If the buyer of a property has undertaken to pay interest on the residual purchase price in a certain amount from the date of transfer of possession, but the seller complicates the intended financing by delaying the abstention of the property from existing mortgages in breach of contract, this breach of contract – regardless of the other conditions of the debtor's default – prevents the accrual of the interest claim in good faith.
On the facts of the case: in 1969, the plaintiff sold part of a piece of property to the defendant and his wife; part of the purchase price was to be paid in cash immediately, and the balance was to be paid three years after the contract was made. The plaintiffs took on the guarantee that the object of the purchase was free of encumbrances that were not assumed. The contracting parties agreed in addition:
The down payment amount is from the date of transfer of ownership. at 7 percent interest per annum until the balance, most of which the buyers will raise from home savings, is actually paid.
In April 1970, the defendant's building society gave the certifying notary a sum in safekeeping and instructed him not to pay out the money to the plaintiffs until the amount was secured by a first-digit real estate lien For a long time, the notary tried in vain to obtain the release of the property from joint liability for a total mortgage. In December 1970, he had the defendant pay him another amount and transferred the total down payment amount; the plaintiff received a credit as of 31. 12. 1970. The defendant has paid the agreed-upon interest for the period ending 31.3. Paid in 1970. –
The plaintiff still demands interest from the defendant on the first purchase price installment for the period from 1.4. up to 31. 12. 1970. She also sought interest on the second purchase price installment and claimed reimbursement for various out-of-pocket expenses. The district court awarded her interest from the down payment amount and reimbursement for about half of her expenses. The Higher Regional Court upheld the order to pay interest on the first purchase price installment in full as well as a lesser portion of the disbursements. The defendant's appeal essentially leads to the dismissal of the claim.
For the reasons: I. The Court of Appeals awarded interest on the down payment amount based on the plaintiffs' supplemental agreement. It held that maturity – and thus the right to interest – was not precluded by the fact that the defendant had a right to refuse performance under Section 320 of the German Civil Code because the plaintiff had not fulfilled its obligation to transfer the property free of encumbrances during the aforementioned period; because it had not raised the relevant defense.
Audit attacks succeed in bottom line.
It is not necessary to decide whether the interest claim is without further ado already unfounded because the defendant was entitled to a right of retention under Section 320 of the German Civil Code during the relevant period, because in this case there are special circumstances that prevent the interest claim from arising for a different reason. It is recognized law that it may be contrary to good faith for a person to breach his or her own contractual duty and still require performance of the contract by his or her contracting party. However, the mere fact of the creditor's own breach of duty is not sufficient for this purpose; rather, the mutual breaches of duty must be intrinsically related. Cause for limiting the creditor's rights in the event of breaches of obligations by the debtor may be provided in particular by breaches of such obligations, the performance of which is a prerequisite for the provision of the consideration under the contract. Such a factual situation is given here. According to the unchallenged findings of the Court of Appeals, the plaintiff delayed her obligation to release the property from the joint mortgage in a manner for which she was responsible, in breach of contract. According to the purchase agreement, it was moreover a prerequisite that the defendant would raise the first purchase price installment to a substantial extent from building savings funds. As the appeals court further noted, the delay in paying the first installment of the purchase price was ultimately based on the plaintiffs' breach of contract because the savings and loan association did not release the funds without first extinguishing the blanket mortgage. The plaintiffs' breach of contract thus directly affected the defendant's ability to meet its payment obligation as planned. Even if the first purchase price installment is paid despite the existence of the right to refuse performance under Section 320 of the German Civil Code on 1. 4. If the loan had already been due in 1970, there would be such a close internal connection between the mutual breaches of duty that the plaintiffs' claim to interest would be excluded in good faith in view of their own breach of contract. Whether plaintiff was in debtor's default and defendant is also entitled to damages for debtor's default is irrelevant, contrary to court of appeals' opinion.
Based on the above considerations, the auxiliary reasoning of the appeal judgment cannot be accepted either. Even if the supplementary agreement could be regarded as an agreement pursuant to § 452 of the German Civil Code, the objection that the plaintiff, through its breach of contract, decisively contributed to the fact that the defendant's building society did not release the loan intended to finance the purchase price in due time also prevailed against the interest claim.