In 1946 the claimant, a scrap metal company, contacted the defendant, a borough council, in order to lease an industrial site. By letter of 28 June 1946, the chief executive of the borough council told the claimant that the site, measuring about 10,00 square meters, was "awarded" to the claimant at an annual leasehold rent of 0.25 RM per square meter, subject to the town council's approval. The defendant drafted a leasing contract which was unanimously accepted at the planning committee's meeting of 5 July 1946 and sent to the claimant on 9 July. On 22 July 1946, the claimant sent his own draft contract, upon which the defendant, by letter of 30 July 1946, sent the claimant a lease contract "in its final form" with the remark that the town council refused any amendments to it; the claimant was asked to sign the contract and to send it back to the chief executive of the town; upon approval by the town council, the claimant was to be informed and to receive back the official copy of the contract. Thereupon the claimant signed the submitted lease contract. On 23 August 1946, the town council approved the lease contract with the restriction that " no right of pre-emption was to be granted, the duration of the lease - previously fixed for 20 years - was to be reduced and the defendant’s liability for damages created from a drop in the canals' water level was to be excluded".

With the defendant's approval, the claimant started to use the site to deposit scrap. The parties then discussed repairs to the connecting rail siding and the installation of necessary points. With the defendant's approval, the claimant obtained the points; the defendant helped in providing the Federal Railway with wood in exchange for the necessary sleepers.

By letter of 18 November 1947 the claimant sent the defendant confirmation that the defendant's building supervisor had given his permission to start with the depositing of scrap. At the beginning of April 1948, the claimant was informed by the defendant's town planning officer K that a large company was interested in the site. By letter of 5 April 1948 the claimant pointed out that he had taken the site on a lease and asked "pro forma" to sign the lease contract. The defendant rejected the view that specific agreements had actually been reached and then told the claimant that it had not leased any site to the claimant nor given permission for its use; thereafter, in its council meeting of 21 May 1948, the defendant finally refused to lease the site to the claimant and ordered him to vacate the site.

The claimant demands damages from the defendant for culpa in contrahendo.

The Landgericht has rejected the claim; the Oberlandesgericht held the claim for damages to be justified in principle. The defendant's further appeal is unsuccessful. Reasons

I.

The court of appeal held that:

A valid lease contract was not concluded, since the formal requirements set out in para. 37 II of the DGemO (German Borough Council Order) (in its version valid for the British Zone, Amtsbl. der MilReg. No. 7, p. 127 et seq.) had not been met and any reference to the principles of good faith cannot lead to a different result. However, statutory bodies are not exempt from liability for culpa in contrahendo. The town council had approved the lease contract between the parties and the town's building inspector S had informed the claimant, based on a corresponding authorisation from the town council, that the contract was to be deemed to have been concluded if the claimant were to renounce any right of pre-emption and agreed to a reduction of the period of lease. Once the claimant's owner had signed a corresponding lease contract, S. declared that the claimant could now start using the site. The defendant's constitutionally appointed representative bodies had thus been bound to issue a contract complying with all formal requirements. The defendant culpably failed to inform the claimant that the contract had not been finally concluded. Instead and with the obvious intention of not being legally bound, in order if possible to offer the site to a more suitable party, it had delayed giving the contract its final form. By the defendant's statements that the matter was in order and the lease contract was deemed to be concluded, the defendant had created the claimant's trust in the fact that the lease contract had indeed become legally binding and that the written form was of no further legal significance. According to the defendant's statements and behaviour, the claimant relied, and should have been able to rely, on the fact that the lease contract was to be concluded. By the fact that the defendant had unrestrictedly permitted the claimant to start with the depositing of scrap and left him with the difficult task of constructing the sidings leading to the leased site, the claimant must have got the impression that this was done as part of the execution of the lease contract which required these operations to be carried out.

The claimant has at least suffered damages from the unnecessary expenditures on levelling the site. Only during a final procedural assessment of damages can it be established whether this also applies to the transport of the scrap.

II.

