The defendant is an officially appointed sworn expert for building construction and for valuing land and buildings. On 5 September 1977 he was asked by S, a merchant, to supply an expert opinion concerning the market value of and the estimated income from premises in N. The meeting, in the course of which the defendant received the order, was attended by S, who was accompanied by the plaintiff and by L, a banker. In his written opinion dated 19 September 1977 the defendant intimated that the apartment house erected in 1953 would bring in a gross annual income of DM 91,990 and a net annual income of DM 68,918. He assessed the market value of the premises at DM 1,447,715. The opinion failed to take into account that the premises are subject to restrictions connected with social housing. On 15 November 1977, the plaintiff bought the house on his own account for DM 540,000; S did not participate in the purchase. The premises were conveyed, but the transfer of title was not entered in the land register. The plaintiff financed the purchase by arranging for a loan of DM 500,000 from the City Savings Bank in N, which was secured by a charge on the newly acquired premises. By a contract dated 27 June 1978 the sale agreement of 15 November 1977 was rescinded in toto with effect from 1 July 1978. On 28 May 1978, the defendant wrote a letter to B, who was then interested in acquiring the premises, which contained, inter alia, the following passage: Mr S instructed me on 5 September 1977 to value the premises. He indicated clearly in the presence of witnesses that he or the connections behind him intended to acquire the premises with a view to converting them into ownership flats. I do not know whether the premises were put up by private finance or whether they represent social housing. It is not the task of a sworn expert to consider this question. I took great care in ascertaining the rental values in the neighbourhood and, having consulted the City administration in N, I came to conclusion that the value of DM 7.50 per square metre is entirely appropriate . . . The plaintiff alleges that the defendant knew that he and the witness S intended to acquire the premises together. He had bought the premises relying on the accuracy of the defendants opinion. When the first rents had come in he had found out that the gross value of the income amounted only to DM 25,729.08, which meant that the income was substantially less than the annual payments of interest. For this reason, he had been compelled to rescind the contract of sale. If the defendant had assessed the annual income from the premises incorrectly, the plaintiff would not have bought the premises. As a result he would not have been liable to pay the agents fee of DM 17,982; local charges of DM 3,973.09; interest on the loan amounting to DM 25,479.76 and notarys fees of DM 6,170.93 totalling DM 53,605.78. He claims this sum.
The District Court rejected the claim. An appeal to the Court of Appeal of Nuremberg was unsuccessful. Upon a second appeal the judgment below was quashed and the case referred back for the following
The Court of Appeal denies that the instruction given to the defendant by the witness S to supply an expert opinion constitutes a contract in favour of third parties. No serious objections can be raised against this view. The circumstances indicate that the defendant only intended to assume a duty to perform an actnamely the duty to supply an expert opinionin favour of the witness S; at least no legal reasons exist for criticizing the court below which found the facts in having interpreted the agreement to this effect.
These considerations alone do not exclude the locus standi of the plaintiff to prosecute his claim for damages. It is necessary, in addition, to examine whether the plaintiff is included in the area protected by the contract. It is recognized today, both in the literature and by the practice of the courts, that a contractual obligation may create duties of care towards third parties who themselves are not entitled to seek performance of the principal obligation. As this Senate has stated [reference] this consideration applies also to contracts with officially appointed and sworn experts. The circumstances of the present case indicate the need to examine the facts from this point of view.
It is undisputed that the witness S, accompanied by the plaintiff, called upon the defendant. According to the plaintiff the defendant knew that the premises were to be purchased jointly by S and the plaintiff. The Court of Appeal, it is true, was not convinced that this allegation was correct; consequently it cannot be taken into account by this court. However, the defendant does not deny to have known that a consortium behind the witness S was contemplating the purchase of the premises. He said so clearly in his letter of 28 May 1978. He has also adhered to this account of the facts in the present dispute; he merely claims that he was not aware who belonged to this group. However, this fact is not decisive. Duties of care can also be created in favour of those persons who are not mentioned by name to the other contracting party. Nor is it necessary that the contracting party should know the correct number of persons to whom a duty of care is owed. The practice of the Federal Supreme Court has recognized in several cases that a contract includes a duty of care towards third parties even if the party owing the duty of care was ignorant of the number and the names of the persons to whom the duty was owed [references]. It is essential, however, that the group to whom the duty of care is owed should be capable of being determined objectively . . .
