- BGH WM 1979, 548 VI. Civil Senate (II ZR 177/77) = NJW 1979, 1595
- 12 February 1979
- Professor B.S. Markesinis
- F.H. Lawson and B.H. Markesinis
The plaintiff claims damages from the defendants, an international bank, for loss suffered as a result of inaccurate information supplied to her by their German branch (and concerning the creditworthiness of a third party).
Towards the end of 1970 the plaintiff was looking for a profitable way to invest some DM 130,000 and a finance broker, L, recommended the hotel P, built by U and opened to the public a few months earlier. U had financed his hotel by a number of loans including one for 2.5 million DM raised from the defendants and secured by a land charge. U, requiring a further 3.5 million DM, decided to raise this from private individuals with the help of advertisements and brokers offering 12 per cent interest on all loans as well as a land charge for security. More precisely, he registered a land charge for 3.5 million DM in favour of the defendants which was divided into smaller parts each securing sums of DM 10,000 and DM 25,000. The defendants, in consideration for the usual fee, were willing to assign these part land charges to lenders and place the funds in a blocked account for U until the completion of all formalities. On 3 February L, the broker, gave the plaintiff the following information which was written on the defendants paper but gave neither date nor address: Hotel P, George U. This is a newly built luxury hotel, with some 440 beds and conforming with international standards, was officially opened in June 1970 in the presence of many dignitaries. So far as we know it has already entered into long-term arrangements with a number of international travel agencies. It is owned by U, whom we know as a client and as a competent business man. U also owns a hotel in Tenerife and two sanatoria run by reputable persons. Owing to a great increase in building costs, U needs a further 3.5 million DM which is to be found on the open market. Any money advanced for this purpose will be credited to a blocked account with our bank, and after the notary has confirmed that the terms of the contract have been complied with, it will be credited to the hotels current account. We ourselves have in the past made substantial payments to U against security but, due to an increase in building costs, Us liquidity is, at present, tight.
On 17 February, 1971 the plaintiff paid DM 130,000 which the defendants immediately credited to Us account. Three days earlier the defendants had asked U to repay their loans by 23 February and on 16 March they extended the repayment date to the end of May 1971. Meanwhile U was getting deeper and deeper into financial difficulties and on 23 December he applied for a composition with his creditors. Four months later bankruptcy proceedings followed. Both plaintiff and defendant withdrew from the auction of the hotel and the plaintiff will receive nothing from the bankrupts estate.
The plaintiff brought an action claiming DM 65,000 since legal aid was granted to her only for this amount due to her contributory negligence. She argues that her loss is due to the defendants letter which gave information which they knew to be false. The defendants deny that the information was wrong and also deny liability on the grounds that they had not entered into any contract to supply her with information.
The Court of First Instance awarded the plaintiff DM 32,500, and ruled that she should bear the rest of the loss herself because of her contributory negligence. The defendants appeal was rejected and their further appeal on points of law is also dismissed.
I. The Court of Appeal accepted that the defendant is liable according to the law of contract. Their appeal on points of law fails.
1. The Court of Appeal found that the defendants knowingly and deliberately composed the notice (quoted above) and put it into circulation with the view to its being shown to potential private lenders to U.
(a) The Court of Appeal (also) found that the information it contained was both in form and content intended to reach a circle of private potential investors. Stripped to its essential the notice gives information which is intended to appeal to private individuals. This is true both of the description of U and of his other businesses. For instance, the reference to the official opening of the hotel in the presence of local dignitaries could only have aimed at making his business appear reliable in the eyes of private persons. Much of this material would clearly have been written in a different way if the document had been intended to be used solely for internal banking purposes. Its contents make sense only if they are seen as aiming from the outset to attract private prospective investors. And this is corroborated by the statement in the notice that the money lent would be transferred from the blocked account with the defendants to the hotels account only after a notary had confirmed that the terms of the contract had been complied with. This method of concluding a contract is less important to a bank than the encumbrances which are not mentioned in the notice. But it is calculated to dispel doubts that may arise in the mind of an individual, inexperienced in money matters, reading the preceding passages which explain why the extra sums are required. The outward appearance of the notice also speaks in favour of this interpretation. Thus, it bears the business name and the description of the defendant but gives no indication of the person addressed, or the date or any other details that usually accompany letter-writing.
This interpretation is not only possible, but, indeed, necessary, the more so when one realizes that the defendants, who were asked to handle the loan, were aware that only private individuals would be considered as lenders. The appeal is thus not able to reveal any error of law committed by the Court of Appeal when characterizing the sense and purpose of the notice.
The argument that the Court of Appeal failed to take into account the fact that the defendants gave this kind of information in response to enquiries made by banks is also unsuccessful for if this is taken to imply that the defendants supplied information to banks only, it runs clearly counter to the defendants submissions before the lower court. There the defendants maintained that information concerning U was given only to individuals making specific enquiries . . . On the appellate level, therefore, one must assume that the defendants gave information not only but also to banks. This does not necessarily run counter to the Court of Appeals interpretation. Since only private individuals would be considered as lenders, the banks must have enquired on their behalf and thus the information so acquired must have been destined only for their clients and not for themselves.
