Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)

of her own contractual obligation does not prevent the sale from being annulled; it is not even necessary that this mistake relates to a substantial quality of the painting: a mere mistake relating to the value17 of the painting is sufficient since that mistake has been induced by deceitful manoeuvres.

In accordance with the general rules of French contract law and art. 1116--2 of the Civil Code, Célimène will have the burden of proving the fraud. Fraud is difficult to prove in the case of an omission as to the duty to disclose; but fraudulent intention is most often deduced both from the fact that the person with knowledge of the information remained silent and the importance that this retained information could have represented to the contracting party. Fraud can be proved by all kinds of evidence, including events prior to and subsequent to the formation of the contract since French law qualifies fraud as a legal event (fait juridique). In such a case, French law excludes the application of art. 1341 of the Civil Code which only relates to the admissibility of evidence in relation to written documents. If there were witnesses Célimène will therefore be able to plead the fact that Damien spontaneously offered her twice the price she originally set and that he immediately resold the painting to the Louvre Museum as evidence of his fraud.

(ii) It also seems that Célimène could base her action on mistake since the authorship of a painting is considered a substantial quality according to art. 1110 of the Civil Code.18 The likelihood of this action succeeding is subject to two conditions being established (see Case 1): namely that the essential character of the authorship of the painting forms part of the parties’ contract and that such a mistake could be excusable.

In order to annul the sale, Célimène will have to prove that her consent had been determined by the mistaken belief that the painting was not attributed to Monet. Like fraud, mistake can be proved by all kinds of evidence. To this end the mistaken party’s age and inexperience as well as the price paid and the conditions in which the sale occurred can be taken into account.

On the basis of fraud and mistake, annulling the contract will be the first possible remedy. Because the sale will be annulled retrospectively Damien should normally return the painting to Célimène and the latter should reimburse the purchase price to him. However, as Damien has

17It should be noted that a pure mistake as to value does not, as a general rule, call for a remedy.

18Although as seen below, mere mistake will not give rise to a remedy in the form of damages.

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already sold the painting to the Museum, reciprocal restitution would not be possible. As the Louvre Museum is a bona fide sub-purchaser, it is protected by the provisions of art. 2279 of the Civil Code according to which ‘possession equals title as regards movable property’. Restitution will therefore consist of money and not the painting itself: Célimène, as the initial vendor, will be attributed the increase in value obtained by Damien in bad faith.

In addition, as his attitude was fraudulent Damien could even be ordered to pay damages. The Cour de cassation admits that an action in tort may be brought by the victim of fraudulent manoeuvres independently of the right to seek the annulment of a contract according to arts. 1116 and 1117 of the Civil Code. The purchaser’s fault, even if it does not vitiate the other party’s consent, consists in breaching the duty to inform and is analysed as a question of precontractual bad faith. Damages sought for independently on the basis of tortious liability (art. 1382 of the Civil Code) will compensate Célimène for all the losses arising. Practically this means that Célimène could obtain a kind of reevaluation of the sale price as well as any losses incurred in making the contract.

Nowadays courts do not only disapprove of a person whose behaviour deliberately induces the mistake of the other contracting party, they also take into account the attitude of people who, even if they do not provoke the mistake, nevertheless make a profit out of it. The current case law requires increasing loyalty and scrupulously protects the principle of good faith in precontractual and contractual relationships. This situation differs from the traditional one according to which each party has to look after his own interests and must carry out his own enquiries. Now, a contracting party who possesses information must disclose it where it is likely to influence the other party’s consent.

It is arguable that the solution that French law would adopt here is justified if Damien had used deceitful manoeuvres in order to make Célimène enter into the contract. It might also be justified on the basis that Damien did nothing (failed) to inform Célimène. Annulling the sale may be a fair remedy since it tends to prevent those who benefit from a superior knowledge from taking advantage of those who are unaware of this information. However this situation must be distinguished from another: such a remedy can seem inappropriate where the purchaser did not use any deceitful manoeuvres nor tried to take an unfair advantage of the seller. Indeed it could be unfair to a bona fide purchaser who

only discovered the authorship of a painting thanks to his works and efforts.19

Germany

As in Case 1 Célimène, the seller, may demand the painting’s return under the law of unjust enrichment if the contract concluded with Damien is void (§ 138) or if Célimène is able to annul it. Annulment is possible on two grounds: namely, mistake (§ 119 I and II) or upon evidence of Damien’s fraudulent intent (§ 123).