1 The further appeal erroneously disputes that statutory bodies are at all liable for culpa in contrahendo. The further appeal is correct in so far as it holds that legal provisions imposing special requirements for acts of statutory bodies are more than formal requirements, and are rather intended to protect these statutory bodies from rash and dangerous acts of persons acting for these bodies by restricting the authority of these persons (RGZ 82, 7; 115, 315; 157, 212; decision of the Bundesgerichtshof of 22 May 1951 in Lindenmaier-Möhring, Nachschlagewerk , para. 36 DGO). The Reichsgericht also pronounced in SeuffArch 82, No. 57 , RGZ 162, 129 (159) that a breach of the limitations to his authority renders the authorised person personally liable under para. 179 BGB and that the statutory body cannot be held liable for culpa in contrahendo, since otherwise the legal result would occur from which the statutory body was to be shielded by such restriction of authorisation given to representative bodies acting on their behalf. Correspondingly and in principle, the effectiveness of a contract which is invalid because of breach of binding formal requirements cannot indirectly be brought about by applying the principles of good faith. The exclusion of the borough council's liability in respect of the conclusion of contracts is justified insofar as a claim for damages, brought against the borough council on the basis of fault, takes the form of a claim for performance of an obligation entered into in contravention of binding formal requirements, even where such claim is couched in the form of damages for breach of contract (so for instance performance of an obligation from a guarantee). In such case the admission of a claim for damages would indeed abrogate the provisions dealing with the authority to represent statutory bodies (RG HRR 1928, No. 1396). On the other hand, there is insufficient reason for safeguarding statutory bodies from any kind of liability for culpa in contrahendo. para. 37 II provides no counter-argument. Liability for culpa in contrahendo is a form of liability which is based on a statutory obligation created in addition to those listed in the legislation and which has its origin in the start of contractual discussions which require that both parties observe the usual care in their dealings with each other. Statements made during such discussions are, however, not declarations which bind the borough council in the sense of para. 37 II DGO; liability rather exists independently of the intentions of the person acting for the borough council (see also para. 3 of the Second Order implementing the DGO of 25 March 1936, RGBl. I, 272, also applicable for the amended version of the DGO, which only refers to the conclusion of contracts)). The view of this Senate that even statutory bodies can become liable for culpa in contrahendo is in line with the opinion of the Oberster Gerichtshof for the British Zone (NJW 1949, 103).The above-mentioned decision of the Bundesgerichtshof of 22 May 1951 also does not in principle exclude statutory bodies from all liability for culpa in contrahendo.

Furthermore, it is unnecessary for a person conducting discussions on behalf of the borough council, to have already been given formal authorisation under para. 37 II DGO so to conduct these discussions, although on the other hand it is self-evident that the borough council can only be made responsible for the actions of a person actually authorised to act for it. Liability is thus not restricted to persons who could conclude the prospective contract in a legally binding form, as long as authorisation was given to enter into contractual discussions (RGZ 162, 129 [156]). In this respect it suffices that the appeal court established that the defendant's town planning officer , who was in charge of conducting the discussions with the claimant, had been authorised by the town council , the legal representative of the defendant para. 37 I DGO), in its meeting of 23 August 1946, to inform the claimant that the contract could be seen as having been concluded if the claimant waived any right of pre-emption and agreed to the reduction of the term of lease.

3. The statement made by the witness S. that the lease contract should be deemed to have been concluded, and that the claimant could start to use the site once he had agreed to the amendments to the lease contract, was in line with the authorisation which the town council had given to the witness. But in fact the contract had not become valid because of failure to conform to the formal requirements of para. 37 II DGO, a fact which both the witness and the town council should have known. Instigating such an error constitutes fault as far as the town council and the witness S are concerned; and the defendant is vicariously liable under paras 31, 89, 278 BGB, whilst any possible obligation which the town bodies may have to execute the town council's resolution by concluding a contract complying with all formal requirements is not an obligation towards the claimant and is thus irrelevant for the question of fault. The claimant has thus a claim for damages against the defendant, although the claimant cannot demand, as set out above, to be put in a position which would have existed if the contract had in fact been concluded. The claimant makes no such demand. The claimant can however request to be compensated for the damage suffered from relying on the validity of the contract.

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