declaration of will in will and declaration. This kind of distinction, which was unknown in classic roman low, characterized the Pandect’s legal science. 98 See the well-known approach of Canaris, p. 16, 31 et seq.· Larenz/Canaris, 191 et. seq., which occurs naturally only the obvious legislative gaps (offene Lücken), and not the hidden ones (verdeckte Lücken)· see Canaris, p. 141 et. seq. 99 See AP (in its plenary session) 35/1998, HellD 39, p. 1268 = ΝοΒ 1999, p. 251, 251/2 (commentary by Doris, especially in p. 253 ΙΙ)· AP 526/1997, HellD 27, p. 1357· 5/1990, HellD 1990, p. 551, 551 Ι = ΝοΒ 1990, p. 1318, 1319 (commentary by Spyridakis). 100 See Balis, GenPart, p. 140· Litzeropoulos, Elements, vol. ΙΙ, p. 301 f.· the same, publication in honor of Maridakis p. 342/3· Stathopoulos, § 22 n. 21-23· the same, ΚritΕ 1995/1, p. 116, 123-4. 101 See Balis, p. 140. 102 See Litzeropoulos, Introductions, p. 388, in the framework of a “broad understanding” of the above article. 28
qualities, cases that are considered as essential, only if the parties have avoided the contract knowing the reality (Art 142 AK∙ see also Art 872 AK anal. implemented). The party who suffers some loss due to the error has the right to annul. This right is normally followed by an obligation to compensate the counter-party, whose trust in the validity of the other’s party declaration is being frustrated after the annulment (see Art 145 AK). In case, though, of a common error the above obligation to compensate does not burden any of the parties, who takes first the initiative to annul, at least pursuant to the majority version103. According, however, to another, and in my opinion more expedient approach, the problem should be dealt by the application of the principles -prerequisites and results- of the underlying basis of the contract∙ if not by an analogical application of Art 388 AK (since here there is none subsequent “change of circumstances”)104, then perhaps even more correctly, by the direct application of Art 288 AK105 (the direct application fills the gap and, therefore, there is no space for an analogical application). The benefits of the latter approach are the following: a) it does not distinguish the similar matters of the initial from the subsequent disproportion of the performances106, b) in contrary to the annulment, it provides the ability of adjusting the contract, which may cover the parties’ interests more sufficiently107 and c) it excludes, without any dogmatic problems, the possibility of a compensation108. In this frame, A is entitled to demand either the payment of a price, adjusted up to the 12 € per share, or the common release of the parties. If B refuses to fulfill his obligations, A can resort to the court and ask for the
103 Βλ. ΑP (in its plenary session) 35/1998, ΝοΒ 47, p. 251, 251/2 (commentary by Doris, especially in p. 253 ΙΙ) = HellD 39, p. 1268, 1268 Ι/ΙΙ· ΑP (in its plenary session) 5/1990, HellD 31, p. 551, 551 Ι = ΝοΒ 38, p. 1318, 1319 (commentary by Spyridakis)· AP 526/1997, HellD 37, 1357. Contra v. Tuhr, publication in honor of Bekker, p. 294· Flume, p. 488 f. 104 See Simonetos, p. 52· Gazis, ΕrmΑΚ 335-348 Introd. Notes n. 32· Zepos, The Modern Law Review 1948, p. 43 f.· Κarakatsanis, in Georgiadis-Stathopoulos AK 143 n. 8· Filios, p. 378· the same, GenPrinc, p. 113· Karassis, p. 102 f., 105 f. 105 See Papantoniou, p. 402-4· Ap. Georgiadis, GenPrinc, § 43 n. 10, 13, 20· the same, ContrLGenP, § 28 αριθμ. 9· Papanikolaou, ΝοB 33, p. 942-3. 106 See Zepos, The Modern Law Review 1948, p. 43 f.· Simonetos, p. 52· Karakatsanis, in Georgiadis-Stathopoulos AK 143 n. 8. 107 See Papanikolaou, ΝοΒ 33 p. 942/3. 108 See Papanikolaou, ΝοΒ 33, p. 943 footn. 20. 29
judicial recognition of the modified contract or, exceptionally, of the dissolute one109.
