by Armin Hadjiani¹

(2002) Oxford U Comparative L Forum 1 at ouclf.law.ox.ac.uk | How to cite this article

“The Law is not only the basis for all civilised intercourse; it forms part of our life as an important cultural phenomenon. The solutions developed in a particular system may serve as useful models for other systems. The problems are, after all, often identical. Though the ways in which they are solved may be different, the outcome is mostly the same or similar. Arguments derived from comparative law are thus nowadays increasingly accepted in construing and applying one’s own law.”²

I. Introduction

The notion of freedom of contract is the acknowledged basis of contract law in both the common law system of England as well as in the civil law system of Germany.³ Freedom of contract can be understood as “having the ability at will, to make or abstain from making, a binding obligation enforced by sanctions at the law.”⁴ According to the Bundesverfassungsgericht (Federal Constitutional Court), if these requirements are not met, the use of a contract as a means to satisfy the contracting parties’ interests will fail.⁵ Similarly, it was held in 1875 in Printing and Numerical Co. v Sampson⁶ that “if there is one thing which is more than another public policy requires, it is, that a man of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntary shall be held sacred and shall be enforced by the courts of justice.”⁷ In relation to English contract law it has also been said that “it is reasonable to assume that if the parties freely agree…, they both regard the transaction as making them better off.”⁸ The notion of freedom of contract can be seen to be based both on the theory of the individual autonomy and the theory of economic utilitarianism, in the sense of social wealth maximisation.⁹
The protection which both English and German law afford to freedom of contract enjoys constitutional status in Germany. Art. 2 (1) of the German constitution¹⁰ states: “Everybody has the right to self-fulfilment in so far as they do not violate the rights of others or offend against the constitutional order or morality”.¹¹ According to the Bundessverfassungsgericht, this constitutional right to ‘personal freedom’ includes the notion of ‘freedom of contract’.¹²
The interest of one contracting party to be bound only by an obligation entered into freely and voluntarily, however, might come in conflict with the other contractual party’s legitimate expectations, i.e. that the promised performance will be made. Such expectations are not created if the latter party has a reason to believe that the undertaking was not given freely. Thus, the allocation of the contractual parties’ interests results in the introduction of a legal requirement intended to control the scope of the ‘defect consent’ defence: the violation of the freedom of contract of one party will, in general,¹³ have consequences in both contract law systems only where a certain kind of responsibility of the other contractual party is found. If anagreement could be rescinded on the sole ground that one party did not decide freely, this would gravely affect the certainty of legal relationships.
Freedom of contract could be impaired, for instance, where the consent of a contracting party has been obtained by some form of pressure which the law regards as improper, and for this reason the victim of such pressure may be entitled to relief. Such pressure can be exercised through duress and undue influence, which are discussed in the present article through a comparison of English and German law.¹⁴

II. Duress and Undue Influence under English law

Historically the doctrine of duress has been developed within the common law, whereas the doctrine of undue influence is based on equity.¹⁵
Both doctrines are concerned with protecting freedom of contract. Traditionally it was said that the rules of duress and undue influence apply to cases where there is a lack of “consent” or “voluntariness” or where the promisor’s “will is overborne”.¹⁶ “This language is obscure in its meaning”¹⁷ and has consequently been much criticised.¹⁸ Indeed, these terms are not a sufficiently precise guide to the fine distinctions which the law has to draw. When a person under duress or undue influence agrees to contract, he does not do so involuntarily in the sense that his will has been overborne. Rather, he chooses the least unattractive of the alternatives before him. In considering this, the House of Lords in Lynch v D.P.P. of Northern Ireland¹⁹ explicitly rejected the notion that duress totally deprives a person of his free choice, or makes his acts non-voluntarily.

III. Duress under English law

It is generally accepted that “every contract we make is made under some form of pressure, every contractual offer is made backed by some sort of threat”,²⁰ because “every offeror threatens that unless the offeree accepts the terms offered, he will not get the benefit of the offer.”²¹ This means that some method must be found in order to distinguish illegitimate pressures from other pressures which are permissible and which will not invalidate a contract because they are common pressures associated with any competitive society.
As will be shown below, the doctrine of duress applies if there is a combination of (a) a specified form of pressure (b) of an unacceptable kind, (c) an absence of a practical choice (d) which causes in some way the assent of one party to enter into a contract.

(a) Forms of pressure

(aa) Duress to the person

Duress to the person is the most obvious form of duress. It “involves a threat by one party to the life, health, liberty, or physical comfort of the other, to persuade him to enter into the contract.”²² This pressure “need not be directed at the claimant.”²³
It is sometimes stated that “violence and threats of violence”²⁴ lead to duress under certain circumstances. However, this language is somewhat inaccurate. The use of violence can rarely forces someone to enter into a contract which can be considered as having been concluded under duress. Either the use of violence will prevent the intention to contract (for instance, if one is physically forced to sign a contract with his arm being held and moved) and consequently there will be no contractual relationship, or the mere use of violence in the past will not be sufficient to make a person enter into a contract, in particular if there is no explicit or implicit threat to apply violence again in future. For this reason German contract law expressly mentions in its statutory provision concerning duress²⁵ “threats” as an element within its doctrine of duress.
English courts refer to the Australian case of Barton v Armstrong²⁶ as a leading modern case on duress. In this case, Barton sought to avoid a contract by which he had agreed to buy Armstrong’s shares in a company. The trial judge found that on many occasions Armstrong had threatened Barton with death.²⁷ Thus, duress to a person was established as follows: “Barton wasin genuine fear that Armstrong was planning to have him killed if the agreement was not signed.”²⁸

(bb) Duress to goods

Traditionally, it was held that the mere “fear that goods may be taken or injured does not deprive anyone of his free agency.”²⁹
The doctrine of duress to goods is now, however, well established.³⁰ The statement of Kerr J (as he then was) in the Occidental Worldwide Investment Corp. v Skibs A/S Avanti³¹ that “a plea of coercion or compulsion would be available in such cases” was confirmed by Lord Goff in Dimskal Shipping Co. SA v International Transport Workers’ Federation.³²
A suggested requirement for cases of executed³³ contracts, namely that duress can only be relied upon by someone who acted under protest³⁴ was rejected³⁵ several times. However, a more general limitation of the application of this doctrine should be accepted where the agreement is a mere submission to the execution of legal process such as distress or execution.³⁶

(cc) Economic duress

“In modern times, commercial and economic pressures are of enormous importance, and they often reflect major conflicts of political power.”³⁷ Apart from this common use of legitimate pressure there are a number of cases illustrating the abuse of economic power. In a number of recent cases the courts have began to recognise the concept of economic duress.³⁸ Economic duress is defined as a “threat to harm not someone’s person nor even his property, but other interests such as rights someone has under a contract.”³⁹
The application of this particular doctrine highlights the danger of invalidating common contracts, since “it must be remembered that the whole system of private property also rests on recognition of the monopoly right of the property owner. …The same goes for the human labour.”⁴⁰ It is inevitable that a person who negotiates with another will threaten to harm this other person’s economic interests. Hence the limits which must be placed on how the doctrine of duress in general is to be used have to be considered with exceptional care in relation to economic duress. As it will be shown these limits are mostly derived from cases of economic duress.

(b) Illegitimacy of the pressure

It was established in Universe Tankships Inc. of Monrovia v International Transport Workers’ Federation and Laughton⁴¹ that the threat must be “illegitimate”.⁴² The key difficulty is in identifying the circumstances in which these forms of pressure are illegitimate. The task of drawing the line between pressures which are legitimate and those which are illegitimate is of increasing importance because of the multitude of the pressures which are exerted in any competitive society. The only serious discussion of the issue of legitimacy of pressure is found in the same case which established this new requirement, i.e. Universe Tankships Inc of Monrovia v International Transport Workers’ Federation.⁴³ The case was concerned with economic pressure. The defendant trade union had ‘blacked’ the plaintiff’s ship import, and refused to release her except on payment of a large sum of money. Lord Scarman discussed⁴⁴ the legitimacy requirement as follows: “In determining what is legitimate two matters may have to be considered. The first is as to the nature of the pressure… And so the second question may have to be considered, namely, the nature of the demand which the pressure is applied to support.” It therefore appears that pressure may be illegitimate either⁴⁵

(aa)

Because the conduct which has been threatened is unlawful, for instance a threat to commit any crime or tort; or

(bb)

Because, even though the conduct which has been threatened is lawful, the way in which the pressure is exerted is illegitimate. This is e.g. the case if the advantage which is sought to be obtained by the threat is illegitimate. This is illustrated by Lord Scarman using the analogy of the crime of blackmail. He stated that “what he (the blackmailer) has to justify is not the threat, but the demand of money.”⁴⁶ Furthermore, in CTN Cash and Carry Ltd. v Gallaher Ltd,⁴⁷ a case which was also concerned with economic duress, the Court of Appeal accepted that there could be circumstances in which a threat to do something which one was actually entitled to do was improperly coercive and therefore amounted to duress. Therefore, it is clear that even a threat to commit what would otherwise be a perfectly lawful act may be improper if the threat is connected with unreasonable demands. For this reason a threat to prosecute, even when perfectly proper in itself, in the sense that a prosecution would be justified, may amount to an improper threat of duress.⁴⁸ Furthermore an agreement obtained by threats to prosecute for a criminal offence may also be invalid on the ground that it involves the stifling of a prosecution for the offence.⁴⁹ “These are matters of public concern and therefore not legally the subject of a compromise.”⁵⁰ Thus, duress can overlap with public policy limitations on what parties can agree on in a contract.
And while one needs to be careful not to consider lawful threats in themselves as amounting to duress, it is also worth noting that in CTN Cash and Carry Ltd. v Gallaher Ltd⁵¹ Steyn LJ (as he then was) stressed that “it is a mistake for the law to set its sights too highly when the critical inquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable.” It is interesting to note that what Steyn LJ proposed resembles the approach taken in German contract law in considering the question of whether a lawful act amounts to duress.

(cc)

It has been held by English courts that a person who is under no duty to enter into a contract with another is entitled to threaten not to enter into a contract unless the threatener’s terms are met.⁵² Conversely, a threat to breach a contract⁵³ might be understood as a threat which satisfies the requirement of an illegitimate act and might therefore amount to duress because an act is threatened which is a breach of another’s rights. This view is, however, surrounded by controversy.
It has been suggested by legal writers⁵⁴ that exceptions to this general rule that a threat to break a contract amounts to duress should be identified where the other party demanding has a genuine belief in the moral strength of this claim, would suffer considerable hardship if his demand is not met, is willing to correct an acknowledged imbalance in the existing contract or indeed where the party making the threat will be unable to perform. In my view, all of these exceptions are questionable. While acting in good faith might justify the conduct of the person who makes the threat, the same cannot also justify the effect of such conduct.⁵⁵ As long as there is no frustration of contract, the mere imbalance of an agreement does not justify a variation of a contract without the proper consent of both of the contracting parties.⁵⁶
The party who states, however, that, without the extra payment which he demands, he will be unable to perform, is not to be regarded as making a threat. A statement of the inevitable has to be treated as a mere warning which does not amount to duress.
In Williams v Roffey Bros Ltd⁵⁷ the Court of Appeal held that there was no duress in a case where one contracting party was concerned that the other party would not complete the work on time and had taken the initiative for a re-negotiation. In these circumstances, the Court held that for a contracting party it is generally “open … to be in a deliberate breach of the contract in order to cut his losses commercially.”⁵⁸ The same judgment also indicates that the examination of the motivation of the party in question might be relevant when deciding whether or not certain conduct is permissible.

(c) No other practical choice but to submit

As has been stated above (II) the doctrine of duress is not concerned with the absolute lack of will to enter into the contract, but rather with “the victim’s intentional submission arising from the realisation that there is no other practical choice open to him.”⁵⁹ Therefore it is relevant whether or not the victim had a reasonable alternative. If there was such an alternative, “whether legal or practical”,⁶⁰ to submitting to the other party’s demand, the victim will not obtain relief.⁶¹
The question as to whether there was a reasonable alternative, such as an adequate legal remedy as discussed by Lord Scarman in Pao On v. Lau Liu Long,⁶² is just one feature within the main question of whether the pressure was so great as to grant relief. Thus, Lord Scarman held that, in addition to the alternatives test, “it is material to inquire whether the person alleged to have been coerced did or did not protest; whether he was independently advised; and whether he later took steps to avoid the contract.”⁶³
Thus, it must be established that there was pressure which was so great that it effectively gave the victim no choice but to act as he did. A finding of such a high degree of defectiveness of consent may depend on the physical and mental condition of the person threatened.⁶⁴
It has been argued that a different approach is required in cases where a criminal offence has been threatened. The alternatives test is inappropriate in such a situation, as it is derived from cases where the threats have been of civil wrongs.⁶⁵ There is no indication of any “no choice approach” in cases such as Barton v Armstrong⁶⁶ where physical violence was threatened. The same conclusion may also be derived from the rationale for the alternatives test. “The limitation of a claim of duress by the alternative test is a balancing of the competing needs of protection of the original legal position of the person claiming duress and the enforceability of compromises.”⁶⁷ To consider interests within this balancing act which are based on physical violence would clearly run counter to public policy. It could be said that in these circumstances even quite a low degree of defectiveness of consent is considered to be relevant in law.

(d) Causation

In all cases of duress, it is necessary that the threat caused the affected person to enter into the agreement. On the other hand, it now appears settled that the requirements for causation depend on the type of duress involved.

(aa) Duress to the person

In Barton v Armstrong ⁶⁸ the Privy Council held that the doctrine of duress will apply provided that the pressure was at least “a reason” for the victim to enter into the contract. In this case, it was held that the threatener generally “must take the risk that the impact of his threats may be accentuated by extraneous circumstances for which he is not in fact responsible.”⁶⁹ Therefore, it would be inadequate to consider whether the other party would have entered the contract but for the existence of pressure. Although Barton (the person threatened) “thought that the agreement with Armstrong was a satisfactory business arrangement”,⁷⁰ Armstrong’s threats could not be understood as contributing nothing to Barton’s decision to sign the contract. A similar approach is taken under German law in the context of causation (V, d).
Once it is shown that a party committed a wrong in applying unlawful pressure, the presumption will arise that this pressure caused the defendant to enter into the contract.⁷¹ Consequently, the law favours the innocent party over the wrongdoer. The latter carries the burden of disproving the causal relationship between the pressure and the contract.

(bb) Duress to goods

In cases⁷² concerned with duress to goods it is generally considered that the pressure must have been a “significant cause”. This means that the pressure applied by the wrongdoer must have been a reason which influenced the decision to contract to a high degree. The extent of influence required increases according to the type of duress applied. Thus, the requirement of causation will offset the broad application of the doctrine of duress brought about by the development of new categories, such as duress to goods and in particular economic duress. Hence, in relation to economic duress it has been said that “economic interests are now protected, but with considerably more caution.”⁷³

(cc) Economic Duress

It may be seen that the courts are now taking a more restrictive approach towards economic duress. More particularly, the pressure must be more than simply a reason to enter into the contract. In Dimskal Shipping Co. SA v I.T.W.I.⁷⁴ Lord Goff said that there may be duress where “the economic pressure … has constituted a significant cause.” Further in contrast to duress to person and duress to goods the courts have reasoned that, “it seems unlikely that the victim will have the benefit of the reversed burden of proof.”⁷⁵ Thus, the causal test will be satisfied if the victim can show that he was significantly influenced by the threat. It must be stressed, however, that these causal requirements are still not entirely clear and that their future development by the courts remains open.