The District Court was of the opinion that the present contract did not include a duty of care towards third persons for the reason that the witness S did not himself owe a duty of care and protection towards the plaintiff. This consideration, too, does not exclude the locus standi of the plaintiff. In principle the parties are free to fashion a contract; they are only restricted in their freedom of choice by the binding rules of law and by the moral requirements to be observed in accordance with § 138 BGB. The parties are therefore at liberty to determine which persons are to be included in the duty of care owed by the contract; they can even extend this duty of care to persons who are not in the charge of either for better or for worse [reference]. This cannot be doubted in so far as the parties have inserted express provisions. Where the extent of the duty of care is to be implied from the unequivocal conduct of the parties, the conclusion must be the same; for in the absence of rules requiring the observance of particular formalities an implied declaration of intention is equivalent to one which is express. It is true that in several instances the Federal Supreme Court, in deciding whether a certain person is owed a duty of care by virtue of a contract, has examined whether the other contracting party, to whom the duty of care was owed, was in charge of that person for better or for worse [references]. These decisions must not, however, be interpreted in the sense that the Federal Supreme Court affirmed the legality of this type of contract only in these circumstances. Instead they only concern the question in what circumstances the objective interests involved permit the conclusion that the parties have implicitly stipulated a duty of care towards third partiesi.e. where neither any express statements by the parties nor their conduct otherwise offer any concrete evidence. Even within this approach which relies on typical situations the practice of the Federal Supreme Court [references] requires only that normally, but not always, a contracting party should have been in charge for better or for worse of the person to whom the duty of care is owed. It is another question, however, whether an extension of the duty of care arising from a contract beyond the contracting parties must be presumed having regard to the special circumstances of the particular case. It often happens when an expert is being engaged that the opinion to be supplied is to serve as a basis for a decision by persons who are not linked to the expert by contract [references]. In such a case the court ascertaining the facts must examine in accordance with the general principles of interpretation in the light of the circumstances whether the contracting parties intended to create a duty of care in favour of that person. In this connection, too, it may be relevant whether the instructing party was charged with the care of the third party in question; it is not, however, a necessary prerequisite for holding that such a duty of care exists. In the present case it will have to be considered that an interested party who asks for an expert opinion to form the basis of a decision by a certain group, will normally seek to protect not only his personal interests but also those of the other members of the group; consequently it will not normally be his intention, in entering into the contract, to limit the duty to pay compensation to damage which he suffers personally. In this connection the interests of the expert must also be taken into account; he must not be burdened unreasonably with the duty to pay compensation to third parties; it cannot be expected according to good faith (para. 157 BGB) that the other contracting party will assume such an obligation. In this respect it will have to be considered that the damage which may be suffered by a group of buyers in acquiring a house, if the expert opinion was wrong in estimating its value, are not normally higher than those which would be suffered in similar circumstances by an individual buyer.
Whether in an individual case the duty of care arising under the contract extends to third parties is a matter of interpreting the contract.
2. The Court of Appeal has examined the question whether in his expert opinion the defendant indicated expressly or by implication that he intended to be liable to whom it concerns for the accuracy of his report; it found that he did not. No legal reasons exist for contesting this view; in fact no indications exist that the defendant intended to assume liability towards persons who did not belong to the group of buyers behind the witness S.
3. No legal objections can be raised either against the rejection by the Court of Appeal of near-contractual liability of the expert. Those who commission an opinion frequently use the expert opinion of an officially appointed and sworn expert by referring to this opinion in their negotiations with third parties, e.g. in order to justify as vendors the amount of the purchase price demanded or in order to demonstrate that a certain object is credit-worthy. If an expert must assume that his expert opinion will be used for such purposes and is intended to serve as a basis for important financial transactions by third parties, he may be liable to these third parties for the accuracy of the expert opinion (see for this aspect the decision of the Federal Supreme Court [reference] concerning a bank reference and a certificate by a chartered accountant). No such use was, however, envisaged in the present case nor has it occurred in fact. The expert opinion was merely intended to inform the witness S and the group of buyers behind him; it was not meant to support statements in negotiations with third parties.