V. Miscellaneous issues
14. (*5) PM (Production of contractual goods is inhibited by strike/restriction of electricity supply) A agrees to deliver some goods to B at a certain date, but: a. The workers of a subcontractor go on strike. b. Due to problems with the State energy production and distribution system the Government decides to cut the electricity supply during night making it impossible to work at night. As a result, A cannot deliver the goods for an uncertain period of time.
Is B entitled to cancel the contract and to ask for damages?
a. Strike of the subcontractors’ workers. i) If, pursuant to the contract, A is ought to deliver the purchased goods to B only from the specific subcontractor (obligation in restricted kind), then, after the expiration of the agreed deadline of fulfillment, there should be made the following distinctions: α) If the performance should be fulfilled only at a punctual time, so that otherwise it would be useless to the creditor (absolutely fixed-date contract), then the fulfillment of the performance should be considered impossible110. The fault of the debtor, that is A’s fault, is reputably presumed, as in any kind of breach of a contract. Thus, if A accomplishes to prove that
109 In the above case, where Art 288 AK is implemented, the judicial intervention will have only an affirmative character, but not a constitutive one as under Art 388 AK. See Stathopoulos, in Georgiadis-Stathopoulos AK 288 n. 21. See also above in the Introduction in f. 110 See Balis, p. 160/1, 330/1∙ Gazis, ErmAK 401 n. 7∙ Stathopoulos, § 17 αριθμ. 15· Ap. Georgiadis, § 24 n. 36, § 52 n. 36∙ Papanikolaou, in Georgiadis-Stathopoulos AK 401 n. 3. 30
the impossibility to perform is not due to his fault (because, e.g., neither foresaw he, nor could he have foreseen the strike of his subcontractor’s workers), then he is released from his obligations and discharged from any liability. B is also released from his obligations (rule of common release∙ see Art 380 AK), but he has no right, whatsoever, to a compensation. If, however, A does not manage to prove, that he was not at fault, then B, according to Art 382 AK, either has the right to demand a common release (of Art 380 AK), or a right to a full compensation of his positive interest (non performance damages), or a right to a rescission of the contract and the right to a equitable compensation (see Art 387 AK). Pursuant to the prevailing, but not indisputable, opinion111, this kind of compensation is negative interest or, pursuant to another version112, either negative or positive interest, based on the judicial discretion. β) If the performance should be fulfilled at a specific time, so that the expiration of the latter does not leave the performance useless to the creditor (relatively fixed-date contract), then, after the expiration of the contractual deadline, A is in default (his fault is reputably presumed to exist). Thus, B has firstly the right to seek the delayed fulfillment and a compensation (positive interest) for the damages he suffered because of the delayed performance (see Art 343 para. 1 AK). If, however, B proves to have no longer interest in the delayed performance, he may decline the latter and seek a full compensation for his non performance damages (positive interest∙ see Art 343 para. 2 AK). In such circumstances, B is not released from his counter- performance, unless he seeks compensation according to the “difference theory”113. Furthermore, according to Art 383 AK, B has the right to ask for a full compensation (positive interest) or to rescind the contract, seeking reasonable compensation (see Art 387 AK). Nevertheless, B does not acquire
111 See Μantzoufas, p. 85/6. 112 See ΑP 1417/1999, HellD 41, p. 767, 767 ΙΙ· Michailidis-Νouaros, ΕrmΑΚ 387 n. 6∙ Stathopoulos, in Georgiadis-Stathopoulos AK 387 n. 3. 113 Pursuant to the “difference theory”, the compensation is calculated based on the comparison of the values of the performances. The counter-performance will be deducted from the prejudice to the creditor and the difference will be the net prejudice. This will be the level of the damage. At the same time, the creditor is relieved of the obligation of counter- performance, since this has been included in the calculation of the prejudice to him. 31