(e) Legal effect of duress

(aa) Void or voidable

In North Ocean Shipping Co. Ltd. v. Hyundai Construction Ltd.⁷⁶ Mocatta J stated that a contract made under duress is undoubtedly “voidable and not void.” Consequently, a person who has entered into a contract under duress may either affirm this agreement, or render it void. On account of the delay between the date of submission and the date of the first protest,⁷⁷ it was held that the claimants must be taken to have affirmed the contract so that the claim failed.⁷⁸ In addition to this aspect of lapse of time, an action aimed at avoiding a contract may fail on the ground that it is impossible to put the parties back into the position in which they had been prior to the formation of contract, or because it is necessary to protect the interests of innocent third parties.

(bb) Effect of duress exercised by a third party

The pressure exerted on one party, however, will have consequences only if the other party to the contract “ knows (actually or constructively) that the plaintiff’s consent has been wrongly induced”.⁷⁹ Since this requirement will always be fulfilled if a contractual party himself is the threatener, it is relevant only where duress is exercised by a third party.

IV. Duress and Undue Influence under German law

(a) Section 123 BGB (duress) and section 138 BGB (undue influence)

The German doctrines of duress and undue influence are much broader than their corresponding English doctrines. Section 123 BGB⁸⁰ states that any illegitimate “action intended to create fear of future evil”⁸¹ is sufficient in order to qualify for duress. Under English law, however, a threat by a wife to break the relationship with her husband if he remains reluctant to pay her bills would not fall within the scope of the doctrine of duress, because there is neither duress to a person, which is defined as a “threat by one party to the life, health, liberty, or physical comfort of the other”,⁸² nor duress to goods, nor economic duress. It is the function of theequitable doctrine of undue influence to close the gap which arises insuch cases in English law.
However, even the German doctrine of duress is too narrow to serve its original function in contract law, namely to protect the freedom of choice. In situations in which certain behaviour or circumstances can only be labelled as “immoral”, relief will be given on the grounds of the general rule of section 138 BGB. This statutory provision, which provides the main legal source of the rules of the German doctrine of undue influence, renders void an agreement “if it is contrary to good morals”.⁸³ Hence, it is generally considered that section 138 BGB is “considerably wider than the corresponding English conception of immorality and public policy taken together.”⁸⁴

(b) Introduction into German legal methods

Some brief remarks on German legal methods may be appropriate at this stage. Under German law only Gesetz (statute) and Gewohnheitsrecht (customary law, defined as “the regular and general public practice of law based on the opinion that a binding rule is being put into effect”⁸⁵ ) are recognised as sources of law. Decisions of the Courts are in general⁸⁶ binding only upon the parties of the litigation. Although no binding force of precedent is recognised, the courts tend to follow existing judicial decisions on the ground that “they have a highly persuasive authority”.⁸⁷ Therefore, previous judgements are useful means to find an appropriate interpretation of a legal term in a given case. In addition to these judgements, academic writing carries significant weight in German law. Views which are widely shared between these persuasive authorities are called “dominating opinion” (herrschende Meinung) and will usually be adhered to by the courts.⁸⁸

V. Duress under German law

Section 123 BGB protects the freedom of decision making in legal transactions.⁸⁹ As has been mentioned above, freedom of choice enjoys protection under the German constitution, namely Art. 2 GG (I). As has been stated above for English law (III, a, aa), relief under duress in German contract law is available only in relation to psychological pressure (vis compulsiva) and not in relation to mere physical pressure (vis absoluta).⁹⁰ Accordingly, section 123 (1) BGB states: „Whoever has been induced to make a declaration of intention by fraud or unlawfully by threats may rescind the declaration.” ⁹¹

(a) Definition of a “threat” under section 123 BGB

A threat(Drohung) under German law is “any action intended to create fear of future evil.”⁹² It is crucial that the person threatened believes “and is intended to believe”⁹³ that the realisation of the evil depends on the will of the threatener.⁹⁴ It is sufficient that the person threatened was intended to, and does take the threat seriously, whereas it is not necessary that the threatener actually intended to realise the threat.⁹⁵
Any disadvantage concerning the person threatened or another person is sufficient to qualify as evil.⁹⁶ It is irrelevant whether this evil is of a material or idealistic⁹⁷ nature and whether the threat is made explicitly or implicitly.⁹⁸ A threat not to act will satisfy the requirement if there is a legal duty to act.⁹⁹ Hence the threat not to help someone in danger, as long as he does not pay a fee, does not amount to duress, if there is no duty to help.¹⁰⁰ The use of an existing fear¹⁰¹ or a mere warning¹⁰² is not sufficient.

(b) Definition of the “unlawfulness” of the threat

There are three different ways in which the threat can be illegitimate or unlawful (widerrechtlich): the threatened evil may be unlawful (aa), the aim of the threat may be unlawful (bb), or the relationship between evil and aim may be unlawful (cc).

(aa) Illegitimacy resulting from the applied “means of the threat”

The threat is unlawful if the conduct which is threatened is in itself unlawful. This is the case e.g. if a person who is reluctant to pay existing debts is threatened with violence. It is worth noting, though, that acts which in itself are unlawful (physical violence) can be rendered lawful in particular situations under the grounds of justification contained in sections 227-230 BGB, which include self-defence (section 227 BGB), e.g. against a violent attack.
The threat to breach a contract is unlawful.¹⁰³ An exception to this general rule was allowed for the case that the threatener reasonably, but mistakenly believed the threatened conduct to be lawful.¹⁰⁴ It appears, though, that today the majority of writers and courts do not accept that it is relevant whether the threatener acts in good faith as concerns the lawfulness of the threat.¹⁰⁵ This will be discussed below in the context of the mental state of the threatener (V, c).

(bb) Illegitimacy resulting from the “aspired outcome of the threat”

Unlawfulness of the intended result of the threat. The threat is also unlawful if the intended agreement violates a statutory provision, unless it appears from the statute that the latter is not intended to render contravening legal transactions void (voidness for illegality under section 134 BGB),¹⁰⁶ or if the contract offends good morals (voidness for immorality under section 138 BGB).¹⁰⁷ The courts have held that contracts are immoral if they are “contravening the sense of decency of every person who possesses understanding of what is just and equitable” (section 138 BGB).¹⁰⁸ However, as such contracts are void under sections 134 or 138 BGB, there is strictly speaking no need to take recourse to the doctrine of duress.

(cc) Illegitimacy resulting from an unlawful combination of (aa) and (bb)

The threat is furthermore unlawful if the combination of the means of the threat (the threatened evil) and the intended result of the threat is unlawful.¹⁰⁹ This is, in analogy to section 138 BGB, the case if the relationship between the threat and the intended outcome is contrary to a sense of decency of every person who possesses understanding of what is just and equitable.¹¹⁰ So in this case, it is the mere combination which is “immoral” rather than the intended assent or the legal transaction itself. (bb).
Thus, a threat is not simply lawful because both the means threatened (e.g. to take legal action) and the threatener’s objective (e.g., payment of an existing debt) are justified. ¹¹¹ Neither does the fact that the person making the threat does not have a right to the intended result make the threat illegal.¹¹² Rather, the crucial issue is whether there is an appropriate relationship between the threatened means and the intended result.
It is now required that the person who is making the threat has a justifiable interest in the intended result of the threat and that, in analogy to section 138 BGB, the threat is, in accordance with ‘a sense of decency’, an appropriate means to reach the intended result.¹¹³ Another general rule employed by the courts in this context is derived from section 242 BGB,¹¹⁴ which states: “The debtor is bound to effect performance according to the requirements of good faith, common habits being duly taken into consideration.”¹¹⁵ The “dominating opinion” (herrschende Meinung: IV, b) on this issue combines both elements.¹¹⁶ Whether or not these requirements are met, will often have to be decided on a case to case basis.
The combination of means and intended result of the threat amounts to duress e.g. where a creditor, who wants immediate payment of a debt, threatens to expose the debtor for drunk driving.¹¹⁷ On the other hand, the relationship between threat made and intended result was not found to be unlawful e.g. where a dismissal is threatened in order to induce the employee to agree to a termination of his contract of employment, if a reasonable employer would have grounds to consider in similar circumstances a dismissal of this particular employee.¹¹⁸ The prevailing view amongst scholars, however, seems to reject the view that the ex ante-view of a reasonable employee is relevant.¹¹⁹ It has been stressed that, at least where the dismissal is not justified under the given circumstances, such a threat has to be considered unlawful.
The threat of a criminal prosecution is not unlawful if the threat is intended to induce the person who is threatened to compensate for the damage he caused by his criminal conduct.¹²⁰ According to the Bundesgerichtshof¹²¹ (BGH, Federal Court of Justice) this rule also applies where the threat is intended to make a third party, rather than the criminal himself, to agree to a contract. In this case, the wife of a criminal was induced to stand surety for the person who threatened criminal prosecution of her husband. The court held that because the wife could be identified as a beneficiary of the criminal conduct of her husband, she was equally liable for compensation. Increasingly, and by what is now a majority of writers, it is no longer accepted that it is moral and legitimate to take advantage of a personal relationship between a criminal and his wife if she is neither a voluntary beneficiary nor involved in the crime.¹²²
As with the English doctrine of duress, the main disputes in German law relate to economic pressure.¹²³ In these cases the courts seem to be reluctant to treat certain behaviour as an immoral threat and therefore as illegitimate, particularly if the conduct in question is used solely to serve lawful economical interests.
One such case concerned the commission of an estate agent who had acted for both seller and buyer, which can be permissible under German law.¹²⁴ In such a situation, courts will interpret section 652 BGB as creating an obligation on both seller and buyer to pay a fee to the estate agent once they have entered into a contract of sale. The seller threatened not to sign the contract for as long as the estate agent did not waive his right to charge the threatener. If realised, this threat would have entailed that neither seller nor buyer would have had to pay a fee. The court examined whether this waiver agreement was voidable on the ground of duress. In contrast to a previous judgement, the Court held that, despite the estate agent’s financial problems, it was not unlawful for the seller to serve merely his own financial interests, as long as no further circumstances made the agreement in question offensive. Therefore, the seller’s conduct was not considered an unlawful threat in the meaning of section 123 (1) BGB.
In particular the latter case shows that German courts are struggling just as much as English courts when it comes to define what exactly makes a threat unlawful. In both jurisdictions this seems to be the most problematic requirement in relation to the doctrine of duress.

(c) Subjective requirements concerning the threatener

In addition to these predominantly objective tests, a further subjective test relates to the mental state of the threatener, namely that the threatener must have the intention to force the person threatened to enter into the contract.¹²⁵ It is necessary that the threatener intended to cause the other party to make a declaration of intention which is similar to the one which is actually made.¹²⁶
In a case which related to the issue of a threat being contrary to a sense of decency of every person who possesses understanding of what is just and equitable (b, cc), the Bundesgerichtshof held in 1957 that it was necessary that the threatener knew or ought to have known those facts which make the threat offensive.¹²⁷ This subjective feature is required in similar circumstances under section 138 BGB in order establish immorality (Sittenwidrigkeit).¹²⁸ It has been followed from this judgement that it is generally necessary that the threatener knew or should have known that the threat was unlawful.¹²⁹ The prevailing view amongst writers, supported by some courts, rejects the view that there is such a subjective requirement.¹³⁰ That view mirrors what has been said for the English doctrine of duress, namely that “good faith…in the sense that he (the threatener) honestly believes that his demand is legally justified…does not preclude a finding of duress.”¹³¹ Similarly, German writers have argued that it is not the purpose of the doctrine of duress under section 123 BGB to reproach the threatener for his conduct but rather to protect the freedom of decision making of the person who is threatened.¹³² Therefore it could be said that “good faith” may be used as a means to justify the threatener, rather than to justify the effect of his conduct in contract law (III, b).
In summary, it remains disputed whether the above-mentioned 1957 judgment by the Bundesgerichtshof¹³³ implies for German contract law today that, in addition to objective aspects of the immorality test, it is necessary that the threatener knew or ought to have known the facts which make the threat immoral or unlawful.¹³⁴ As the latter subjective element is also required by section 138 BGB in analogous cases,¹³⁵ it would seem logical to walk down the path taken by the Bundesgerichtshof and to make the mental state of the threatener similarly relevant for duress under section 123.

(d) Causation

In order for the contract to be voidable on the ground of duress, the person who has been threatened must have been caused by fear to give consent, and his fear must have been caused by the threat.¹³⁶ This is the case if, without the threat, that person would not have entered into the contract at all, or into a contract with different content,¹³⁷ or if the contract would have been made at a different time.¹³⁸ Thus, in German law it is said that the threat usually needs to be a conditio sine qua non for entering into the contract.¹³⁹ That is the same as requiring that the party would not have entered into the agreement but for the existence of the pressure. In practice, however, this is similar to what is required for duress to a person under English law (III, d), i.e. that the threat is “a reason” for the person threatened to enter into the contract.¹⁴⁰
There is therefore no causal link if the consent is given free of any fear, since in this case the decision to enter into the contract by the person threatened is made on the basis of other considerations.¹⁴¹ Hence it is crucial to examine the mental state of the person threatened when considering the question of whether the formation of the contract is caused by the threat.¹⁴² Similar to the causal requirements of duress to a person and duress to goods under English law (III, d), the “dominating opinion”¹⁴³ (herrschende Meinung: (IV, b) agrees that once an unlawful threat can be identified, the burden of disproving the causal relation is placed on the threatener, who must thus provide evidence to the contrary.

(e) Legal effect of duress under German law

(aa) Void or voidable

A contract made under duress is voidable, in the sense that the person threatened can avoid the contract with retroactive effect (sections 123, 142 BGB). The party whose freedom of choice has been affected is therefore required, in the interests of clarity, to impugn his assent. If he does so, he can return to the status quo ante. Section 124 (1) BGB states that the right to avoid the contract expires one year after the predicament resulting from duress ends, with a thirty year long-stop counted from the time the agreement was made.

(bb) Effect of duress exercised by a third party

In contrast to the German rules of undue influence (VIII, c) and the English concepts of duress (III, e, bb) and undue influence (IX, a, bb), it is not relevant in the German law of duress whether the person seeking to enforce the agreement knows or ought to know that the other party’s consent has been wrongly induced. This aspect becomes relevant in particular if duress is exercised by a third party.¹⁴⁴
In relation to undue influence in England and Germany, this distinction may be explained by both the level of defectiveness of the party’s consent and the degree of the apparent violation of public policy principles.¹⁴⁵ These factors are generally much more obvious in relation to ordinary threats than in relation to more subtle pressure which is frequently exercised in cases of undue influence. Consequently, German contract law takes a more restrictive approach to cases of duress than undue influence by attaching less value to transactional certainty and the other party’s reasonable expectations.
A practical explanation for this approach can be found in the official draft of the German Civil Code.¹⁴⁶ In 1888 it was stated in this draft that, in particular during “flustered periods”, a single person might threaten another individual in the interests of many other persons. In this case, the individual threatened cannot reasonably be expected to prove that all the persons he contracted with under the influence of the threat knew or ought to have known of that threat. The same source also argues that, in relation to the concept of fraud,¹⁴⁷ it is easier for a person to prevent himself from being defrauded than from being threatened. Thus, the exceptional character of duress gives rise to a special need of protection in favour of the person on whom pressure is exerted.
The reason for the difference between German and English law of duress will be explained below (VI, a).

VI. Comparison of duress under English and German law

The most relevant difference between English and German concepts can be found in the relationship between the notion of freedom of contract and the law of duress.

(a) Objective and subjective approach

Under the English law of duress, freedom of contract is of paramount importance. If the consent of the party who denies the validity of the contract was defective, this invalidates a contract only where the deficiency is known to the party who seeks to enforce the contract (III, e, bb). In contrast to this objective view, German law takes a more subjective approach in relation to duress, namely that if a promise is not made freely then it cannot create a contract (V, e, bb). Thus, the scope of the no consent defence is more limited in the English law of duress.

