[The case concerns the question of the protective scope of a report prepared by an architect / building expert submitted to the owner of the building pursuant to a contract concluded between the experts employer and the owner of the building. The report concerned the value and state of repair of the said building. It was used as the basis for a purchase contract concluded between the plaintiff / purchaser and the owner of the building. After the transaction was completed, grave defects were detected in the building. Since the vendor had excluded his liability for visible or hidden defects, the purchaser sued the experts employer for damages. The Appeal Court dismissed the claim but the Federal Supreme Court quashed the judgment below and referred the case back for the following reasons]
1. The Appeal Court failed to discuss whether the plaintiffs had a claim for damages as a result of a direct contractual relationship in the form of a tacitly concluded contract to supply information (Auskunftsvertrag). (References omitted).
This cannot be challenged for legal reasons since prior to the conclusion of the purchase contract the parties had no direct contacts.
2. The Appeal Court interprets the contract to provide an expert report to the effect (§§ 133, 157 BGB) that, out of that contract with the owner, protective duties arose that the expert owed towards the plaintiffs. For the court, the crucial point came when the son of the owner, who concluded the contract on his behalf, stated that the property valuation report was needed for the purposes of selling the property. The inclusion of the plaintiffs within the protective scope of the contract for a report on the state and value of the property is legally sound.
a) In particular, and in this instance, the existence of a contract with protective effect for third persons cannot be denied with reference to the fact that the interests of the plaintiffs and the person who commissioned the report were contradictory. Where an expert report is requested from a person possessed of particular knowledge which is certified or attested by official documents - for the purpose of using the report in contractual negotiations with a third person, the person commissioning the report normally has an interest in it as means of evidence. This can only be guaranteed if the report was prepared objectively, conscientiously, and in full knowledge of all facts and where its author accepts responsibility for its contents as towards third persons. Accordingly, the Federal Supreme Court has previously decided that in such a case the juxtaposition of interests of the person commissioning the report and the third person does not rule out the latter's inclusion in the protective scope of the contract authorising the preparation of the report (references). It is irrelevant that the defendant, when compiling his report, was unaware that his assessment was to be submitted to that particular plaintiff. Acknowledging his duty of care does not presuppose that the person so duty-bound knows the number or names of the persons to be protected. It suffices that the defendant knew that his valuation was intended for a (potential) buyer. (References omitted.)
[There follow passages dealing with the particular personal qualifications of the defendant, whose professional standing, duties in respect of the expert report submitted, and the inclusion of the plaintiff in the protective scope of the contract to provide the report, were likened to those of a publicly-appointed expert.]
b) Contrary to the doubts raised in the defendant's reply to the further appeal, the existence of a contract with protective effects for third persons can arise even where, during inspections of the premises, the owner's representative deliberately concealed the defects of the property. This fact may be an indication that he was not interested in an objectively correct expert opinion on the value of the property that would take into account the interests of the buyer. But this hidden and unrevealed reservation has no bearing on the question as to what was objectively declared when an order was made for a valuation, i.e. in respect of the purpose of the report and a possible inclusion of third persons in the protective scope of the contract.
3. [There follow statements as to the specific duties to inspect fully the object to be valued, possible breaches of these duties by the expert, and their effects. The court also deals with the vicarious liability of the architect's/builder's employer.]
On the basis of the undisputed facts it must be assumed that the defendant, who under § 278 BGB is responsible for the acts of the expert, has performed his contractual duties badly and that this breach led to the submission of a report whose contents were incorrect. The Court of Appeal was convinced that an accurate expert opinion would have discouraged the buyer from concluding the purchase contract, i.e. that the defendant's wrongful act caused the damage.
4. The Court of Appeal held that - as towards the plaintiff - the defendant is not liable for damages according to the principles of `positive breach of contract' (positive Forderungsverletzung). [There follow the lower court's reasonings].
The reasoning of the lower court is legally unsound.
a) The Court of Appeal rightly assumed that a person commissioning a report, who deliberately intends it to reflect wrongly the actual state of repair of the object of the report, has no claim for damages against the author of the report.
Contracts for the provision of expert reports, like the one before the court, must be qualified as contracts for the production of work (§ 631 BGB). This means that in cases of an intentionally wrong assessment of real property, the person commissioning the report has either a claim for damages under § 635 BGB or a claim for positive breach of contract if the damage arose as a consequence of the first defect (Mangelfolgeschaden): in this case the original faulty report (reference). Such a claim for damages would not be affected by the knowledge of the commissioning person that the expert's report is flawed, since it is only in respect of claims listed in §§ 633, 634 BGB that § 640(2) BGB requires the commissioning person, at the point of acceptance, to reserve his rights. This provision does not apply to claims for damages (reference). But the person who commissions the report and who deliberately brings about a misleading expert report, exposes himself to the defence of abuse of right if he later bases his claims for damages on this defect (references). This defence of malice will be upheld even where the charge of contradictory behaviour (venire contra factum proprium) is based on the actions of a representative (§ 166 1 BGB) (reference).
b) The starting point of the Appeal Court's reasoning is also in line with the Supreme Court's case law according to which the protected third person, who derives his rights from the contractual relationship between the initial contractual partners, has basically no wider rights than the tortfeasor's direct contractual partner. The courts deduced from this fact that the third person, deliberately damaged by the person liable to protect him will, under § 254 BGB, face the tortfeasor's defence that the contractual partner was co-responsible for the damage, unless this partner was a legal representative of the third person or employed by him to fulfil his own obligations (§ 278 BGB) (references). The same result applies for a contractually agreed exemption from liability (reference). This limitation of the third person's protection is based on the legal maxim expressed in § 334 BGB and the principle of good faith (§ 242 BGB).
