In 1958 the plaintiff building contractors did the gross construction work for a dwelling on land belonging to the defendant. They now sue for 6, 134.60 DM, the price of the work done.

The dispute is whether there was any contract between the parties for this work.

In the written 'building contract' to which the defendant was a signatory, his contractor was described as 'Idealheim', Hans. W., Architect'. Idealheim was entered as a limited company in the commercial register after the contract was formed.

The contract recited, inter alia, that the defendant commissioned Idealheim to build to build a two-family house at a ready-to-move-in price, guaranteed by Idealheim, of 32,000 DM.

According to the defendant, this contract showed that his only legal relations were with Idealheim; it was Idealheim that had commissioned the plaintiffs to build the house, acting in their own name through architect W. The plaintiffs should accordingly have claimed payment from Idealheim.

The plaintiffs counter by saying that they negotiated the building contract with W, acting as the defendant's architect and representative, and that the defendant had empowered him to do so.

The Landgericht dismissed the claim, but the Oberlandesgericht allowed it in major part. The defendant appeals, and the case is remanded.

Reasons

I.

1. According to the Court of Appeal, the plaintiffs have no contract claim; they did, however, have a claim for unjustified enrichment.

According to the Court of Appeal, no contractual rights accrued to the plaintiffs from their negotiations with the architect W, either against the defendant or against Idealheim (or indeed against W personally). This is because the plaintiffs believed they were dealing with the defendant through W. As there was no evidence that W had intended to act as the defendant's representative, there was a misunderstanding which prevented the formation of any contract. Since there was no contract, the enrichment conferred on the defendant by the building work executed by the plaintiffs was without legal ground.

2. These reasons are insufficient for holding the defendants liable to the plaintiffs in unjust enrichment.

(a) The Court of Appeal accepts that the defendant had a valid contract with Idealheim, whereby the latter was to build a dwelling for him ready for occupation and he was to pay Idealheim the stipulated sum.

Now for an enrichment claim under para. 812 BGB there must be a direct transfer of value between the plaintiff and defendant. One the stated hypothesis, that is lacking in this case. It is true that the defendant's land is enhanced in value by the plaintiff's work, but he is not enriched at their expense, because for him the enhancement is not the result of the plaintiffs' activity but of Idealheim's performance of its contract with him, under which he became Idealheim's debtor for the price.

If the defendant had a valid contract with Idealheim which obliged him to pay Idealheim, it is irrelevant to him whether or not there is a valid contract between Idealheim and the plaintiffs, whom Idealheim commissioned to do the work. Even if the contract between the plaintiffs and Idealheim is invalid, Idealheim is still the only person the plaintiffs can sue; the suit would have to be an enrichment claim, Idealheim's enrichment consisting of its being freed from its contractual obligation to the defendant to the extent that the building was completed (references omitted).

(b) The only way the plaintiffs would have an enrichment claim against the defendant would be if nullity affected both the relations between the plaintiffs and Idealheim and the relations between Idealheim and the defendant; this is so whenever a benefit is conferred through an intermediary (RG JW 1945, 2459; other references omitted). No such double nullity has been established by the Court of Appeal.

For this purpose it is unnecessary to decide whether misunderstanding did in fact prevent the formation of a contract between the plaintiff's and Idealheim, although, as is shown below under II. 1, the Court of Appeal was wrong in law to hold that it did.

But certainly the findings of the judgment in question afford no basis for holding that the contract between Idealheim and the defendant was void or avoided, so as to relieve the defendant of his obligation to pay Idealheim.

II.

But the plaintiffs' claim is not necessarily unfounded just because no enrichment claim lies.

1. The Court of Appeal's reasons for holding that no contractual claim arose because of the misunderstanding are also affected by error.

The Court of Appeal finds that the plaintiffs believed they were contracting with thee defendant through W as his representative. Further details in the judgment indicate that the plaintiffs could conclude that W was acting for the defendant from the way he behaved and the role he played. W's declarations must therefore be construed as the declarations of a representative. Now whether a person is acting as a representative or in his own name depends, as always when it is a matter of construing declarations of intention in legal transactions, on the objective meaning of his declarations, that is, what in all good faith they meant to the recipient. The Court of Appeal made everything turn on whether W was minded to act as representative or in his own name. That is wrong. His internal intention is not conclusive. It is true that there is some support in the literature for the Court of Appeal's view that a person must have intended to act as agent before a contract can be formed through him (reference omitted), but this conflicts with the general principle that what counts in legal transactions is the will as declared (reference omitted). There is no reason why the general principle should not apply in the law or agency, too. Evidence that it does is provided by the terms of para. 164 para. 2 BGB. By that text the effects of representation ensue if the intention to act in the name of another is apparent; if it is not, the declarer must treat the transaction as having been concluded in his own name and cannot rely on the fact that he had no intention of so contracting. In the contrary case, where the declarer is apparently acting in someone else's name but means to act for himself, there can be no reason for treating his inner intention, at odds with appearance, as crucial.

The error of law just pointed out must materially have influenced the conclusion of the Court of Appeal that the plaintiffs' agreement with W was invalid by reason of this misunderstanding. It must therefore reinvestigate the contract which emerged from the plaintiff's negotiations with W, and see whether the plaintiffs' declarations and those of W coincide, be it on a contract with the defendant, represented by W, or a contract with W in his own name or in that of Idealheim.

2. If it then emerges that the plaintiffs contracted with Idealheim, they have no claim against the defendant, not even a claim for enrichment (reference omitted).

3. (a) But if the Court of Appeal finds that the plaintiffs contracted with W as the defendant's representative, it does not necessarily follow that the defendant is liable. It would also have to be shown that the defendant was bound by W's declarations as those of his representative.

The Court of Appeal held - and there was no legal error in so holding - that W was not specifically authorised by the defendant to contract with the plaintiffs on his behalf. But it has not asked . . . whether the defendant may not be stopped from disowning the conduct of W on the ground of ostensible or apparent authority (Duldungsvollmacht, Anscheinsvollmacht), doctrines invoked by the plaintiffs. Further investigation of the facts is needed before this question can be decided.

(b) It is possible that W acted in the name of the defendant without having any power to bind him, whether arising from actual, ostensible or apparent agency. W would then be liable to the plaintiffs under para. 179 BGB, since the defendant has not ratified the contract, but the plaintiffs would have no claim against the defendant, not even a claim for enrichment. No doubt one may have a claim against the party represented as well as a claim against the unauthorised representative under para. 179 BGB; this was laid down by the Reichsgericht (reference omitted), has met with general approval (references omitted) and is in principle unobjectionable. But it remains true that no enrichment claim lies against the party represented if (1) he himself has concluded a contract with the person who appeared as his representative, though unauthorised, and (2) he had, arising from this contract, a right as against the unauthorised agent to the performance rendered by the third party, and (3) he is obliged to pay the unauthorised agent. In such a case he would not be enriched at the expense of the third party (see above I. 2 (a)), whose legal relations with his contractor are quite immaterial to him. Thus even if the facts which trigger para. 179 BGB are given, there can be no claim for enrichment, provided, as the Court of Appeal held, that there was a valid contract between Idealheim and the defendant which obliged the latter to pay the former.

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