(b) Defectiveness of consent and a wrongful conduct

In both legal systems, there is duress where (1) freedom of choice is disturbed by (2) illegitimate threats. Hence, in Universe Sentinel¹⁴⁸ the House of Lords defined two elements of duress: “(1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted”. In relation to element 1, the law is concerned with the question whether the defendant exercised his free choice during the formation of the contract. In the context of element 2, it must be examined whether the claimant’s amounted to a wrong in the sense of the law. The question arises how these relate to each other.

(aa)

German law focuses on the threatened party’s responsibility for entering into a contract rather than the threatener’s responsibility for committing a wrong. Thus, the courts will examine first and foremost whether freedom of contract was interfered with. Element 2 is merely applied as a controlling feature (I; X, a). However, both elements carry equal weight and do have to be operative (V, d): Fear must have caused the threatened party to enter into the contract (element 1), and this fear must have been caused by the illegitimate threat element 2).

(bb)

In English contract law there seems to be an ongoing controversy on these questions.¹⁴⁹ Firstly, it is true that the English courts do not clearly “distinguish wrongdoing and lack of consent as conceptually distinct”.¹⁵⁰ At the same time, they refrain, in contrast to German law, from explicitly referring to the principle of freedom of contract as the underlying concept of duress, although the ratio decidendi will be mainly based on the defectiveness of consent (see, for instance, the ‘alternatives test’: III, c). The latter aspect is the result of the unwillingness in English law to accept general principles in this context (IX, a, cc, bbb; X, b). This situation has led to various interpretations, suggesting “that the courts’ concern for consent really is (and should be) the concern for something else.”¹⁵¹ According to this view, in typical cases of duress it is only the “wrongdoing principle” (element 2) which is operative.¹⁵² Consent is seen as neither a meaningful nor a useful concept. Thus, influential writers such as Atiyah have stated that “A victim of duress … does choose to submit, and does intend to do so”¹⁵³ or “what men do voluntarily, they choose to do, and do freely”¹⁵⁴ and the courts should not “divert attention into quite irrelevant inquiries into the psychological motivations of the party pleading duress”¹⁵⁵ and attempt “to analyse the effect of the pressure on a man’s mind.”¹⁵⁶ This view obviously rejects a broader meaning and value of consent (element 1) and is inconsistent with the “express words of the overwhelming majority”¹⁵⁷ of the courts in relation to duress. Moreover, this approach cannot be explained on the basis of the more objective view taken in English law of duress (a), since it queries the general relevance of freedom of choice (I). Thus, it might even be labelled as a “logical fallacy”.¹⁵⁸

(cc)

The broader approach of the German concept (IV, a) has been recognised by English writers, who have simply said that the German law of duress “throws the net more widely”¹⁵⁹ than the English concept. Thus it may be concluded that the German law of duress pays more attention to individual autonomy (X, b). Cases not covered by the concept of duress need, however, to be considered in the context of the law of undue influence.

VII. Undue influence under English law

In Kaufman v Gerson¹⁶⁰ the inadequacy of the doctrine of duress was highlighted when the Court of Appeal raised this question: “What does it matter what particular form of coercion is used, so long as the will is coerced? It seems to me impossible to say that it is not coercion to threaten a wife with dishonour of her husband and children.”¹⁶¹ Thus, in order to ensure appropriate freedom of choice of the party in question, it is necessary to supplement the rather narrow doctrine of English duress with the equitable doctrine of undue influence, which is said to be capable of covering “more subtle influences”.¹⁶² In contrast to duress in common law, the “equitable concept of pressure”¹⁶³ can be exercised without making illegitimate threats or indeed any threats at all. In considering the crucial question of what sort of conduct qualifies for undue influence, it has been said that such influence arises “where influence is acquired and abused, where confidence is reposed and betrayed”¹⁶⁴ and that aberrational conduct, which can be described as “wrongful, unfair, or unconscionable”¹⁶⁵ is required.
Historically, the Courts of Equity, by looking primarily at the relationship between the contracting parties, developed a distinction between two categories of undue influence:¹⁶⁶
Class 1: Actual undue influence can be identified, where the evidence demonstrated the exercise of undue influence (see below: b).
Class 2: Presumed undue influence can be identified, as summarised by Cartwright, “where the circumstances of the contract, in the context of the relationship between the parties, enabled a court to presume that influence had been exerted, although it could not be affirmatively proved on evidence (see below: c).”¹⁶⁷
In addition, it appeard to be necessary to make a sub-division within presumed undue influence: “The presumption may arise automatically from the type of relationship (Class 2A) or it may be necessary to establish that the specific relationship between the particular parties is such as to give rise to the presumption (Class 2B).”¹⁶⁸
The House of Lords, in Royal Bank of Scotland v Etridge¹⁶⁹ (which includes the judgments on seven other appeal cases), has now indicated, however, that “the attempt to build up classes or categories may lead to confusion”. The House of Lords intends to counteract the tendency to over-complicate the legal concept of undue influence. For this reason, it formulates broad generalisations in order to merge the categories as far as possible into one concept of undue influence. Thus, this decision of the House of Lords minimises the differences in relation to German law in this context.
The analysis provided by this judgment will be discussed further below within the specific categories.

(a) Manifest disadvantage

(aa)When is it required?

In National Westminster Bank plc v Morgan¹⁷⁰ Lord Scarman, after consideration of the judgement by Lindley LJ in Allcard v Skinner,¹⁷¹ stated that relief for undue influence rests “not on some vague public policy but specifically on the victimisation of one party by the other.”
In particular this part of his judgement was seen as indicating that manifest disadvantage of the transaction was required even in relation to actual undue influence, and consequently that was the line taken by the Court of Appeal in Bank of Credit and Commerce International SA v Aboody.¹⁷² It was the House of Lords in CIBS Mortgages plc v Pitt¹⁷³ which made it clear that such an approach was wrong and that it is not necessary in cases of actual undue influence to prove that the transaction was manifestly disadvantageous in order to obtain relief, and that any requirement of manifest disadvantage was confined to cases of presumed undue influence. Lord Browne-Wilkinson went on to say that, if there is evidence that “the effect of… the conduct is to prevent… (the other) party from bringing a free will… to bear on the proposed transaction… (the contract) must be set aside… as a matter of justice”,¹⁷⁴ without consideration of the eventual disadvantageous character of the transaction in question.
It has been argued that the words of Lord Brown-Wilkinson are equally applicable to all kinds of influence. His comment was, therefore, in effect an open invitation to debate the correctness of the manifest disadvantage requirement with regards to presumed undue influence. For this reason a number of legal writers¹⁷⁵ have argued that, since such procedural unfairness is generally, in itself, sufficient for the law to intervene, there should be no additional requirement of substantive unfairness. Despite this criticism, the courts still tend to require a manifestly disadvantageous transaction in relation to presumed undue influence. Hence in Goldsworthy v Brickell¹⁷⁶ Nourse L.J. stated that “the presumption is not perfected and remains inoperative until… the contract… is prima facie explicable only on the basis that the influence was exerted.”
The reason to introduce this requirement in relation to presumed undue influence seems to be based on the desire to find an equitable allocation of the parties’ interests, such that it would be fairer to shift the burden of proof only in such cases where the party who relies on undue influence is actually “victimised”.¹⁷⁷

(bb) What constitutes manifest disadvantage?

In Bank of Credit and Commerce International SA v Aboody¹⁷⁸ it was held that “a disadvantage would be manifest if it would be obvious as such to any independent and reasonable persons who considered the transactions at the time with knowledge of all the relevant facts.” In that case, the question was one of weighing the disadvantages, namely the risk of the contract, against the benefit gained by the person giving the guarantee or executing the charge. There were substantial potential liabilities. The fact however, that Mrs Aboody’s actions gave some hope of survival to the family business was regarded as of paramount importance and therefore resulted in a lack of a manifest disadvantage. It is argued that, aside from material interests, even predominant immaterial interests such as emotive family links could result in the manifestly disadvantageous character of a transaction.¹⁷⁹
The crucial question is, therefore, whether this particular transaction is “one that a party in a similar situation would ordinarily be expected to have made…”.¹⁸⁰ According to Royal Bank of Scotland v Etridge, manifest disadvantage is found where the transaction is “explicable only on the basis that undue influence had been exercised”.¹⁸¹ This terminology seems to me to be circular: Proof that ‘undue influence had been exercised’ makes a presumption of undue influence useless.

(b) Actual undue influence (Class 1)

(aa) Former cases

Since the doctrine of undue influence is used as a means to supplement the doctrine of duress,¹⁸² its scope depends upon the range of application of that doctrine. A number of recent judgements have rendered former cases largely irrelevant, which involved, for instance, a threat to prosecute,¹⁸³ since such a threat was formerly (III, b, bb) thought to be incapable of giving rise to duress at common law and relief was, therefore, only given under the doctrine of undue influence.

(bb) Recent cases

More recently, actual undue influence was held to be present between husband and wife in the case of Bank of Credit and Commerce International SA v Aboody.¹⁸⁴ Here the question arose as to whether the wife had been unduly influenced by her husband when executing guarantees and charges on the matrimonial home, relating to loans by the bank to the husband’s business. It was routine for Mrs Aboody to sign whatever her husband asked her to sign in relation to his company. Mrs Aboody stated that she trusted her husband to be acting for the good of the family business. The Court held that Mr Aboody had intentionally exploited her trust because he used his influence to ensure that she signed the documents without any discussion or consideration of the risks. Therefore Mrs Aboody’s mind could be described as “a mere channel through which the will of the influencing party operated.”¹⁸⁵
In Bank of Montreal v Stuart¹⁸⁶ undue influence could be identified, because “she had no will of her own… she was ready to sign and do anything he told her to do.” In particular the latter statement makes clear that the fact itself that the claimant was under pressure, for instance from family loyalty or from influences in the guise of religion¹⁸⁷ or employment,¹⁸⁸ will not result in undue influence, as long as the person is not deprived of his freedom of choice. Hence it is crucial to examine the mental state of the claimant when considering this aspect, not the question of whether a normal person would be influenced.¹⁸⁹ In the context of parties who trust the other to the extent that they will sign a contract without question, it has even been said that it is not the wrongdoer’s importunity in itself that constitutes undue influence, but “the fact that… (the other party is) deprived of the opportunity to make an independent… judgement.”¹⁹⁰ In Royal Bank of Scotland v Etridge Lord Nicholls stated that “the law will not permit the transaction to stand … , whenever the consent hus procured ought not fairly to be treated as the expression of a person’s free will.” In his view “it is impossible to be more precise or definitive.”¹⁹¹
These statements highlight the fact that English courts have concentrated clearly on the question of whether one party’s consent is defective, in the sense of not having a free choice. At the same time however, and similar to the law of duress (VI, b, bb), they have refrained from stating explicitly their concern that the notion offreedom of contract may be undermined in cases of undue influence. The final consequence of this negligence by English courts is a lack of orientation as concerns the rules to be applied (X, b).
The above mentioned examples make clear that actual undue influence, like undue influence in English law in general, is usually¹⁹² based on “relationships of trust and confidence” (c, bb). In this context it is right to state that the term ‘actual’ does not indicate any qualitative difference of the influence exerted. It is “simply a matter of evidence and proof.”¹⁹³
If clear terminology is used, former cases (see above: aa) should be distinguished from recent cases (see above: bb). The latter group of cases is always concerned with some form of personal relationship. Within this group of cases it might be distinguished between relationships of “trust and confidence” and such of “dominance or control”.¹⁹⁴ In relation to the latter distinction Stuart-Smith LJ in Royal Bank of Scotland v Etridge (No. 2) stated:¹⁹⁵ “The expression ‘actual undue influence’ and ‘presumed undue influence’ might be taken to indicate that the difference between them lies merely in the means by which the exercise of undue influence is proved. But this is not the case.”
In contrast, Lord Clyde held in Royal Bank of Scotland v Etridge¹⁹⁶ that “on the face of it a division into cases of ‘actual’ and ‘presumed’ undue influence appears illogical”, as “ the names used to identify the classes do not bear their actual meaning.”¹⁹⁷

(c) Presumed undue influence (Class 2)

In a number of situations the relationship between the parties will be such as to give rise to a presumption of undue influence. The burden lies on the person who is presumed to have exerted the influence to show that he did not abuse his position, in the sense that the transaction was not brought about by any undue influence on his part.¹⁹⁸ A position capable of being abused might result from “a relationship of trust and confidence”.¹⁹⁹ The House of Lords in Royal Bank of Scotland v Etridge, however, made clear that if such a relationship of trust and confidence is found, the presumption of undue influence does not, in contrast to the former concept of presumed undue influence (see below: class 2B), arise automatically. Before that judgement, it was required to appear, either on a presumption in law (Class 2A) or on the facts proven by the claimant (Class 2B), that one party was in a position to exert influence on the other party entering into the contract. This will be explained below.

(aa) Certain relationships (Class 2A)

In Goldsworthy v Brickell²⁰⁰ Nourse LJ held that in certain “relationships it would seem that you only have to look at the relative status of the parties in order to presume that the requisite degree of trust and confidence is there.” This first presumption is, in contrast to the presumption of undue influence, irrefutable.²⁰¹
The special relationships that will give rise to a presumption in favour of undue influence include those of solicitor and client,²⁰² doctor and patient,²⁰³ religious adviser and decipe,²⁰⁴ guardian and ward,²⁰⁵ trustee and beneficiary²⁰⁶ and parent and child.²⁰⁷ The presumption neither applies to a relationship between a customer and a banker (defined as a person “having a pre-existing and conflicting interest”²⁰⁸) nor to that between husband and wife.²⁰⁹ These findings are adopted by the House of Lords in Royal Bank of Scotland v Etridge: “There are some relationships, generally of a fiduciary character, where, as a matter of policy, the law requires the dominant party to justify the righteousness of the transaction.”²¹⁰ “Class 2 A is useful in identifying particular relationships were the presumption arises.”²¹¹

(bb) No special relationship between the contracting parties (so-called Class 2B)

Before the judgement in Royal Bank of Scotland v Etridge, ²¹² the House of Lords had held in Barclays Bank plc v O’ Brien that “if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such a relationship raises the presumption of undue influence.”²¹³ In the latter case the Court of Appeal had held that although the relationship between husband and wife was not within the first group of presumed influence, a wife is more likely than others to be able to show that the relationship was in fact one of confidence.²¹⁴
However, in Royal Bank of Scotland v Etridge²¹⁵ the House of Lords took a different viewpoint on these issues. Lord Clyde disputed the utility of subdividing ‘presumed undue influence’ into further categories: “All these classifications to my mind add mystery rather than illumination.”²¹⁶ Lord Hobhouse added quite generally that “the point of categorisation has been the source of much of the confusion which has ensued… in this difficult corner of the law”.²¹⁷ Finally, Lord Scott explicitly questioned the utility of the Class 2 B classification. It is simply not clear “why the mere ‘existence of such a relationship raises the presumption of undue influence’.”²¹⁸ Consequently it is held that “the so-called class 2 B presumption should not be adopted.”²¹⁹ Lord Scott furthermore explains that the application of this concept in particular in relation to surety wife cases “has set the law on a wrong track”:²²⁰“In the surety wife cases it should, in my opinion, be recognised that undue influence, though a possible explanation for the wife’s agreement to become a surety, is a relatively unlikely one.”²²¹ “I would regard her support as a natural and admirable consequence of the relationship of a mutually loyal married couple.”²²² Consequently, a “relationship of trust and confidence that is part of every healthy marriage”²²³ is not a “legal relationship of trust and confidence”²²⁴: “If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of evidence …not because of some artificial legal presumption”.²²⁵
Therefore, the transaction cannot be set aside without proof that it was actually induced by undue influence. In the context of surety wife cases it is held that “although the general burden of proof is, and remains, upon her, she can discharge that burden of proof by establishing a sufficient rima facie case to justify a decision in her favour on the balance of probabilities.”²²⁶ Consequently, I would argue, that cases not relevant to the so-called class 2 A (presumed undue influence) need to be discussed under the category of ‘actual undue influence’. Thus, the House of Lords stated that, “presumed undue influence … necessarily involves some legally recognised relationship.”²²⁷ Legally recognised are merely the relationships within category 2 A.
Even if an unspecific ‘relationship of trust and confidence’ does not, in accordance with the House of Lords in Royal Bank of Scotland v. Etridge, raise any presumption, it still remains the main²²⁸ source of ‘undue influence’. In Lloyds Bank v Bundy²²⁹ the court considered the crucial question of whether a relationship of trust and confidence could be identified between an assistant bank manager and his client. In this case, Mr Bundy had charged his home to guarantee his son’s business debts to the bank which was also used by his son. Although the father’s relationship with the bank was longstanding, and had obviously relied upon it for advice, the “assistant manager had not perceived any conflict of interest and had not advised Mr. Bundy to obtain independent advice.”²³⁰ It was inferred from the judgement of Sir Eric Sachs that the required relationship tends to arise where one party relies upon the other party, that is to say, the latter is expected “to act in the interests of the other party, and not his own.”²³¹
In addition to what has been termed this “vital element” of “confidentiality”,²³² it is required that the alleged wrongdoer is “aware”²³³ of the reliance upon him. In relation to the latter element it will be sufficient, however, if the party, for instance a banker, “should have known”²³⁴ that his customer relies upon him, namely that the customer was in need of advice and was looking to him to give it. It may be said, therefore, that a relationship of recognisable confidentiality is required. This is the position adopted by the House of Lords in Royal Bank of Scotland v Etridge.²³⁵

(cc) Rebutting the presumption

In order to rebut the presumption of undue influence, the burden of proof rests on the person seeking the enforcement of the contract to show that the relationship in question did not result in undue influence. If the presumption is rebutted, it may be seen that the “duty of confidence”²³⁶ has been fulfilled.