(i) The Civil Code does not take breaches of the principle of equivalent exchange in the case of reciprocal agreements into consideration. A contract can, however, be immoral and thus void if the imbalance between performance and counter-performance arose through the reprehensible acts of the party which benefits from such imbalance. In a situation like this, § 138 I provides only a general statement that a contract which offends ‘good morals’ is void. The BGH’s recent case law displays a tendency also to presume immorality (according to § 138 I) where the imbalance between performance and counter-performance is especially pronounced. Accordingly, it must be considered whether the contract of sale between Damien and Célimène is void according to either § 138 II or 138 I.

(a) A transaction is void according to § 138 II if a party to the contract ‘by exploiting the predicament, inexperience, lack of judgement or considerable weakness of will of the other party, causes pecuniary advantages to be promised to or conferred on him or a third party in exchange for a performance whereby these pecuniary advantages are clearly disproportionate to this performance’. The section contains two elements that must be present in any given case: the objective element refers to the disproportionate relationship between the performance and counter-performance (absence of equivalent exchange), the subjective element requires that the party benefited has exploited the weakness of the other party (‘reprehensibility’).

In the present case one may think that Damien exploited Célimène’s ‘inexperience’ in order to gain the advantage stated. However, only a lack of experience in life or business in general is understood as amounting to ‘inexperience’.20 The lack of specialist knowledge in a special

19See the case concerning ‘Le Verrou’ by Fragonard, Civ 1, 25 May 1992, Bull civ I, no. 165.

20Cf. Palandt/Heinrichs, § 138 para. 71; MüKo/Mayer-Maly, § 138 para. 125

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field -- here, for instance, the lack of specialist knowledge relating to the history of art -- does not come under this concept.21 Therefore, the contract of sale which has been concluded between Damien and Célimène is not void according to § 138 II.

(b) The BGH has mainly classified credit arrangements where the promisee agrees to extremely high rates of interest as immoral, even where it is not possible to prove conclusively that the lender has acted with an intention ‘which is morally reprehensible’ (§ 138 II). If the value of the counter-performance promised reveals that the lender has -- through negligence at least -- failed to recognise the predicament in which the debtor finds himself,22 then the credit agreement will accordingly be held void (§ 138 I). Where the creditor acts as a consumer, then the BGH has renounced even this element of ‘negligent exploitation’ and argues that an interest rate of 100% indicates in any case that the lender has acted with a morally reprehensible intention.23

In this way, the courts have resurrected laesio enormis -- a customary law institution -- in § 138 I.24 That said, the BGH has not completely renounced a subjective element: the court would like to deduce a morally reprehensible intention of the party benefiting from the objective disparity between the performances on a regular basis. It therefore proceeds on the basis of a legal fiction.25 Moreover, case law relating to consumer credit agreements has been extended to other cases exhibiting a disparity between performance and counter-performance.26

However, in our case, the BGH would hardly classify the contract as immoral. The cases mentioned above in which the BGH accepted the subjective element of exploitation on the basis of an objective set of facts

21So, for example: BGH NJW 1957, 1274; BGH NJW 1979, 758; BGH WM 1982, 849; concerning this: Soergel/Hefermehl, § 138 para. 79

22BGHZ 80, 160; BGHZ 128, 257; for an overview of this see Palandt/Heinrichs, § 138 RZ 25 ff. In many cases (for example, BGH NJW 1951, 1274; BGH WM 1979, 966; BGH WM 1982, 849) the precondition of invalidity according to § 138 I is -- with reference to the dolus eventualis of the party benefited -- in fact derived from § 138 II (‘. . . if one party to the contract . . . carelessly fails to recognise that the other party enters into the disadvantageous terms only on the grounds of his weaker economic position’).

23BGHZ 98, 178; BGH NJW 1995, 1022; references to older judgments made by K. Hackl, BB 1977, 1412.