(b) Once it is accepted, as it must be, that the information supplied by the defendants was meant for potential investors, one must then also accept the further finding of the Court of Appeal, namely that the defendants circulated this information so that it would be presented to a group of prospective investors. The assumption that the defendants intended to give the information to individual enquirers only, and had not agreed to its being passed on to other interested parties, is inconsistent with the purpose of preparing the information, namely to appeal to a group of individuals who might be interested in becoming lenders. Given that the defendants were themselves substantial creditors of U, and were anxious to relieve him of his financial difficulties, their intention was to bring the information to the notice of as many prospective lenders as possible. The assertion that the defendant supplied information concerning U only to individual enquirers does not rule out the possibility that the bank, in conformity with its purpose, approved of the information being passed on to other lenders. In any event, the defendants have failed to adduce any evidence to show that their notice had been brought to the attention of only a small group of individuals. The Court of Appeal was thus free to look at the objective contents of the notice.
2. The Court of Appeal was also not in error in finding that the defendants were fully aware that their information would be of great importance to the recipients and would be used as a basis of important investments. Since its prime purpose was to help attract finance for the hotel P, it is obvious that it was intended to help prospective investors to decide whether to lend money to U to the extent of at least DM 10,000 and was designed with that purpose in mind . . .
3. The Court of Appeal considered the information given to have been false in so far as it concealed facts which ought to have been disclosed. Thus, the reference to Us other properties created the impression that they also were available as additional security even though in actual fact they were already encumbered up to the hilt. The reference to the defendants own substantial secured loans to U was also false since they had already called for their repayment at the time when the information (in the notice) reached the plaintiff . . . The inaccuracy of the notice is evident from a number of other undisputed facts such as, for example, the concealment of the various charges on the sanatoria properties. To a lender such information is particularly important when making up his mind as to whether to make a loan or not . . . Contrary to the view advanced in this appeal, it must be said that it is customary to mention all substantial charges when information is given about land by a bank. According to the findings of the Court of Appeal, when the information was issued by the defendants, the entire hotel facilities as well as the sanatoria had not been paid for and U was no longer in a position to honour any bills drawn for them. These circumstances, which would normally point towards an extremely delicate economic situation, should have been made clear by the defendants at the time of issuing of their notice since they would have had great bearing on the decision of the lenders. The defendants did not argue that they were unaware of the above, indeed this would have been unlikely for a bank like theirs, whose function it is to grant credit to borrowers. Nor did the defendants fulfil their duties by stating in their notice that U was faced with liquidity problems since this would not normally indicate to a private individual that bills had already been protested. All these findings are sufficient to characterize the information as false.
II. All the factual elements necessary to impose contractual liability for negligent advice are thus satisfied. According to the cases where information is supplied by a bank a contractual or quasi-contractual relationship already exists between the bank and the enquiring party whenever the information supplied by the bank is of manifest significance to the inquiring party and it is clear that the latter will be relying on it in making substantial capital allocations (cf. decision of the Senate of 6 July 1970, WM 1970, 1021 . . .). The situation in this present case is just that. In this case the bank addresses itself to a quite clearly defined group of prospective lenders who are interested in advancing money for a specific project. The information is aimed at this group, which the defendants wish to attract, and which they know will use this information to make vital economic decisions. This being clearly the purpose of the information it can make little difference in law whether the seeker (of the information) directs himself to the bank or the bank to him. Given the purposes to be achieved by the information, the bank must realize that the persons likely to rely on it must understand it in the sense of a legally binding declaration (the distributor of the notice is a mere messenger). That is why in this case good faith causes a contractual relation to arise when a potential addressee has relied on it in making his decision. The appellants argument, unsubstantiated by the facts of this case, that the information was only intended for banks, is immaterial since this does not preclude the fact that banks were then allowed to pass it on. The Court of Appeal is indeed wrong in treating this as a case of information to whom it may concern. The Supreme Court has repeatedly insisted that it is, in principle, not possible to assume that a bank when giving information is willing to put itself under an obligation to an indeterminate and incalculable number of persons . . . However, this is not the case here for, though the information is directed to persons still unknown to the bank, those persons can be determined by virtue of their interest and form part of a calculable group of persons.
1. Given that a contract to supply information was thus concluded by the parties, it became incumbent upon the defendants to supply objectively correct information. This the defendants negligently failed to do (§§ 276, and 278 BGB) since as bankers they knew, or ought to have known, that the facts they failed to mention in their notice were important for the lenders in order to reach their decision.
2. The appeal before this court also claims unsuccessfully that the Court of Appeal erred on the aspect of causation . . . Practical experience however shows that the plaintiff would not have made U a loan if the defendants had given her adverse information by disclosing to her Us actual financial status.
IV. The argument raised in this appeal, that the defendants negligence is overshadowed by the plaintiffs contributory fault in so far as she accepted the advice of the finance broker L against the advice of her bank and her tax accountant, cannot affect the judgment currently under appeal. For the Court of Appeal, in its exercise of its judicial functions, concluded all legal and factual aspects of the case, and the appellants can point to no legal error prejudicial to them. Their argument that these facts should, from a point of view of law, be now differently appraised cannot thus be accepted.
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