(aaa)

As explained (a, aa), the presumption will not arise unless manifest disadvantage can be identified. Therefore this requirement is not a part of the presumption itself, but rather a mere prerequisite of the presumption. Accordingly it was held in National Westminster Bank v Morgan²³⁷ that the burden of proof in considering whether the contract was to the manifest disadvantage of the complaining party lies on the party seeking to set the agreement aside. As the disadvantage of the transaction is a mere condition for the presumption to arise, it is inaccurate to state that the presumption will be rebutted by showing “that the contract was not to the manifest disadvantage of the complaining party”.²³⁸

(bbb)

A finding of undue influence will not be held unless the freedom of contract of one party is interfered with (VII, b, bb; IX, a, aa).
Hence, showing that the party concerned acted “under circumstances which enabled him to exercise an independent will”, will rebut the presumption.²³⁹ For the party seeking the enforcement of the contract it is in general only required to show that he himself did not exert undue influence, since it would gravely affect the certainty of legal relationships to require him to prove that no undue influence at all was exerted, if a third party in another relationship to the person denying the contracts validity exerted undue influence and if the other party to the contract had “nothing to do with him”²⁴⁰ (e, bb : ‘doctrine of notice’).

(ccc)

The courts have held that the question whether the claimant had “competent and independent advice”²⁴¹ must be examined in order to ensure that the party concerned acted “with the full appreciation of what he was doing.”²⁴² The advice must be given “with a knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests”²⁴³ of the person to whom advice is given.
It is sufficient, however, if the advice given led the party make an “informed choice”.²⁴⁴ The fact that the party did not follow the independent and competent advice will not prevent a rebuttal of the presumption. Moreover, the presumption may be rebutted, by the simple act of advising the other party to obtain independent advice.²⁴⁵ It has even been held that it is generally not required that one takes steps to ensure that such advice is actually taken.²⁴⁶
It must be stressed, however, that an “informed consent” is not inevitably a “free consent”. This may explain why the decisions of some English courts have been heavily criticised, a matter which I shall return to later when discussing the category of ‘undue influence and third parties’ (e, cc). The effect of the provision of information is handled differently in German law (e, cc, ccc).

(d) Causation

It has been suggested,²⁴⁷ by analogy with economic duress, that the undue influence must be a “significant cause” for the complainant entering into the contract. Hence, in the case of presumed undue influence, the defendant has to prove that undue influence was less than a “significant cause” in order to prove a lack of causation, thus providing him with a means to rebut the presumption of undue influence.

(e) Undue influence by a third party

In some cases there are different kinds of relationships involving three different parties. The first of them is the contractual relationship between the defendant and the claimant. The second is the relationship in which trust and confidence is abused between one contracting party and a third party.
The key question in such cases is which conduct by the party who seeks to enforce of the contract can justify that he should be saddled with the wrongful conduct of the third party.

(aa) Agency

In Kings North Trust Ltd. v Bell²⁴⁸ Dillon LJ said that a defendant “who instructs an agent to achieve a particular end (the entering into the contract) is liable… (for undue influence) made by the agent in achieving this end.” Hence in Turnball & Co. v Duval²⁴⁹ it was said that a creditor cannot enforce a guarantee or security against a wife who has secured her husband’s indebtedness, if the creditor himself entrusts to the husband the task of obtaining the execution of the relevant documents by the wife and further if it is established that the execution of the document by the wife was procured by undue influence of the husband. The conclusive phrase used in this case was “they left every thing to the husband…, and must abide the consequences.”²⁵⁰
The same approach was taken in a number of subsequent cases.²⁵¹ The extensive use of the law of agency in relation to undue influence was, however, criticised by the House of Lords in Barclays Bank v O’ Brien.²⁵² The court stressed that it would be wholly artificial to inquire whether the husband was the agent of the bank. Hence it was held²⁵³ that there may still be cases in which, “without artificiality”, agency could be established, but “such cases will be of very rare occurrence.” This accords with the view of the House of Lords in Royal Bank of Scotland v Etridge.²⁵⁴
It is a common feature of cases in which the defendant has been held to be affected, that they “all involved conscious acts”²⁵⁵ by the defendant, in the sense that he intentionally involved a third party in inducing the plaintiff to enter into the contract. For this reason the House of Lords in Barclays Bank v O’ Brien²⁵⁶ considered an alternative way in which a third party’s acts could affect the contract.

(bb) The doctrine of notice

In Barclays Bank v O’ Brien²⁵⁷ the husband, who was a shareholder in a manufacturing company, wanted to increase the overdraft which the company had with the plaintiff bank. He offered a surety, charged on the matrimonial home, which was jointly owned by himself and his wife. Although the manager gave instructions for the bank’s staff to explain the necessary documents to both husband and wife and to explain the need for independent advice, the bank’s staff did not follow these instructions. Both the husband and the wife signed the documents without reading them. She claimed that she had executed it whilst acting under the undue influence of her husband and also that her husband had misrepresented to her the effect of the legal charge. The impact upon the bank, however, was “the same whether the wife acted under undue influence or misrepresentation.”²⁵⁸ Lord Browne-Wilkinson held that, apart from the possibility that the husband acted as the bank’s agent, it would be sufficient if the bank had actual or constructive notice of the facts giving rise to the wife’s claim.²⁵⁹ Constructive notice occurs if the party had “any reason to suspect”²⁶⁰ undue influence or if the defendant “knows facts which put him on inquiry as to the possible existence of undue influence.”²⁶¹ Lord Brown-Wilkinson explained that the bank will be put on inquiry if there is a combination of two factors:

“(a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in a transaction of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.”²⁶²

In Royal Bank of Scotland v Etridge,²⁶³ Lord Nicholls explained, that “this passage, read in context, is to be taken to mean, quite simply, that a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts. … I do not read (a) and (b) as factual conditions which must be proven in each case before a bank is put on inquiry.” Lord Hobhouse accepted this “affirmation of the low threshold.”²⁶⁴
In CIBS Mortgages plc v Pitt,²⁶⁵ the bank was not put on inquiry, since for a husband and a wife jointly to borrow money on the home for a joint purpose such as buying a holiday home was not held to be a transaction which in itself aroused suspicion in any way. The actual purpose of this transaction, however, was to allow the husband to speculate on the stock exchange.
It must be stressed that the House of Lords expressly rejected the notion developed of the Court of Appeal in Barclays Bank v O’Brien²⁶⁶ that wives enjoyed a particularly strong protection in equity. Thus it was held by the House of Lords that these rules are “not based on the marriage ceremony but reflect the underlying risk of one… exploiting the emotional involvement and trust of the other.”²⁶⁷ They are thus applicable as a general rule in other relationships, where a party, for instance the surety, reposes trust and confidence in the other, for instance the debtor, in relation to financial affairs. Furthermore, this approach is not clearly confined to surety transactions.
This rule, as established in Barclays Bank v O’ Brien,²⁶⁸ was therefore applied to other “emotional relationships”²⁶⁹ and even to the relationship of employer and junior employee which was seen as “easily capable of developing into” one of “trust and confidence”.²⁷⁰ These views have been confirmed by the House of Lords in Royal Bank of Scotland v Etridge.²⁷¹

(cc) Reasonable steps in order to avoid constructive notice

What can the third party do to avoid constructive knowledge in order to ensure that the agreement “has been properly obtained?”²⁷² In Royal Bank of Scotland v Etridge²⁷³ Lord Nicholls explained that “the steps are not concerned to discover whether the wife has been wronged by her husband… . The steps are concerned to minimise the risk that such a wrong may be committed.” In Credit Lyonnais v Burch²⁷⁴ Millet LJ held that a third party could not avoid being fixed with constructive notice unless he took “reasonable steps to allay any suspicion” of undue influence. This statement of the Court of Appeal, however, does not accord with the present view of the House of Lords in Royal Bank of Scotland v Etridge: the bank “must take steps to satisfy itself that the wife understands the nature and effect of the transaction”.²⁷⁵ But Lord Nicholls also stated: “This does not wholly eliminate the risk of undue influence.”²⁷⁶
In relation to past transactions “a bank can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. … For the future a bank satisfies these requirements if it insists that the wife attend a private meeting with a representative of the bank at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice.”²⁷⁷ This approach was put in rather more concrete terms by Lord Scott.²⁷⁸ However, it mainly accords with the approach in Barclays Bank v O’ Brien.²⁷⁹

(aaa) Criticism

Thus, the criticism expressed by commentators such as Collins still applies: “The courts have accepted rather unsatisfactorily that, provided a solicitor explains the transaction, the requirement of reasonableness will be satisfied.”²⁸⁰ Such “adequate and independent advice” (c, cc, ccc) must however not involve any advice to the contracting party on whether he should sign.²⁸¹ These requirements have proved very easy for the creditors to satisfy. Hence this current approach is seen as resulting in “creditor-sympathetic outcomes”.²⁸² Reforms unfavourable to the creditor however might arguably “damage the interests of sureties by increasing transaction costs.”²⁸³ It was been said that such an outcome is neither in the interest of individuals involved in the transaction nor in the interest of society,²⁸⁴ as it would undermine the function of suretyship as a social good.²⁸⁵ “The reality remains, …that even if changes were implemented, …many surety wives would continue to provide security out of emotional commitment and… dependence.”²⁸⁶ This therefore means, “that the answer for surety wives in longer term requires more than merely improving the information and advice.”²⁸⁷

(bbb) Alternative views in England

A contractual party might be considered rationally independent only if sufficient information is provided making that party capable of giving an informed consent.²⁸⁸ Some English judgements recognise this aspect. Quite recently, in Banco Exterior Internacional v Mann²⁸⁹ Hobson LJ stated that “the problem in cases of undue influence is not that the wife does not understand the transaction but that she has no independence.” This was confirmed by Lord Bingham in Royal Bank of Scotland v Etridge:²⁹⁰ “A person may understand fully the implications of a proposed transaction … and yet still be acting under the undue influence of another.”
In 1944, the Court of Appeal held in Bowater v Rowley Regis Corp: “A man cannot be said to be truly willing unless he is in a position to choose freely, and freedom of choice predicates, not only full knowledge of the circumstances in which the exercise of the choice conditioned, so that he may be able to choose wisely, but the absence from his mind of any feeling of constraint so that nothing shall interfere with the freedom of his will.”²⁹¹

(ccc) Approach in Germany

According to German courts there is no legal obligation for creditors to provide any information or advice.²⁹² Thus, they cannot avoid ‘constructive knowledge’ by any steps.
The creditor, however, may have a natural interest in providing information in order to prevent the consent of the other party from being defective. In contrast to English law, the provision of information is not relevant when examining the enforceability of an agreement which is motivated not by rationality, but rather by emotionality.²⁹³ On the other hand, information is generally held to be relevant in cases where one party is, for instance, inexperienced in business matters (rational defect).²⁹⁴ Hence, the crucial question in German contract law is whether the provision of information is capable to prevent the consent of the party denying the contract’s validity from being defective. This approach follows from the function of the doctrine of undue influence as protecting the principle of freedom of contract. Although the last aspect applies to both legal systems under consideration (X), for the English courts “reasonable steps” are not directly relevant to the consent element, but rather to the additional responsibility element (I): English courts examine the question of whether the provision of information prevents the party who relies on the validity of the contract from being fixed with responsibility. Strictly speaking, the objective capacity of “reasonable steps” to avoid defectiveness of consent is in English law not relevant at all.
As explained above (I), in both countries the responsibility element is applied to limit the defence of defective consent: a contractual party who cannot be blamed for the exertion or exploitation of undue influence could thus rely on the validity of the agreement. However, to limit the defence of defective consent by a requirement which can be fulfilled so easily (“reasonable steps”: e, cc ) indicates that this part of English law undervalues the notion of freedom of contract (X, b) . Thus, in relation to English law it has been criticised by writers that “in practical terms, the current judicial approach reflects a strong preference for form over substance and does nothing to ensure that sureties will be in a position to protect their own interests.”²⁹⁵

(f) Legal effect of undue influence under English law

As stated in Allcard v Skinner,²⁹⁶undue influence makes a contract not void, but voidable. Analogous to the restrictions in relation to the doctrine of duress, restrictions on the right to avoid a contract for undue influence can arise from affirmation of the contract, the intervention of third party rights and the impossibility of restitution (III, e).