these rights immediately, as in case of impossibility. First, he must set the debtor a reasonable time to perform, declaring simultaneously, that, if this time-limit passes without the performance taking place, he will have rejected the performance. The setting of the time-limit is not necessary, if the whole attitude of the debtor demonstrates that this would be pointless (see Art 385 n. 1 AK), or if the creditor proves not to have interest any longer in the execution of the contract (see Art 385 n. 2 AK). However, if A proves to be at non-fault for the delay, then B has no right to be compensated, but only to rescind the contract. This right grounds on Art 401 Sub-para.1 AK. According to this article, if the contract is a fixed- date one, the creditor, in doubt, is entitled to rescind only because the performance was not fulfilled in time, regardless the debtor’s fault. ii) If A is ought to deliver the purchased goods to B, without any special clause concerning the origin of the products (genuine obligation in kind), than A is obliged to obtain the goods from another contractor within the agreed period of time. If A does not comply with this obligation, he will be breaching the contract at fault. The specific form of the breach is, again, dependent to, whether the contract is stipulated as absolutely or relatively fixed-dated. α) If there is an absolute fixed-date contract, the non compliance of A consists of a faulty impossibility of performance. Thus, B has the rights of Art 382 AK (common release, compensation or rescind cumulatively with reasonable compensation∙ see above under a.i.α). β) If there is a relatively fixed-date contract, the non compliance of A consists a situation of debtors’ default. As a result, B has the rights of Art 383 AK (compensation or rescind cumulatively with reasonable compensation, only if the reasonable time-limit, which B set, passed without action being taken, unless the setting of the time-limit is not necessary∙ see above under a.i.β). b) Cut of the electricity supply i) In case of an obligation in restricted kind: α) If the contract is an absolutely fixed-time one, A is in non-faulty impossibility (the cut of the 32
electricity due to the statutory intervention is undoubtedly an incident of force majeure). Thus, the prerequisites for the application of Art 380 AK are met (see above under a.i.α). β) If the contract is a relatively fixed-time one, A is in a situation of a non-faulty delay and B has, in doubt, the right to rescind the contract, according to Art 401 Sub-para. 1 (see above under a.i.β). ii) In case of a genuine obligation in kind: α) If the contract is an absolute fixed-time one, A’s behavior is considered an impossibility of performance. In this case, A is at fault, since he should have obtained the purchased goods, even from another country. Nevertheless, there is always the possibility that the cost for this action requires expenses, which are extremely onerous for the debtor. This criterion is fulfilled regarding the object of the performance, the importance of the creditor’s interests and, in general, the purpose of the obligation. So, if this is the case, then, according to the a view of the modern literature114, the underlying basis of the contract is considered to have collapsed. According to another opinion, which is not, whatsoever, indisputable115, the debtor is released ipso jure due to a non- faulty (economic) impossibility to perform (see Art 380 AK)116. β) If the contract is a relatively fixed-time one, the delay of A in performing provides B with the right to rescind the contract, pursuant to Art 401 Sub.-para. 1, regardless the fault of the debtor.
15. AV (Disclaimer concerning the rights arising from unexpected circumstances; other clauses on unexpected circumstances) The construction company A agrees to build a double-floor building on B’s ground for the price of 2.000.000 €. In the contract the parties stipulate a disclaimer which excludes “all the rights of both parties arising from unexpected circumstances”. Two weeks after the construction work has begun a granite rock, which could
114 See Stathopoulos, § 19 n. 58-59. 115 See supra in the Introduction. 116 See Balis, § 47∙ Litzeropoulos, § 156∙ Zepos, p. 128 et. seq∙ Ap. Georgiadis, § 24 n. 5. 33
not have been detected by the parties before conclusion of the contract, is revealed on B’s ground. As a result the costs of the construction increase by 300 %.
Can A ask for renegotiation or can he cancel the contract in spite of the disclaimer?
Has any other contractual stipulation addressing the issue of unexpected circumstances played a major role in the case material or in scholarly discussion?
