References without law book default to BGB.

Case - Deceit and Duress

Facts

Patrick (P) runs a shoe retail business. He is currently negotiating with wholesaler Eric (E) for the delivery of the new model “TUM x Jeezy”, which is very popular on Instagram. P and E have done business with each other for over a decade. P knows E’s long-standing policy “to always match the lowest price of other wholesalers”.

While negotiating in the business premises of P, E offers to deliver the shoes to P for EUR 60 a pair. E believes this is a reasonable offer, so he sees little room for further negotiation. P – who always thought of himself as smart enough to be the next CEO of Adidas – replies to E that he has received another offer from Frank (F), another wholesaler, for EUR 55 a pair. P informs E that he is considering replacing E as the “TUM x Jeezy” supplier. P should seriously reconsider his offer and fast.

E, who has known P as trustworthy for years, has no reason to believe that P’s story might not be true. Grudgingly, he agrees to lower the price due to his standing price-matching policy. However, no such offer was ever made by F.

a) Can E avoid the contract?

After a few weeks, E discovers the fake counteroffer while talking to F at a shoe fair. Furiously, he confronts P and tells him that he will stop delivering the shoes and considers not to continue their business relationship if P does not make up for this by buying the shoes for at least EUR 62 a pair. According to E, the additional EUR 2 (compared to the original offer of EUR 60) are necessary because E had incurred higher costs in the process. P worries about losing E as a supplier and agrees to a contract with EUR 62 a pair.

After two weeks, he regrets his decision and thinks that it was inequitable of E to bully him into the new contract terms.

b) Can P avoid this contract?

Solution

Slides Solution

Part A: Deceit

• Issue: Can E avoid the contract (at EUR 55 a pair) in line with § 123 I Alt. 1 BGB?
• Rule: To avoid a contract, there needs to be (1) a contract, (2) a reason for avoidance, (3) a declaration of avoidance, and (4) within the specified period.
• Application:
  • 1. Contract: → (+), sales of goods contract (§ 433 BGB).
  • 2. Reason for Avoidance: Deceit (§ 123 I Alt. 1 BGB)?
    • Deceit: Any influence on the intellectual perception/imagination of another person with the aim of creating a misconception about facts. → (+), P made up a counteroffer which did not exist.
    • Intentional act: → (+), P wanted to mislead E.
    • Causality: If without the deceit, the contract would not have been formed. → (+), E lowered the price due to the fake offer. He would not have made the DoI with the price of EUR 55 a pair otherwise.
    • → (+), Deceit.
  • 3. Declaration of Avoidance (§ 143 BGB): → (-), not yet.
  • 4. Within the period:
    • Within one year (§ 124 I BGB).
    • Commencement at the time of discovery (§ 124 II BGB).
• Conclusion: E can avoid the contract if he declares it void within one year after discovering the deceit. (Note: § 122 I BGB does not apply in cases a DoI is avoided according to § 123 I BGB).

Part B: Duress

• Issue: Can P avoid the contract (at EUR 62 a pair) in line with § 123 I Alt. 2 BGB?
• Rule: See above.
• Application:
  • 1. Contract: → (+), sales of goods contract (§ 433 BGB).
  • 2. Reason for Avoidance: Unlawful duress (§ 123 I Alt. 2 BGB)?
    • Duress: The promise of a future evil over whose occurrence the threatener claims to have influence. → (+), ending the business relationship is bad for P and can be initiated by E.
    • Unlawful: Duress is unlawful if the threat, the expected result, or the combination of both is unlawful.
      • The threat itself? → (-), it is lawful to terminate business relationships after being deceived by the other party.
      • The result itself? → (-), forming a new contract is not unlawful.
      • The combination? (Offense against the sense of decency of all fair and just thinkers or against good faith). → (-), the threat is only used to reimburse E for damages caused by P’s deceit. There is an inherent connection. E is a normal supplier and not a dominating company that P needs to rely on to run his business.
    • → (-), unlawfulness of duress.
• Conclusion: P cannot avoid the contract.

Write-Up

Issue: Can E and P respectively avoid their sales contracts due to deceit or duress under § 123 BGB?

Part A: Avoidance for Deceit

Issue: Can E avoid the contract for EUR 55 a pair due to deceit pursuant to § 123 I Alt. 1 BGB?

Rule: A valid sales contract for EUR 55 a pair was concluded between the parties. However, a party may avoid a declaration of intent if they were induced to make it by intentional deceit (§ 123 I Alt. 1 BGB).

Application:
1. Reason for avoidance (Deceit): Deceit requires intentionally creating or maintaining a misconception of facts to influence another person’s decision. P lied about receiving a lower offer from a competitor, F, to trigger E’s price-matching policy. This created a misconception of fact. P acted intentionally with the purpose of misleading E to secure a lower price. Furthermore, causality is established: E would not have offered the EUR 55 price if he had known the truth. Therefore, the requirements for deceit are met.

2. Declaration and Time Period: To effectively avoid the contract, E must declare avoidance to P (§ 143 I BGB). He must do so within one year, starting from the time he discovered the deceit (§ 124 I, II BGB). As E just discovered the deceit at the trade fair, the one-year period has commenced.

Conclusion: E has a valid reason to avoid the contract under § 123 I Alt. 1 BGB. He can do so by explicitly declaring the avoidance to P within one year.

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Part B: Avoidance for Unlawful Duress

Issue: Can P avoid the subsequent contract for EUR 62 a pair due to unlawful duress pursuant to § 123 I Alt. 2 BGB?

Rule: P can avoid his declaration of intent to buy at EUR 62 if he was induced to do so unlawfully by duress (§ 123 I Alt. 2 BGB).

Application:
1. Duress: Duress requires the threat of a future evil whose occurrence the threatener appears to control. E threatened to terminate the long-standing business relationship and stop deliveries. Because this is detrimental to P’s business and controlled by E, it constitutes a threat of an evil.

2. Unlawfulness: Duress is only actionable if it is unlawful. Unlawfulness can arise from the threat itself, the desired result, or the combination of both (Zweck-Mittel-Relation).

• The Threat: Terminating a business relationship after discovering the other party committed fraud is legally permissible. Thus, the threat itself is not unlawful.
• The Result: Concluding a new sales contract is a standard commercial transaction and is not inherently unlawful.
• The Combination: The combination of a lawful threat and a lawful result is only unlawful if it violates good morals or good faith. E used the threat specifically to negotiate a new price that reimburses him for the damages (higher costs) caused directly by P’s prior deceit. There is an inherent, logical connection between P’s misconduct and E’s demand. Additionally, E is just a normal supplier, not a monopoly holding dominating power over P. Therefore, the combination of the threat and the result is not disproportionate or immoral.

Conclusion: Since the duress was not unlawful, P lacks a valid reason for avoidance under § 123 I Alt. 2 BGB. P cannot avoid the contract.