VIII. Undue influence under German law

It is recognised that the German doctrine of duress is too narrow to serve its original function in contract law, i.e. to protect the freedom of choice (IV, a). However, in German law there is neither a specific legal provision nor even any particular legal term for undue influence which is analogous to English law.
In cases which do not fall within the scope of section 123 BGB (IV, a) relief for those situations which in English law fall under undue influence will be granted in German law under section 138 (1) BGB (lex specialis derogat legi generali).²⁹⁷ That provision states: “A legal transaction is void if it is contrary to good morals”.²⁹⁸ Here the legislator uses the general canons of ethical conduct in order to fix the limits within which contractual freedom is vouchsafed. It was left to the courts to clarify the ambit of this comprehensive provision in section 138 BGB. The Reichsgericht²⁹⁹has defined the term “immoral” (“contrary to good morals”) as “contravening the sense of decency of every person who possesses understanding of what is just and equitable”.³⁰⁰ The Bundesgerichtshof has adopted this definition.³⁰¹It is the average sensibility that is in issue here, not the unduly lax or demanding ethics of any particular group or judge. Within this framework the adequacy of the contractual obligation is, in principle, not subject to control by the judiciary. It has been said that “the conception (of section 138 BGB) is considerably wider than the corresponding English conception of immorality and public policy taken together.”³⁰²
The immorality (in the sense of undue influence in German law) can arise either from the content³⁰³ of the agreement itself or from certain circumstances in which the formation of the contract took place.³⁰⁴ Usually the immorality will result from the combination of several negative factors. In particular, one must examine the content of the agreement, the motivation of the parties involved and the objective of this agreement.³⁰⁵ Even the combination of elements, which, on their own are morally acceptable, may result in immorality.³⁰⁶ It is necessary, therefore, to examine the overall impression of the agreement in question.³⁰⁷
As there is no specific doctrine of undue influence in German law, it is crucial to identify the relevant group of cases of undue influence within section 138 BGB. The main concern of this section is the protection of fundamental constitutional and social values³⁰⁸ as well as the protection of individual rights. Art. 2 GG contains the basic individual right to personal freedom and therefore implicitly, the principle of freedom of contract (I). As explained above, undue influence arises where the freedom of choice is interfered with. The legal transaction may result in,³⁰⁹ or from, the interference of freedom of choice. In relation to undue influence, however, only the latter group of cases is relevant.
Cases of this nature are combined in a subgroup of cases falling under section 138 (1) BGB which is concerned with the abuse of a predominant position (“Ausnützung von Übermacht”).³¹⁰ Under English law such words as “the abuse of the inequality of bargaining power” (IX, a, cc, bbb) are used to describe the same situation, which seems to be the underlying basis of undue influence in both the English common law system and the civil law system of Germany. Although inequality of bargaining power may result in the defectiveness of consent, it is in both legal systems not in itself considered to be sufficient for the contract to be avoided (I; X, a; IX, a, cc, bbb).
It is generally said³¹¹ that undue influence usually arises where (a) the entering into an unfair contract (or any other legal transaction) results from the abuse of (b) a predominant position. Moreover, an abuse in the sense of section 138 BGB will only be identified where (c) one party consciously takes advantage of a predominant position.³¹² It must be stressed that it is the combination of these elements in each particular case which guides the decision as to whether or not the legal transaction contravenes the sense of decency of every person who possesses understanding of what is just and equitable.³¹³

(a) An apparent unfairness of the legal transaction

Similar to cases of presumed undue influence in English law, relief will only be granted in cases where a disadvantageous character of the legal transaction can be identified. The disadvantage has to arise from the imbalance of the contractual obligations of the parties, in the sense that the terms of the agreement appear (from an objective³¹⁴ point of view) to be unfair.³¹⁵ In relation to unilateral legal obligations, such as guarantees, disproportion has to be apparent between the financial scope of the liability on the one hand and the actual financial abilities of the potential debtor on the other hand.³¹⁶ It is necessary to examine the overall impression of the legal transaction in order to answer the crucial question of whether the particular transaction is “one that a party in a similar situation would ordinarily be expected to have made…”.³¹⁷ If that is not the case the transaction will usually be deemed to be unbalanced. To be “apparent”, however, the disadvantage has to be of a certain quantity. It could be said, in accordance to English law, that the imbalance of the legal transaction is apparent if it results in a “manifest disadvantage” (VII, a, bb).

(b) Predominant position

The German courts have recognised circumstances in which the undue influence can occur without a “relationship of trust and confidence”.³¹⁸ There are several types of dominant positions which have been recognised as being capable of giving rise to undue influence.³¹⁹
The first case which concerned undue influence under German law involved the abuse of a monopoly position.³²⁰ Public authorities,³²¹ landlords,³²² employers³²³ and bankers³²⁴ were identified as occupying positions of dominance which, similar to those who had a position of trust,³²⁵ were capable of interfering with the freedom of choice of one party. Although the exertion of undue influence in these cases is possible, its existence seems, in contrast to English law, never to be presumed.³²⁶ Nevertheless, there are some individual judgements which have, with some restrictions, recognised circumstances under which a presumption can arise: it has been suggested that the exertion of undue influence is to be presumed in cases of disadvantageous transactions between parents and their children³²⁷or, more rarely, in cases of exorbitant unfair legal transactions.³²⁸
In most of the judgments, however, the claimant is, similar to the rules of ‘actual undue influence’ (VII, b, bb) in English law, in general required to show a relationship which interfered with his freedom of contract. In this context, prima facie evidence might be accepted by the courts. Only if there is evidence that the freedom of contract was interfered with, the position in question can be labelled as “predominant” in the sense of section 138 BGB.It is necessary, in contrast to English law, to find such a position of dominance within the relationship of claimant and defendant (IX, b, bb).
The provision of information may prevent the consent of the other party from being defective (VII, e, cc, ccc).

(c) Knowledge of the facts giving rise to the claim

An abuse, in the sense of an immoral act falling within the scope of section 138 BGB will generally only occur where one party consciously takes advantage of a predominant position.³²⁹ That advantage accrues from the fact that the weaker party entered into the unbalanced legal transaction. According to the majority of courts and legal writers,³³⁰ it is necessary that the defendant actually knew, or ought to have known, of the facts which give rise to the immoral character of the transaction see also: V, c).³³¹ The Bundesgerichtshof explicitly rejected both the view that the subjective element will be irrefutably presumed in cases where the required objective elements (a and b) are apparent³³² and the suggestion of a number of legal writers to abolish the entire subjective requirement altogether.³³³
On the other hand, it is sufficient for this purpose that the defendant ought to have known of the relevant facts. There is no equivalent in German law to the English notion of avoiding constructive knowledge by taking particular steps (VII, e, cc, ccc).

(d) Causation

As for duress, (V, d) it is necessary for undue influence that the weaker party was caused to enter into the contract by the interference with his freedom of choice, and what has been said above in that context also applies to undue influence.

(e) Legal effect of undue influence under German Law

It is the main purpose of section 138 BGB to prevent the validity of legal agreements which are seen as being contrary to the sense of justice of the general public.³³⁴

(aa)

For this reason, the aggrieved party is not given an opportunity to affirm an immoral transaction. The legal transaction will be void with retroactive effect, not just voidable. Delay of the claimant or lapse of time in general is not relevant. It might also be noted that it is the notions of “decency” during the time in which the formation of the contract took place that are decisive for the validity of that transaction.³³⁵

(bb)

Section 138 BGB is designed to protect the interests of the society. Therefore it is not relevant whether any individual relies on the invalidity of the transaction.³³⁶ At least theoretically, the courts may intervene if they become aware of the immoral character of the legal transaction even if neither party has pleaded that the transaction is immoral, even if this is unlikely to occur in practise.

(cc)

Thus, the question arises why contracts made under threats are voidable (V, e, aaa), whereas agreements formed under much more subtle influence should be void. In English law it is stated that, “it would be strange if conduct less than duress could render a contract void, whereas duress does no more than render a contract voidable.”³³⁷ German law provides no specific justification for the different treatment. Rather, this inconsistency in German contract law results from the lack of a specific section in relation to undue influence (VIII), which is present in relation to the concept of duress (section 123 BGB).

(f) Application of the doctrine: Cases involving children as guarantors under German law

The most influential cases on the development of a German equivalent to the doctrine of undue influence law concern guarantees which young and inexperienced adults of little means may provide for large loans granted to their parents by banks. This is illustrated by a decision of the Bundesgerichtshof in 1994:³³⁸
In this case, the guarantor’s father worked as an estate agent. He was requested by his bank to provide a guarantee from his daughter in order to increase the borrowing limit for his bank account. Although his daughter was 21 years, earned some DM 1,150 net per month as a blue collar worker and did not dispose of any assets, she signed an absolute guarantee for the amount of up to DM 100,000 in order to secure all present and future claims which the bank had against her father. When his assets deteriorated, the bank called in all credits and claimed for the payment of DM 100,000.

(aa)

Such contracts were held by the court to be disadvantage since “if the risk materializes, the children will have to make substantive payments to the creditor over an unforeseeable period or perhaps for the rest of their lives”.³³⁹ Since this disadvantage would not be compensated by any direct own economic interests of the daughter, the contract in question was held to be of material unfairness.³⁴⁰

(bb)

The daughter was found to be in an unequal bargaining position in relation to the bank on two grounds: First, she was evidently inexperienced in business matters.³⁴¹ Instead of providing sufficient information to the daughter, the bank grotesquely trivialized the significance of the liability.³⁴² Second, she was held to be in a ‘mental predicament’ resulting from her emotional relationship with her father.³⁴³ The court held that “freedom of contract, which enjoys protection as a basic right, can justify the conclusion of risky and at the same time unilaterally burdensome contracts only if both parties are in a position to decide freely in favour of or against being bound by a contract.”³⁴⁴

(cc)

The defectiveness of consent, it was held, needs somehow to be attributed to the bank’s responsibility. In this context it is generally sufficient if the bank consciously takes advantage of a predominant position (c). However, in this particular case the court concluded that “it can be left open whether the father’s conduct sufficed for this (defectiveness of consent and responsibility of the bank), or whether the trivializing representations made by the saving bank’s employee were an additional cause, as the defendant must account for either conduct within the framework of § 138 (1) BGB”.³⁴⁵

(dd)

Additional elements for the contract to be characterized as offending against good morals were considered by the court. First, although the guarantee did by far exceed the daughters’ financial capacity “nothing has been submitted to show that her income situation or assets could possibly fundamentally improve in future.”³⁴⁶ Second, the father’s request itself was considered morally questionable and “incompatible with the duties of parents which continue to exist toward adult children.”³⁴⁷ Since the entire character of the legal transaction was found to contravene the “sense of decency of every person who possesses understanding of what is just and equitable” (VIII), the contract was held to be void under section 138 (1) BGB (VIII, e).

IX. Comparison of Undue Influence under English and German Law

(a) General comparison

In contrast to undue influence in English law, there are (in general, see VIII, b) no refutable “presumptions” (VII, c) nor special rules relating to “third parties” (VII, e) in German law. Nevertheless, in terms of the particular requirements, only minor differences can be identified between the rules of undue influence in England and Germany:

(aa)

In Lloyds Bank v Bundy³⁴⁸ Sir Eric Sachs held that the refutable presumption of undue influence arises “where someone relies on … another, where the other is aware of that reliance and where the person on whom reliance is placed obtains… a benefit…”. (1) A particular relationship,³⁴⁹ (2) a disadvantage (the disadvantage on the one part corresponds to the benefit on the other part) and (3) actual or constructive knowledge of these facts (VII, c, bb) is, therefore, required for the presumption to arise. The person claiming undue influence must prove these elements. If he does so, it is “presumed that undue influence has been exerted”.³⁵⁰ Influence in this sense is exerted, if the relationship in question resulted in the interference with the freedom of choice.³⁵¹ Therefore the ‘causation’ and the ‘interference with the freedom of choice’ are presumed. Thus, the defendant can rebut the presumption either by showing a lack of (4) ‘causation’ (VII, d) or by showing the exertion of (5) ‘freedom of choice’ (VII, c, cc, bbb). Under English law, however, the claimant has the option to show either the elements 1, 2, 3 (Class 2) or the elements 1, 3, 4, 5 (Class 1).
Under German law the claimant has in general to prove all elements (1, 2, 3, 4, 5) in order to obtain relief. He is therefore required to show that the defendant’s (3) knew or ought to have known of (1) a particular position which (4) causes a (2) disadvantage arising from the interference with the (5) freedom of choice (VIII, b). This means that the claimant has inevitably to prove that the legal transaction is of a manifest disadvantageous character. Thus, in cases of a minor or of no disadvantage, relief can only be granted under English law (Class 1), but not under German law.

(bb)

This comparison makes it clear that there is no need either in England or in Germany for special rules in relation to the subjective element of third parties. A defendant (as the person denying the exertion of undue influence) will, in both legal systems and in every case, only be affected if he has actual or constructive knowledge of the facts (or its German equivalent, i.e. failure to notice facts he ought to have known) giving rise to the claim.³⁵² Thus, the English “doctrine of notice” states something that is already obvious. However, the judgments concerning this issue (VII, e, bb) are useful as a guidance concerning the question of what amounts to constructive knowledge in general.

(cc)

Moreover this comparison explains that relief under undue influence will only be granted in English and German law where the defectiveness of consent of one party is exploited by the other contracting party, in the sense of committing alegal wrong. Both features (I) are also required in English and German law of duress (VI, b). It might suffice for a finding of a legal wrong that the defendant had “actual or constructive knowledge” of all the relevant facts (aa).³⁵³ Consequently, I would argue that, for the practical application of the doctrine, a finding of both ‘impaired consent’ and³⁵⁴ “wicked exploitation”³⁵⁵ might suffice. Similar to the law of duress (VII, b, bb), in England there seems to be an unsolvable controversy on the relationship between these elements.³⁵⁶ In my view it is right to state that, although both elements need to be considered in examining the question of whether relief will be granted, the theoretical basis of the doctrine concerns “simply … the impairment itself, not … unconscientious exploitation”³⁵⁷ or any other “morally blameworthy conduct”,³⁵⁸ since it is the primary function of the law of ‘undue influence’ in both countries: X, b) to protect the freedom of contract. However, there are two extreme views which deny the relevance of either element in relation to the application of the doctrine:

(aaa)

First, as with the law of duress (VI, b), it is clearly in contrast to the present doctrine of undue influence in both jurisdictions to deny the relevance of the defective consent element.³⁵⁹

(bbb)

More interesting is the approach according to which the wrongdoing element might not be relevant in relation to cases of undue influence. In Lloyds Bank Ltd v Bundy³⁶⁰ Lord Denning expressed his famous but harshly criticised view: “Gathering all together, I would suggest that through all these instances (duress, undue influence) there runs a single threat. They rest on ‘inequality of bargaining power’.” Further, he simply stated that “when I use the word ‘undue’ I do not mean to suggest that the principle depends on proof of any wrongdoing.”³⁶¹
The latter part of Lord Denning’s comment quoted above clearly does not accord to present English law (cc). His statement even “does not technically form part of the ratio decidendi of the case.”³⁶² His approach is much wider than the doctrine of undue influence in England (and Germany) “since it does not necessarily depend on improper conduct by the stronger party.”³⁶³ Consequently, it neglects the protection of legitimate expectations in the enforceability of compromises (I; X, a). For this reason, such an approach is rejected in German contract law as well.³⁶⁴
Aside from this aspect, one may perhaps ask why Lord Denning’s finding of ‘inequality of bargaining power’, as a common basis of undue influence, did cause so much criticism and significant misunderstanding in English law. “One answer would be a characteristically English suspicion of broad general principles”³⁶⁵ (X, b). Scholarly writing in England, however, recognised that “once it is realised that there is a general principle at work underlying the several categories, it helps to explain the coherence of the law relating to these vitiating factors – and also… (to examine) ways in which the vitiating factors should be developed.”³⁶⁶

(b) O’ Brien and Aboody under German law

The approach taken in section 138 BGB (1) will be explained below and distinguished from the English doctrine of undue influence by examining particular cases which concern sureties given by third parties. The following will show on what a German court would base its decision in cases such as O’ Brien³⁶⁷ (VII, e, bb) and Aboody³⁶⁸ (VII, b, bb).

(aa) Manifest disadvantage (unfairness of the contract)

For the purpose of establishing manifest disadvantage, it is essential to weigh any benefits which are to accrue against risks incurred by the person giving the guarantee or executing the surety.³⁶⁹ The questions how likely it is that that person becomes liable, and will be able to discharge these potential debts, will also be considered.³⁷⁰ Likewise, it is important whether there is any particular interest of the surety or guarantor to be served, and particularly whether he intends to gain any profit from his actions. As in Aboody (VII, a, bb), a German court would probably reject a manifest disadvantage if the surety’s actions gave some hope of survival to the family business.

