Case 10 - Contracts Restricting Personal Liberty

Summary

Mr Broke borrowed €2,000 from Mr Coin and entered into a contract which stated that he would return the money with interest in a year's time and until this time he would not without Mr Coin's written consent leave or change his job, borrow money, dispose of his property or change his address. Six months later, due to more hardship, Mr Broke also borrowed money from Mr Axle without obtaining Mr Coin's written consent. Mr Coin has now brought an action for breach of contract and is claiming the principal amount plus the entire year's interest as damages. Can Mr Broke challenge this?

Case Reference: Horwood v. Millar's Timber & Trading Co. [1917] 1 KB 305.

AUSTRIA

OPERATIVE RULES

Mr Broke can most likely challenge Mr Coin's action.

DESCRIPTIVE FORMANTS

For testing whether a contract or specific contract clause is “immoral” in the sense of Art. 879(1) CC, a weighing of interests is required.

It is evident that Mr Coin has a legitimate interest in receiving his money back, and also to secure that claim. However, the means stipulated in the present contract in order to pursue this interest are grossly disproportionate to Mr Broke's legitimate interests concerning his personal and economic liberty. Mr Coin may have a legitimate interest in that Mr Broke continues to earn a steady income, but not that this income results from exactly the same job. A similar assessment applies to the regulation regarding dispositions over property, where it must be considered that property could be used to acquire assets of equivalent value or even to repay the loan to Mr Coin. There may also exist a more or less legitimate interest in not complicating future enforcement measures, and knowing the debtor's address may be helpful in this respect, but this does not justify prohibiting a change of address or making that change dependent on the creditor's (arbitrary) consent. Finally, there may be a legitimate interest, at least at first sight, regarding the prohibition of taking further credit, because an increase of total debts may reduce Mr Coin's chance of recovering his money. But also this clause is disproportionate, because it even prevents debt-rescheduling for the purpose of paying the original creditor.

It is, therefore, very likely that an Austrian court would render these entire contractual limitations void. Mr Broke can then use the whole agreed period for repaying his debt.