24T. Mayer-Maly, ‘Renaissance der laesio enormis?’ in K. Larenz and C. Canaris (eds.),

Festschrift für Karl Larenz zum 80. Geburtstag (Munich, 1983), p. 395.

25For more exact details on this, see MüKo/Mayer-Maly, § 138 para. 102.

26RGZ 150, 6; BGH NJW 1992, 899 f.; BGH DB 1997, 92; OLG Stuttgart NJW 1979, 2409; quite extensive is also: KG Berlin BB 1985, 829; numerous further examples in: Palandt/Heinrichs, § 138 para. 34.

have in common that the disadvantaged party acquired an asset available on the market which had been greatly overvalued. In these cases, the courts attempt to remedy the disadvantage (or ‘damage’) suffered by the obviously weaker party with the help of § 138 I. From the point of view of common law, this concerns the problem of damnum vitare rather than -- as is the case with Damien’s profitable purchase -- lucrum captare: Célimène was ignorant of the fact that she owned a valuable painting by Monet. Only Damien’s knowledge led to its discovery. Therefore, why should Damien not profit from his discovery? Of course, Célimène loses a fortune by selling the picture but she could not have used this fortune in an economic sense had Damien not revealed to her that this picture was in fact a Monet. This reasoning -- following an economic analysis27 -- argues that Damien should be allowed to profit from his discovery.

One may even deduce from the provisions regulating treasure trove (§ 984) that the law intends to reward the performance of the discoverer. Nevertheless in that case the treasure trove is to be divided between the finder and the land owner in keeping with Hadrian’s division.28 If one were to apply this principle to our case then Damien would have to set aside 50% of his takings from the painting’s sale for Célimène. The device contained in the BGB does not offer such a solution however; to draw an analogy with treasure trove is daring by German standards.

(ii) Due to the fact that a mistake in expression (§ 119 I) has clearly not been made, only a mistake relating to quality can be considered as grounds for annulment. The origin of the painting is without a doubt a ‘substantial quality’.29 Célimène did not know that the picture which she had sold was in fact a Monet; therefore, she made a mistake relating to the artist’s identity. She may therefore annul the declaration she made when concluding the contract with Damien and demand the return of the picture together with the rights of ownership.30

27Cf. for example, M. Adams, ‘Irrtümer und Offenbarungspflichten in Vertragsrecht’ (1986) AcP 186, 472, according to whom (in the case of an annulment for mistake) it ought to come down to whether the ‘advantageous information of one party concerning the value of an object rests on a way of obtaining such information which is obviously socially damaging and which does not improve the allocation of goods

(. . .)’.

28D. 41,1,63; Inst. 2,1,39.

29Cf. BGHZ 63, 369, 371 = NJW 1975, 970; BGH NJW 1988, 2597, 2599. Similar to this case is that in RGZ 124, 115 (‘Ming-Vasenfall’), where a married couple inexperienced in such business matters sold two valuable vases dating from the Ming Dynasty at a ridiculously low price.

30For a fundamentally different view, however, see: RG JW 1912, 525 (on this Mayer-Maly, F. S. Pedrazzini, 346); here the Reichsgericht rejected a rescission on grounds of a

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Damien does not have any claim against Célimène for compensation of negative interest. The unusually low price which Célimène had demanded and which Damien himself doubled in order to quell his bad conscience must have made him realise that Célimène had made a mistake about the picture’s origin (cf. § 122 II). Therefore Damien could not justifiably rely on the contract’s legal validity and accordingly is unable to claim damages from Célimène.

In contrast to Case 1, Célimène’s claim to annul the contract concluded with Damien is also unaffected by the fact that she had assumed the risk of making a mistake about a characteristic of the painting. Even where a larger number of art objects or antiques were sold as part of a clearance sale, the seller would not necessarily assume a particular risk relating to the importance and characteristics of individual objects of sale. A case was recently decided by a German Amtsgericht on a different set of facts.31 Notebooks and pages of notes were sold at a flea market: amongst them, unknown to the seller, was the original manuscript of a composition by W. A. Mozart. The seller annulled the contract once she had found out that she had practically given away a fortune for as little as 10 DM. However, the court dismissed her claim for annulment because a disparity between the value of a corporeal object and its asking price is typical at a flea market. Each of the parties to the contract therefore assumes the risk to acquire valuable things at little cost or worthless things at relatively high cost.32

In our case the facts are different. Neither the nature of the sale nor the nature of the goods which Célimène offers indicate that she had intended to assume a particular risk with regard to the price--value relationship. She is obviously not learned in matters of art history. Moreover, in contrast to Case 1 there appears to be no uncertainty in respect of the painting’s origin. Célimène is therefore able to annul the contract for her mistake about the painting’s characteristics.