(bb) Predominant position

In O’ Brien as well as in Aboody a “position of trust” could be identified. This position results in both cases from emotional dependency of the surety. However, that predominant position must exist as between the person who stands surety or provides guarantee on the one hand, and the person to whom such surety or guarantee is given on the other, i.e. usually between claimant and defendant. In German law it is recognised that the relationship of trust between husband and wife results in a predominant position of the bank. The psychological pressure interferes with the freedom of choice of the wife in relation to the bank.³⁷¹ The latter party has, therefore, a predominant position. Undue influence is exerted between the bank and the wife.
Since in English law a “position of a banker” is not recognised within the relevant classes of undue influence (VII: class 1 or class 2), these cases will be examined separately by considering the special category of “third parties”. However, the rules deriving from this category are not really exceptional or special (see criticism of the “doctrine of notice”: a, bb and of the principle of “reasonable steps”: VII, e, cc)
In fact, English law treats cases concerning a relationship between e.g. wife and bank like a case within a “relationship of trust and confidence”. In England as well as in Germany, both the husband and the bank will be affected if the required elements (a, aa) are identified. So it may ultimately be a mere terminological difference if, unlike in German law, undue influence is found between husband and wife and not between wife and bank as the parties of the legal transaction.

(cc) Subjective element

In a case such as O’ Brien, the banker is fixed with constructive knowledge (English law) or negligent failure to notice (German law) as concerns the facts giving rise to the claim.³⁷² One of these facts is the interference with the freedom of choice (a, aa). As explained above (VII, e, cc, bbb), giving sufficient information is only a useful means of how to preserve a free consent in relation to cases concerned with “rational dependency”. Aside from this inadequacy, I would argue that the provision of information might be more relevant in relation to the question of whether the freedom of choice is interfered with relevant fact (German approach),³⁷³ than in relation to the actual or constructive knowledge of this required fact (English approach: VII, e, cc, ccc).³⁷⁴
As, strictly speaking, “reasonable steps” are not capable “to avoid constructive notice” (this is, however, English terminology: VII, e, cc), it may be argued that the English rules deriving from this principle are discussed at a wrong stage.³⁷⁵ However, in English law “reasonable steps” rather prevent the contractual party which relies on the agreement being valid from being held responsible for knowingly taking advantage of the other party’s defectiveness of consent (VII, e, cc, ccc).

(dd)

In conclusion, a German court would be likely to grant relief in O’ Brien under section 138 (1) BGB since the bank committed an immoral act by consciously taking advantage of a predominant position. The charge which the wife, as surety, had executed on the family home would thus be void under German law as well.

X. Conclusion

The above description of the various differences between duress and undue influence in English and German contract law must be briefly completed by a more general overview of the main similarities (a). This is followed by an attempt to explain the most influential factor responsible for the differences between English and German contract law in this respect (b).

(a) Common features of English and German duress and undue influence

In both legal systems the underlying concepts are concerned with psychological influence exerted during the formation of a contract. The strongest form of pressure is duress in the sense of a wrongful conduct in the form of threats, intentionally disturbing the freedom of choice of one contracting party. A “threat” is narrowly interpreted, but this restricted notion of duress is complemented by the law of undue influence.
In accordance with the law of duress (VI, b), both legal systems require for a finding of undue influence (IX, a, cc), aside from the defectiveness of consent, some wrongful conduct (general elements). This limitation of both the doctrines of duress and undue influence through the wrongdoing element follows from the balancing of the competing needs of protection of the person influenced by pressure on the one hand, and the enforceability of compromises on the other (I). ³⁷⁶ Legitimate expectations in the enforceability of compromises, however, are not created if the contractual party in question had a reason to believe that the undertaking was not given freely.
Thus, it may be concluded that in English and German law it is necessary (aside from duress in German law: V, e, bb) to examine the mental state of both parties to the contract. However, in relation to undue influence it is not sufficient that one contractual party is (actually or constructively, or ought to be) aware of the relevant elements (IX, a, aa). The scope of the equitable doctrine of undue influence is in both legal systems limited (aside from actual undue influence in English law: VII, a, aa) by the requirement of material unfairness.
Each singular requirement of both doctrines needs to be interpreted in the light of the general principle which underlies these concepts in English and German law of contract.

(b) Consequences of different legal method between common and civil law

It has been explained above that in both legal systems the principle of freedom of contract is the underlying basis of duress and undue influence.³⁷⁷ This fact, however, is explicitly accepted only under German contract law (in relation to English law, see VI, b, bb and VII, b, bb ).
This could be a result of methodological differences between the common law and the civil law³⁷⁸ which relate to sources of law: whilst the English concepts are developed by case law, the German rules are contained in codified law.
“German law attempts to form a coherent, systematic general doctrine applicable to the largest possible number of imaginable cases.”³⁷⁹ “If there was an award for the highest level of abstraction in any code, the Bürgerliches Gesetzbuch (German Civil Code: BGB) would be a clear favourite to win it.”³⁸⁰ Despite its abstruseness, however, the language of the Bürgerliches Gesetzbuch (BGB) is “powerful, clear and precise”.³⁸¹ It may be the case however, that problems may arise where a general clause, such as section 138 BGB (VIII), needs to be elaborated by the courts. However, as civil law judges are generally bound to deduce their ratio decidendi from codified law, the reasoning itself is also based on the method of generalisation. Thus, in particular German court decisions are labelled as “dry and businesslike”, whereas English court decisions are seen as “full flavour judgements” and celebrated enthusiastically as a “work of art”, “full of life and colour”.³⁸² As explained above (IV, b), the “dominating opinion” (“herrschende Meinung”) is the main basis on which a decision may be reached in German law. A change in the “dominating opinion”, however, will only be perceivable, if a court puts the public on notice of this change. It could be said that a German court merely declares an earlier change in law, but an English court actually changes law. In particular, legal certainty is challenged in cases where a “dominating opinion” cannot be identified at all.
The binding force of precedent under English law, however, prevents this inadequacy. Changes in law have to be explicitly stated. Thus it may be said that the public in England is more likely to be aware of what constitutes law. “The peculiar character of English law comes largely from the fact that much of the doctrine … is not contained in any authoritative written statement but has to be pieced together from a large mass of judicial decisions.”³⁸³ Thus it has been claimed that “English law is essentially disordered and irrational.”³⁸⁴ s applied in German law, methods of rationalisation, generalisation and conceptualisation have “little parallel in English law or any other common law system.”³⁸⁵ Since English courts refrain from establishing underlying concepts (see, for instance, the notion of ‘inequality of bargaining power’: IX, a, cc, bbb), “English law shows a low level of abstraction in comparison with German law.”³⁸⁶
As the principle of freedom of contract is, therefore, not explicitly accepted as the basis of duress and undue influence in English law, some confusion of the applied rules may arise, as identified above (VI, b, bb; IX, a, cc; IX, b, bb;). Consequently, the allocation of the contractual parties’ interests inevitably differs from German law (see, for instance: VII, e, cc, ccc ). Moreover, although the required features are nearly identical (IX, a, aa), the English rules of duress and in particular of undue influence (see, for instance: IX, a, bb; IX, b, cc) are in general much more complicated than their corresponding German rules. The House of Lords recently indicated that “the point of categorisation has been the source of much of the confusion which has ensued.”³⁸⁷ Generalisations are not only useful both to prevent a contradictory character and uncertainty in law, but also to develop further principles. The application of this method is, in particular, necessary since the acknowledged function of law is not simply to judge past human conduct but also to influence human conduct in future.³⁸⁸ These aspects may therefore be assumed to be more directly served by law where it forms a “coherent, systematic general doctrine applicable to the largest possible number of imaginable cases.”³⁸⁹
These differences in method may help to explain why the rules of German contract law concerning duress and undue influence are much broader than their corresponding English doctrines and further, why the principle of the “freedom of contract” in German contract law is, therefore, protected in a more comprehensive way.

Footnotes

1 I would like to take the opportunity to thank some persons and institutions which have supported me to broaden my horizons by studying the legal system of a neighbouring European country and which contributed to the writing or the publication of this article: The University of Konstanz for offering me to spent one academic year at the Law School of a partner university in the United Kingdom, my supervisor Mrs. Pauline Roberts for the enthusiasm with which she guided me through the year of research at the University of Cardiff. I owe appreciation to Dr. Gerhard Dannemann, Lecturer in Law at the University of Oxford, for making comments and suggestions on this article. I very much appreciate the effort of Leila Shawn and Marine Britten in proof-reading drafts of this article.

2 Professor Dr Walter Odersky, Emeritus President of the Bundesgerichtshof, in: BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Volume I (Clarendon Press Oxford 1997) xlvi Foreword.

3 BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 28.

4 John Bouvier Bouvier’s Law Dictionary Volume II (8^th ed West Publishing Company 1914) For the purposes of this work a common definition will suffice. The particular elements of the freedom of contract are, however, widely disputed: PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Press Oxford 1995) p 4-21; PS Atiyah The Rise and Fall of Freedom of Contract (Oxford University Press 1988).

5 BVerfG 19.10.1993, Neue Juristische Wochenschrift (NJW) [1994] 36 (38); BVerfG 5.8.1994, Betriebs-Berater (BB) [1994] 2296 (2298); K Kiethe and P Groeschke ’Vertragsdisparität und strukturelle Unterlegenheit als Wirksamkeits- und Haftungsfalle’ Betriebs-Berater (BB) [1994] 2291 (2293).

6 [1875] LJ Chan 705.

7 JN Adams & R Brownsword Key Issues in Contract (Butterworths London 1995) p 51: “Within the bounds of public policy, the will of the contractors is sovereign… and the courts are reluctant… (to intervene)”.

8 JN Adams & R Brownsword Key Issues in Contract (Butterworths London 1995) p 51.

9 K Zweigert, H Kötz, Einführung in die Rechtsvergleichung: auf dem Gebiete des Privatrechts (3rd ed Tübingen Mohr 1996) p 316-318; PS Atiyah The Rise and Fall of Freedom of Contract (Oxford University Press 1988) p 260; SA Smith ‘Contracting Under Pressure’ Cambridge Law Journal [1997] 343-344.

10 Grundgesetz (abbreviation: GG) Each section of the GG is named as Artikel (abbreviation: Art) The first nineteen articles of the GG contain a list of basic rights.

11 “Jeder hat das Recht auf freie Entfaltung seiner Persönlichkeit, soweit er nicht die Rechte anderer verletzt und nicht gegen die verfassungsmäßige Ordnung oder das Sittengesetz verstößt“ (Art 2 GG).

12 BVerfG 19.10.1993, Neue Juristische Wochenschrift (NJW) [1993] 36 (38).

13 An exception exists for duress in German law: V, e, bb.

14 This article is not concerned with the law of consumer protection, exemption clauses and unfair terms.

15 Barton v Armstrong [1975] 2 All ER 465 (PC) 474 (Lord Cross).

16 eg North Ocean Shipping v Hyundai [1978] 3 All ER 1170 (QB)1183; Pao On v Lau Yiu Long [1980] AC 614 (PC) 636.

17 L Koffman, E McDonald The Law of Contract (3^rd ed Croydon Tolley 1998) p 287.

18 eg Universe Tankships Inc of Monrovia v International Transport Workers’ Federation [1983] 1 AC 366 (HL) 384 (Lord Diplock); PS Atiyah Law Quarterly Review ‘Economic Duress and the overborne will’ [1982] 197-202.

19 [1975] AC 653 (HL) 670, 675 (Lord Morris) 680 (Lord Wilberforce) 690-691, 695 (Lord Simon of Glaisdale) 703 (Lord Kilbrandon) 709-711(Lord Edmund-Davies).

20 PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Oxford 1995) p 266.

21 Chitty General Principles (28^th ed Sweet & Maxwell 1999) 7-006.

22 J Cartwright Unequal Bargaining (Clarendon 1991) p 153.

23 Chitty General Principles (28^th ed Sweet & Maxwell 1999) 7-008.

24 eg Chitty General Principles (28^th ed Sweet & Maxwell 1999) 7-008; PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Oxford 1995) p 267 and “pressure and threats of pressure” p 268 and “strikes and threats of strikes” p 269.

25 Section 123 BGB.

26 [1975] 2 All ER 465 (PC).

27 [1975] 2 All ER 465 (PC) 476.

28 [1975] 2 All ER 465 (PC) 476.

29 Skeate v Beale [1841] 11 A&E 983 (KB) 990 (Lord Denman CJ).

30 eg Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 (QB) 335.

31 [1976] 1 Lloyd’s Rep 293 (QB) 335.

32 [1991] 4 All ER 871 (HL) 878.

33 eg Astly v Reynolds [1973] 2 Str (KB) 915.

34 Parker v Bristol & Exeter Ry [1851] 20 LJ Ex 442 (Court of Exchequer) 443.

35 Universe Tankships of Monrovia Inc v ITWF [1983] 1 AC 366 (HL) 400.

36 North Ocean Shipping Co Ltd v Hyundai Constructions Co Beatson [1974] CLJ 97 (QB) 105.

37 PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Oxford 1995) p 268: eg “threats of strikes are treated by the law as permissible ways” of workforces wishing the variation of their contract of employment”.

38 eg Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 (QB) and North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 (QB).

39 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 158.

40 PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Oxford 1995) p 272.

41 [1983] AC 366 (HL) 384 (Lord Dipplock) 400 (Lord Scarman).

42 [1983] AC 366 (HL) 384 (Lord Dipplock) 400 (Lord Scarman).

43 Universe Tankships Inc of Monrovia v International Transport Workers’ Federation [1983) AC 366 (HL).

44 [1983] AC 366 (HL) 401.

45 This distinction is suggested by J Poole Casebook on Contract (4^th ed Blackstone London 1999) p 594.

46 [1983] AC 366 (HL) 401.

47 [1994] 4 All ER 714 (CA) 719.

48 eg Mutual Finance Co Ltd v John Wetton & Sons Ltd [1937] 2 KB 389 (KB) 395.

49 Williams v Bayley [1866] 35 LJ Ch 717 (HL) 722.

50 Keir v Leeman [1844] 6 QB 308 (QB) 371.

51 [1994] 4 All ER 714 (CA) 719.

52 Smith v William Charlick Ltd [1924] 34 CLR 38 (Chan) quoted after Chitty General Principles (25^th ed Sweet & Maxwell 1996) 7-510.

53 eg Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 (QB) and Pao On v Lau Liu Long [1980] AC 614 (PC).

54 Chitty General Principles (28^th ed Sweet & Maxwell 1999) 7-025 – 7-029.

55 See Duress under German law (V, c); Chitty on Contracts General Principles (28^th ed Sweet & Maxwell London 1999) 7-026.

56 Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833 (QB) quoted after GH Treitel The Law of Contract (10 ^th ed Sweet & Maxwell London 1999) p 88.

57 [1991] 1 QB (CA).

58 [1991] 1 QB (CA) 23.

59 Universe Tankships Inc of Monrovia v International Transport Workers’ Federation [1983] 1 AC 366 (HL) 400 (Lord Scarman).

60 L Koffman, E McDonald The Law of Contract (3^rd ed Croydon Tolley 1998) p 294.

61 Pao On v Lau Liu Long [1980] AC 614 (PC) 635.

62 [1980] AC 614 (PC) 635.

63 Pao On v Lau Liu Long [1980] AC 614 (PC) 635.

64 Scott v Sebright [1886] 57 LT 421 (Probate Divorce and Admiralty Division) 424.

65 eg Pao On v Lau Liu Long [1980] AC 614 (PC).

66 [1975] 2 All ER 465 (PC).

67 L Koffman, E McDonald The Law of Contract (3rd ed Croydon Tolley 1998) p 295.

68 [1975] 2 All ER 465 (PC) 476.

69 [1975] 2 All ER 465 (PC) 476.

70 [1975] 2 All ER 465 (PC) 476.

71 Barton v Armstrong [1976] AC 104 (PC) 120.

72 Dimskal Shipping Co SA v ITWI [1992] 2 AC 152 (HL) 165 (Lord Goff).

73 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 167.

74 [1992] 2 AC 152 (HL) 165.

75 Chitty General Principles (28^th ed Sweet & Maxwell 1999) 7-018.

76 [1978] 3 All ER 1170 (QB) 1183.