Both arguments show that we are dealing here with merely a legal rule (reference) and not with an unshakeable principle. As far as the maxim of good faith is concerned, this fact is self-evident. Nothing different can be derived from the legal argument behind § 334 BGB or - as the Appeal Court held - from an analogous application of § 334 BGB.
The provisions of § 334 BGB which deal with the true contract for the benefit of a third person are of an optional nature. According to those provisions, the promisor can use contractual defences even against the third person. Their application can, even tacitly, be excluded as can be seen, in particular, from the nature of the covering (or underlying) relationship (Deckungsverhältnis) (reference). There is no apparent reason for applying more stringent rules in cases like the present where, when interpreting the contract in order to establish how and to what extent a third person was protected, these legal provisions are to be applied either directly or according to their underlying maxim. The lower court misjudged this point.
When interpreting the expert report, the Appeal Court should have considered that the "nature of this particular contract" resulted in an exception to the rule according to which the liability of a person who owes protection to a third person does not exceed his liability towards his direct contractual partner.
The defendant knew that the expert valuation had been commissioned for sales purposes. Accordingly, not only could he expect that his report would be submitted to interested buyers. He should further assume that, given the special trust which prospective buyers normally place in the reliability and expertise of an approved expert, the statements made in his report would probably be given a greater weight than the information provided by the seller. The maker of report should have thus assumed that his report was apt to disperse possible doubts of prospective buyers in the veracity of the seller's information. Herein lies the obvious and particular value that the report has for the vendor, i.e. its ability to promote the chances of a sale. Above all, it matches the obvious interests of a prospective buyer in legal protection for his trust in the veracity of the report, especially in cases where the seller dishonestly tries to conceal the true condition of the sales object. Where, therefore, a contract for the production of an expert report must be taken to include prospective buyers within its protective ambit, it must be assumed that the third person's trust in the expert's statements must be protected even where the incorrectness [of the report] was (also) instigated by the principal. This result does not depend on the effects which this inducement has on the liability of the supplier as against the principal (references).
Such contractual interpretation will not burden the expert with an unreasonable risk of liability. More precisely, it will, certainly, render him liable for the dishonesty of the person who commissioned the report from him. True, when providing his report, the expert can use information provided by his principal - and he will often be forced to do so - wherever he cannot himself verify the facts. But he must then make this clear in his report (reference). Normally, he will thereby indicate that he excludes his liability for the truth of these statements.
5. The reasoning of the Appeal Court, in denying the defendant's liability as towards the third person included in the protective scope of the contract, is thus legally flawed and its decision must, therefore, be quashed.
[There follow instructions as to the re-interpretation of the contract and the court's opinion that the plaintiffs cannot be held to have been co-responsible for the damage merely because they have not personally found any defects when inspecting the premises.)
The absence in German law of any liability for negligently inflicted pure economic loss has resulted in a number of substitute legal constructions. One such device is the so-called contract with protective effects for the benefit of third persons a judicially-created variant of the better-known notion of contract in favour of third parties. This construction makes it possible to treat pure economic losses of third persons, created by a faulty performance of contractual (or non-contractual) duties, as damage resulting from a breach of a contractual duty. This liability for pure economic loss, though now well acknowledged in principle, is still controversial as to certain details as well as its dogmatic basis. The above decision deals with the detailed problem whether and to what extent - as against the third person's claim for damages - the co-responsibility of the contractual partner (in this instance, the cite own)r, to whom the faulty performance was made, should be taken into account. In the final analysis, the Federal Supreme Court did not attributed the contractual partner's co-responsibility to the third person who incurred the damage, thus taking another step in the direction of a contractually unrelated, i.e. extra-contractual tortuous liability for certain economic loss. But the court did not dare speak openly of a tortuous "duty of care" towards certain third persons. Instead, the Court relied on a device, not always available, to solve this problem. Thus, the Federal Supreme Court assumed that in the contract that created the duty of care towards certain third parties, the contractual debtor (expert) tacitly waived his right of set off against the plaintiff which he, the contractual debtor, had against his contractual partner (the person commissioning the report). This waiver of the claim that stemmed from a breach of contract by his contractual partner (the owner of the land) was justified on the fact that the expert knew that his performance was intended to form the basis of the financial calculations of the purchaser of the land. For more details in English (and further references to German literature, see: Markesinis, The German Law of Obligations, vol. I, The Law of Contracts and Restitution by B. S. Markesinis, W. Lorenz and G. Dannemann (1997) ch. 4; vol II, The Law of Torts, 3rd ed. (1998) chs 2 (d) (iii) and 3 1 and 2.)
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