II. By way of a subsidiary argument the Court of Appeal states that the claim would have to be rejected, even if the plaintiff had a locus standi. In calculating the annual income he was not obliged to examine whether the house contained apartments which had been financed privately or by social housing aid. Since his instructions did not provide any relevant information, he was entitled to assume that the apartments had been financed privately; consequently he was only bound to rely on the rental obtainable on the free housing market for the apartments of the premises. These statements cannot be supported in law. An expert opinion must be based on facts and not on guesses or assumptions. Therefore the defendant could only proceed on the assumption that the apartments had been financed privately, if he had reached the conclusion that this assumption was correct. If the expert is ignorant of the relevant circumstances for coming to a conclusion, he must enquire of those instructing him and must, if necessary, also make other investigations (as, for instance, by making enquiries with the authorities). If these attempts remain fruitless he may base his expert opinion on assumptions, but he must indicate this clearly in his opinion. Every expert valuer of premises must know that in assessing the rental of an apartment and, as a result of the income of an apartment house, the legal status of the apartments according to the Rent Control legislation is determining. The fact that the defendant has failed to take this into account may support the charge of negligence. The defendant argues in defence that even if the apartments had been financed privately the rents stated by him would not have been recoverable without further action; it would have been necessary to initiate proceedings for an increase in rents in accordance with § 2 of the Act regulating the Amount of Rent; in many cases this would have involved litigation. This pertinent argument only serves to increase the charge of negligence against the defendant. Precisely for the reason that the owner of the premises cannot enforce automatically the payment of rents which are objectively appropriate, the defendant was negligent to base his calculation of the annual income of the premises on purely theoretical considerations without taking into account the actual situation according to the Rent Control legislation. It is not alleged that, contrary to the usual practice, the defendant had been instructed to determine the hypothetical value of the house irrespective of any restrictions under the Rent Control legislation.
III. The Court of Appeal is of the opinion that the plaintiff is guilty of contributory negligence. It criticizes him for not having asked the owner of the premises for his annual accounts and for having failed to call for details about the size of the rents. Such a risky undertaking required the greatest caution, diligence, and scrutiny on the part of the plaintiff. He could not argue successfully that as a layman and a student he was totally ignorant of the fundamentals of valuing. This argument only applied to the individual valuation by the expert but not to the actual rental income, which the plaintiff could have ascertained simply by making enquiries with the other contracting parties or through his agent. If he had received these details, he could have asked the defendant whether as a result his expert opinion had to be modified.
These statements, too, cannot be supported in law. S and the plaintiff realized clearly that they lacked the necessary technical knowledge in order to assess correctly the risk connected with the purchase. For this reason they called upon the expert assistance of the defendant. In his expert opinion the defendant has estimated the net annual income to be DM 68,918; it is not indicated anywhere that this valuation is purely theoretical, that the actual income might be considerably lower, that everything depended upon what rent had been paid hitherto and that, for this reason, it was desirable to make inquiries. The witness S and the plaintiff could assume that the annual income mentioned by the defendant could be obtained without difficulties, even in the case that the rents paid hitherto had been lower than those estimated by the defendant. In this case, however, the rental income in the past would have been irrelevant for the purpose of estimating the income in the future.
The plaintiff cannot be reproached either for not having considered that according to general experience the attempt to increase rents meets with difficulties and thus for having failed to entertain doubts about the accuracy of the expert opinion. Every contract for the supply of advice for a consideration (including in a broad sense also instructions to prepare an expert opinion) is based on the assumption that he who gives the advice possesses more knowledge and insight than he who receives it. The professional training and experience of the adviser is to supplement the deficient expertise of the other contracting party. Consequently it is obvious that the expert adviser is required to possess a greater degree of insight than the party instructing him. If the latter does not detect the mistakes made by the adviser or expert, this cannot normally be regarded as contributory negligence; in the present case it might possibly be found, inter alia in the fact that the plaintiff was not struck by the considerable difference between the valuation made by the defendant and the actual price demanded by the seller . . . In no circumstances can the plaintiffs contributory negligence, if it should be found to exist, be regarded as so serious as to exclude the liability of the adviser or expert altogether [references].
IV. The plaintiff can only claim damages if the faulty estimate of the net annual income by the defendant determined the plaintiffs decision to purchase the premises . . . If the view of the Court of Appeal should be correct that the group of buyers behind the witness S intended to convert the premises to be purchased into apartments to be sold to the occupiers, it is difficult to understand why the amount of income to be obtained through letting should have influenced the decision of the plaintiff at all. It must be admitted that, if this should be the case, it is equally difficult to understand why the defendant should have included in his expert opinion any details about the prospective rental income; in those circumstances it would have been more appropriate to state in the expert opinion what price could be obtained if the apartments to be constructed were to be placed on the property market.
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