77 November 1974 – July 1975.

78 [1978] 3 All ER 1170 (QB) 1183.

79 M Chen-Wishart ‘In Defence of unjust factors: a study of rescission for duress, fraud and exploitation’ (2000) Oxford U Comparative L Forum 2 at II, near note 25.

80 The Bürgerliches Gesetzbuch (BGB) codified German private law. The BGB was promulgated on 18 August 1896 and came into force on 1 January 1900.

81 German definition of a “threat”, translated by EJ Cohn Manual of German Law Vol I (British Institute of International and Comparative Law London 1968) p 82.

82 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 153.

83 N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86.

84 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 78.

85 EJ Cohn Manual of German Law Vol I (The British Institute and Comparative Law 1968) p 4.

86 The noted exception are the decisions of the Federal Constitutional Court (Bundesverfassungsgericht), which are binding upon all other courts and public authorities, see section 31 (1) of the Act on the Federal Constitutional Court.

87 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 4.

88 “Dominating opinion” is the suggested translation of EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 6.

89 RG 29.10.1931, RGZ 134, 55 (55); BGH 24.10.1968, BGHZ 51, 142 (147).

90 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 44.

91 BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 823; “Wer zur Abgabe einer Willenserklärung durch arglistige Täuschung oder widerrechtliche Drohung bestimmt worden ist, kann die Erklärung anfechten”.

92 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 82; BGH 14.6.1951, BGHZ 2, 287 (295).

93 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 45.

94 BGH 14.6.1951, BGHZ 2, 287 (295).

95 BGH 6.5.1982, Neue Juristische Wochenschrift (NJW) [1982] 2301 (2302).

96 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 46.

97 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 123 BGB Rn. 15.

98 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 123 BGB Rn. 17.

99 RG 25.6.1886, RGSt 14, 264 (265).

100 BGH 7.6.1988, Neue Juristische Wochenschrift (NJW) [1988] 2599 (2601).

101 eg BGH 7.6.1988, Neue Juristische Wochenschrift (NJW) [1988] 2599 (2601).

102 eg BGH 26.6.1952, BGHZ 6, 348 (351).

103 RG 29.2.1924, RGZ 108,102 (104); BGH 20.1.1983, Wertpapiermitteilungen (WM) [1983] 1017 (1019).

104 BGH 20.6.1962, LM § 123 no. 28; the judgment leaves open whether that requirement was satisfied in the given case..

105 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 Rn 51; BAG 22.12.1983, Neue Juristische Wochenschrift (NJW) [1983] 2782 (2783).

106 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 78; N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86: e.g. dealing with controlled drugs, or agreements to divide the spoils of a bank robbery.

107 Section 138 (1) BGB: “Ein Rechtsgeschäft, das gegen die guten Sitten verstößt, ist nichtig” Translated by N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86: “A legal transaction is void if it is contrary to good morals”.

108 RG 11.4.1911, RGZ 48, 114 (124); BGH 9.7.1953, BGHZ 10, 232 (232), translated by N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86; see below: VIII.

109 BGH 20.1.1983, Wertpapiermitteilungen (WM) [1983] 1017 (1019).

110 BGH 23.9.1957, BGHZ 25, 217 (220).

111 RG 3.4.1925, RGZ 110, 382 (384); BGH 23.9.1957, BGHZ 25,217 (219).

112 RG 3.4.1925, RGZ 110, 382 (384); BGH 23.9.1957, BGHZ 25,217 (219).

113 BGH 23.9.1957, BGHZ 25, 217 (220).

114 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn. 48.

115 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London (1968) p 97.

116 BGH 14.6.1951, BGHZ 2, 287 (297); Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 48.

117 O Jauernig Bürgerliches Gesetzbuch (9^th ed Beck München 1999) § 123 BGB Nr 3.

118 BAG 28.5.1969, Neue Juristische Wochenschrift (NJW) [1970] 1975 (1975); LAG BW 6.12.1973, Der Betrieb (DB) [1974] 195 (196).

119 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 50; Deubner ’Kündigungsdrohung als Zwang zur Abgabe einer Willenserklärung’ Juristische Schulung (JuS) [1971] 71 (72).

120 BGH 23.9.1957, BGHZ 25, 217 (221); RG 3.4.1925, RGZ 110, 382 (384).

121 BGH 23.9.1957, BGHZ 25, 217 (221).

122 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 50.

123 O Jauernig Bürgerliches Gesetzbuch (9th ed Beck München 1999) § 123 BGB Nr 15.

124 BGH 28.5.1969, Neue Juristische Wochenschrift (NJW) [1969] 1627 (1627).

125 Erman Kommentar zum Bürgerlichen Gesetzbuch (10^th ed Aschendorff Köln 2000) § 123 Rn 69; Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 123 BGB Rn 23; RG 14.2. 1922, RGZ 104, 79 (80); RG 29.2.1924, RGZ 108, 102 (104).

126 OLG Hamburg 12.6.1947, Monatsschrift des Deutschen Rechts (MDR) [1947] 253 (253); BAG 5.4.1978, Der Betrieb (DB) [1978] 1466 (1466).

127 BGH 23.9.1957, BGHZ 25, 217 (225).

128 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 8.

129 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 123 BGB Rn 19, 21; BAG 28.5.1969, Neue Juristische Wochenschrift (NJW) [1970] 1975 (1975).

130 O Jauernig Bürgerliches Gesetzbuch (9th ed Beck München 2001) § 123 BGB Nr 16; Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 123 BGB Rn 51; Erman Kommentar zum Bürgerlichen Gesetzbuch (10^th ed Aschendorff Köln 2000) § 123 Rn 71.

131 Chitty on Contracts General Principles (28^th ed Sweet & Maxwell London 1999) 7-026.

132 Erman Kommentar zum Bürgerlichen Gesetzbuch (10^th ed Aschendorff Köln 2000) § 123 Rn 70; H Brox Allgemeiner Teil des Bürgerlichen Gesetzbuches (16^th ed Beck München 2000) Rn 421.

133 BGH 23.9.1957, BGHZ 25, 217.

134 O Jauernig Bürgerliches Gestzbuch (9^th ed Beck München 2001) § 123 BGB Nr 16 and Erman Kommentar zum Bürgerlichen Gesetzbuch (10^th ed Aschendorff Köln 2000) § 123 Rn 70. The courts tend, in contrast the majority of writers, to require that the person excerting the influence knew or ought to have known of the facts which give rise to the immorality.

135 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 8: If the immorality arises from the circumstances in which the agreement was made, rather than from the substance of the agreement, a subjective test of this kind is required.

136 H Brox Allgemeiner Teil des Bürgerlichen Gesetzbuches (16 ^th ed Beck München 2000) Rn 416.

137 BGH 22.1.1964, Neue Juristische Wochenschrift (NJW) [1964] 811 (811).

138 RG 29.10.1931, RGZ 134, 48 (51); BGH 14.6.1951, BGHZ 2, 287 (299).

139 H Hart, T Honore Causation in the Law (2^nd ed Clarendon Oxford 1995) 443.

140 RG 15.11.1911, RGZ 77, 309 (314); BGH 14.6.1951, BGHZ 2, 287 (299).

141 BGH 23.9.1957, WPM [1957[ 1361 (1363); BGH 6.6.1974, WPM [1974] 1023 (1023).

142 H Brox Allgemeiner Teil des Bürgerlichen Gesetzbuches (16 ^th ed Beck München 2000) Rn 416.

143 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 123 BGB Rn 24; BGH 12.11.1957, Neue Juristische Wochenschrift (NJW) [1958] 177 (177).

144 Erman Kommentar zum Bürgerlichen Gesetzbuch (10^th ed Aschendorff Köln 2000) § 123 Rn 72. This should not be confused with the question which has been discussed above V, (c), i.e. knowledge of the person making the threat of those facts which make this threat unlawful.

145 It was recognised in Roman law that the exertion of duress amounts to a serious violation of public policy principles: W Schubert Die Vorlagen der Redaktion für die erste Kommission zur Ausarbeitung des Entwurfes eines Bürgerlichen Gesetzbuches Allgemeiner Teil (de Gruyter Berlin 1981) p 143.

146 Motive zu dem Entwurfe eines Bürgerlichen Gesetzbuches für das Deutsche Reich Band I Allgemeiner Teil (Guttentag Berlin 1888) p 206; B Mugdan Die gesamten Materialien zum Bürgerlichen Gesetzbuch für das Deutsche Reich I. Band (Decker Berlin 1899) p 466.

147 In relation to fraud, section 123 (2) BGB requires the equivalent to ‘actual or constructive knowledge’; See M Chen-Wishart ‘In Defence of unjust factors: a study of rescission for duress, fraud and exploitation’ (2000) Oxford U Comparative L Forum 2 at II.

148 Universe Tankships Inc of Monrovia v International Transport Worker’s Federation [1983] 1 AC 366 (HL) 400 (Lord Scarman).

149 SA Smith ‘Contracting under Pressure: A Theory of Duress’ Cambridge Law Journal [1997] 343-373; Atiyah ‘Economic Duress and the Overborne Will’ The Law Quarterly Review [1982] 197-202; In relation to undue influence, see also IX, a, cc.

150 SA Smith ‘Contracting under Pressure: A Theory of Duress’ Cambridge Law Journal [1997] 343, 344.

151 SA Smith ‘Contracting under Pressure: A Theory of Duress’ Cambridge Law Journal [1997] 343, 359.

152 SA Smith ‘Contracting under Pressure: A Theory of Duress’ Cambridge Law Journal [1997] 343, 371-372.

153 PS Atiyah ‘Economic Duress and the Overborne Will’ The Law Quarterly Review [1982] 197, 200.

154 PS Atiyah The Rise and Fall of Freedom of Contract (Oxford University Press 1988)p 43.

155 PS Atiyah ‘Economic Duress and the Overborne Will’ The Law Quarterly Review [1982] 197, 202.

156 PS Atiyah The Rise and Fall of Freedom of Contract (Oxford University Press 1988) p 436.

157 AR White Misleading Cases (Clarendon Press Oxford 1991) p 86.

158 AR White Misleading Cases (Clarendon Press Oxford 1991) p 86.

159 FH Lawson The Rational Strength of English law (Stevens & Sons Ltd London 1951) p 58.

160 [1904] 1 KB 591 (CA) 597.

161 This threat would under German law fall within the scope of the doctrine of duress: V, a.

162 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 174.

163 GH Treitel The Law of Contract (10^th ed Sweet & Maxwell London 1999) p 379.

164 Smith v Kay [1859] 7 HL Cas 750, 779.

165 H Collins The Law of Contract (3^rd ed Butterworths London 1997) p 139.

166 Allcard v Skinner [1887] 36 Ch D 145 (CA) 171 (Cotton LJ) and 181 (Lindley LJ).

167 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 170.

168 L Koffman, E McDonald The Law of Contract (3^rd ed Croydon Tolley 1998) p 297; Barclays Bank Plc v O’Brien [1994] 1 AC 180 (HL) 189-190.

169 [2001] UKHL 44 number 92 (Lord Clyde), 98 and 105 (Lord Hobhouse), 161 (Lord Scott).

170 [1985] AC 686 (HL) 705.

171 [1887] 36 Ch D 145 (CA) 182-185.

172 [1989] 1 QB 923 (CA) 965.

173 [1993] 4 All ER 433 (HL) 439.

174 [1993] 4 All ER 433 (HL) 439.

175 GC Cheshire, CHS Fitfoot, MP Furmston Law of Contract (13 ^th ed Butterworths London 1996) p 330; J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 176; H Collins The Law of Contract (3^rd ed Butterworths London 1997) p 140: The ground for relief is not the fact that there is a situation in which one person is victimised, or in which another person took unfair advantage, but rather the “absence of meaningful choice” of one party.

176 [1987] Ch 378 (CA) 401.

177 National Westminster Bank plc v Morgan [1985] AC 686 (HL) 705; Royal Bank of Scotland v Etridge [2001] UKHL 44 number 24.

178 [1989] 1 QB 923 (CA) 965.

179 eg selling family land at a full market value.

180 Chitty on Contracts General Principles (28^th ed Sweet & Maxwell London 1999) 7-045.

181 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 25 and 29.

182 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 7.

183 eg Williams v Bayley [1866] 35 LJ Ch (HL) 717, where it was held that a threat to prosecute can amount to undue influence (see, however, III, b).

184 [1989] 1 QB 923 (CA).

185 Tufton v Sperni [1952] 2 TLR 516 (CA) 530, 532 (Jenkins and Morris L JJ).

186 [1911] AC 120 (PC) 136, 137.

187 Morley v Loughnan [1893] 1 Ch 736 (Chan) 758.

188 Bridgeman v Green [1757] Wilm 58 (Chan) 65.

189 Re Brocklehurst’s Estate [1978] 1 All ER 767 (CA) 785.

190 Chitty on Contracts General Pinciples Vol I (28^th ed Sweet & Maxwell London 1999) 7-049 (However, since the defectiveness of the consent in itself will not suffice for a contract to be avoided (IX, a, cc and X, a and I), this comment is rather misleading.

191 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 7.

192 See, however, Royal Bank of Scotland v Etridge [2001] UKHL 44 number 11.

193 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 93.

194 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 11.

195 Royal Bank of Scotland v Etridge (No. 2) [1998] 4 All ER 705 (CA) 711-713 (Stuart-Smith LJ).

196 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 93 (Lord Clyde) and 151-152 (Lord Scott of Foscote).

197 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 92 (Lord Clyde).

198 Allcard v Skinner [1887] 36 Ch D 145 (CA) 181 (Lindley LJ).

199 Goldsworthy v Brickell [1987] 1 All ER 853 (CA) 865 (Nourse LJ).

200 [1987] 1 All ER 853 (CA) 865.

201 It has been pointed out that it dangerous to assume that such relationships give rise to the presumption, as the relationship between the parties may not be confidential: J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 178.

202 Wright v Carter [1903] 1 Ch 27 (Chan).

203 Radcliffe v Price [1902] 18 TLR 466 (Chan).

204 Allcard v Skinner [1887] 26 Ch D 145 (CA).

205 Hylton v Hylton [1754] 2 Ves Sen 547 (Chan).

206 Ellis v Barker [1871] 25 LT 688 (Chan) 689.

207 Wright v Vanderplank [1855] 3 WR 637 (Chan).

208 Goldsworthy v Brickell [1987] 1 All ER 853 (CA) 886 (Nourse LJ).

209 Howes v Bishop [1909] 2 KB 390 (CA) 400.

210 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 158 and 18-19.

211 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 161.

212 [2001] UKHL 44.

213 [1993] 1 AC 180 (HL) 189-190.

214 [1992] 4 All ER 983 (CA) 1001.

215 [2001] UKHL 44.

216 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 92.

217 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 98.

218 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 105 (Lord Hobhouse).

219 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 107 (Lord Hobhouse).

220 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 158.

221 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 162.

222 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 159.

223 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 159.

224 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 106 and 104.

225 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 107.

226 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 107.

227 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 104 and 105: “Where the relevant question is one of fact and degree and of the evaluation of evidence, the language of presumption is likely to confuse rather than assist”.

228 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 11: “The principle is not confined to cases of abuse of trust and confidence. … Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other” (Lord Nicholls).

229 [1974] 3 All ER 757 (CA).

230 [1974] 3 All ER 757 (CA) 764.

231 L Koffman, E Mcdonald The Law of Contract (3rd ed Croydon Tolley 1998) p 300.

232 Lloyds Bank v Bundy [1974] 3 All ER 757 (CA) 767.

233 Lloyds Bank v Bundy [1974] 3 All ER 757 (CA) 767; Royal Bank of Scotland v Etridge [2001] UKHL 44 number 40.

234 National Westminster Bank plc v Morgan [1985] AC 686 (HL) 702; Bainbrigge v Browne [1881] 18 Chan D 188 (CA) 197; Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 (CA) -. Brandon LJ holding that the son held influence over his elderly parents and that this was “something of which the plaintiffs could or should have been aware”; Royal Bank of Scotland v Etridge [2001] UKHL 44 number 40.