(iii) At first glance, Damien appears not to have acted fraudulently. The law requires that fraudulent misrepresentation caused the declaration of intent to be given.33 Célimène determined the price at which she wanted

mistake relating to a characteristic owing to the fact that the ‘value’ of a subject was not a characteristic.

31AG Coburg, NJW 1993, 938.

32The ratio decidendi of the decision does not come through so clearly as described here but can be perceived in the grounds of the Amtsgericht’s decision; cf. NJW 1993, 939.

33Cf. § 123 I: ‘A person who has been caused to make a declaration of intention by deceit . . . , can rescind this declaration.’

to sell the painting to the public in her invitatio ad offerendum.34 It was not Damien’s offer which induced her mistake. However, withholding facts may fulfil the conditions laid down in § 123 if one party to the contract is bound by a duty to disclose and deliberately fails to fulfil this duty.35 According to the BGH, the causal requirement between the failure to disclose and the other party’s decision to enter into the contract is fulfilled if the circumstances are such ‘which may frustrate the (other party’s) purpose of entering into the contract and which are therefore of significance to the latter’s decision’.36 The value of the picture is clearly of importance in Célimène’s decision to sell. In that respect, Damien’s silence caused Célimène to accept his purchase price.

Nevertheless annulment on grounds of fraudulent misrepresentation is only possible if Damien was bound to inform Célimène of the picture’s value. Regarding this issue, the courts are guided by § 242: whether Damien was under a duty of disclosure is a question to be determined by asking whether Célimène could have expected disclosure according to good faith having regard to the generally accepted standards of business.37 The BGH has only imposed a duty to draw a party’s attention to the unusually high proceeds of a further sale if a special fiduciary relationship already existed between the parties to the contract.38 Such a fiduciary relationship -- for example, an already existing business relationship -- does not bind Damien or Célimène. For that reason, Damien is certainly under no duty to inform Célimène of the painter of the picture. Basically, Damien ought to profit from his ‘act of discovery’.

Damien is therefore not obliged to inform Célimène as to the identity of the picture’s artist. In addition such a duty does not directly arise from § 138 and the arguments which oppose the immorality of the contract between Damien and Célimène also oppose the presence of fraudulent misrepresentation.39

34Concerning the nature of invitatio ad offerendum and its distinction from an effective declaration of intent to conclude a contract see, for example: Larenz/Wolf, AT 576; Flume, AT II, 636 f.; Brox, AT 91.

35Cf. RGZ 77, 309, 314. 36 BGH LM § 123 BGB Nr. 45.

37RGZ 77, 309, 314; BGH NJW 1989, 764; BGH NJW-RR 1991, 440; cf. on this: Palandt/Heinrichs, § 123 para. 5; Larenz/Wolf, AT 697.

38BGH LM § 123 BGB Nr. 52.

39With the reprehensible intention which it is assumed Damien had (§ 138 II), one would also have to establish that he also had a fraudulent intent. Only if one assumes that Damien had a duty of disclosure may one see in his failure to do so the required elements of an immoral exploitation.

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(iv)If Damien has negligently breached the duty of disclosure which he owed to Célimène then he is liable in damages according to the principles of culpa in contrahendo. Due to the fact that such a duty of disclosure does not exist (as shown in iii) Damien could not have breached this duty, even through his own negligence. Therefore, Célimène does not have a claim of damages according to the principles of culpa in contrahendo (and consequently no claim to have the property restored according to § 249).

Greece

Greek law gives Célimène several remedies. She is entitled to seek for the annulment of the sale and the contract of transfer on the grounds of mistake, fraud and the immorality of the contract.