If the agreed fee of 2.000.000 € is stipulated on the ground of a budget, that is on the ground of a table, which demonstrates the cost of the work, detailed recordation of the services, needs to be accomplished, and of the material, needs to be used117, then, in the above particular case, the budget must be considered guaranteed, under the meaning of Art 696 AK. We deal, thus, with a budget, the precision of which is guaranteed by the contractor. Naturally, there is no explicit declaration of such contractual will. Nevertheless, according to an opinion of the greek writers, this guarantee can be declared not necessarily only explicitly118 but -as in every obligation- also implicitly119, pursuant to the rules of the complementary interpretation of contracts. This implicit will of guarantee may be considered to be resulting indirectly by the disclaimer of the contractor from any right -the right, among others, to reevaluate the cost of his services- in case of an unexpected change of circumstances120. In case of a guaranteed budget, the prerequisite of Art 696 is met. According to this article, the contractor who was based on a guaranteed budget has no right, whatsoever, to an increase in his fee, if the evaluation of his services turnes out to be false. Nevertheless, this rule stands
117 See, Filios, ContL SpecP, vol. Ι, p. 336∙ Kardaras, in Georgiadis-Stathopoulos AK 696-697 n. 2. 118 See Deligiannis in Deligiannis/Kornilakis, vol. ΙΙ, p. 115∙ Kardaras, in Georgiadis- Stathopoulos AK 696-697 n. 5. 119 See Filios, ContL SpecP, vol. Ι, p. 337. 120 The above case may be considered as a case of a conversion, which is regulated by Art 182 AK. 34
under the basic reservation of the appliance of Art 388 AK, and, generally, under the reservation of the initial lack or the subsequent collapse of the underlying basis of the contract121. In the above Case, the reveal of the granite rock, which could not have been predicted, includes an initial lack of the underlying basis of the contract, which is deemed according to Art 288 AK (see also above in Case 13 and in Introduction). And that occurs, because, after the increase in construction’s cost up to 300%, the contractor’s obligation to fulfill without any previous adjustment includes an extremely onerous burden, exceeding the limits of good faith (Art 288 AK). This is an approach, already adopted by the majority of the greek judiciary on public constructions122. Furthermore, the above solution stands even if the fee is not stipulated on the ground of a budget but on the ground of a total evaluation of the work. The total disclaimer of the parties from their rights “arising from unexpected circumstances” does not influence the above approach. Pursuant to the majority of the greek judiciary and literature123, the previous -up to the time of the formation of the contract- total disclaimer of the party -here of the contractor- from the legal protection provided by Art 288, 388 AK, is null and void. On the contrary, the disclaimer of the party, by which the party accepts to bear a precise risk, is valid, and the application of Art 288, 388 AK is out of the question, since there is no more, whatsoever, an unexpected circumstance. Thus, A has the right to an appropriate adjustment (by raising its fee) or even a to a dissolution of the contract, pursuant to Art 288 AK. If B does not collaborate with the requests of A, the latter may resort to the court for a
121 See Deligiannis in Deligiannis/Kornilakis, vol. ΙΙ, p. 116-118. 122 See Deligiannis in Deligiannis/Kornilakis, vol. ΙΙ, p. 118. 123 See ad hoc for the contract for work AP (in its plenary session) 350/1985, ΝοΒ 33, p. 1187∙ AP 16/1983, ΝοΒ 31, p. 1368∙ Deligiannis in Deligiannis/Kornilakis, vol. ΙΙ, p. 116-7, and generally Balis, p. 316· Gasis, ΝοΒ 23, p. 707· Michailidis-Nouaros, p. 218· Oikonomopoulos, NDik 28, p. 324· Papantoniou, The good faith, p. 180· Stathopoulos, § 22 αριθμ. 40· the same, in Georgiadis-Stathopoulos AK 388 n. 5· Ast. Georgiadis, vol. ΙΙ, p. 135-7· Αp. Georgiadis, GenContL, § 33 n. 25∙ Xypolias, ΝοΒ 32, p. 1684 et seq.· Atsalakis, ΝοΒ 4, p. 345· Theodoropoulos, p. 176-8. See also AP (in its plenary session) 350/1985, HellD 26, 468 = ΝοΒ 33, 1197. The non-mandatory character of Art 388 AK was supported by Sakketas, ErmAK 388 n. 53· Fourkiotis, p. 693/4· Zepos, p. 567. 35
judicial recognition of his rights. Nevertheless, A has no right to enforce a renegotiation of the contract (as in any case of an initial lack or subsequent collapse of the underlying basis of the contract∙ see above in Case 2). 36
LIST OF ABBREVIATIONS AcP Archiv für die civilistische Praxis (Archiv for the civil practice) AK Astikos Kodikas (Civil Code) AP Areios Pagos (Civil Law Supreme Court) ArcN Archeio Nomologias (Archive of Court Rulings) Arm Armenopoulos ContrL Contract Law DEE Dikaio Epiheireseon kai Etairion (Law of Enterprises and Companies) EEN Efimeris Ellinon Nomikon (Greek Lawyers' Journal) GenP General Part GenPrinc General Principles HellD Elliniki Dikaiosyni (Greek Justice) Introd. notes Introductory notes KritE Kritiki Epitheorisi (Kritical Review) LZ Leipziger Zeitschrift (Leipzig’s Journal) n. number NDik Neon Dikaion (New Law) NoB Nomiko Vima (Law Tribune) SpecP Special Part
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