235 [2001] UKHL 44 number 40.

236 Chitty on Contracts General Principles Vol I (28^th ed Sweet & Maxwell London 1999) 7-060.

237 (1985) AC 686 HL discussed in CIBS Mortgages plc v Pitt (1994) 1 AC 200 HL, 617.

238 PS Atiyah An Introduction to the Law of Contract (5^th ed Clarendon Oxford 1995) p 279.

239 Allcard v Skinner [1887] 36 Ch D 145 (CA) 171.

240 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 188.

241 Morley v Loughnan [1893] 1 Ch 736 (Chan) 752.

242 Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 (PC) 135.

243 Royal Bank of Scotland v Etridge (No 2) [1998] 4 ALL ER 705(CA) 736.

244 Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 (PC) 135.

245 Kings North Trust Ltd v Bell [1986] 1 WLR 119 (CA) 125.

246 Coldunell Ltd v Gallon [1985] QB 1184 (CA) 1201, 1208.

247 Chitty General Principles Vol I (28^th ed Sweet & Maxwell London1999) 7-050.

248 [1986] 1 WLR 119 (CA) 124.

249 [1902] AC 429 (PC) 435 (Lord Lindley).

250 Turnball & Co v Duval [1902] AC 429 (PC) 435 (Lord Lindley).

251 For instance: Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 (CA) 288 and Bank of Baroda v Shah [1988] 3 All ER 24 (CA) 29.

252 [1993] 1 AC 180 (HL) 190.

253 [1993] 1 AC 180 (HL) 195.

254 [2001] UKHL 44 number 77.

255 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 190.

256 [1993] 1 AC 180 (HL) 195.

257 [1993] 1 AC 180 (HL).

258 L Koffman, E Mcdonald The Law of Contract (3^rd ed Croydon Tolley 1998) p 306.

259 Barclays Bank v O’Brien [1993] 4 All ER 417 (HL) 428.

260 Bank of Credit and Commerce International SA v Aboody [1990] QB 923 (CA) 974.

261 Barclays Bank v O’Brien [1993] 4 All ER 417 (HL) 428.

262 [1993] 4 All ER 417 (HL) 429.

263 [2001] UKHL 44 number 44 and 46.

264 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 108-110.

265 [1994] 1 AC 200 (HL) 211.

266 [1992] QB 109 (CA) 141, 142 (Scott LJ).

267 Barclays Bank v O’Brien [1993] 4 All ER 417 (HL) 431.

268 [1993] 4 All ER 983 (CA) 1001.

269 Massey v Midland Bank [1995] 1 All ER 929 (CA) 933.

270 Credit Lyonnais v Burch [1997] 1 All ER 144 (CA) 154.

271 [2001] UKHL 44 number 47-49.

272 L Koffman, E Mcdonald The Law of Contract (3 ^rd ed Croydon Tolley 1998) p 308.

273 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 41.

274 [1997] 1 All ER 144 (CA) 155.

275 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 164.

276 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 54.

277 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 50.

278 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 191-192.

279 [1993] 4 All ER 417 (HL) 429 (Lord Browne-Wilkinson): In this case it was required that the defendant “insists that the wife (the party influenced) attend a private meeting (in the absence of the party influencing) with a representative of the bank at which she is told of the extent…(and) of the risk that she is running and is urged to take independent advice.”

280 H Collins The Law of Contract (3^rd ed Butterworths London 1997) p 142.

281 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 685.

282 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 687.

283 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 694.

284 G Müller Vorvertragliche und vertragliche Informationspflichten nach englischem und deutschem Recht (Recht und Wirtschaft Heidelberg 1994) p 144.

285 Barclays Bank v O’ Brien [1993] 1 AC 180 (HL) 188.

286 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 694.

287 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 694.

288 In this context, see Ruth R Faden, Tom L Beauchamp A History and Theory of Informed Consent (Oxford University Press 1986).

289 [1995] 1 All ER 936 (CA) 947.

290 [2001] UKHL 44 number 20.

291 [1944] I KB 476 (CA) 478-479 (Scott LJ).

292 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 38.

293 G Müller Vorvertragliche und vertragliche Informationspflichten nach englischem und deutschem Recht (Recht und Wirtschaft Heidelberg 1994) p 146; BVerfG 19.10.1993, Betriebs-Berater (BB) [1994] 16.

294 P Groeschke ‘Die Haftung einkommensschwacher und vermögensloser Bürgen’ Betriebs-Berater (BB) [1994] 725 (728).

295 B Fehlberg ‘The Husband, the Bank, the Wife and Her Signature’ Modern Law Review [1996] p 689.

296 [1887] 36 Ch D 145 (CA) 186.

297 D Medicus ‘Entwicklungen im Bürgschaftsrecht – Gefahren für die Bürgschaft als Kreditsicherung?’ Juristische Schulung (JuS) [1999] 833, 836; T Riehm ‘Aktuelle Fragen zum Bürgschaftsrecht’ Juristische Schulung (JS) [2000] 138-144, arguing that there are several possibilities other than under section 138 BGB for granting relief, in particular under the VerbrKrG, HWiG, the doctrine of ‘culpa in contrahendo‘, § 310 BGB, § 242 BGB (doctrine of frustration of contract), AGBG. The dominating opinion prefers, however, the application of section 138 BGB (see D Rehbein ‘Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45).

298 Suggested translation of section 138 (1) BGB by N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86.

299 ‘Reichsgericht’ was the Supreme Court of the ‘Deutsches Reich’ (German Empire, 1879-1945) ‘Bundesgerichtshof’ is the Federal Court of the ‘Bundesrepublik Deutschland’ (Federal Republic of Germany, since 1949).

300 “Ein Rechtsgeschäft ist sittenwidrig, wenn es gegen das Anstandsgefühl aller billig und gerecht Denkenden verstößt”: RG 15.10.1912, RGZ 80, 219 (221). Translated by N Horn, H Kötz German Private and Commercial Law (Clarendon Oxford 1982) p 86.

301 BGH 9.7.1935, BGHZ 10, 228 (232).

302 EJ Cohn Manual of German Law Vol I (British Institute of International and Comparative Law London 1968) p 78.

303 eg, contracts which oppressively restrict personal and economical freedom (BGH 14.12.1956, BGHZ 22, 347, 355) or contracts to pay people for changing their religion.

304 See Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 9.

305 See Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 9.

306 LG Bremen 16.8.1973, Monatsschrift des Deutschen Rechts (MDR) [1974] 134 (135).

307 BGH 10.3.1982, Wertpapiermitteilungen (WM) [1982] 533 (534).

308 Object of this protection are such values as family, the decent majority’s feeling concerning sexual matters and the basic principles of the country (Münchener Kommentar Allgemeiner Teil 4^th ed Beck München 2001 § 138 BGB Rn 33-39).

309 eg, contracts which oppressively restrict personal and economical freedom (BGH 14.12.1956, BGHZ 22, 347, 355) or contracts to pay people for changing their religion: Immoral in the sense of section 138 BGB is, in these cases, the content of the contract not the circumstances in which the agreement was made.

310 Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001), § 138 BGB Rn 71; RG 5.7.1939, RGZ 161, 76 (81); H Bartholomeyczik ’Äquivalenzprinzip, Waffengleichheit und Gegengewichtsprinzip in der modernen Rechtsentwicklung’ Archiv für die civilistische Praxis (AcP) 166 [1966] 30 (67).

311 See for instance: D Rehbein ‘Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45-46, 48 (this view is, however, criticised by Knütel ’Befreite Ehefrauen? Zur Mithaftung für Bankkredite von Anghörigen’ Zeitschrift für Wirtschafsrecht (ZIP) [1991] 493-498).

312 D Rehbein ‘Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 48; BGH 8.7.1982, Neue Juristische Rundschau (NJW) [1982] 2767 (2768).

313 BGH 10.3.1982, Wertpapiermitteilungen (WM) [1982] 533 (534).

314 BGH 2.5.1969, Wertpapiermitteilungen (WM) [1969] 836 (837).

315 Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 112, 93.

316 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 37.

317 Chitty on Contracts General Principles Vol I (28^th ed Sweet & Maxwell London 1999) 7-045.

318 This accords with English law: Royal Bank of Scotland v Etridge [2001] UKHL 44 number 11.

319 BVerfG 5.8.1994, Betriebs-Berater (BB) [1994] 2296 (2298): For reasons of certainty in law the number of such positions is limited.

320 RG 8.1.1906, RGZ 62, 264 (266).

321 BGH 26.11.1975, BGHZ 65, 284 (289).

322 AG Hildesheim 1.11.1972, Neue Juristische Wochenschrift (NJW) [1973] 519 (519).

323 LAG Berlin 26.10.1962, AP Nr. 23.

324 BGH 9.11.1978, Neue Juristische Wochenschrift (NJW) [1979] 805 (806).

325 RG 8.10.1936, Juristische Wochenschrift (JW) [1937] 25 (26).

326 T Riehm ’Aktuelle Fälle zum Bürgschaftsrecht’ Juristische Schulung (JuS) [2000] 241 (244).

327 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 38c.

328 Palandt Kommentar zum Bürgerlichen Gesetzbuch (60^th ed Beck München 2001) § 138 BGB Rn 38g.

329 D Rehbein ’Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45 (48); BGH 8.7.1982, Neue Juristische Wochenschrift (NJW) 1982, 2767 (2768); Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 93, 129.

330 Münchener Kommentar Allgemeiner Teil (4th ed Beck München 2001) § 138 BGB Rn 129.

331 RG 9.2.1928, RGZ 120, 144 (148); BGH 16.6.1971, Betriebs-Berater (BB) [1971] 1177; BGH 9.7.1953, BHZ 10, 229 (233); BGH 8.2.1956, BGHZ 20, 43 (52).

332 BGH 14.7.1969, Wertpapiermitteilungen (WM) [1969] 1255 (1257).

333 Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 130.

334 Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 1.

335 BGH 30.6.1983, Der Betrieb (DB) [1983] 2185 (2186).

336 Münchener Kommentar Allgemeiner Teil (4^th ed Beck München 2001) § 138 BGB Rn 155.

337 Williams v Roffey Bros Ltd [1991] 1 QB 1 (CA) 15.

338 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1341-1344, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 232-239 case 33.

339 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1343, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 235.

340 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1343, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 236.

341 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1342, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 234.

342 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1343, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 237.

343 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1342, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 235.

344 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1342, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 234.

345 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1344, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 239.

346 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1343, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 236.

347 BGH 24.2.1994, Neue Juristische Wochenschrift (NJW) [1994] 1343, translated by BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 235.

348 [1974] 3 All ER 757 (CA) 767.

349 For the presumption to arise, a legally recognised relationship is required: VII, c.

350 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 170.

351 P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) p 87.

352 See, however, P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) p 80-p 82; J Lehane ‘Undue Influence, Misrepresentation and Third Parties’ Law Quarterly Review [1994] 171.

353 P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) p 62 and p 82: The authors accept that this conduct might be labelled as a legal wrong. See also IX, a, cc, bbb.

354 In contrast to Rick Bigwood ‘Undue Influence: Impaired Consent or Wicked Exploitation’ Oxford Journal of Legal Studies [1996] Vol 16, 503-515.

355 P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) pp 63, 81.

356 Rick Bigwood ‘Undue Influence: Impaired Consent or Wicked Exploitation’ Oxford Journal of Legal Studies [1996] Vol 16, 503-515; P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) Chapter 3.

357 P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) p 63: The authors, however, do not clearly distinguish between these aspects. Thus, the article might be interpreted as denying the general relevance of the wrongdoing element: see eg p 72.

358 M Chen-Wishart ‘Loss Sharing, Undue Influence and Manifest Disadvantage’ Law Quarterly Review [1994] Vol 110, 175.

359 See the arguments of P Birks and C Nyuk Yin ‘On the Nature of Undue Influence’ in J Beatson, D Friedmann Good Faith and Fault in Contract Law (Clarendon Press Oxford 1995) Chapter 3.

360 [1974] 3 All ER 757 (CA) 765.

361 [1974] 3 All ER 757 (CA) 765.

362 GC Cheshire, CHS Fitfoot, MP Furmston Law of Contract (13 ^th ed Butterworths London 1996) p 313.

363 GC Cheshire, CHS Fitfoot, MP Furmston Law of Contract (13 ^th ed Butterworths London 1996) p 314.

364 D Medicus Schuldrecht I (10^th ed Beck München 1998) p 74.

365 GC Cheshire, CHS Fitfoot, MP Furmston Law of Contract (13 ^th ed Butterworths London 1996) p 316.

366 J Cartwright Unequal Bargaining (Clarendon Oxford 1991) p 220.

367 [1993] 4 All ER 417 (HL).

368 [1989] 1 QB 923 (CA).

369 D Medicus ’Entwicklungen im Bürgschaftsrecht – Gefahren für die Bürgschaft als Mittel der Kreditsicherung’ Juristische Schulung (JuS) [1999] 833 (835); D Rehbein ’Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45 (49).

370 D Rehbein ’Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45 (48).

371 T Riehm ’Aktuelle Fälle zum Bürgschaftsrecht’ Juristische Schulung (JuS) [2000] 241 (242); D Rehbein ’Zur Mithaftung vermögensloser Angehöriger’ Juristische Rundschau (JR) [1995] 45 (48-49).

372 D Reinicke K Tiedtke ’Zur Sittenwidrigkeit hoher Verpflichtungen vermögens- und einkommensloser oder einkommensschwacher Bürgen’ Zeitschrift für Wirtschaftsrecht (ZIP) [1989] 613 (616-617).

373 VII, e, cc, ddd; P Groeschke ’Die Haftung einkommensschwacher und vermögensloser Bürgen’ Betriebs-Berater (BB) [1994] 725 (728); K Kiethe, P Groeschke ’Vertragsdisparität und strukturelle Unterlegenheit als Wirksamkeits- und Haftungsfalle’ Betriebs-Berater (BB) [1994] 2291 (2293).

374 The special character of this concept, however, is described in Royal Bank of Scotland v Etridge [2001] UKHL 44 number 38-43.

375 In German law the provision of information is discussed within the requirement of the interference with the freedom of contract (VII, e, cc, ccc; VIII, b).

376 This accords with the view of the House of Lords in Royal Bank of Scotland v Etridge [2001] UKHL 44 number 35-37 and 141.

377 The acceptance by English courts has been implicit: see above VI, b, bb; VII, b, bb and IX, a, aa.

378 Gustav Radbruch Der Geist des Englischen Rechts (Vanderhoeck & Ruprecht Göttingen 1956) particularly p 53 – p 54.

379 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 19.

380 BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 15.

381 N Horn, K Kötz German Private and Commercial Law (Clarendon Press Oxford 1982) p 66.

382 FH Lawson The Rational Strength of English law (Stevens & Sons Ltd London 1951) p 28.

383 FH Lawson The Rational Strength of English law (Stevens & Sons Ltd London 1951) p 15.

384 FH Lawson The Rational Strength of English law (Stevens & Sons Ltd London 1951) p 3.

385 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 20.

386 BS Markesinis, W Lorenz, G Dannemann, The German Law of Obligations Vol I (Clarendon Press Oxford 1997) p 15.

387 Royal Bank of Scotland v Etridge [2001] UKHL 44 number 98 (Lord Hobhouse of Woodborough) (VII): This statement may also apply to the various categories of English duress.

388 R Zippelius Juristische Methodenlehre (4^th ed Beck München 1985) p 2.

389 EJ Cohn Manual of German Law Vol I (The British Institute of International and Comparative Law London 1968) p 19.

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