(i)Célimène is mistaken as to the qualities of the object of the transaction, specifically as to the author of the painting. Whether this mistake is fundamental, that is justifying annulment of the contracts, will be decided by virtue of two criteria, objective and subjective (art. 142 AK). The objective criterion is present since the quality of the painting as an original work of Monet is of importance for the whole transaction according to good faith and common usage. Célimène’s mistake is also fundamental according to the subjective criterion. It is obvious that Célimène would not have entered into the contract had she known of the true situation.

(ii)Célimène’s declaration of intent was procured by Damien’s fraud who acted with the purpose of reinforcing her erroneous representations (art. 147 AK). It is generally accepted40 that fraud can take place by the concealment of true facts in respect of which there exists a duty to inform in accordance with the agreement of the parties, or by law (e.g. arts. 303, 304, 456 AK etc.), or according to good morals, good faith and common usage. Such an obligation is obvious in the above situation. The fact that Damien is a professional art dealer is crucial. The sort of transaction and the obvious importance of the concealed fact,41 i.e. the quality of the painting as a work of Monet, impose an obligation on Damien to reveal the truth. As explained in Case 1, Célimène must

40AP 355/1968 NoV 16, 950; AP 249/1976 NoV 24, 785; Gazis, General Principles of Civil Law, p. 80; Georgiadis, General Principles of Civil Law, p. 432; Karakatsanis AK 147 n. 3; Papantoniou, General Principles of Civil Law, p. 410; Spyridakis, General Principles, p. 612; Karassis, Manual of General Principles of Civil Law, p. 107; Papachristou AK 147 n. 5; Simantiras, General Principles, n. 753.

41Karakatsanis AK 147 n. 3.

go to the court to annul the contracts of sale and transfer (arts. 150, 154 AK).

In case the transfer and delivery of the painting42 to the Louvre has gone ahead, the museum acquires title according to art. 1036 AK, which protects a bona fide third party who acquires ownership of movable goods from a non-owner. In this case Damien, who is enriched without just cause at the expense of Célimène, is liable to return to her the equivalent of the enrichment, that is the purchase price from acquiring the painting (art. 908 AK). It is disputed whether the thing becomes lost for its owner if the contract by which it is transferred to another person is annulled on the grounds of a defect of consent.43 Article 1038 AK excludes stolen and lost things from bona fide acquisitions. If this opinion were accepted, the Louvre would not become owner of the painting in spite of its good faith. The certainty of transactions would be in favour of the real owner’s, that is Célimène’s, interests. According however to the more persuasive view44 the subsequent annulment of the contract of transfer cannot change the voluntary transfer of the thing into an involuntary loss of its possession. The special circumstances however under which the transfer has taken place may render the thing lost and thus entail the application of art. 1038 AK. In parallel with her rights to demand annulment by reason of fraud, Célimène is entitled to compensation in tort since fraud is of course a tort (arts. 149 and 914 AK).

(iii) The contracts concluded by Célimène and Damien are voidable and simultaneously void according to art. 179 AK. This provision stipulates that the act ‘where a party through exploitation of need, mental levity or inexperience of the other party, stipulates or receives for his own benefit or the benefit of a third party, in consideration of a performance, pecuniary advantages which in the circumstances are obviously disproportionate to the performance’ is contrary to morality and consequently null and void. The rule with its objective and subjective criteria refers

42According to a persuasive but not prevailing view for art. 1036 AK to be implemented the delivery of possession must be material, that is the third party must acquire physical power over the movable object -- A. Georgiadis, Real Property Law (Athens, 1975), vol. II 1: Ownership, § 28 pp. 230 ff. See also Stathopoulos, Contract Law in Hellas, p. 49; for the opposite view: G. Balis, Real Property Law (4th ed, Athens, 1961), § 56; I. Spyridakis, Real Property Law (Athens-Komotini, 1983), p. 594; A. Toussis, Real Property Law (4th edn, R. Toussis, Athens, 1988), § 100 n. 3a.

43For the various views which have been supported see Simantiras, General Principles of Civil Law, p. 121 on the acquisition of ownership from a transferor not the owner; Vouzikas, on the acquisition of pledge not from the owner p. 98.

44Georgiadis, Real Property Law, pp. 249--50.