Settlements do not Change as a Result of New Defenses

OLG Frankfurt/Main (re 9 U 79/06 of February 14, 2007) had an interesting case to decide. It belonged to one of the notorious cases of “junk real estate”. This decision is of general interest because the judges decided whether settlements are to be treated differently if new defenses arise at a later date.


The plaintiff is suing for reverse procedure of a loan which was used to buy shares in a real estate company. After the company went bankrupt, the plaintiff and the defending bank agreed to the following supplement to the contract:

»The bank and the customer agree that there are no arguments on the effectiveness of the loan contract and on the obligation to orderly repayment of the loan.«

After being held liable by many other disappointed investors, the bank also offered the plaintiff a final settlement, which was to completely replace the previous agreement and read:

»Be it furthermore agreed among the parties that the borrower has no defenses based on any legal grounds against the credit grantor. The borrower and credit taker is not liable for damages.«

The plaintiff signed both agreements. The plaintiff now demands to be refunded for all payments made with regard to this loan. He argues that the settlement does not cover possible defenses that arise due to further developments in the case law. Following this case law, the previous settlement would be null and void.

The plaintiff lost in both the lower and higher court because none of his arguments had any merit. The plaintiff has claims against the defending bank from negligent precontractual errors. However, this right is barred by the signed settlements. In contrast to the investor’s opinion, the agreement is a valid settlement pursuant to §779 I BGB. This provision requires that both parties make concessions and so end a dispute or a legal uncertainty (= settlement).« The suing investor argues that their settlement was not based on a significant concession. The court disagreed because the first settlement had clearly shown that the parties were in dispute on questions of the contract’s validity, and on the existence of claims for damages. In as much as the plaintiff gave up any and all possible claims for damages, the bank forfeited 10% of the loan.

The investor argued further, the parties could only waive such defense that was known at the time of the settlement. However, the realm of interests and the wording of the agreement speak another language. Especially, the dispute whether the loan, legally binding or not, was to be settled for good. Therefore, even if the new law were relevant for this case, it would not grant any merit to the plaintiff’s case.

Published on the old CMS: 2007/6/28
Read on the old CMS till November 2008: 143 reads

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