Date

30 October 1967

Translated by

K. Lipstein

Copyright

Professor B.S. Markesinis

The plaintiff finances hire-purchase agreements of motor-cars by providing loans for the purchasers. The money representing the loans is paid direct to the vendors in discharge of the purchase price. The plaintiff only grants a loan if title to the motor vehicle is transferred to him by way of security, if the seller becomes a surety, and if a report concerning the purchaser’s creditworthiness is favourable.

The defendant carries on the business of an information agency with branches in sixteen cities of the Federal Republic. The branch in Bonn was managed from 1955 onwards by Z, its ‘commercial representative’ (until he died in March 1962). For many years Z provided the motor car dealer F—who has since lost his fortune and was adjudicated bankrupt at his request—with ‘information concerning the financial standing’ of about 1500 clients of F. This information was supplied on paper with the name of the defendant at the letter-head. In twenty-six cases the information was invented; the persons did not exist; in five other cases the persons existed, but the information was too favourable. In these twenty-six cases Z wrote the letters at short notice without having engaged in any enquiries or examination, relying exclusively on the information supplied by F, and concealed their existence from the defendant. Using these letters, F deceived the plaintiff into making him pay over the ‘loan’. The District Court found, and it is now undisputed, that Z was aware of the danger to the plaintiff’s assets as a result of his conduct, but that he took the risk.

The plaintiff claims from the defendant damages in respect of the loss, alleged to be DM 201,145.08, caused by F and Z. The defendant disputes the claim both as to its basis and its extent. He also pleads contributory negligence . . .

The District Court and the Court of Appeal of Frankfurt rejected the claim. Upon a second appeal the claim was admitted in principle and the case referred back to ascertain the amount for the following

Reasons

The plaintiff argues that the defendant is liable under § 31 BGB for the torts committed by Z to the detriment of the plaintiff. The Court of Appeal denies this.

1. It holds that Z is not the defendant’s representative appointed in accordance with the statutes in the meaning of § 31 BGB. He lacked the necessary independence in his dealings with third parties and a sphere of administration of his own within functions of management of the defendant.

These arguments are not free from error in law. The facts as found by the Court of Appeal compel the conclusion that Z was the representative of the defendant in the meaning of § 31 BGB.

(a) According to this provision, a legal entity is responsible for the damage to a third party by its representative, appointed in accordance with the statutes, as a result of an act ‘in the execution of the duties allotted to him’ which engages liability to pay damages. The legal concept of ‘representative appointed in accordance with the statutes’ has been extended increasingly in practice and in the literature. The Court of Appeal has overlooked this.

Representatives appointed in accordance with the statutes are not only those persons whose activities are envisaged by the statutes of a legal entity, nor need they possess the right to represent the entity in legal transactions. It is not necessary either that the range of tasks falls within the managerial administration of the legal entity. It suffices if the representative is entrusted with handling important and essential functions of the legal entity by the general system and functioning of the enterprise [references]. In such circumstances it would be inequitable to permit the legal entity to exonerate itself in reliance on § 831 BGB.

(b) These conditions were fulfilled in the present case as regards Z.

(aa) It is undisputed that he managed the office of the defendant in Bonn as a ‘one-man business’ in complete independence. With the permission of the defendant he described the office as a ‘branch’ of the latter. In agreement with the defendant he used the latter’s business stationery and reference forms and a stamp to the same effect. Thus, in his dealings with third parties he clearly did not act as an ‘independent commercial agent’ on behalf of the defendant; the Court of Appeal was wrong in holding that in fact he managed the defendant’s office in Bonn as an independent agency of information.

(bb) In view of the agreed conduct in dealings with third parties, it is irrelevant that, as between Z and the defendant, their legal relationship was governed by the ‘contract of agency’ of 11 August 1955 in accordance with the law relating to commercial agents. This does not rule out the conclusion that in his relations with third parties Z was the representative of the defendant in accordance with § 31 BGB.

(cc) By providing references on paper bearing the letter-head of the defendant, Z made the statements contained therein in the name of the defendant. Nothing in these letters indicates that these are not statements of the defendant, but only of Z. Obviously, the value of these references for the recipient consisted in the fact that they emanated from the reputable defendant, a big information agency known throughout the world. It is not disputed that the defendant knew of this general practice of Z, although the particular thirty-one ‘references’ which form the basis of the present claim were concealed from him.

(dd) The Court of Appeal has found that the defendant himself engages in the business of an information agency, that he has set up and maintains a network of information offices, that it provides these offices with the sources from which to draw their information and permits these offices to use its business name. In so doing it has, to a wide extent, delegated to the managers of its ‘offices’ the independent discharge of its characteristic functions (to provide information). Thus, the defendant has also delegated to Z the task of supplying references independently in the area of Bonn. It need not be stressed that the provision of references on creditworthiness by an information agency is a very responsible activity; if carried out carelessly much damage can be caused, as the present case shows clearly.

2. By way of a subsidiary argument the Court of Appeal denies that the defendant is responsible for Z under § 31 BGB on the ground that his torts had not been committed ‘in the execution of the functions allotted to him’, but only on their ‘occasion’. This conclusion, too, is wrong having regard to the facts as found by the Court of Appeal.

(a) An act is done in the execution of the duties entrusted to a person if it remains within the range of measures which constitute the execution of the functions entrusted to him. The act must be in close objective connection with those measures. The liability is not excluded if the order is exceeded or the power is abused. An international tortious act may well be committed in close objective connection with the allotted functions; this is the case, in particular, if the tortious act violates the allotted specific duties [references].

(b) The defendant refers to the decision [references]. However, that case must be distinguished. A credit agent who had been entrusted with a single sale of a motor vehicle had falsely represented to a third party that the order had been carried out, in order to get hold of the moneys involved. In so doing, the agent had severed himself from his allotted range of functions objectively as well. As is pointed out in that decision, the conclusion would have been different if he had sold the vehicle intentionally on his own account and had embezzled the purchase price; this act would still have been sufficiently connected with the functions allotted to him. This is not the case here. It is true that Z gave false references, but they were references and thus he operated exactly within his real sphere of functions. The close objective connection is not destroyed by the fact that he exceeded his powers arbitrarily and intentionally illegally.

3. The Court of Appeal relies on an additional subsidiary argument to the effect that the plaintiff’s contributory negligence excludes altogether a possible obligation of the defendant to pay damages . . .

The judgment of the Court of Appeal does not show clearly whether this statement refers only to liability under § 831 BGB or whether the Court of Appeal also wishes thereby to rule out any claim under § 31 BGB which, as was shown here, is alone in issue.

If the latter should be the case, the decision of the Court of Appeal cannot be approved. Faced with intentional acts of representatives appointed in accordance with the statutes in accordance with § 31 BGB, contributory negligence on the part of the injured party can never be regarded as so serious as to preclude a claim for damages altogether.

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