Co-Obligation in Vehicle Financing: Decision of the OLG Oldenburg on the Obligation to Assume Liability in Case of Financial Overburdening
The Higher Regional Court (OLG) of Oldenburg issued an important ruling on July 26, 2023 (Case No. 8 U 172/22) concerning the joint liability of borrowers in the context of vehicle financing and thoroughly examined the limits of co-obligation in cases of financial overburdening. The decision emphasizes that liability as a co-borrower for a partner’s loan can, under certain circumstances, be deemed unethical and thus invalid.
Background of the Decision
In the underlying case, a bank imposed joint liability on a customer for a loan which primarily served the then partner of the woman for the purchase of a motor vehicle. The woman co-signed the loan agreement even though, according to the court’s assessment, the financing exceeded her financial capacity from the outset and she clearly derived no significant benefit from the loan amount.
The loan was serviced for several years before the relationship ended and the vehicle remained in the possession of the partner. After separation and the main debtor’s failure to pay, the bank demanded the remaining repayment from the former partner based on the contractual co-obligation.
Legal Assessment by the OLG Oldenburg
Standards for Immorality According to Section 138 of the German Civil Code (BGB)
The OLG Oldenburg explained that assuming joint liability for another’s obligations is to be classified as unethical within the meaning of Section 138 (1) of the German Civil Code (BGB) if, objectively viewed, the co-obligation leads to a financial overburdening of the signatory and this person derives no independent economic benefit from the credit. Particularly in scenarios where emotional ties induce a signature, it must be carefully examined whether the lending institution has abused its economically stronger position.
Personal Interest and Financial Burden
The court determined that the co-borrower clearly obtained no relevant benefit from the vehicle financing: The car was used exclusively by the partner and remained in their custody after separation. Instead, assuming the loan became a significant and ultimately unbearable financial burden without any discernible consideration in the event of separation.
Bank’s Duty to Inform and Examine
Notably, the court emphasized that banks are obliged to carefully verify the financial capacity of co-borrowers—especially when close personal relationships exist. If such a verification does not take place adequately and the overburdening of the co-signer is apparent or likely, the credit institution may not rely on the validity of the resulting joint liability. Even a merely formal status as user—such as occasional driver of the vehicle—is insufficient to establish a legitimate personal interest.
Consequences for Credit Institutions and Consumers
This ruling clarifies the limits of protection for consumers who co-sign joint liability loan agreements within an emotional relationship and become financially overburdened. Credit institutions operate in a legally sensitive area in such situations: if a signatory without their own economic benefit is imposed with significant payment obligations, courts may rule such disadvantages as unethical—especially where so-called familial responsibility has clearly been exploited. The disproportion between assuming liability and possible benefit is of central importance.
Moreover, the judgment underscores the importance of individualized creditworthiness assessments and careful contract drafting to minimize later disputes regarding the validity of co-obligations.
Classification and Outlook
The jurisprudence of the OLG Oldenburg aligns with the Federal Court’s stance on so-called spousal or partner guarantees, which have repeatedly been the subject of contractual disputes in the past. Of particular relevance remains the borderline admissibility of liability assumption when the signer is economically significantly weaker, derives no personal benefit, and is in an emotionally bonded life situation—as a potential basis for immorality under Section 138 BGB.
In the future, this decision is likely to serve as a reference point for numerous other cases in the area of consumer loans, especially car loans. Lenders are well advised to observe the obligation for comprehensive information and the assessment of the creditworthiness of all contracting parties to ensure the validity of co-obligations and to avoid contestability due to immorality. The criteria of economic overstrain as well as compensation under personality protection law will remain central.
For further information regarding co-obligations in loan agreements and for the legal classification of individual cases, the attorneys at MTR Legal are available as contacts.
