Polish Supreme Court ruling
dated 29 October 1949
Case No. Wa C 105/49
Summary by arbitraz.laszczuk.pl:
In June 1943, during the German occupation, a married couple of Jewish origin, Moszek and Dwojra W., agreed to sell their ¼ interest in real estate at ul. Szeroka, Warsaw, to a Polish Gentile of their acquaintance, Józef W., and again in January 1944 agreed to sell him their ¼ interest in real estate at ul. Tarchomińska, Warsaw. The combined price was set at USD 700. The sale of real estate normally required a public document (notarial deed), but the Germans prohibited Jews from selling their property. Instead, the parties signed a fictitious, back-dated private deed, which included a fictitious, back-dated arbitration clause in which the parties agreed to arbitration of a non-existent “dispute” between them. For enforcement of the arbitration “award,” they vested jurisdiction in the municipal court, where proceedings would attract less attention from the Germans than they would in the regional court. Following this scheme, the parties obtained an illusory award and an order from the municipal court enforcing the award, which took on the legal force of a state court judgment and effectively conveyed title to the properties.
After the war ended, Moszek and Dwojra W. demanded payment of the difference between the market value of the property and the disproportionately low price they received from Józef W. When he failed to respond, they renounced the 1943 and 1944 transactions and filed an action in the Warsaw Regional Court seeking a declaratory judgment that the transactions were invalid.
The regional court denied the plaintiffs’ claim, and the Warsaw Court of Appeal denied their appeal. The court of appeal reasoned that under the conditions of the German occupation, and the inhuman and illegal decrees of the Germans concerning the Jewish population, various types of transactions were conducted in a manner that would circumvent the German decrees but remain, on the surface, consistent with Polish law. The court would not now set aside such transactions so long as they appeared to be made in good faith. In this case, the court found that the defendant had acted in good faith and that the parties had achieved their mutual intent through the transactions in question.
The plaintiffs filed a cassation appeal with the Polish Supreme Court, alleging that all of the 1943 and 1944 transactions were invalid under the Obligations Code and the Notaries Act, and alleging that under the Obligations Code, the court of appeal had erroneously interpreted the concept of the duress under which the plaintiffs had acted and the concept of the exploitation of their position by the defendant in entering into the transactions in question, which together would invalidate the transactions.
The Supreme Court disagreed with the first ground for the cassation appeal, involving the formal validity of the transactions (including the arbitration clause and the order enforcing the “award”), based on an earlier holding by the Supreme Court that a collusive award obtained during the German occupation in order to circumvent the requirement of notarial form for the transaction did not violate public policy. The Supreme Court nonetheless reversed the judgment of the court of appeal and remanded the case for reconsideration, on the ground that the court of appeal had not properly considered the issues of duress and exploitation.
In effect, the Supreme Court found, the court of appeal “accepted that during the occupation there existed a ‘market price’ for real estate owned by Polish citizens of Jewish origin, different from the general price for real estate,” and “accepted that such price was 10% of the value of the real estate, ... as if it were a normal phenomenon that buyers of real estate under such conditions should pay a tiny fraction of the value, and did not find any exploitation in that.” The Supreme Court rejected “the view that the decline in prices of ‘non-Aryan’ real estate was justified under the conditions of the occupation”—a view which the Supreme Court considered to be implicit in the court of appeal’s rejection of the plaintiffs’ claim of duress and exploitation. “Following this reasoning, it could be found that if a given type of exploitation is practised by a large number of people, thus establishing a certain average ‘standard’ of exploitation, as typically occurs, for example, in the case of usury, then exploitation would cease to exist....”
Excerpt from the text of the court’s ruling:
An arbitration award issued during the German occupation pursuant to an arbitration clause concluded by the parties despite the non-existence of a dispute between them but only in order to ascribe the legal form to an agreement which according to Polish law requires the form of a public document does not violate public policy.